B of A’s 1st-Quarter Profit Sets Record at $275 Million

BankAmerica’s remarkable recovery gathered momentum in the first quarter of this year, with profits rising to a record $275 million and solid progress reported in key areas.

The parent of Bank of America said Thursday that its first-quarter profits were 152% higher than in the same period of 1988 and $10 million higher than in the last quarter of that year.

Although one-time gains helped boost the bottom line, real improvements were posted in net interest income, domestic loan quality and expenses.

As a reward for their role in the turnaround at the nation’s third-largest banking company, B of A provided about 50,000 employees with 10 shares of stock each during the quarter at a total cost of $19 million.

“Line by line, it performed better than I expected and, by the time you get to the bottom line, it was quite a bit better overall,” said Donald K. Crowley, a bank analyst in the San Francisco office of the Keefe, Bruyette & Woods investment firm.

Plagued by loan losses and operating problems, BankAmerica was deep in the red for three consecutive years, culminating in a $955-million loss in 1987. But last year the company rebounded with profits of $726 million.

The first quarter indicates that the pace of the progress is picking up at the San Francisco banking company. And Frank N. Newman, the chief financial officer, said he sees no reason for the fundamental progress to slow in the coming months.

The most impressive aspect of Thursday’s report was the sheer size of the profits. The $275 million was higher than in any quarter in bank history, even during the salad years of the 1970s when Bank of America was the world’s biggest bank.

The chief component of the increase was a 26% hike in net interest income, which rose to $987 million from $779 million in the first quarter of 1988.

Interest income got a boost from $46 million in interest from Brazil, which counted as a one-time item because the Brazilian loans are still listed as non-performing. But even without that interest, the income was up $162 million over last year.

Tax credits associated with previous losses added another $67 million to profits in the quarter.

Another sign of progress, analyst Crowley said, was a strong increase in fees from service charges on deposit accounts, such as the new fees for automated teller transactions. The increase helped boost noninterest income to $436 million from $424 million a year ago.

While the increase was small, it reversed several quarters of flat or declining noninterest income that had resulted from the bank’s sale of revenue-producing assets to cope with its losses.

On the credit quality side, net loan losses dropped to $27 million from $30 million, reflecting $127 million in loan losses and $100 million in recoveries from loans previously written off as lost. The figure has been low for several quarters because the bank has been recovering substantial amounts from loans previously written off, and Newman acknowledged that recoveries are likely to decline in future quarters.

Analyst Stephen Berman of County NatWest Securities in New York said his calculations showed that BankAmerica’s domestic problem loans dropped $200 million in the quarter, the best among the nation’s biggest banks. In contrast, he said, Citicorp in New York added $400 million in real estate construction loans to its list of non-performing loans in the quarter.

Noninterest expense, which covers such items as staff and equipment, was $949 million, up $16 million from the first quarter of last year. Without two one-time costs, expenses would have declined $38 million, largely through the elimination of 4,400 jobs in the last 12 months.

One of the special items was the $19 million for stock awards to employees. The other was an additional set-aside of $35 million to cover potential losses from the bank’s role in problems related to $1.4 billion in student loans.

Nine of the world’s largest banks sued B of A this week, charging that it is responsible for losses as high as $650 million because federal guarantees on the student loans were voided by mismanagement.

B of A set aside $80 million to $90 million for the problem in the fourth quarter of 1988. The bank actually set aside more than $35 million in the first quarter of this year, but declined to disclose the total sum, which included recoveries from other lawsuits. Analysts estimated that the bank has provided close to $150 million so far to deal with the problem.