NEW YORK – National City Corp. (NCC), the 8th-largest U.S. bank, on Friday said second-quarter profit rose 20 percent, helped by growing deposit fees and commercial lending, and a doubling of mortgage revenue.
Net income increased to $625 million, or 97 cents per share, from $519 million, or 83 cents per share, a year earlier. Analysts polled by Reuters Estimates on average forecast profit of 74 cents per share.
"It was our strongest commercial loan quarter in many, many years," said Chief Executive David Daberko in an interview. "(Companies) have more receivables and more inventory, and are spending on productivity enhancement."
Mortgage revenue rose to $400 million from $193 million, helped by $157 million in pretax net hedging gains on mortgage servicing rights, compared with a year-earlier $57 million loss. This added about 15 cents a share to profit, and helped offset lower demand for refinancings, Daberko said.
The hedging gains are "a positive in that they provide excess capital for activities such as share repurchases," wrote Scott Siefers, an analyst at Sandler O'Neill & Partners LP in New York, who has a "buy" rating on the bank.
Cleveland-based National City operates in several Midwest U.S. states.
Three of the 10 largest U.S. banks this week reported quarterly results in line with or exceeding analyst forecasts.
No. 9 Fifth Third Bancorp (FITB) said profit fell 7 percent, and No. 10 BB&T Corp. (BBT) reported a 3 percent drop. The seven largest banks report next week, including Citigroup Inc. (C) and Bank of America Corp. (BAC) on Monday and JPMorgan Chase & Co. (JPM) on Wednesday.
National City said quarterly profit rose 10 percent from consumer and small business banking and 20 percent from wholesale banking, but fell 21 percent in consumer finance.
Lending income rose 2 percent to $1.2 billion, though net interest margin fell to 3.85 percent from 4.09 percent. The margin held steady from the first quarter.
Fee income rose 10 percent to $951 million, helped by higher deposit service charges and leasing income. Mortgage production was little changed at $41 billion, while loans originated for sale fell 19 percent to $18.5 billion. Noninterest expense increased 10 percent to $1.18 billion.
Return on average common equity edged down to 19.65 percent from 20.13 percent, while the bank's efficiency ratio of costs to revenue improved to 55.06 from 55.77.
The bank set aside $26 million for bad loans, down 57 percent. Net chargeoffs rose 14 percent to $72 million, but as a percentage of average loans fell 10 percent. Such factors contributed to what Daberko called "our best credit quality quarter in memory."
Loans rose 26 percent to $106.6 billion, deposits rose 14 percent to $83.1 billion, and assets rose 23 percent to $144 billion.
National City shares rose 61 cents, or 1.7 percent, to $36.37 in morning trading on the New York Stock Exchange.