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FIRST INTERSTATE BANK (AZ) SUB NOTES RAISED TO 'A-' BY FITCH -- FITCH FINANCIAL WIRE --

 NEW YORK, Aug. 31 /PRNewswire/ -- First Interstate Bank of Arizona, N.A.'s 7.7 percent subordinated notes due 1997 are raised to 'A-' from 'BBB+' by Fitch. The credit trend is stable. The upgrade reflects improved asset quality and capital strength as well as increased core deposit funding throughout the consolidated First Interstate Bancorp (FIB) organization. Nonetheless, concerns remain regarding the continuing recession in California, the company's below-average operating efficiency, and management's ability to lure back customers who may have been alienated during the company's recent balance sheet downsizing.
 In an impressive turnaround, FIB reduced its non-performing assets (NPAs) to $567 million, or 2.34 percent of total loans and foreclosed properties, by midyear 1993 from $1.6 billion, or 5.54 percent, as of the end of 1991. Despite sizable chargeoffs taken to facilitate the NPA reduction, FIB remained profitable during this 18-month period, resulting in higher loan loss reserve coverage and capital levels. The company's loan loss reserves reached a comfortable 240 percent of non-accrual loans as of June 30.
 Asset reductions, primarily through the divestiture of banking franchises in New Mexico, Colorado and Oklahoma, combined with improving profitability bolstered FIB's capital ratios. As of June 30, FIB's equity had climbed to 7.1 percent of total assets. In addition, the company's regulatory capital substantially exceeded required minimums. FIB reported leverage, Tier 1, and total risk-based capital ratios of 6.7 percent, 10.4 percent, and 14.3 percent, respectively.
 Another important achievement during the company's restructuring was the improvement in its core deposit base. Capitalizing on its strong branch office networks, FIB improved its core deposits, excluding demand deposit accounts, as a percent of interest-bearing liabilities to 89 percent from 65 percent in 1989.
 Despite the success of the restructuring, some factors will impede FIB's continuing progress. First, opportunities for revenue growth in the company's primary markets are limited since California is still mired in an economic and real estate recession. Second, the rebuilding of commercial client relationships which may have suffered during FIB's downsizing represents a challenge for the company. Also, while the company has already implemented new incentive programs, redirecting employee efforts toward revenue growth after so keenly focusing on asset quality could be a difficult cultural change. Furthermore, FIB's low operating efficiency will place it at a competitive disadvantage in the battle for new corporate borrowers.
 -0- 8/31/93
 /CONTACT: Scott J. O'Donnell, 212-908-0531, or Christopher M. Siedman, 212-908-0524, both of Fitch/


CO: First Interstate Bank of Arizona ST: New York, Arizona IN: FIN SU:

TW -- NY059 -- 7641 08/31/93 16:34 EDT
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Publication:PR Newswire
Date:Aug 31, 1993
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