Buoyed by an improving economy in the western states and a fatter spread between the rates it charges for loans and those it pays on deposits, First Interstate Bancorp's profits jumped 45% in the fourth quarter of 1994.
First Interstate logged net income of $211.3 million, or $2.65 a share, for the quarter ended Dec. 31, compared to a net income of $146.1 million, or $1.78 a share, in the same period of 1993.
The profits exceeded analysts' estimate of $2.53 a share and pushed the Los Angeles-based banking company's stock up $2.125, to $73.625 a share, in trading Monday on the New York Stock Exchange.
Another factor adding to the per-share profit increase was First Interstate's repurchase of 9.1 million shares of its common stock last year.
The only negative in the minds of some analysts who follow First Interstate is whether it can sustain the performance.
With year-end assets of $55.8 billion, First Interstate is the nation's 14th-largest bank.
J. Frederick Meinke of Kemper Securities in Chicago, who has rated the stock a "strong buy" since last summer, said the results highlight "a number of good things happening" at First Interstate. Among them:
* Earning assets grew strongly. Average loans and leases rose by $4.5 billion, or 18.7%, to $28.6 billion in 1994.
* Credit quality improved, with non-performing assets--those 90 days or more past due--shrinking to 0.46% of total assets from 0.60% a year ago. For the full year, the company did not add any provision for possible loan losses, after having added $112.6 million in 1993.
* The net interest margin--the difference between rates on deposits and loans--increased by 0.45 percentage points, to 5.29% in the fourth quarter. Net interest income was $621.7 million in the fourth quarter, up 17.7% from the year-earlier period.
William E.B. Siart, who became chief executive of First Interstate on Jan. 1, said in an interview Monday that while the net interest margins may be unsustainable, he expects loan growth to keep increasing this year without any drop in quality.
"We've institutionalized our improvement in loan quality, and we're not going to give that up," Siart said.
First Interstate benefited from strong economies in the West outside California, where it does about 60% of its business, Siart said, adding that he expects improvement within California this year as its economy catches up.
The fourth-quarter performance also highlighted the virtue of being a "plain-vanilla retail bank," said analyst Ann Robinson of Bear Stearns & Co. in New York.
She explained that First Interstate draws its funds from a broad base of consumer deposits and--in a year of rising interest rates, such as 1994--is able to raise its loan rates faster than its deposit rates, producing enviable net interest margins. Banks with more fickle sources of funds actually saw their margins shrink last year, she said.
Robinson also noted that two years ago, First Interstate sold off most of its wholesale banking business, which engages in such tricky operations as foreign exchange and bond trading and interest rate swaps--areas that caused headaches for many banks last year.
"This has not been a year when you wanted to be a trading bank," Robinson said.
Analysts said that if interest rates level off in 1995, First Interstate's margin will shrink because it will be forced to raise its lagging deposit rates.
Siart said he expects the margin to decrease a little. He said he would be happy if it settled at about 5.14%, its average for full-year 1994.