Magazine article American Banker

Loan Growth Helps Generate Solid Profits, but Margin Erosion Could Slow the Pace

Magazine article American Banker

Loan Growth Helps Generate Solid Profits, but Margin Erosion Could Slow the Pace

Article excerpt

Although stable interest margins and loan growth generated solid second-quarter earnings for many midwest community banks, margin erosion in the second half of the year could slow things down.

John E. Snow, an analyst in the Chicago office of Rodman & Renshaw Inc., still expects growth of 3% to 8% in the banks' net earnings for 1995, but said interest margins and loan growth will shrink.

"We've got a very nice start to the year overall," he said. "I wouldn't look for any dramatic strength in the second half."

Net income at Michigan Financial Corp., Marquette, was up 6% for the first six months to nearly $3.8 million. The company attributed the gain primarily to an increase in the net interest margin - to 5.49% from 5.26% a year earlier.

"I would expect that there is going to be some margin tightening, particularly if the Fed drops rates another one or two times," said Kenneth F. Beck, chief financial officer. "If that were the only variable we were dealing with, we'd expect slightly lower earnings."

For the second quarter, observers report no surprises - pleasant or no - in performance released so far.

"Nobody has blown away estimates, nobody has fallen way short," said Joseph A. Stieven, an analyst with Stifel, Nicolaus & Co., St. Louis.

Many Midwest community banks have experienced double-digit loan growth, particularly in commercial and industrial lending, he said.

Low loan-loss provisions and good credit quality also boosted earnings, analysts said. …

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