Five of six major Midwest banking companies that reported results on Thursday boosted profits while roughly matching or improving profitability. Loan growth and firming credit quality generally offset margin declines and fee revenue setbacks.
In Michigan, Comerica Inc. boosted net income 18.5%, to $99.2 million, but said its return on assets was flat at 1.25%. Detroit rival NBD Bancorp posted a 10.25% earnings increase, to $135.2 million, while nudging its ROA up by 1 basis point, to 1.24%.
In Grand Rapids, Old Kent Financial Corp. earned $35.5 million, up 6.2%, but its ROA slid by 5 basis points to 1.4%. Bucking the trend, Kalamazoo-based First of America Bank Corp. reported a 10.8% earnings decline, to $53.2 million, accompanied by a 21-basis-point drop in its ROA, to 0.96%.
Boatmen's Gains 10%
In St. Louis, Boatmen's Bancshares lifted earnings by 10%, to $88 million, while its ROA notched down by 1 basis point, to 1.28%. In Cincinnati, Star Banc Corp. reported a 12.6% earnings gain, to $28.5 million, and said its ROA rose by 11 basis points, to 1.47%.
Comerica said earnings expanded at the same rate as average assets, but at more than twice the rate of average equity. Thus, an annualized return on assets of 1.25% was unchanged, while Comerica's return on equity rose 142 basis points, to 17.1%.
Capitalizing on purchase acquisitions and core loan growth, the $31.6 billion-asset Comerica racked up an 11.1% increase in average loans from a year ago. Commercial loans and mortgages accounted for the bulk of the increase. Net interest income rose by 10.6%, despite a 37-basis-point drop in the net interest margin, to 4.36%.
Efficiency Ratio Trimmed
Comerica lowered its ratio of operating expenses to operating revenues to a trim 60.8% in the second quarter, down 425 basis points from a year ago. The $45.2 billion-asset NBD said balance sheet growth, both in loans and securities, helped it overcome a 25-basis-point drop in its net interest margin, to 4.28%, permitting a 4% increase in net interest income. Another key in sustaining profitability was a 75% reduction in NBD's loss provision, to $8.6 million.
Average loans rose 5%, or $1.3 billion, from a year ago, NBD said, while average securities investments rose by 19%, or a larger $1.9 billion. NBD showed loan growth in all major brackets except realty construction and mortgages held for sale.
Boatmen's said earnings rose but that profitability was little changed. The $27.6 billion-asset bank said annualized returns equaled 1.28% on assets, down 1 basis point, and 16.3% on equity, up 4 basis points.
Consumer Loans Grow
A net interest margin of 4.33% was down 27 basis points. But Boatmen's still managed to deliver a 4.7% increase in net interest income, primarily on the strength of an 11% increase in average net loans. Chairman and chief executive Andrew B. Craig 3d said the bulk of loan growth was in consumer and middle-market commercial credits.
Noninterest income rose 5% from a year ago, fueled by gains in trust and credit card fees, and in service charges.
Star Banc said loan growth, a widened net interest margin, and a lowered loss provision helped boost profitability.
Annualized, returns at the $8 billion-asset banking company equalled 1.47% on assets, up 11 basis points; and 16.53% on equity, up 20 basis points.
Loan growth appeared balanced, with commercial, realty, and consumer gains fueling a 5% increase in average net loans. A net interest margin of 4.74% was up 10 basis points, and net interest income rose 7.3%. A loss provision of $5.8 million was down 30% from a year ago.
Downward Trend Continues
Slumping further from a weak first quarter, First of America suffered a 10.8% earnings drop. The $23 billion-asset banking company said annualized returns equaled 0.96% on assets, down 21 basis points from a year ago, and 13.92% on equity, down 324 basis points.
At 4.65%, First of America's net interest margin was 27 basis points. lower than a year ago. Mitigating damage, average net loans rose by 7.4%, fueling a 3.1% increase in net interest income. But this growth did not keep pace with an 8.8% increase in total assets.
The regional banking company said noninterest expenses rose 7% from a year ago, citing special outlays on acquisitions and .line of business development. Fee income rose by a scant 0.5% as a slump in gains from sales of investment securities and home mortgages nearly offset rising mortgage servicing income and credit card fee revenues.
Annualized returns at the $10.4 billion-asset Old Kent were 1.40% on assets, down 5 basis points, and 16.88% on equity, down 79 basis points.
John C. Canepa, Old Kent's chairman and chief executive, cited loan growth, firming credit quality, and fee growth as favorable factors in the second quarter. He said this helped offset a narrowed net interest margin and a slowdown in the company's mortgage banking unit.
Period-end loans of $5.8 billion were up 19% from a year ago, Old Kent said.
[TABULAR DATA OMITTED]
