4th-Quarter Profit Puts First Interstate in Black for ’88

First Interstate ended a disappointing year on a slight uptick Wednesday, reporting enough fourth-quarter profit to put the company solidly in the black for 1988.

The Los Angeles-based banking company reported fourth-quarter earnings of $144 million, which resulted in a profit of $129.4 million for the year.

In 1987, First Interstate lost $95.5 million in the fourth quarter and $604 million for the year. The losses that year stemmed largely from money set aside to cover expected losses on loans to Latin American countries.

First Interstate’s performance in 1988 contrasts with strong improvements at the other three major California banks and most of the nation’s big banks.

First Interstate, the nation’s ninth-largest banking company, was plagued by difficulties at the Texas banking subsidiary it acquired early in the year and with problems disposing of other troubled assets.

In the fourth quarter, the bank benefited from $25.8 million in back interest from Brazil and a $27-million credit for prior losses. Without the one-time items, earnings for the quarter would have been $91.2 million.

Joseph J. Pinola, chairman and chief executive, said the $91.2 million compared favorably to earnings in the first quarter of $102.6 million and $97.2 million in the second quarter. The bank lost $214 million in the third quarter, chiefly because it was forced to set aside $180.4 million for anticipated losses on real estate loans at First Interstate of Texas.

On the positive side in the fourth quarter, net interest income, the difference between what the bank takes in on loans and pays for deposits, was up 23.7%, compared to a year earlier, and fee income rose 11.9%.

However, losses on domestic loans increased for both the quarter and the year while expenses for staff and overhead also jumped for the quarter and the year.

Domestic loan losses were $199.4 million for the quarter and $547.4 million for the year, compared to $130.2 million for the same period a year ago and $419 million for 1987.

First Interstate, which owns banks in 13 states, instituted a companywide effort to cut staff and expenses last summer. Pinola said the effort has begun to pay off, with staff expenses dropping 8.3% by year-end.

Overall expenses for 1988 were $2.54 billion, compared to $2.38 billion in 1987, but the increase was the result of adding the Texas subsidiary.

The bank ended the year with $841 million in troubled loans to Latin American countries on its books, down from $1.36 billion at the end of 1987.

First Interstate’s performance in 1988 was lackluster compared to Security Pacific and Wells Fargo, which reported earnings Tuesday. The contrast is apparent in the return on assets and return on equity at the banks, key measures of bank performance.

First Interstate’s return on assets for the year was 0.26%, and its return on equity was 6.02%. At Security Pacific the figures were 0.84% and 18.9%; at Wells Fargo they were 1.14% and 23.99%.