Banc One, Norwest Gain; Mellon, CoreStates Post Declines
Buoyed by consumer loan growth, Banc One Corp. posted a solid 12.9% increase in second-quarter earnings, to $131 million.
The impressive results were accompanied by other good news for midwestern banks. Norwest Corp. exceeded many analysts' expectations by earning $98 million, as did First Bank System Inc., which reported $52 million in profits.
Two regional bank companies based in Pennsylvania turned in rather disappointing performances. Mellon Bank Corp. and CoreStates Financial Corp. each posted a decline in net income from the year-earlier level.
Wells Fargo Corp. and Security Pacific Corp., meanwhile, showed dramatically lower profits, in line with previous company announcements.
BANC ONE CORP.
Banc One's 12.9% increase in profits exceeded some expectations.
"They're looking pretty strong," said Kenneth Puglisi, an analyst for Keefe, Bruyette & Woods Inc. in New York, who added that the earnings were better than he had foreseen.
The Columbus, Ohio-based banking company bolstered its earnings with sizable retail loan growth and a solid grip on non-performing loans.
Credit card business has increased dramatically in the past year. At the end of the latest quarter, credit card loans totaled $461 million, a 19% increase over the $2.83 billion posted in the second quarter of 1990.
The lack of an increase in non-performers indicates that the Midwestern states and Texas are pulling out of the recession, analysts said. Total nonperforming assets, including other real estate owned, were $487 million, representing 2.28% of total loans. This compares with a 2.29% ratio at the end of the first quarter.
Banc One's net interest margin shrank 36 basis points from the first-quarter level, to 5.95%. Company spokesman John Russell said the slippage was seasonal, adding that electronic filing fees and other first-quarter windfalls inflated the margin in the previous period. The margin was 81 basis points greater than in the year-earlier quarter.
For the second quarter, earnings amounted to 79 cents a share, up from 70 cents a share a year ago.
The company, with $43.8 billion in assets, is preparing for expansion in the second half of the year. During the second quarter, Banc One announced an agreement to acquire First Illinois Corp., a suburban Chicago company with $1.6 billion in assets.
It also has an acquisition pending with Marine Corp., Springfield, Ill. The company said it expects to complete the purchase of four Ohio-based Central Trust affiliates of PNC Financial Corp. late in the third quarter.
Norwest continued its winning streak in the quarter, with net income of $98 million, or 73 cents a share.
The Minneapolis-based company last year reported net income of $70 million, or 68 cents a share, in the second quarter, but restated those results Tuesday to reflect its acquisition of United Banks of Colorado.
After including United Banks, acquired in April 1991, Norwest stated a loss of $19.8 million, or 17 cents a share, for the 1990 period.
The results for the latest period were slightly better than projections, said Michael Plodwick, an analyst for C.J. Lawrence, Morgan Grenfell Inc., New York.
Earnings were buoyed by fee-based and credit card units. Noninterest income rose 21.9% over the year-earlier period, to $240 million. Interest income rose a more modest 14.3%, to $409 million.
"Essentially all business units were at or better than plan," chairman Lloyd P. Johnson said in a prepared statement.
Nonperforming assets declined for the second consecutive quarter. Bad loans and foreclosed real estate shrank $24 million during the latest three months, to $475 million. That represents 2.3% of total loans and foreclosed real estate.
FIRST BANK SYSTEM INC.
Norwest's main rival, First Bank System, also posted a stronger quarter than expected. Earnings climbed 52%, to $45.3 million, or 51 cents a share, from $29.8 million, or 38 cents a share, a year ago.
Real estate loan problems, which mounted in 1989 and 1990, did not worsen at the Minneapolis concern. Nonperforming assets dipped $8 million, to $377 million. Chairman John F. Grundhofer sounded a cautionary note in a prepared statement, noting that "levels of nonperforming assets could be volatile over the next few quarters."
"They are looking stronger," said Christopher Kotowski, an analyst at Oppenheimer & Co., New York. "Several of the revenue categories are up, and expenses did not grow significantly."
MELLON BANK CORP.
Mellon posted net income of $70 million, or $1.20 a share, down from $142 million, or $2.80 a share, a year ago.
The company noted that earnings would have risen slightly if a one-time gain of $74 million from the sale of the company's consumer finance unit was excluded from the 1990 figure.
Still, analysts were disappointed by an increase in nonperforming assets at the Pittsburgh-based company. A 10.5% rise in nonperforming assets in the three-month period suggests that lending problems may not have been squashed, analysts suggested.
"The hike in nonperformers is not negligible. A fair number of people were disappointed," said Mr. Kotowski of Oppenheimer & Co.
Nonperforming loans rose by $86 million from the end of the first quarter, to $907 million. The increase primarily reflects problems in the commercial and industrial loan portfolio. The company took a $50 million loan-loss provision and $56 million in chargeoffs.
Despite continuing problems, Mellon scored a healthy 15% increase in interest revenue from the year-earlier period, to $238 million. Acquisitions of credit card portfolios last year helped bolster the results.
Philadelphia-based CoreStates posted lackluster results.
Earnings declined 10%, to $56 million, or $1.03 a share, compared with $62 million, or $1.14 a share, in the second quarter of 1990.
The loss reflected a $48 million provision for loan losses. Nonperforming assets increased 6% over the first-quarter level.
CoreStates' booming debit and credit card business continue to buoy results. Income on these businesses rose 42% from a year ago, to $46 million.
SECURITY PACIFIC CORP.
Security Pacific announced a 76% drop in second-quarter earnings, in line with what the Los Angeles company had previously estimated.
For the latest period, profits totaled $46.7 million, or 30 cents a share, down from $195.2 million, or $1.59 a share, a year earlier.
Robert H. Smith, chairman and chief executive officer, cited "continued weak economic conditions in the United States, including California, as well as prolonged economic weakness in Australia and the United Kingdom."
As a result, the company set aside $409.3 million in a provision for possible credit losses in the second quarter, compared with $160.7 million a year ago. The total reserve for credit losses rose to $1.54 billion at June 30, or 2.5% of loans, from 2.2% at the end of the first quarter, and 1.8% a year ago.
WELLS FARGO & CO.
As expected, Wells Fargo announced a sharp increase in loan problems and a plunge in earnings to $14 million, from $232 million a year ago.
Profits were a measly 21 cents a share, versus $4.40 in the second quarter of 1990.
Wells disclosed three weeks ago that nonperforming loans would rise about $450 million during the quarter, following a regulatory examination of credits its it shares with other banks, including many leveraged deal loans. Nonperforming loans actually rose $404 million.
As previously announced, Wells added $350 million to loan-loss reserves, five times the provision it took in the second quarter of 1990. Net chargeoffs for the latest quarter were $183 million, more than ten times the year-earlier level.
Wells' loan problems are in part the product of a sharp disagreement between the company and regulators, sources close to the company have said. Specifically, federal examiners insisted on tougher classification of leveraged deal credits, as well as some other syndicated commercial and real estate loans, than Wells believed was warranted, the sources said.
In its earnings announcement, Wells said more loan problems may lie ahead.
Teresa Carson in Los Angeles and Sam Zuckerman in San Francisco contributed to this article.