J.P. Morgan & Co. and several large regional banks weighed in with generally impressive third-quarter earnings on Wednesday.
The reports continued to show an industrywide trend of wide interest spreads, stronger fee income, and improving credit quality that counterbalanced weak loan growth.
An exception was First Chicago Corp., which had previously announced that its earnings would suffer because of a decision to set aside a big reserve for bad commercial real estate. The company lost $365.1 million, compared with a $25 million profit in the 1991 third quarter.
Robust Quarter for Morgan
The nation's second-largest thrift, Great Western Financial Corp., citing California's slumping economy, said earnings contracted by 59%, to $31.7 million.
Morgan earned a robust $400 million, well above analysts' consensus forecast of about $278 million. About $91 million of the profit came from securities gains.
NBD Bancorp of Detroit reported a $82 million profit, up 5%. Its smaller midwestern neighbor, National City Corp., boosted net income by 28%, to $90 million.
In Chicago, Continental Bank Corp. bounced into the black with $53 million of earnings in the third quarter, after losing $185 million a year earlier.
KeyCorp met analysis' expectations for a strong quarter by reporting profits of $63.5 million, up 6.5 % from its second quarter and 22% from the year-earlier third quarter.
In late trading Thursday, shares of J.P. Morgan rose 62.5 cents, to $61.875, and NBD gained $1.875 to close around $29.625. First Chicago fell 12.5 cents to $31.625; Great Western gained 12.5 cents, changing hands at $13.125, Continental lost 12.5 cents to $16.625 a share, and Keycorp was unchanged at $33 a share.
J.P. MORGAN & CO.
The nation's sixth biggest bank company had a well-rounded quarter, with strong gains in trading, investment management, corporate finance, and operational services.
Many observers expected Morgan and other big trading banks to book extraordinary trading gains because of volatile currency prices during the third quarter. Morgan's $313 million of trading income was 16% lower than in its year-earlier third quarter but exceeded its results from this year's second quarter.
Morgan said it recorded trading losses in the quarter and throughout the year from its portfolio of mortgage-backed securities. Prices in the mortgage-backed market have been jolted by unexpectedly high levels of mortgage refinancings.
Analysts were nevertheless impressed with the breadth of Morgan's revenue lines.
"Morgan's coming to the point where it can report a sloppy trading quarter and still report strong earning," said J. Richard Frederick, an analyst at Montgomery Securities.
Morgan, which ended the third quarter with $117.7 billion of assets, boosted its net interest revenue to $448 million from $434 million in the second quarter. The growth reflected $10.2 billion of new assets booked primarily in trading and securities accounts. Morgan's net interest margin, however, declined to 1.71% at the end of the quarter from 1.87% on June 30.
Credit quality remained strong, with nonperforming assets falling $5 million during the quarter to $633 million, or 0.54% of Morgan's total assets. The company's loan loss reserve declined by $200 million to $1.3 billion at the end of the quarter.
Morgan recognized $80 million in Federal tax benefits, which cut its income tax expenses during the quarter by $27 million. It also booked securities gains of $91 million, primarily from the sale of U.S. and foreign government securities.
Operating expenses of $754 million were their highest in 4 1/2 years, reflecting costs of computer development, recruitment, bonuses, and occupancy.
"The plus is they're spending heavily for the future," said Judah Kraushaar, an analyst at Merrill Lynch & Co. "The potential negative is, how long does it take for all of this investment spending to show up in core earnings?"J.P. Morgan & co.New YorkDollar amounts in millions (except per share)Third Quarter 3Q92 3Q91Net Income $400.0 $373.0Per share 2.01 1.89ROA 124% 1.39%ROE 25.39% 28.03%Net interest margin 1.17% 1.87%Net interest income 448.0 392.0Noninterest income 812.0 712.0Noninterest expense 754.0 650.0Loss provision 10.0 10.0Net chargeoffs 33.0 38.0Year to Date 1992 1991Net income $1,084.0 $877.0Per share 5.43 4.43ROA 1.21% 1.11%ROE 24.10% 22.95%Net interest margin 1.80% 1.73%Net interest income 1,415.0 1,195.0Noninterest income 2,278.0 1,967.0Noninterest expense 2,121.0 1,858.0Loss provision 45.0 30.0Net chargeoffs 164.0 419.0Balance Sheet 9/30/93 9/30/91Assets $117,683 $102,555Deposits 38,418.0 28,133.0Reserve/nonp. loans 215.6% 197.7%Nonperf. loans/loans 2.1% 2.5%Nonperf. asset/asset 0.54% 0.70%Leverage cap. ratio 6.8% 6.2%Tier 1 cap. ratio 7.5% 6.9%Tier 1 + 2 cap. ratio 11.4% 10.8%
FIRST CHICAGO CORP.
The loss at the nation's 12th biggest bank reflected its decision to spin off $2 billion of problem realty assets into a workout unit. First Chicago set aside a special loss provision of $625 million for problem assets that were revalued for accelerated disposition, and another $155.4 million for problem assets remaining on its books.
The net interest margin of 2.49% fell from 2.62% during this year's second quarter and 2.56% one year earlier. Noninterest income of $385 million jumped 23% from the year-earlier quarter, reflecting record increases in bond and foreign exchange trading, First Chicago said.
In prepared statement, chairman and chief executive Richard Thomas said First Chicago, which has $49.3 billion of assets, is "now well positioned to more fully benefit from potential earnings of our core businesses without the continuing drag from excessive credit costs."First Chicago Corp.Chicago Dollar amounts in millions (except per share)Third Quarter 3Q92 3Q91Net Income ($365.1) $24.6Per share (4.65) 0.19ROA (2.64%) 0.19%ROE (50.7%) 2.20%Net interest margin 2.49% 2.56%Net interest income 293.7 280.9Noninterest income 384.8 312.3Noninterest expense 473.8 405.3Loss provision 780.4 145.0Net chargeoffs 113.0 167.0Year to Date 1992 1991Net income ($15.9) $131.4Per share (3.61) 1.55ROA (0.04%) 0.33%ROE (2.3%) 5.70%Net interest margin 2.57% 2.55%Net interest income 890.8 847.4Noninterest income 1,052.2 888.3Noninterest expense 1,280.0 1,147.8Loss provision 1,025.4 364.3Net chargeoffs 339.0 408.0Balance Sheet 9/30/92 9/30/91Assets $49.3 $49.2Deposits 30.6 32.7Loans 22.8 26.1Reserve/nonp. loans 3.4% 3.4%Nonperf. loans/loans 2.0% 3.7%Nonperf. asset/asset 1.0% 2.9%Leverage cap. ratio 6.1% 5.8%Tier 1 cap. ratio 6.0% 5.6%Tier 1 + 2 cap. ratio 10.1% 9.3%
Profitability at the $34 billion-asset Michigan bank company was depressed by a $17.8 million charge taken in conjunction with its acquisition of INB Financial Corp. in Indianapolis.
NBD's $81.94 million third quarter profit represents a return of 0.9% on average assets and 13.32% on average equity, up slightly from midyear but down from a 1.01% return on assets and a 13.8% return on equity one year ago.
The company ended the third quarter with $370.3 million of nonperforming assets, or a modest 1.54% of gross loans.NBD BancorpDetroitDollar amounts in millions (except per share)Third Quarter 3Q92 3Q91Net Income $81.9 $77.9Per share 0.63 0.60ROA 0.98% 1.01%ROE 13.32% 13.80%Net interest margin 4.43% 4.20%Net interest income 339.9 298.8Noninterest income 105.9 89.1Noninterest expense 278.7 236.8Loss provision 32.4 28.6Net chargeoffs 29.2 27.4Year to Date 1992 1991Net income $244.3 $232.7Per share 1.87 1.79ROA 0.98% 1.01%ROE 13.36% 14.05%Net interest margin 4.29% 4.16%Net interest income 982.6 879.3Noninterest income 301.0 261.9Noninterest expense 791.7 699.0Loss provision 97.1 76.3Net chargeoffs 85.9 68.9Balance Sheet 9/30/92 9/30/91Assets $33,974.7 $31,681.7Deposits 25,124.3 24,618.3Loans 20,870.5 19,222.7Reserve/nonp. loans 98.15% 96.11%Nonperf. loans/loans 1.54% 1.58%Nonperf. asset/asset 1.09% 1.05%Leverage cap. ratio 6.45% 6.33%Tier 1 cap. ratio 8.32% 8.21%Tier 1 + 2 cap. ratio 12.27% 10.79%
NATIONAL CITY CORP.
The Cleveland-based company's $89.6 million of third-quarter income represented annualized returns of 1.26% on average assets and 15.57% on average equity.
It also enjoyed net interest margin that widened to 4.71% from 4.63% on a year-to-year basis, and fee income that grew in the same period by 7.3% to $185.9 million.
National City's loan-loss provision of $27.8 million fell from $38.6 million in the second quarter and $57.4 million one year ago.National City Corp.ClevelandDollar amounts in millions (except per share)Third Quarter 3Q92 3Q91Net income $89.60 $69.90Per share 1.08 0.85ROA 1.26% 0.96%ROE 15.57% 12.84%Net interest margin 4.71% 4.63%Net interest income 299.0 299.8Noninterest income 185.9 173.2Noninterest expense 328.6 310.1Loss provision 27.8 57.4Net chargeoffs 28.2 43.7Year to Date 1992 1991Net income $256.9 $196.2Per share 3.10 2.45ROA 1.20% 0.89%ROE 15.34% 12.63%Net interest margin 4.64% 4.52%Net interest income 893.1 891.3Noninterest income 556.5 493.9Noninterest expense 966.1 905.2Loss provision 108.2 179.3Net chargeoffs 105.7 144.5Balance Sheet 9/30/92 9/30/91Assets $28,585.5 $29,691.0Deposits 21,980.9 22,946.5Loans 18,761.5 19,417.1Reserve/nonp. loans 153.3% 102.0%Nonperf. loans/loans 1.36% 1.92%Nonperf. asset/asset 1.55% 1.97%Leverage cap. ratio NA 7.34%Tier 1 cap. ratio NA 8.71%Tier 1 + 2 cap. ratio NA 11.09%
CONTINENTAL BANK CORP.
The $23 billion-asset company continued on its road to recovery during the quarter. Its $53 million third-quarter gain translates into annualized returns of 0.82% on average assets and 14.41% on average equity.
Figuring strongly in the company's third-quarter showing were increases in loan syndication revenues and fee income, as well as efficiency gains. Credit quality was relatively stable.
Continental took a third-quarter loss provision of $25 million, unchanged from the second quarter and down sharply from $204 million in the year-earlier third quarter.
The company said increases in problem realty loans, mostly to residential developers in California, more than offset declines in other problem loan categories.Continental Bank Corp.Chicago Dollar amounts in million (except per share)Third Quarter 3Q92 3Q91Net income $53.0 $(185.0)Pet share 0.82 (3.61)ROA 0.95% (3.08%)ROE 14.41% (64.73%)Net interest margin 2.38% 2.26%Net interest income 111.0 117.0Noninterest income 121.0 94.0Noninterest expense 147.0 188.0Loss provision 25.0 204.0Net chargeoffs 60.0 56.0Year to Date 1992 1991Net income $161.0 ($126.0)Per share 2.50 (2.85)ROA 0.97% (0.66%)ROE 15.23% (16.02%)Net interest margin 2.58% 2.27%Net interest income 362.0 366.0Noninterest income 328.0 346.0Noninterest expense 430.0 513.0Loss provision 80.0 310.0Net chargeoffs 110.0 125.0Balance Sheet 9/30/92 9/30/91Assets $23,008.0 $23,894.0Deposits 14,576.0 15,607.0Loans 13,209.0 14,037.0Reserve/nonp. loans 57.80% 52.60%Nonperf. loans/loans 4.97% 6.45%Nonperf. asset/asset 3.59% 4.07%Leverage cap. ratio 7.40% 6.10%Tier 1 cap. ratio 6.70% 5.60%Tier 1 + 2 cap. ratio 9.50% 8.50%
Including its third-quarter gain of $63.5 million, KeyCorp has earned $180 million in the first nine months. Victor J. Rilley, chairman and chief executive, recently predicted that the Albany, N.Y.-based company will earn at least $54 million in the fourth quarter and more than $234 million for the year.
KeyCorp, which has $25.2 billion of assets, said fee income in the third quarter jumped 9% to $86.2 million - including $2.9 million from the sale of a financial services subsidiary.
Net income indeed inched up 2.9% to $275.7 million from the second quarter while the interest margin fell to 5.31% from 5.36% in the previous quarter.
The company said loan demand showed some signs of recovery. Loans outstanding rose 8% from the second quarter to $16.4 billion,but about half the increase represented the acquisition of 48 Bank of America branches in Washington state.
The bank company earlier this year also agreed to buy Puget Sound Bancorp and National Savings Bank of Albany, acquisitions that should add $5.5 billion of assets by early next year. Puget Sound on Thursday reported earnings of $14 million, up 21% from a year ago.Key Corp.Albany, N.Y.Dollar amounts in millions (except per share)Third Quarter 3Q92 3Q91Net income $63.5 $52.1Per share 0.82 0.67ROA 1.06% 0.85%ROE 16.66% 15.09%Net interest margin 5.31% 4.67%Net interest income 275.7 240.8Noninterest income 87.2 93.7Noninterest expense 228.4 211.7Loss provision 38.8 43.8Net chargeoffs 36.7 38.4Year to Date 1992 1991Net income $180.3 $135.0Per share 2.33 1.89ROA 1.04% 0 .83%ROE 16.39% 14.58%Net interest margin 5.30% 4.65%Net interest income 801.3 644.9Noninterest income 242.6 229.9Noninterest expense 658.1 558.9Loss provision 113.2 117.7Net chargeoffs 108.6 113.8Balance Sheet 9/30/92 9/30/91Assets $25,243.0 $23,358.0Deposits 20,544.0 19,158.0Loans 16,190.0 14,511.0Reserve/nonp. loans 137.00% 118.00%Nonperf. loans loans 00.99 1.20%Nonperf. asset/asset 1.42% 1.58%Leverage cap; ratio 5.21% 4.95%Tier 1 cap. ratio NA 7.31%Tier 1 + 2 cap. ratio NA 9.44%
GREAT WESTERN FINANCIAL
The nation's second-largest thrift said its provisions for loan and real estate losses tripled to $129 million. Nonperforming assets rose to $1.9 billion, or 4.85% of total assets on Sept. 30 from 4.58% three months earlier and 3.68% one year earlier. Great Western had $38.5 billion of assets at the end of the quarter.
Chairman James F. Montgomery said virtually all the increase in nonperformers was in single-family mortgages.
The thrift's income for the first nine months of 1992 fell by $45 million, or 20%, to $182 million. The 1992 results included $31 million attributed to accounting changes.
The St. Louis-based company said increased fee income and interest margins boosted its third-quarter earnings to $53.6 million, up 37% from the prior-year period. The company returned a stalwart 1.12% on average assets and 14.18% on average equity.
Its return on assets for the year-earlier period was 0.91%. and 11.26%. Asset quality at the $20 billion-asset company improved. Nonperforming assets fell to 2.71% of gross loans, compared with 3.57% one year earlier.