Citicorp and Chemical Banking Corp. weighed in with generally strong second-quarter results on Tuesday, reflecting a familiar mix of healthy interest margins, improving asset quality, and some one-time gains from asset sales.
For the first time in five quarters, Citicorp reported a gain from operating earnings of $62 million. In trading on the New York Stop Exchange, Citicorp stock rose 25 cents to close at $20.25 per share.
The company's total earnings of $171 million reflected the sale of $109 million of "nonstrategic assets" - including CapMac, its merchant card processing business, and equity holdings in Latin American companies. Those gains were partially offset by a restructuring charge of $53 million.
Chemical, in its second post-merger quarter, said its 30% boost in earnings to $184 million reflected a 14% jump in net interest income, increases in trading revenues, and $15 million of one-time gains from selling investment securities.
Chemical's shares fell 87.5 cents, to $36.
Earnings at the nation's biggest bank were up from $11 million in the second quarter of 1991 but down from $183 million in the first quarter of this year.
The results slightly exceeded analysts' expectations.
Citicorp said operating profits exclusive of credit costs rose to $1.775 billion from $1.696 billion in the first quarter and $1.428 billion a year earlier.
Operating expenses rose to $2.55 billion, up from $2.453 billion in the first quarter and $2.55 billion in the 1991 second quarter.
Debt Pacts Help Reserves
The loan-loss provision fell 22% from its first-quarter level to $1.05 billion, despite a $251 million rise in nonperforming commercial loans and foreclosed real estate, to $10.3 billion.
The company also reallocated $100 million of its $44 million in lesser-developed-country reserves to general reserves, reflecting debt agreements with Brazil and the Philippines.
Nevertheless, some analysts said the company continues to operate with very thin coverage against future loan losses.
"I would have liked to see more provisioning," said Diane Glossman, an analyst at Salomon Brothers Inc. Citicorp "should be erring on the side of conservatism," she said.
Realty Problems Remain
Commercial cash-basis loans fell by $339 million during the quarter, to $4.7 billion. But the company continued to struggle with commercial real state.
Losses from the North American portfolio were $355 million, down from $463 million in the first quarter but higher than the $108 million loss recorded a year earlier. Citicorp said it charged off $100 million of loans to Olympia & York during the quarter.
However, the company said it expects commercial credit costs to decline in the second half of the year, bolstering the outlook of some analysts.
"The operating margin was up, and credit quality is starting to improve," said Frank DeSantis, an analyst at Donaldson, Lufkin & Jenrette and a long-time bull on Citicorp.
The company said it continued to make progress with its priority goals of improving capital through expense reduction and revenue improvement. Core Tier 1 capital stood at 4.25% of risk-weighted assets at quarter's end, up from 4.06% in the first quarter.
Citicorp's global consumer business earned $234 million in the quarter, up from $175 million a year ago but down from $260 million in the first quarter.
The bank said delinquencies in the consumer portfolio showed signs of improvement. Net interest income fell slightly from one year earlier, to 3.71% from 3.76%
Profits from global corporate lending were up sharply - excluding commercial real estate - to $294 million in the second quarter from $161 million in the first.
CHEMICAL BANKING CORP.
The nation's third-largest banking company reported a 30% jump in net income, to $240 million.
The results were in line with Wall Street's expectations, but lower than the $260 million reported by Chemical in the first quarter.
"The quality of the earnings left a little to be desired," said Lawrence Cohn, an analyst at PaineWebber.
Chemical said its merger-related savings of about $65 million in the second quarter -- primarily from attrition and layoffs -- are ahead of schedule. It raised its estimate of savings or 1992 to $280 million from $225 million. The bank has reduced its payroll by more than 4,500 since its merger with Manufacturers Hanover Corp. was announced in July 1991.
Nevertheless, Mr. Cohn said he was disappointed by an apparent lack of progress in cost cutting and a higher than expected use of tax credits that put the bank's effective tax rate at 22%.
Chemical recognized $65 million of tax benefits in the quarter, up from $55 million in the first three months of the year.
Credit quality at the New York-based company appeared to improve, with the loan-loss provision falling to $345 million from $375 million in the first three months of the year.CiticorpNew YorkDollar amounts in millions (except per share)Second Quarter 2Q92 2Q91Net income $1710 $11.0Per share 0.32 (0.12)ROA 0.31% 0.02%ROE 6.30% (1.90%)Net interest margin 3.71% 3.76%Net interest income 1,828.0 1,825.0Noninterest income 2,041.0 1,869.0Noninterest expense 2,553.0 2,549.0Loss provision 1,005.0 1,029.0Net chargeoffs 908.0 1,682.0Year to Date 1992 1991Net income $354.0 $561.0Per share 069 1.36ROA 0.32% 0.51%ROE 6.70% 11.10%Net interest margin 3.73% 3.71%Net interest income 3,658.0 3,597.0Noninterest income 4,210.0 3,657.0Noninterest expense 4,987.0 5,068.0Loss provision 2,239.0 1,841.0Net chargeoffs 1,905.0 2,328.0Balance Sheet 6/30/92 6/30/91Assets $219,392 $217,888Deposits 151,124 143,909Loans 148,144 150,740Reserve/nonp. loans NA 34.52%Nonperf. loans/loans NA 7.54%Nonperf. asset/asset NA 6.26%Leverage cap. ratio 4.30% 4.40%Tier 1 cap. ratio 4.25% 4.27%Tier 1+2 cap. ratio 8.50% 8.55%Chemical Banking Corp.New YorkDollar amounts in millions (except per share)Second Quarter 2Q92 2Q91Net income $240.0 $184.0Per share 0.83 0.83ROA 0.70% 0.53%ROE 10.16% 981%Net interest margin 3.69% 3.16%Net interest income 1,099.0 963.0Noninterest income 744.0 713.0Noninterest expense 1,191.0 1,195.0Loss provision 345.0 303.0Net chargeoffs 398.0 759.0Year to Date 1992 1991Net income $500.0 $365.0Per share 1.83 1.67ROA 0.73% 0.52%ROE 11.21% 9.86%Net interest margin 3.70% 3.10%Net interest income 2,214.0 1,905.0Noninterest income 1,554.0 1,410.0Noninterest expense 2,390.0 2,353.0Loss provision 720.0 582.0Net chargeoffs 774.0 1,081.0Balance Sheet 6/30/92 6/30/91Assets $142,405 $138,334Deposits 92,787.0 88,169.0Loans 84,953.0 84,076.0Reserve/nonp. loans 65.47% 70.72%Nonperf. loans/loans 5.79% 6.27%Nonperf. asset/asset 461% 4.72%Leverage cap. ratio 6.50% 5.00%Tier 1 cap. ratio 6.80% 5.50%Tier 1+2 cap. ratio 10.80% 9.60%