Is there something in the air that makes Buckeye State banks so good?

The second quarter was a banner period for the nation's largest bank companies - the 59 with assets over $10 billion. Strong margins and sharp improvements in credit quality caused returns on assets and equity to soar during the period, according to the American Banker's quarterly roundup of performance ratios.

But nowhere did banks do better than Ohio. When the companies were divided into size categories, institutions from that state topped the charts.

Among megabanks with more than $70 billion of assets, Banc One Corp., Columbus, won top honors with a return on assets of 1.53% for the quarter.

For superregional banks with assets of between $20 billion and $70 billion, Cleveland's Society Corp. led the pack with a 1.52% ROA.

And Cincinnati-based Fifth Third Bancorp notched a sparkling 1.79% ROA, best among large regional bank companies with assets of between $10 million and $20 million.

Repeat Performances

The pacesetting performance of the Ohio bank, companies is hardly surprising. Each led its size category in ROA a year ago.

"They each have their unique stories," Keefe, Bruyette & Woods analyst Joseph Duwan said of the three banks. But, he noted, strong margins and excellent credit quality are common threads.

There were plenty of other standouts. A total of 12 companies - two megabanks, six super-regionals, and four large regionals - recorded ROAs above 1.30% for the quarter. A year ago, just five banks were above that level.

One noteworthy case was Milwaukee's Firstar Corp., No. 2 among large regionals with a 1.58% ROA.

Turning It Around

Even last year's laggards did well. Citicorp fared worst among megabanks, but its 0.79% ROA was more than triple its performance of a year ago.

Among superregionals, Shawmut National Corp., Hartford, Conn., quintupled its ROA, while Wells Fargo & Co., San Francisco; First Interstate Bancorp, Los Angeles; Fleet Financial Group, Providence, R.I.; and First Chicago Corp. nearly doubled their ratios.

Few institutions experienced significant declines in returns. Among the superregionals, Minneapolis-based First Bank System saw its ROA more than halved due to merger-related charges.

Among large regionals, San Francisco-based Union Bank - 70% owned by Bank of Tokyo - saw its ROA drop to 0.65% from 0.81% a year ago because of higher Provisions for loan losses.

Bankers Trust Tops in ROE

Analysts increasingly look to return on equity as a measure of performance as fee income and other off-balance-sheet sources of revenue grow in importance.

Several bank companies with extensive wholesale operations did very well by that measure.

Boosted by fat trading profits, Bankers Trust New York Corp. registered a lofty 26% return on average equity for the quarter, best among megabanks. J.P. Morgan & Co. was next with a 23.43% ROE.

First Chicago, helped by hefty venture capital gains, led the superregional pack with a 20.8% ROE.

Last year, First Chicago's 9.05% second-quarter ROE put it 23d among the 27 bank companies in its size category.

Another Chicago bank, La-Salle National Corp., topped large regionals with a 25.74% ROE.

Lower Credit Costs a Key

Banks profits are soaring in large part because the gap between the cost of funds and earnings on interest-bearing assets is at the widest levels in memory.

But interest margins appear to have peaked. In the most recent quarter, lower credit costs have been a key engine of profit growth.

"Among the major driving factors in bank profitability, the most significant is the decline in nonperforming assets," said Reid Nagle, president of SNL Securities.

"That has freed up a significant amount of assets that are now earning interest."

Three wholesale banks with wide-ranging sources of noninterest income and low loan-to-deposit ratios posted the best second-quarter credit quality numbers.

Big Jump for First Chicago

J.P. Morgan had a 0.22% ratio of nonperforming assets to total assets, the lowest among megabanks. Republic New York Corp.'s 0.46% ratio led superregionals. And State Street Boston Corp. was the cleanest regional bank, reporting a 0.26% ratio.

Thanks to bulk asset sales, First Chicago registered one of the most notable improvements in credit quality - jumping from 18th to fourth in nonperforming-asset ratios among superregional banks.

Not surprisingly, Wall Street's assessment of the bank companies is closely linked to their performance.

Banc One's 242.1% market-to-book-value figure was the highest among megabanks. And Fifth Third led its large regional class at 298%.

Minneapolis-based Norwest Corp., with 265.5%. led superregionals.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.