Increased loan volume and stabilized funding costs boosted Norwest Corp. and Comerica Inc. to record profit levels in the second quarter.
Norwest earned $243.3 million in the June quarter, while Comerica, fueled also by recent acquisitions, recorded $101.5 million.
Minneapolis-based Norwest bested its 1994 second-quarter result of $202 million by 16%. The performance pushed the $66.6 billion-asset company's first-half earnings to a record $451.1 million, 15% higher than in the 1994 half.
John Thornton, Norwest's chief financial officer, pointed to an 8% increase in loans in the second quarter. Because the company's loans earned more than 11% on average, compared with the 7.3% yield on investment securities, the higher volume had a direct impact on the bottom line.
But the real story was the kinds of loans that were added, he said. They included $1 billion picked up in the acquisition of Island Finance from ITT Financial Corp., with margins of more than 13%. These receivables alone accounted for 7 basis points of the 17-basis-point increase in net interest margin over the first quarter.
But these high yields come at a cost, said Steve Schroll at Minneapolis- based Piper Jaffray Inc. "They are preparing for a higher chargeoff rate at Norwest Finance because of the acquisition of Island Finance," the analyst said.
In fact, credit losses more than doubled in the latest quarter, rising to $74.4 million from $33.4 million. Part of that is due to Island Finance, Mr. Thornton said. But the rise also reflects normal credit cycles.
"I think you'll start to see in most bank holding company reports that chargeoff ratios will start ticking up in coming months," he said.
Detroit-based Comerica's profits rose 2% from the $99.2 million in the 1994 second quarter. For the six months ended June 30, net income was up 6%, to $201.6 million.
"The real highlight from their earnings was the continued strong loan growth," said Fred Cummings, an analyst with McDonald & Co. Investments in Cleveland.
Loans outstanding rose by 18%, or $3.7 billion, to $24 billion at June 30.
John Babb, Comerica's new chief financial officer, said much of the growth came from existing business lines like credit cards, as well as through acquisitions, lower interest rates, and the effects of a generally strong economy on loan and lease portfolios.
"Acquisitions have had some effect, but even without the acquisitions loan growth has been very good," he said.
Most of the increased loan volume was funded by a 29%, or $2.4 billion, increase in both short- and long-term borrowed funds. As a result of using these more expensive funding sources, the company's net interest margin fell 21 basis points from a year earlier, to 4.15%.
However, Comerica said its funding costs have stabilized this year, with the margin slipping just 2 basis points since the first quarter.
"That suggests we are going to see some net interest income growth from Comerica in coming quarters," said Mr. Cummings.
The company made a $15.5 million provision for loan losses and had net chargeoffs of $13 million in the second quarter. Mr. Babb said the additional provisions were important to keep an adequate level of reserves, which were 171% of nonperforming assets at June 30.
Also reporting Wednesday, Michigan National Corp. said net income was down 37% from the 1994 period but up 54% from the first quarter, to $39.6 million.
Michigan National, based in Farmington Hills, said its results continue to reflect restructuring-related changes and have been helped by asset sales and cost controls. The company has agreed to be sold to National Australia Bank of Melbourne for $1.5 billion, pending regulators' approval.
Net income last year was inflated by a nonrecurring $30 million income tax benefit. Earnings for the first half were similarly affected, falling 19.9% this year to $65.3 million.
Noninterest income rose 15% from the first quarter, to $40.2 million. The sale of discontinued businesses accounted for $3.5 million of this increase.
At the same time, cost controls over the past year, combined with asset sales gains, helped Michigan National shave $7.5 million off expenses in the first quarter. The $72.9 million of noninterest expense recorded in the second quarter was down 36% from the year-earlier quarter.
Earlier this week, UMB Financial Corp. of Kansas City said it earned $12.1 million in the second quarter, a 10% increase from the comparable period last year. Earnings for the first six months rose 2%, to $25 million.
The company reported that loans were up 11%. The higher yields on these assets helped increase the company's net interest margin 51 basis points, to 4.02%. +++ Comerica Inc. Detroit Dollar amounts in millions (except per share) Second Quarter 2Q95 2Q94 Net income $102.0 $99.0 Per share 0.86 0.83 ROA 1.19% 1.25% ROE 16.02% 17.10% Net interest margin 4.15% 4.36% Net interest income 323.0 315.0 Noninterest income 122.0 115.0 Noninterest expense 276.0 265.0 Loss provision 16 15.0 Net chargeoffs 13.0 13.0 Year to Date 1995 1994 Net income $202.0 $190.0 Per share 1.71 1.62 ROA 1.20% 1.23% ROE 16.28% 16.85% Net interest margin 4.16% 4.34% Net interest income 636.0 605.0 Noninterest income 241.0 227.0 Noninterest expense 544.0 517.0 Loss provision 28.0 30.0 Net chargeoffs 19.0 23.0 Balance Sheet 6/30/95 6/30//94 Assets $35,451.0 $31,609.0 Deposits 21,889.0 20,644.0 Loans 23,994.0 20,273.0 Reserve/nonp. loans 215.92% 160.89% Nonperf. loans/loans NA NA Nonperf. assets/assets 0.56% 0.82% Nonperf. assets/loans + OREO 0.82% 1.27% Leverage cap. ratio 6.59% 6.86% Tier 1 cap. ratio 7.61% 8.41% Tier 1+2 cap. ratio 10.85% 11.58% Norwest Corp. Minneapolis Dollar amounts in millions (except per share) Second Quarter 2Q95 2Q94 Net income $234.3 $202.0 Per share 0.67 0.60 ROA 1.48% 1.48% ROE 22.60% 21.70% Net interest margin 5.66% 5.65% Net interest income 806.6 704.6 Noninterest income 451.3 386.9 Noninterest expense 825.9 759.0 Loss provision 74.7 23.7 Net chargeoffs 74.4 33.4 Year to Date 1995 1994 Net income $451.1 $392.5 Per share 1.32 1.18 ROA 1.47% 1.47% ROE 22.40% 21.60% Net interest margin 5.58% 5.57% Net interest income 1,558.6 1,361.8 Noninterest income 847.9 821.0 Noninterest expense 1,586.9 1,528.1 Loss provision 130.0 60.0 Net chargeoffs 122.4 76.6 Balance Sheet 6/30/95 6/30//94 Assets $66,623.0 $55,756.8 Deposits 38,189.5 34,681.6 Loans 35,422.2 29,382.4 Reserve/nonp. loans 0.72% 0.53% Nonperf. loans/loans 2.36% 2.62% Nonperf. assets/assets 0.23% 0.36% Nonperf. assets/loans + OREO 0.68% 0.89% Leverage cap. ratio 5.85% 6.85% Tier 1 cap. ratio 8.04% 10.00% Tier 1+2 cap. ratio 10.18% 12.40% ===