Cincinnati-based Star Banc Corp. posted its sixth consecutive earnings increase in the first quarter, despite a 28-basis-point slide in its net interest margin.
Net income, reported Tuesday, rose 17.7% above the year-earlier level, to $32.8 million. Earnings per share were up 19.8%, to $1.09.
But the bank's net interest margin fell from 4.55% a year earlier to 4.27%, 11 basis points below the fourth-quarter level.
Star Banc blamed two factors: last year's acquisition of deposits and branches of Transohio Federal Savings Bank and a timing difference between short-term rate increases and repricing of credit card-loans and of securities backed by adjustable-rate loans.
"We got hit in February with the increase in short-term rates, and these assets didn't reprice until April 1," said David Moffett, Star Banc's chief financial officer.
Tom Maier, an analyst with Kemper Securities, said he expects the margin to improve in coming months. "I had their margin going up throughout the year because of the Transohio assets being put to better use," he said.
Loans grew 17% year over year, to $6.4 billion on March 31. The new loans were evenly divided between commercial, real estate, and consumer borrowings.
Results included a gain of $1.3 million, or 3 cents a share, on the sale of $375 million of securities. Mr. Moffett said the bank was able to sell these securities, which were earning an average of 5.82%, to pay off short- term borrowings that were charging 6%.
"This had the effect of raising our return on assets going forward as well as improving our margin and capital ratios," he added.
Nonperforming loans fell by $12.3 million since first-quarter 1994, to $33.5 million on March 31. Loan-loss reserves of $99.3 million amounted to 295.9% of nonperforming loans and 1.54% of all loans.