Midwest Thrifts Post First-Quarter Gains

Strong demand for mortgages, driven by lower interest rates, helped two midwestern thrifts boost first-quarter earnings.

Charter One Financial Inc., a $13 billion-asset Cleveland company, reported net income of $38.5 million, a 31% increase. Charter One originated $812 million of loans in the quarter, a 258% increase from the same period last year. Its loan growth was primarily due to its doubling in size through the fourth-quarter acquisition of Firstfed Michigan Corp. of Detroit.

Charter One said 35% of its total residential loans and 24% of its consumer loans (mostly home equity credits) came from Firstfed.

Standard Federal Bancorp., Troy, Mich., earned $32 million, an 11% increase. Standard Federal, a $13.5 billion-asset thrift, lends nationally; it reported $3 billion of originations, compared to $918 million in the year-earlier period.

"It's a volume story at Standard Federal," said Smith Barney analyst Thomas O'Donnell. "They're more like a mortgage bank."

Mr. O'Donnell said Standard Federal is on track for a good year as long as interest rates don't ratchet up.

Though the two thrifts are roughly the same size, Charter One outearned Standard Federal primarily because of its quick growth with the Michigan acquisition and cost containment, analysts said.

Michael Moran of Roney & Co. in Detroit said both Charter One and Standard Federal have done a good job of controlling expenses, while increasing income from loan demand. Both companies perform well, analysts said, and either one could be a takeover candidate.

Mr. Moran said companies with a large Michigan presence, such as First Chicago NBD Corp., Comerica Inc., and First of America Bank Corp. are likely suitors for either thrift. Also, National Australia Bank Ltd., which owns Michigan National Corp., may be looking to expand its presence.

Minneapolis' two biggest bank companies, First Bank System Inc. and Norwest Corp., are interested in the Michigan market as well, Mr. Moran said.

Despite flat loan growth, TCF Financial Corp., a $7 billion-asset Minneapolis thrift, reported earnings of $26 million, compared with a $12.6 million loss in the same period of 1995. The improvement was primarily attributable to $33 million in merger-related charges taken in last year's first quarter.

What distinguishes TCF from other thrifts is the amount of fee income it collects from deposit accounts and from products such as mutual funds and title insurance. Noninterest income, not including last year's merger expense, was up 15%, to $36 million.

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