The banking industry kept its earnings streak going Tuesday as several big companies - including Chemical Banking Corp., Banc One Corp., and Wells Fargo & Co. - reported strong results for the third quarter.
Fueled by rising loan volume and higher fee income, profits at Chemical rose 9% to $477 million, while earnings at Banc One jumped 17% to $331 million. Net income at Wells Fargo leaped 20% to $261 million.
Meanwhile, Mellon Bank Corp. had a 9% rise, to $166 million, partly because it has begun reaping earnings from Dreyfus Corp., the giant mutual fund company it acquired last year.
There were, of course, execeptions to the general upward trend. Earnings at Citicorp fell 2% to $877 million, reflecting extraordinary tax gains in the year-earlier period, and Keycorp's profits were down 9% because of a lower net interest margin.
Still, analysts characterized results at all six banks as solid, and broadly in line with or stronger than expectations.
"Boring is beautiful in Bankville," said Diane Glossman, a banking analyst with Salomon Brothers Inc. "The overall bottom line is these guys did produce quite respectable returns."
The $257.5 billion-asset Citicorp came in at $1.62 per share, matching a consensus of analysts tracked by First Call Corp.
Even though earnings were in line with expectations, investors drove down the stock price 87.5 cents, to $72.75, on disappointing news about Citicorp's global finance activities. Net income from this business fell 19% to $351 million, divided about equally between emerging markets on one hand and North America, Europe, and Japan on the other.
Net earnings from Citicorp's global consumer operations rose 10% on a year-to-year basis to $522 million, with earnings from emerging markets up 20% to $201 million. Earnings from industrialized countries were up 4.5% to $321 million. Total earnings before taxes rose 10% to $1.39 billion.
Analysts noted that although Citicorp's expenses rose 7% on a year-to- year comparison, they remained basically flat when compared to the second quarter this year.
At Chemical, earnings worked out to $1.70 a share, well above the $1.58 forecast.
Chemical's improvement was largely attributable to a slight rise in net interest income; an eightfold increase in securities gains, to $47 million; and an improvement of more than 50% in corporate finance and syndication fees, to $157 million.
"Chemical's big positive was in fee income," said Lawrence Cohn, a bank analyst with PaineWebber Inc. "What really jumps out at you from the figures is that this is a powerhouse loan syndicator."
Chemical's shares were up 37.5 cents at the close of Tuesday's trading, to $62.75.
However, Mr. Cohn questioned whether Chemical's record earnings from such fees were sustainable.
"Corporate America is going through the same kind of refinnacing wave we saw consumers do with their mortgages a couple of years ago," he said.
"Corporate finance and syndication fees could stay high for a while but they're not sustainable and ultimately leave the bank with lower-earning assets."
On a more positive note, Mr. Cohn pointed out that Chemical's expenses remained under control. Both interest and noninterest related expenses rose only slightly over last year.
However, Ms. Glossman noted that at least part of the reason for the basically flat expense figure was a reduction in Federal Deposit Insurance Corp. premiums.
"They wouldn't have any problem meeting their prior goal with regard to expenses, but they certainly were materially helped by the reduction in the premium," she noted.
Total assets at Chemical, boosted by an 11% increase in loans to $85.6 billion, rose 11% to $187.9 billion. The bank is scheduled to merge with Chase Manhattan Corp. early next year, creating the biggest bank in the United States with some $300 billion of assets.
Third-quarter earnings at Banc One, Mellon, and Keycorp were also helped by a reduction in deposit insurance premiums.
Banc One's per-share earnings of 83 cents beat consensus estimates by 2 cents. The Columbus, Ohio, bank's stock closed Tuesday's trading unchanged at $38. Mellon's earnings excluded charges relating to last year's Dreyfus acquisition. The per-share figure of $1.15 was 2 cents above consensus. Shares of the Pittsburgh-based bank were up $2.875 to $51.75 on the results announced Tuesday.
Meanwhile, Keycorp's expected decline was primarily due to a net interest margin down 29 basis points from the year-earlier period. But at 90 cents, the Cleveland company's earnings per share came in four cents above consensus estimates. Keycorp shares closed the day up 25 cents to $35.875.
Banc One's earnings comparison did benefit from 12 cents a share in acquisition-related charges in the third quarter of 1994. But even so, Banc One reported 13% loan growth during the period.
The increase in loans as a percentage of earning assets helped boost the net interest margin to 5.39% from 5.29% in the previous quarter and 5.26% a year ago.
Credit cards led the loan growth at Banc One, with outstandings up 37% from the third quarter of 1994.
"It sets them up for a very strong 1996," said analyst Nancy Bush, with Brown Brothers Harriman & Co. "They are very solidly back on track for the kind of performance we used to count on from them."
Ms. Bush said she was particularly pleased by Banc One's cost control effort, known as the "national partnership," which involves the integration of the company's previously autonomous individually chartered bank subsidiaries. Noninterest expense fell 8%, to $880 million.
"We're beginning to see the consolidation savings flow through," Ms. Bush said.
Mellon reported 11% loan growth - largely driven by credit card and other consumer credits - which pushed net interest revenue up 4% to $392 million from $376 million a year ago. Noninterest income was up 10% to $422 million, led by higher mortgage servicing revenue and mutual fund management fees at Dreyfus.
"They're making progress on the credit side and on the fee side," said Dean Witter's Anthony R. Davis.
Like Banc One and several other banks this quarter, Mellon did report an uptick in losses in its rapidly growing credit card portfolio. The provision for loan losses doubled, to $30 million.
Mellon also announced a plan to utilize some of its excess capital by repurchasing up to 8 million shares of its common stock. Mellon said it estimates the program, which will be completed by March 31, will increase its annualized earnings per share by approximately 17 cents and its return on equity by 1.7%.
The company said the move will reduce its capital ratios by about 1% but keep it within the FDIC's capitalization thresholds.
Keycorp's third quarter, compared to the previous quarter, benefited from a flat margin, improved fee income (up 5% to $235 million) and less shares outstanding. "It was uneventfully solid," said Lehman Brothers analyst Michael L. Mayo.
Keycorp repurchased 7 million shares during the third quarter and said it planned to buy another 4.1 million in the current quarter, which would complete the 12-million-share buyback program announced for 1995.
San Francisco-based Wells Fargo credited its stellar performance to nonrecurring items and a solid showing in its core business.
Per share earnings of $5.23 soared past the consensus Wall Street estimate of $4.70 reported by First Call. Wells' shares closed Tuesday's trading at $213.625, up $6.625.
The bank holding company was helped by its practice, commenced in the first quarter, of trimming its fat loan-loss reserves by suspending new provisions. This boosted earnings by $50 million over last year. The $49.9 billion-asset bank also benefited from a $23 million deposit insurance premium refund.
But analysts saw positive news in other areas. Wells Fargo's fee income rose 10% to $339 million, paced by increases in most areas, including trust and investment services.
Noninterest expenses rose 2%. But Wells' efficiency ratio - the percentage of revenues consumed by non-interest expenses - declined to 54.1% in the third quarter, from 57.8% in the second quarter, and 55.1% last year.
Average loans rose by $900 million in the third quarter to $34.1 million, while average core deposits rose by $392 million to $36.6 billion.
Wells' net chargeoffs rose $15 million, to $75 million. The lion's share of the increase came from a 79% increase in credit card loans that were written off. Chargeoffs of these loans totaled $52 million.
But Wells Fargo's total credit card loan portfolio increased 36%. Its net interest income increased only 1% to $663 million. And its net interest margin rebounded to 5.9%, from 5.53% last year and 5.66% in the second quarter. Total nonaccrual and restructured loans fell by $44 million in the third quarter to $600 million. Wells reported a stratospheric return on average equity of 30.13% and an equally lofty 2.07% return on average assets.
"It was a barn-burner," said Salomon Brothers Inc. analyst Carole S. Berger.
She said she believes Wells Fargo's strong earnings are sustainable. As a result, she is raising her earnings estimates through 1997.
Kenneth Cline, Barton Crockett, James R. Kraus, and Jacqueline S. Gold contributed to this report. +++
Wells Fargo & Co. San Francisco Dollar amounts in millions (except per share) Third Quarter 3Q95 3Q94 Net income $261.0 $217.0 Per share 5.23 3.86 ROA 2.07% 1.65% ROE 30.13% 22.99% Net interest margin 5.90% 5.53% Net interest income 663.0 657.0 Noninterest income 339.0 307.0 Noninterest expense 542.0 531.0 Loss provision 0.0 50.0 Net chargeoffs 75.0 60.0 Year to Date 1995 1994 Net income $726.0 $625.0 Per share 14.14 10.83 ROA 1.89% 1.61% ROE 27.91% 21.91% Net interest margin 5.72% 5.55% Net interest income 1,987.0 1,954.0
Noninterest income 890.0 906.0 Noninterest expense 1,638.0 1,580.0 Loss provision 00.0 170.0 Net chargeoffs 210.0 182.0 Balance Sheet 9/30/95 9/30/94 Assets $49,934.0 $52,164.0 Deposits 38,948.0 40,000.0 Loans 34,298.0 34,951.0 Reserve/nonp. loans 312% 329% Nonperf. loans/loans 1.80% 1.80% Nonperf. assets/assets 1.70% 1.80% Nonperf. assets/loans
+ OREO 2.40% 2.70% Leverage cap. ratio 6.95% 7.01% Tier 1 cap. ratio 8.55% 9.62% Tier 1+2 cap. ratio 12.25% 13.93%
Bank One Corp. Columbus Dollar amounts in millions (except per share) Third Quarter 3Q95 3Q94 Net income $331.0 $283.3 Per share 0.83 0.68 ROA 1.51% 1.27% ROE 17.09% 14.82% Net interest margin 6.39% 5.26% Net interest income 1,057.7 1,054.6 Noninterest income 472.87 430.80 Noninterest expense 880.2 958.2 Loss provision 132.5 75.9 Net chargeoffs 108.7 76.2 Year to Date 1995 1994 Net income $941.0 $940.7 Per share 2.35 2.27 ROA 1.45% 1.45% ROE 16.68% 16.79% Net interest margin 5.34% 5.58% Net interest income 3,114.3 3,259.9 Noninterest income 1,378.8 1,172.3 Noninterest expense 2,706.1 2,726.4 Loss provision 291.6 206.7 Net chargeoffs 269.4 225.1 Balance Sheet 9/30/95 9/30/94 Assets $88,353.3 $88,163.7 Deposits 66,291.7 65,909.7 Loans 65,412.7 61,647.4 Reserve/nonp. loans 253.3% 220.2% Nonperf. loans/loans 0.55% 0.70% Nonperf. assets/assets 0.50% 0.59% Nonperf. assets/loans
+ OREO 0.68% 0.85% Leverage cap. ratio 8.88%* 8.53% Tier 1 cap. ratio 10.13% 10.51% Tier 1+2 cap. ratio 14.20% 13.97%
*Preliminary
Mellon Bank Corp. Pittsburgh Dollar amounts in millions (except per share) Third Quarter 3Q95 3Q94 Net income $166.0 $152.0* Per share* 1.15 1.02* ROA 1.70% 1.74%* ROE 17.98% 16.10%* Net interest margin 4.56% 4.66% Net interest income 392.0 376.0 Noninterest income 422.0 384.0 Noninterest expense 506.0 491.0* Loss provision 30.0 15.0 Net chargeoffs 39.0 16.0 Year to Date 1995 1994 Net income $488.0 $440.0* Per share 3.32 2.95* ROA 1.74% 1.70%* ROE 17.67% 15.99%* Net interest margin 4.68% 4.66% Net interest income 1,166.0 1,107.0 Noninterest income 1,226.0 1,242.0 Noninterest expense 1,501.0 1,529.0* Loss provision 70.0 55.0 Net chargeoffs 111.0 47.0 Balance Sheet 9/30/95 9/30/94 Assets $41,907.0 $39,251.0 Deposits 29,311.0 27,132.0 Loans 28,073.0 26,012.0 Reserve/nonp. loans 314% 392% Nonperf. loans/loans 0.65% 0.60% Nonperf. assets/assets 0.62% 0.66% Nonperf. assets/loans
+ OREO 0.93% 0.99% Leverage cap. ratio 8.20% 9.16% Tier 1 cap. ratio 8.80% 10.03% Tier 1+2 cap. ratio 12.00% 13.50%
*Excludes one-time charge for Dreyfus merger
KeyCorp Cleveland Dollar amounts in millions (except per share) Third Quarter 3Q95 3Q94 Net income $209.6 $229.3 Per share 0.90 0.92 ROA 1.25% 1.43% ROE 18.07% 19.95% Net interest margin 4.50% 4.79% Net interest income 679.7 694.0 Noninterest income 235.0 223.3 Noninterest expense 560.3 530.1 Loss provision 27.5 27.2 Net chargeoffs 27.6 25.9 Year to Date 1995 1994 Net income $618.3 $659.7 Per share 2.59 2.66 ROA 1.24% 1.43% ROE 17.72% 19.65% Net interest margin 4.46% 4.91% Net interest income 2,019.8 2,071.8 Noninterest income 628.9 677.3 Noninterest expense 1,689.7 1,611.6 Loss provision 66.3 99.0 Net chargeoffs 64.9 88.4 Balance Sheet 9/30/95 9/30/94 Assets $67,967.1 $64,503.4 Deposits 47,905.0 47,816.5 Loans 48,409.7 44,608.8 Reserve/nonp. loans 280.53% 286.62% Nonperf. loans/loans 0.65% 0.64% Nonperf. assets/assets 0.54% 0.62% Nonperf. assets/loans
+ OREO 0.76% 0.89% Leverage cap. ratio 6.21%* 6.79% Tier 1 cap. ratio 7.58%* 8.86% Tier 1+2 cap. ratio 10.84%* 12.07%
*estimated
Citicorp New York Dollar amounts in millions (except per share) Third Quarter 3Q95 3Q94 Net income $877.0 $894.0 Per share 1.62 1.67 ROA 1.31% 1.34% ROE 17.90% 22.00% Net interest margin 5.04% 4.80% Net interest income 2,598.0 2,346.0 Noninterest income 2,159.0 1,979.0 Noninterest expense 2,793.0 2,630.0 Loss provision 576.0 436.0 Net chargeoffs 501.0 317.0 Year to Date 1995 1994 Net income $2,559.0 $2,324.0 Per share 4.72 4.33 ROA 1.27% 1.21% ROE 18.20% 20.60% Net interest margin NA NA Net interest income 7,391.0 6,589.0
Noninterest income 6,498.0 5,647.0 Noninterest expense 8,284.0 7,533.0 Loss provision 1,460.0 1,323.0 Net chargeoffs 1,225.0 686.0 Balance Sheet 9/30/95 9/30//94 Assets $257,536.0 $253,149.0 Deposits 163,827.0 154,291.0 Loans 160,695.0 146,323.0 Reserve/nonp. loans 123.1% 89.7% Nonperf. loans/loans 2.70% 3.90% Nonperf. assets/assets 2.40% 3.10% Nonperf. assets/loans
+ OREO 3.70% 5.30% Leverage cap. ratio NA 6.40% Tier 1 cap. ratio 8.40%* 7.50% Tier 1+2 cap. ratio 12.30%* 11.90%
*Estimated
Chemical Banking Corp.
New York Dollar amounts in millions (except per share) Third Quarter 3Q95 3Q94 Net income $477.0 $439.0 Per share 1.74 1.59 ROA 1.04% 1.03% ROE 17.34% 16.92% Net interest margin 3.34% 3.63% Net interest income 1,197.0 1,177.0 Noninterest income 977.0 984.0 Noninterest expense 1,257.0 1,311.0 Loss provision 122.0 100.0 Net chargeoffs 147.0 125.0 Year to Date 1995 1994 Net income $1,315.0 $1,115.0 Per share 4.91 3.98 ROA 0.98% 0.90% ROE 16.87% 14.36% Net interest margin 3.39% 3.63% Net interest income 3,515.0 3,505.0 Noninterest income 2,808.0 2,782.0 Noninterest expense 3,751.0 3,916.0 Loss provision 362.0 465.0 Net chargeoffs 437.0 837.0 Balance Sheet 9/30/95 9/30/94 Assets $187,853.0 $169,334.0 Deposits 96,788.0 92,961.0 Loans 85,623.0 77,138.0 Reserve/nonp. loans 242.68% 173.88% Nonperf. loans/loans 1.16% 1.98% Nonperf. assets/assets 0.56% 1.30% Nonperf. assets/loans
+ OREO NA NA Leverage cap. ratio** 6.20% 6.30% Tier 1 cap. ratio** 7.90%* 8.00% Tier 1+2 cap. ratio** 11.60%* 12.00%
*Estimated
**Excludes corporation's securities subsidiary ===
