In Stable Pittsburgh, PNC Integra, and Mellon Shine
The hangover afflicting banks in once-booming regions is not a problem for three banks in western Pennsylvania, an area touched less than others by lending excesses in the 1980s.
PNC Financial Corp. and Integra Financial Corp. have both reported increases in third-quarter earnings, while Mellon Bank Corp. is enjoying what one analyst termed "a ripening turnaround." All three banks have headquarters in Pittsburgh.
"Pittsburgh has been a stable market and has a low commercial real estate vacancy rate," pointed out Denis LaPlante, a bank analyst at Fox-Pitt Kelton Inc., New York. Commercial real estate loans are among the banking industry's most serious maladies right now.
Stocks Have Climbed
The banks have all fared well in the stock market since mid-year. Mellon, with $29.3 billion of assets, is up nearly 17%. PNC, with $39 billion of assets, is ahead by more than 15%. Integra, an $8.5 billion bank, has risen by about 13%.
On Thursday, PNC's stock rose 25 cents, to $41.50; Mellon fell 12.5 cents, to $34.875; Integra was unchanged at $27; and Equimark climbed 12.5 cents, to $2.875.
At PNC, "management has delivered on its promise to restore credit quality in 1991 and show consecutive reductions in nonperforming assets" after having begun the year "under a cloud," said Nancy A. Bush, regional banking analyst at Brown Brothers Harriman & Co.
She noted that the $30 million reduction in nonperformers during the third quarter was achieved despite "extensive asset quality examinations by the Comptroller of the Currency."
Ms. Bush said PNC had been a "fourth-quarter surprise bank" during the past several years with heavy charges against earnings for loans to leveraged borrowers in 1989 and commercial real estate last year. The trend will most likely end this year, she said.
The real estate problems encountered by both PNC and Mellon were largely in Eastern Pennsylvania and in national markets. Mellon's troubles date to the middle 1980s, when its loans to energy borrowers in Texas and the Southwest soured.
Mr. LaPlante said asset quality problems "continue to mask" Mellon's underlying earnings power. But he sees "signs that real estate loan quality is stabilizing" with nonperformers leveling off early next year.
"With its fee-based business growing again, even some modest relief in credit quality would be just the catalyst to accelerate Mellon's earnings-per-share growth over the next several years," he said.
Mr. LaPlante envisions that Mellon can raise its return on assets to 0.90% in 1994, from 0.55% now, and its earnings per share to $5.50, from $3.30.
At Integra, asset quality is already improving. Nonperformers peaked at 3.9% of total loans in the first quarter and have fallen in the two quarters since to 3.4% of loans, or an 11% decline from the peak.
"The 24-month outlook for Integra is excellent," said Gerard S. Cassidy of Tucker Anthony Inc., Boston, who has upgraded his investment opinion to "buy" from "hold." He expects the company to earn $2.90 per share this year, $3.50 in 1992 and $3.90 in 1993.
He does not regard Integra is a near-term acquisition target, but thinks it might be approached by a larger regional bank in 1993 or 1994. Integra was formed in 1989 by the merger of Pennbancorp and Union National Corp.