Gains for Norwest, Comerica, Others in Midwest

Higher loan volumes and improving credit quality continue to spur first-quarter earnings increases for banks in the Midwest.

Norwest Corp., the nation's 13th-largest bank, with $61.8 billion of assets, said its earnings grew 13.8% during the quarter, to a record $216.8 million. Detroit-based Comerica Inc. reported a 10.1% rise in its net income, to $100 million.

Mercantile Bancorp., Michigan National Corp., and Charter One Financial Inc. also posted double-digit earnings gains for the quarter.

Minneapolis-based Norwest reported a 15.7% increase in net loans, pushing its loan portfolio to nearly $33.1 billion. Nonperforming assets were cut by $69.1 million, to $162.8 million. As a result of these changes, net interest income rose 14.4% to $743.7 million.

The gain was partially offset by a $17 million increase in first-quarter loan loss provisions, which "indicates a degree of conservatism," said Steve Schroll, an analyst with Piper Jaffray Inc. "They had the room to go ahead and put in a provision that was $7 million greater than chargeoffs."

On the negative side, Norwest reported a 24-basis-point reduction in its net interest margin, reflecting a rise in the cost of funds and lower spreads earned on loans, according to chief financial officer John Thornton.

"When we get faster growth in our banking business, it is typically dilutive to our net interest margin," he pointed out.

He said the margin is expected to rise by at least 11 basis points, to around 5.60%, in the second quarter, following the acquisition of Island Finance.

Comerica also used an growing book of loans to offset a lower interest margin. The bank added $3.1 billion in new loans over the past 12 months, to a reported $23.1 billion at March 31.

This portfolio generated $489.7 million in interest and fees during the quarter, 44% more than the year-earlier total and enough to overcome the 16-basis-point decline in its margin.

Paul Martzowka, an executive vice president who is Comerica's chief financial officer, said the 4.17% margin in this year's first quarter was in the range he expected for the remainder of 1995.

"You can afford some margin pressure if you have good loan volume, which we did," he said. "I expect the margin will average somewhere in the 4.15%- to-4.20% range for the year."

Adding to the earnings increase was a $3 million cut in loan-loss provision made during the period, to $12 million.

Since the first quarter of last year, nonperforming assets have fallen $45.7 million, to $204.9 million. Over the same period, net chargeoffs fell $4.4 million, to $6.2 million.

Mr. Martzowka pointed out that the company is seeing the benefits of a strong economy in 1993 and 1994.

"Our chargeoffs are very low right now, and I think you'll probably see them in the $10 million to $12 million level, per quarter, going forward," he said.

Higher margins, combined with double-digit increases in loan volume helped St. Louis-based Mercantile Bancorp. report $44.1 million in net income for the quarter.

The company saw its net interest margin rise four basis points, to 4.58%, and a $1.1 billion increase in loans, to $9 billion.

Michigan National, based in Farmington Hills, said the benefits of last year's asset sales and a 52-basis-point rise in net interest margin contributed to a 40.4% increase in net income for the quarter.

The company earned $25.7 million, aided by the sale of its company's non-Michigan businesses, which cut noninterest expense by $37.6 million.

Michigan National's $8.5 billion of assets was 17.4% less than reported at the end of the first quarter of 1994.

Charter One Financial Inc., the $6.3 billion-asset Cleveland-based thrift, reported net income of $17.8 million, up from $15.9 million a year earlier.

A 67.2% increase in interest from mortgage-backed securities added $15.6 million in revenue during the quarter. Likewise, the company's new ICX Corp. subsidiary added $1.7 million in noninterest income from $35 million in leases generated in the quarter. +++ Norwest Corp. Minneapolis Dollar amounts in millions (except per share) First Quarter 1Q95 1Q94 Net income $216.8 $190.5 Per share 0.65 0.58 ROA 1.46% 1.45% ROE 22.2% 21.5% Net interest margin 5.49% 5.49% Net interest income 752.0 657.2 Noninterest income 428.2 434.1 Noninterest expense 792.6 769.1 Loss provision 55.3 36.3 Net chargeoffs 48.0 43.2 Balance Sheet 3/31/95 3/31/94 Assets $61,845.1 $55,328.2 Deposits 37,091.3 35,328.3 Loans 33,876.6 29,287.0 Reserve/nonp. loans 623.6% 793.2% Nonperf. loans/loans 0.38% 0.60% Nonperf. assets/assets 0.26% 0.42% Nonperf. assets/

loans + OREO 0.48% 0.79% Leverage cap. ratio 6.72% 6.97% Tier 1 cap. ratio 9.67% 10.15% Tier 1+2 cap. ratio 11.93% 12.65% Comerica Inc. Detroit Dollar amounts in millions (except per share) First Quarter 1Q95 1Q94 Net income $100.0 $91.0 Per share 0.85 0.79 ROA 1.21% 1.22% ROE 16.55% 16.59% Net interest margin 4.17% 4.33% Net interest income 318,216 296,492 Noninterest income 119,512 111,945 Noninterest expense 268,389 251,706 Loss provision 12,000 15,000 Net chargeoffs 6,183.0 10,616.0 Balance Sheet 3/31/95 3/31/94 Assets $34.0 $32.0 Deposits 21,916.3 21,620.4 Loans 23,096.8 19,998.6 Reserve/nonp. loans 202.63% 165.32% Nonperf. loans/loans 0.72% 0.97% Nonperf. assets/assets 0.60% 0.78% Nonperf. assets/

loans + OREO 0.89% 1.25% Leverage cap. ratio 7.02% 7.11% Tier 1 cap. ratio 8.03% 8.26% Tier 1+2 cap. ratio 11.46% 11.59% ===

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER