New England's Profits Still Parched
Sprinkle of Gains in Quarter Too Little to End Drought
Did the health of New England banks improve in the second quarter? Despite a smattering of declines in nonperforming assets and a few increases in core earnings, the jury is still out.
Shawmut National Corp. and BayBanks Inc. showed declines in nonperforming assets, an indication their picture is brightening.
Results at the other big banks were less clear-cut. Bank of Boston Corp. reported a wider net interest margin and made significant cost-cutting gains, giving its core earnings a better look. But the bank also posted a dramatic increase in renegotiated loans, raising the question whether that category may mask a struggle with bad loans.
Help from One-Time Gain
Fleet/Norstar Financial Group Inc. benefited from a one-time gain on the sale of mortgage servicing rights, without which it would have about broken even. It experienced a modest rise in nonperformers, mostly because of worsening conditions at units on New York's Long Island.
While many analysts were encouraged by the quarter, they said it was too early to declare a turnaround, particularly if the New England recession does not lift until next year.
"New England banks are still hostage to the region's economy," said Gerard Cassidy, an analyst in Portland, Maine, for Tucker Anthony.
Meanwhile, the frenetic pace of bank mergers across the country has focused attention on Bank of Boston and Shawmut. The two banks have reportedly held merger discussions but neither will comment on the status of those talks.
Analysts consider such a combination increasingly likely. BankAmerica Corp.'s chairman, Richard Rosenberg, said recently his company would not bite off too much while completing its merger with Security Pacific Corp., suggesting that BankAmerica would steer clear of a big New England acquisition in the short term.
Bank of Boston continues to reap the rewards of several quarters of housecleaning. Its $49.5 million loss in the second period was smaller than expected. The bank set a goal of $280 million in core expenses, excluding costs for carrying foreclosed real estate, and missed the target by a mere $6 million in the quarter.
A wider net interest margin of 3.25%, up 25 basis points since March 31, added a healthy flush to core earnings.
What's more, the bank did not take any big one-time gains to offset losses, as it did in several quarters last year.
Though Bank of Boston touted a victory over nonperforming assets, the improvement becomes a mere stabilization if renegotiated loans are included in the category.
Renegotiated loans typically produce interest of 7%, and some institutions classify them as nonperformers. Bank of Boston removes loans from nonperforming status once they have been renegotiated.
In the second quarter, the bank's renegotiated loans rose by 32% over the level in the previous quarter, to $213 million.
Restructured Loans Climb
Shawmut, too, saw an increase in restructured loans. The category grew $22 million, to $49.4 million. But total nonperforming loans and foreclosed real estate declined by $108 million, or 6%, overshadowing that increase.
Overall, the company posted a $58.7 million loss, less than the $80 million loss that some analysts had predicted.
"I need another quarter of good results before I'm convinced Shawmut is on the mend," said Michael Plodwick, an analyst for C.J. Lawrence Morgan Grenfell. He added, however, that Shawmut could return to profitability by yearend.
BayBanks, buoyed by strong consumer business, posted a $1.1 million profit and a $5 million decrease in nonperforming assets.
Fleet, which has been the darling of many bank analysts, had a disappointing quarter. It posted a modest profit of $28 million, down 48% from level in the period a year-earlier. The latest profit also includes a $24 million one-time gain on the sale of mortgage servicing rights.
Fleet's Long Island subsidiary showed a 21% increase in nonperforming assets to $170 million, a sign that New England-style real estate troubles are now firmly entrenched in the New York area.
Because of declines in nonperforming loans at its New England subsidiaries, Fleet's rise in nonperformers was a meager 4% - its smallest increase since 1989.
Fleet's results do not reflect the enormous expense of the Bank of New England acquisition, which closed on July 22.
Some Problem Areas
Though select real estate markets in New England appear to have stabilized, Connecticut and New Hampshire pose continuing problems.
Citytrust Bancorp of Bridgeport, Conn., announced a $47.4 million second-quarter loss immediately after it was acquired. Chase Manhattan Corp. purchased Citytrust and crosstown rival Mechanics and Farmers Savings Bank with federal assistance.
People's Bank, another Bridgeport company that performed due diligence on Citytrust and Mechanics and Farmers, withdrew from the bidding because the asset quality was so bad, according to a banker who asked not to be identified.
Chase was primarily interested in the branch network, much of which is in affluent Fairfield County. The New York bank was the only bidder for both Connecticut institutions.