Loan-Related Expenses Cut Into First Interstate Profit

First Interstate Bancorp reported solid earnings for the second quarter on Wednesday, although disposing of bad loans contributed to a sharp increase in overhead expenses compared to the first three months of the year.

The Los Angeles-based banking company said earnings for the quarter were $97.2 million, a slight drop from the $102.6 million in the first quarter of 1988. But the figure was a strong improvement over the second quarter of 1987, when a $750-million addition to reserves for troubled Latin American loans created a loss of $510 million.

Most of the nation’s major banks rebounded in the second quarter, compared to the loss-plagued period a year earlier. Security Pacific and Wells Fargo posted strong earnings earlier, and BankAmerica is expected to report dramatically improved figures today.

Bankers Trust of New York, the nation’s ninth-largest banking company, said Wednesday that its second-quarter earnings were $174.1 million, contrasted with a loss of $728.1 million a year ago.

First Interstate surpassed Bankers Trust to become the nation’s eighth-largest banking company earlier this year with its acquisition of Allied Bancshares in Houston. But alongside that acquisition, First Interstate has been engaged in an aggressive program to sell off assets that are only marginally profitable and reduce the troubled loans on its books.

The reduction in assets also cut the company’s net interest income for the quarter. First Interstate said the figure was down 3.5%, compared to the same quarter of 1987 and down 2.1% for the first half of 1988, compared to the first half of 1987.

At the same time, expenses were up. Non-interest expenses, which cover salaries, rents and similar costs, were $643.4 million, up 3% from the second quarter of 1987 and a significant 7.5% from the first quarter of this year. The bulk of the increase from the first quarter, about $20 million, was the result of charging losses on certain real estate loans to expenses.

First Interstate had set up reserves to cover expected losses from the sale of foreclosed property. But some properties netted less than the reserves against them, which forced the bank to take the difference out of its budget for non-interest expenses.

Like Security Pacific and Wells Fargo, First Interstate is trying to extricate itself from its troubled Latin American debt by selling loans at a discount and writing them off as losses.

In the second quarter, First Interstate reduced its portfolio of troubled Latin American loans by $117 million, bringing the total down to about $1.24 billion. It was about $350 million below the total a year ago.

More earnings, Page 5.