CONTINENTAL BANK CORPORATION REPORTS SECOND-QUARTER EARNINGS
CHICAGO, July 15 /PRNewswire/ -- Continental Bank Corporation (NYSE: CBK) today reported second-quarter earnings of $61 million, or $0.95 per share, an increase of 20 percent from a year ago. Revenues increased 15 percent to $251 million, aided by higher trading profits and investment security gains, despite a $9 million decline in net interest revenue. While operating expenses and credit costs also increased, results were favorably impacted by the recognition of additional deferred tax benefits. Return on common equity was 14.7 percent for the second quarter of 1993, compared with 14.6 percent for the same period last year. Net income for the first six months of 1993 was $202 million, or $3.35 per share ($122 million, or $1.90 per share, excluding the effect of an accounting change for income taxes), compared with $108 million, or $1.67 per share, for the same period last year. "Our first-half revenues continued to grow," said Chairman Thomas C. Theobald. "We're again pleased with the performance of our trading business this quarter. Revenues from our equity investments continued to perform well. And, importantly, our efficiency ratio -- operating expenses as a percent of total revenues -- remained under 60 percent for the third quarter in a row." Banking Product Revenues Increase Total banking product revenues increased 11 percent from the second quarter of last year. Banking product revenues include management's internal allocations of funding costs. CONTINENTAL BANK CORPORATION (Dollars in millions) Second Quarter Year-to-Date 1993 1992(A) 1993 1992(A) Corporate Finance $125 $123 $270 $256 Specialized Financial Services 65 72 130 132 Trading 31 6 54 14 Equity Investments 29 25 68 75 Total Banking Product Revenues 250 226 522 477 All Other 1 (8) (4) (14) Total Revenues $251 $218 $518 $463
(A)Restated to conform to the current period's presentation.
Corporate finance revenues, which include revenues from lending, syndication and distribution activities, posted a 2 percent increase from the second quarter of 1992. Lending revenues increased slightly over the 1992 quarter, primarily due to $3 million of gains on sales of debt securities. Higher cash collections on nonperforming loans in the 1993 quarter were offset by the impact of a lower volume of loans and lower Latin American net interest-rate spread, reflecting both rate and volume declines. Most of the 9 percent decline in average loans was in real estate, European and Latin American outstandings. Pricing on the remaining portfolio increased 15 basis points over last year. Revenues from syndication, distribution and other credit services maintained the second-quarter 1992 level in a continuing slow business climate. Revenues from specialized financial services declined 10 percent from the year-ago quarter. Revenues from deposit-related services declined due to the lower value of interest-free funds in a lower interest-rate environment. Revenues from cash management services rose slightly as increased volumes were partially offset by declining rates. Specialized financial services revenues include fees for cash and securities management, fiduciary services and private banking. Revenues from trading activities rose $25 million from the same quarter last year, primarily due to customer-driven interest-rate derivative products and secondary asset trading. Equity investment revenues for the second quarter of 1993 rose $4 million from the 1992 second quarter; domestic equity revenues amounted to $22 million in the 1993 period, up $7 million from last year's quarter. The equity investment portfolio on June 30, 1993, amounted to $553 million, up $109 million from a year ago. The improvement in all other revenues was primarily attributable to lower translation losses from Latin American operations and a $2 million recognition of excess collections on receivables retained in the sale of a securities clearing subsidiary.
Second Quarter Year-to-Date (Dollars in millions) 1993 1992 1993 1992 Employee $ 75 $ 69 $147 $145 Occupancy & Equipment 17 15 32 31 Other Operating 56 50 112 106 Total Operating Expenses $148 $134 $291 $282 Operating Staff Level 4,158 4,346 Excluding a second-quarter 1992 litigation settlement which reduced other operating expenses, second-quarter 1993 operating expenses increased 6 percent over the 1992 quarter. Employee expense increased $6 million due to higher provisions for incentive compensation. Staff levels declined 4 percent, or 188 people, from June 30, 1992. The efficiency ratio was 59 percent in the 1993 quarter, compared with 61 percent last year. Income Taxes Continental recorded a credit for income taxes of $7 million in the second quarter of 1993, compared with an expense of $5 million in the year-ago quarter. The second-quarter 1993 credit included the recognition of an additional $13 million of deferred federal tax benefits. Management increased its projection of future taxable income in view of Continental's second-quarter earnings and, as a result, reduced the valuation allowance as of June 30, 1993. Provision and Reserve for Credit Losses The second-quarter provision for credit losses of $35 million was $10 million higher than the same quarter of last year, but lower than the $56 million recorded in the first quarter of 1993. The higher 1993 provisions were primarily due to higher charge-offs, primarily on loans to residential real estate developers in California. The reserve for credit losses was $368 million, or 3.1 percent of total loans, on June 30, compared with $400 million, or 3.2 percent, on March 31 and $415 million, or 3.2 percent, a year ago. The reserve for credit losses as a percent of nonperforming loans was 55.4 percent, up from 53.0 percent on March 31, but down slightly from 56.8 percent a year ago. Second Quarter Year-to-Date (Dollars in millions) 1993 1992 1993 1992 Charge-offs $ 70 $ 29 $126 $ 69 Recoveries (3) (8) (34) (19) Net Charge-offs $ 67 $ 21 $ 92 $ 50 Highly leveraged transaction (HLT) and residential real estate charge-offs amounted to $19 million and $17 million, respectively, in the 1993 second quarter, compared with $6 million and $3 million, respectively, in the year-ago quarter. The second-quarter 1993 HLT and residential real estate charge-offs were primarily attributable to one large credit in each of the portfolios. During the quarter, Continental transferred $77 million of Brazilian term loans to trading account assets, which resulted in $19 million of charge-offs. These charge-offs reduced the allocated transfer risk reserve for Brazilian debt to $2 million from $21 million on March 31. Net Costs of Other Nonperforming Assets (ONPA) Beginning with the 1993 second quarter, Continental is presenting the net costs of ONPA separately below the provision for credit losses on the Statement of Income in order to highlight other credit costs impacting the company. Prior-period financial statements have been restated to conform. The components of net costs of ONPA are write- downs, gains and losses from sales and net operating expenses. ONPA comprises other real estate owned (OREO) and other nonperforming assets. Second-quarter 1993 net costs of ONPA increased $11 million over the 1992 quarter, primarily due to write-downs taken on two OREO properties. The combined costs of credit provisions, forgone revenue on nonperforming loans and ONPA costs were $65 million in the second quarter of 1993, compared with $43 million in last year's second quarter. Nonperforming Assets Nonperforming assets, including loans, decreased $107 million from March 31, 1993, and $50 million from June 30 of last year. Nonperforming loans decreased $91 million from March 31 and $67 million from a year ago, partially from the transfer of Brazilian loans to trading account assets. In addition, nonperforming loans decreased during the second quarter of 1993 due to the return to accrual status of a large HLT credit. In accordance with a recent clarification to the banking industry by bank regulatory agencies and the Securities and Exchange Commission, Continental reclassified certain loans previously classified as in- substance foreclosures (ISFs) to nonperforming loans. These ISFs, which were included in OREO, were reclassified since the bank had not taken possession of the collateral at the reporting date and had no intent to do so. Prior periods have been restated in the following table to reflect this reclassification--$54 million on March 31, 1993, and $14 million on June 30, 1992. These restatements did not change total nonperforming assets. June 30 March 31 June 30 (Dollars in millions) 1993 1993 1992 General Corporate $148 $116 $220 HLT 79 184 162 Commercial Real Estate 54 61 54 Residential Real Estate 374 308 144 Latin American 9 86 151 Total Nonperforming Loans 664 755 731 OREO(A) 80 97 71 Other Nonperforming Assets(A) 24 23 16 Total Nonperforming Assets $768 $875 $818 Nonperforming Loans to Total Loans (in percentages) 5.66 6.12 5.55 (A)Includes credits designated as being in-substance foreclosed for accounting purposes. The general corporate portfolio, which exceeds $8 billion, is Continental's largest and strategically most important. Nonperforming loans in this portfolio rose $32 million from March 31, but declined $72 million since June 30, 1992. On June 30, 1993, general corporate nonperforming assets represented approximately 2.1 percent of this portfolio. On the same date, Continental's HLT portfolio was approximately $1.0 billion, 8.3 percent of which was nonperforming. On June 30, 1993, about 45.3 percent of residential real estate assets was nonperforming. California residential real estate assets amounted to approximately $500 million at quarter-end, 73.8 percent of which were nonperforming. Economic factors affecting the California housing market have caused this portfolio to underperform relative to Continental's other loan portfolios, and will continue to do so in the foreseeable future. Nonperforming assets represented less than 11 percent of both the commercial real estate and non-California residential real estate portfolios on June 30, 1993. The decrease in the Latin American portfolio is due to the transfer of Brazilian loans to trading account assets. Balance Sheet Total assets of $22.4 billion on June 30 increased slightly from March 31, 1993, but decreased 6 percent from June 30, 1992. Continental's equity-to-assets ratio was 8.2 percent on June 30 and March 31, 1993, and 6.7 percent on June 30, 1992. Book value per common share on June 30 rose to $27.17 from $26.33 on March 31 and $22.39 a year ago. In the second quarter, Continental issued $150 million of floating- rate debt. A portion of the proceeds was used for an early redemption of $94 million of floating-rate debt of a Continental subsidiary. Capital Ratios On June 30, the capital ratios of Continental Bank Corporation and Continental Bank N.A. exceeded the quantitative levels required to be categorized as "well capitalized." The corporation's estimated ratio of Tier 1 capital to risk-adjusted assets was 7.8 percent, and total capital to risk-adjusted assets was 10.9 percent, up from 6.4 percent and 9.3 percent, respectively, a year ago. The corporation's leverage ratio (Tier 1 capital to quarterly average assets) was 8.5 percent on June 30, compared with 7.2 percent a year ago. -0- 7/15/93 /NOTE TO EDITORS: Continental Bank Corporation is a bank holding company that focuses on meeting the capital and financial management needs of public and privately held businesses nationwide. Through its subsidiaries, the company provides business financing, specialized financial and operating services and private banking services. Continental also engages in equity finance and investing, as both principal and arranger, and international trading. /CONTACT: Lisa M. Hewitt, 312-923-5166, Edgar P. McDougal, 312-923-5200, or William C. Murschel, 312-923-5130, all of Continental Bank Corporation/ (CBK)
CO: Continental Bank Corporation ST: Illinois IN: FIN SU: ERN
MP -- NY026 -- 1873 07/15/93 10:50 EDT
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|Date:||Jul 15, 1993|
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