Interest rate hikes hurt two Northeastern regional banks reporting first quarter results, while a third credited a decline in nonperforming assets and a more profitable loan mix for its 13% gain.
Newark, N.J.-based First Fidelity Bancorp. saw its earnings jump a modest 3.7% to $112.9 million, but its return on average equity was down 15 basis points due to slower-than-expected loan demand, according to its chairman and chief executive Anthony Terracciano.
"As the business cycle matures, we are confronting intense competition in lending both with regard to price and terms," he said.
Net interest margin at the $35.4 billion-asset bank dropped to 4.58% from 4.75% a year ago. Net interest income was also down $3.2 million, to $354.4 million. The declines were due to a reduced spread on fixed-rate assets as interest rates rose, a reduced securities portfolio, and changes in the composition of the loan portfolio and the deposit book, the bank said.
PNC Bank Corp., Pittsburgh, also suffered from interest rate sensitivity. Its first-quarter profits dropped 36% to $125.7 million.
PNC took action to reduce its sensitivity to further rate increases in the fourth quarter last year, and those provisions continued into the first quarter, resulting in a drag on earnings which will last into early 1996, said Sandra J. Flannigan, an analyst at Merrill Lynch.
"The good news is that they had some good growth in loan volume, and asset quality continues to be in excellent shape," said Frank J. Barkocy, an analyst at Advest Group.
Midlantic Corp. credited a decrease in nonperforming assets and a more profitable mix of loans for its 13% first-quarter earnings gain. Profits reached $53 million, or 97 cents per share.
Analyst Elizabeth A. Summers, of Ryan, Beck & Co., said the bank has been getting away from making less-lucrative commercial loans, particularly in real estate, and concentrating on consumer loans, which tend to have higher yields.
The $13.6 billion-asset bank did experience a slight rise in its efficiency ratio, or ratio of expenses to revenues, to 59%. But analysts took this as a positive sign that Midlantic was reinvesting in its businesses.