The banking industry got an other dose of good news on Wednesday as three northeastern banking companies released strong second-quarter results.
Fleet Financial Group o Providence, R.I., netted $119 million, up 68% from a year earlier. Fleet's gain came despite a $100 million charge related to heavy mortgage prepayments amid the refinancing boom.
Republic New York Corp., like its larger New York competitors, benefited from hefty trading income. Profits grew 17% to $74.9 million, as trading gains doubled to $54.4 million.
Philadelphia's CoreStates Financial Corp., bucking the trend at most other banks, reported that loan demand rose by 3.4% during the quarter. The banking company turned a profit of $83.2 million, up 25%.
Shares of Fleet were down 25 cents on Wednesday to $35.375. Republic remained unchanged at $51.625 and CoreStates was up 25 cents to $57.375.
FLEET FINANCIAL GROUP
Results at Fleet, which translated to 72 cents per share, were in line with analysts' expectations, according to Zacks Investment Research.
Analysts said they were not surprised by the $100 million charge by Fleet Mortgage Group, considering historically low interest rates and the continuing refinancing boom. The value of servicing rights Fleet Mortgage Group purchases from other lenders declines as prepayments accelerate.
Fleet offset the charge - which consisted of a $40 million writedown of assets that have already become "impaired" by prepayment and a $60 million provision against future impairments - by recognizing $114 million in gains on the sale of securities.
"We've had a cushion in terms of our values there," chief financial officer Eugene M. McQuade said in an interview.
The banking company's securities portfolio had an unrealized appreciation of approximately $600 million at the end of the second quarter, he said, enabling Fleet to take the conservative step of reserving against future prepayments.
"They have the firepower to take this charge," said Keefe, Bruyette & Woods analyst Tom Theurkauf.
Analysts otherwise were pleased with Fleet's results, which featured stable net interest margins and continuing improvements in credit quality.
"There were some very positive signs," said Michael Mayo of UBS Securities Inc.
The net interest margin grew 3 basis points to 5.06% during the quarter. And nonperforming assets fell for the sixth consecutive quarter to $852 million, a reduction of $92 million from the end of the first quarter.
Fleet took a loan-loss provision of $69.9 million in the quarter, down from $84.9 million.
REPUBLIC NEW YORK CORP.
Republic cited heavy activity in foreign exchange and precious metals trading - and its newly established derivatives group - as big contributors.
Credit quality improved, as nonperforming assets were at $165.7 million, down $17.7 million from the first quarter.
Net interest income was up 11% to $198.3 million from a year ago, but the margin contracted 5 basis points to 2.58%.
Profits from Republic's securities brokerage subsidiary contributed a substantial portion to higher commission income, which amounted to 11.2 million, up 20% from a year ago.
Results at Corestates, which translated to $1.42 a share in the second quarter, exceeded Wall Street's expectations of $1.28 per share, according to Zacks.
In a press release, CoreStates chairman Terrence A. Larsen said the company benefited from "several consecutive months of improving loan demand in our markets."
Net interest income rose by $9 million from the previous quarter, to $280.1 million.
That increase occurred despite a small falloff in the net interest margin. It came in at 5.83%, off from 5.84% three months earlier.
Unlike those of other banks that have bolstered earnings by drawing down from their loan-loss reserves, CoreStates' strong performance "was not asset-quality induced" said Jeffrey B. Naschek, an analyst at Salomon Brothers Inc. "The provision was flat with the first quarter."
As it did in the first quarter, the company set aside $25 million for future loan losses.