NationsBank Corp. shrank its derivatives and investment portfolio in the third quarter, which held earnings flat from the second quarter at $431 million. But strong loan growth and fee income produced a 26% gain from $341 million earned in the year-ago period.
On a per-share basis, NationsBank's net income of $1.55 came fight in line with Wall Street consensus estimates compiled by First Call.
NationsBank's net interest income gained 14% on a year-to-year comparison, to $1.3 billion. But this was down by $9 million from the second quarter. At the same time, the net interest margin slipped 16 basis points from the previous quarter, to 3.54%.
The main culprit was the Charlotte, N.C.-based bank's decision to sell $9 billion in derivatives and securities during the third quarter to accommodate rising interest rates, which produced $4 million in securities losses. NationsBank plans to invest the cash in higher-yielding instruments, which should help earnings next year.
Investor relations spokesman Rusty Page said NationsBank believed most of this repositioning was over for the year, though "some continuing actions" might occur in the fourth quarter.
NationsBank's strong revenue growth, fed by both loans and fee income, gave it the flexibility to accomplish this realignment with minimal damage to earnings.
Loans were up 14% annualized in the third quarter, exceeded among southeastern superregionals only by First Union Corp.'s 16% improvement. NationsBank said loan growth was strong "in almost every category," especially in the commercial, residential mortgage, bank card, foreign, and leasing portfolios. Indirect auto was one of the few laggards, as NationsBank retrenched. in the face of intense price competition.
Fee income was up 24%, to $649 million, driven by trading, trust, and investment banking fees, though the percentage gain falls to 14% if acquisitions are excluded.
Expenses reached $1.2 billion. up 17% from the year-ago quarter. Excluding recent major acquisitions, expenses grew Only 2% during the period, which analysts viewed as a creditable performance.
"The issue facing banks is keeping expense growth slower, by a couple of percentage points, than revenue growth," said Sanford C. Bernstein & Co.'s Moshe Orenbuch. "If you've got growth in revenues, like NationsBank, you don't actually have to drop your expenses."
Like other southeastern banks, NationsBank continues to get a boost from improved asset quality. The loan-loss provision fell 30% from the year-earlier quarter to $70 million, while net chargeoffs were down 35%, to $64 million.
[Tabular Data Omitted]
