First Interstate’s Profit Drops 4% in First Quarter : Banks: Income was up for the parent firms of World Savings and Fidelity Federal Bank but off at Marine Midland Banks Inc.

First Interstate Bancorp said Wednesday that its profit fell slightly in the first quarter from a year earlier, but the results were better than some analysts had expected.

The troubled Los Angeles-based banking firm, parent of First Interstate Bank of California, earned $127.2 million in the quarter, down 4% from $132.2 million in the year-earlier period. The banking concern’s return on average assets, a key measure of profitability, fell to 0.90%, meaning that it earned 90 cents on every $100 in assets. That was down from a 0.95% return in the year-earlier period but still considered healthy.

First Interstate’s profit, which includes a $30-million gain from a change in accounting methods, follows two big quarterly losses in the last half of 1989. Those losses were caused by problems in its Arizona and Texas units, where real estate markets have been exceptionally soft and problem loans have ballooned.

First Interstate disclosed a $350-million provision for real estate problems in Arizona last October, then two months later said it was setting aside $400 million in December for problems in Texas.

The problems caused a $124.5-million loss for all of 1989 and prompted an informal review related to its Texas problems and the methods to evaluate real estate assets in Arizona. Bank officials said there are no new developments on the review.

Last year’s back-to-back bombshells seriously hurt the bank’s image among investors. The latest first-quarter results were key in that additional surprises could have shattered First Interstate’s already fragile credibility. “This is the first step toward rebuilding confidence,” said Donald K. Crowley, a banking analyst with Keefe, Bruyette & Woods in San Francisco.

In the first quarter, First Interstate’s Texas and Arizona units actually posted profits, albeit very small ones. The Texas operation showed $9.1 million in net income, while the Arizona unit was about $64,000 in the black.

Still, the fact both were profitable surprised analysts that had expected Arizona to still be in the red and Texas to be breaking even. Overall, the banking company showed an operating profit of $97.1 million in the quarter, up 3% from $94.3 million a year earlier.

Thomas P. Marrie, First Interstate’s chief financial officer, said that since the end of last year, the bank has wiped $208 million in problem assets, such as loans in which borrowers have stopped paying, from its books in Texas, leaving it with $1.5 billion. He said the bank’s plan to deal with its problems in Texas and Arizona are on schedule.

Total assets for First Interstate, which has been selling off assets including part of its credit-card portfolio and a leasing business, were $57.4 billion on March 31, down 3% from a year earlier.