NationsBank, Norwest, PNC Report Profits Driven by Fees

Powered by revenue growth, major banks continued to report strong second-quarter earnings, despite posting higher loan-loss provisions.

At NationsBank Corp., earnings were up 30%, to $605 million. The Charlotte, N.C., company's chief financial officer, James H. Hance Jr., cited strong contributions from deposit charges, investment banking, mortgage servicing, and trading income. The jump in fees helped overcome the drags of higher credit losses and investment spending.

Strong noninterest-income growth fueled a 22% rise in profits at Norwest Corp. The Minneapolis-based bank reported earnings of $285.4 million.

PNC Bank Corp. of Pittsburgh said its quarterly income rose 28% from the same period a year ago, to $248 million. Fee businesses, such as asset management, brokerage, and corporate finance, helped boost noninterest income 7.4%.

Nowhere were credit-quality concerns more evident than at First Chicago NBD Corp. It reported net income of $361 million, up a relatively modest 9%. But the jump came despite a huge loss provision of $185 million, more than double the provision taken in the second quarter of 1995.

First Chicago NBD said $145 million of the recent provision was for credit card receivables.

The bank holding company said its credit card business continued to contribute to earnings, generating "close to $80 million in earnings for the quarter, despite a rise in chargeoffs due to personal bankruptcies."

While analysts were generally pleased with the bank's performance - earnings per share of $1.09 exceeded estimates - they said credit losses are depressing earnings at the bank.

"The issue is how much are credit costs going forward?" said Joseph Duwan, an analyst at Keefe, Bruyette & Woods Inc.

While flat expenses and good revenue growth made up for the large provision taken at First Chicago, Mr. Duwan said he would be watching the trend for the rest of this year. "The recent trends and the numbers are disconcerting," he said.

Smith Barney analyst Henry "Chip" Dickson said First Chicago is taking steps to control its credit card situation by scaling back on the marketing of new accounts and increasing fees to offset losses. "We're going to start seeing the higher fees kick in next quarter," Mr. Dickson said. "Right now, they appear to have the capacity to absorb higher credit losses."

Meanwhile, NationsBank's per-share earnings of $1.98 beat the consensus estimate by two cents. "It was an eye-popping quarter," said analyst George A. Bicher of Alex. Brown & Sons Inc. "They're getting revenue growth from many different line items."

NationsBank's revenues grew 21%, to $2.5 billion, from the year-ago quarter, despite a moderate slowing in loan growth. Loans grew 11% in the second quarter, adjusting for acquisitions and securitizations, compared to 15% for all of 1995.

As at many other banks in the quarter, fee income made up the difference, gaining 26%, to $917 million.

"They've had good fee income growth - no ands, ifs, or buts," said analyst Moshe Orenbuch of Sanford C. Bernstein & Co.

NationsBank also got a boost from net interest margin, up 19 basis points from the first quarter, to 3.62%, due to the company's policy of putting more high-yielding assets on the books and securitizing consumer loans, particularly credit card receivables and home mortgages.

Mr. Hance said NationsBank feels so confident of its earnings power that it recently raised its target for annual return on equity to between 17% and 20% from the current range of 15% to 18%. ROE hit 18% in the second quarter.

Mr. Hance also said the company is shooting for an efficiency ratio near 50% by 1999. This ratio was 55.6% in the second quarter, improved from 56.4% in the previous quarter and 61.5% in the year-earlier period.

NationsBank's loan-loss provision was more than doubled, to $155 million, which nearly covered the $157 million of net chargeoffs. The chargeoffs, up 89% from a year earlier, included credit card losses and an $18 million charge related to the bulk sale of nonperforming commercial real estate.

Unlike some of its peers, NationsBank did not engage in massive card solicitations last year.

The credit card chargeoff ratio increased to 4.36% in the second quarter from 3.79% in the first, still one of the industry's milder loss rates. Mr. Hance said NationsBank expects "only modest deterioration" in the card loss ratio in the remainder of the year.

At Norwest, noninterest income jumped 44.5% from the year-earlier quarter, to $646.6 million. Its results were helped by growth in net interest income, gains on sales of credit card loans, and venture capital investments.

Concerned about credit quality, Norwest set aside $87.4 million for credit losses in the second quarter, an increase of nearly $13 million from the year before. However, the provision was virtually unchanged from that taken in this year's first quarter, thanks to lower chargeoffs in Norwest's financial services subsidiary and credit card business.

Because of a rise in credit card delinquencies, Norwest sold $900 million, or nearly half, its credit card portfolio during the quarter.

At PNC, net interest income rose 16%, to $620 million. The bank took no loss provision for the second straight quarter because it said its $1.2 billion reserve for credit losses was sufficient.

In the Midwest, National City Corp., Boatmen's Bancshares, and Comerica Inc. reported profit gains, but their loss provisions soared.

Cleveland-based National City said its quarterly income was $183 million, a 20% jump from the second quarter of 1995. It took a loan-loss provision of $37.4 million, a 35.5% increase.

Boatmen's of St. Louis, with assets of $40.4 billion, said its net income rose 14% from the year-earlier quarter, to $146 million. Noninterest income rose 9%, to $208 million, and the company held the increase in noninterest expenses to 0.6%. Net interest income rose 7.7%, to $398 million.

"Greater efficiencies at some of our recently acquired entities are having a positive effect on the bottom line," said Andrew Craig, Boatmen's chairman and chief executive.

The provision for loan losses was $19.4 million, up from $10.2 million in the second quarter of 1995. Analysts noted that credit quality at Boatmen's is not a concern but said the company used extraordinary gains to beef up its loss provision. "We continue to take a prudent approach to credit management," said Mr. Craig, "increasing our provision for loan losses as our portfolio expands."

Detroit-based Comerica said its income rose 16%, to $118 million. Interest income rose 10% due to loan growth and an increase in net interest margin.

The loan-loss provision increased $9.5 million from the year-earlier quarter, to $25 million.

In the case of both National City and Comerica, acquisition costs were offset by other items, such as gains on securities.

This article was written by Jacqueline S. Gold with reporting by Brett Chase and Kenneth Cline. +++

NationsBank Corp. Charlotte, N.C. Dollar amounts in millions (except per share) Second Quarter 2Q96 2Q95 Net income $605.0 $467.0 Per share 1.98 1.70 ROA 1.20% 0.96% ROE 18.00% 16.69% Net interest margin 3.62% 3.19% Net interest income 1,611.0 1,367.0 Noninterest income 917.0 730.0 Noninterest expense 1,412.0 1,289.0 Loss provision 155.0 70.0 Net chargeoffs 157.0 83.0 Year to Date 1996 1995 Net income $1,195.0 $910.0 Per share 3.90 3.28 ROA 1.17% 0.99% ROE 18.04% 16.36% Net interest margin 3.52% 3.30% Net interest income 3,195.0 2,702.0 Noninterest income 1,802.0 1,456.0 Noninterest expense 2,806.0 2,579.0 Loss provision 310.0 140.0 Net chargeoffs 312.0 166.0 Balance Sheet 6/30/96 6/30/95 Assets $192,308.0 $184,188.0 Deposits 108,124.0 100,606.0 Loans 122,643.0 109,802.0 Reserve/nonp. loans 268% 239% Nonperf. loans/loans 0.70% 0.82% Nonperf. assets/assets 0.52% 0.60% Nonperf. assets/loans + OREO 0.80% 0.99% Leverage cap. ratio 6.64% 5.65% Tier 1 cap. ratio 7.58% 7.03% Tier 1+2 cap. ratio 11.93% 10.90%

Norwest Corp. Minneapolis Dollar amounts in millions (except per share) Second Quarter 2Q96 2Q95 Net income $285.40 $234.30 Per share 0.76 0.67 ROA 1.50% 1.48% ROE 22.10% 22.60% Net interest margin 5.54% 5.66% Net interest income 924.5 806.6 Noninterest income 646.6 447.4 Noninterest expense 1,015.8 822.0 Loss provision 87.4 74.7 Net chargeoffs 83.9 74.4

Year to Date 1996 1995 Net income $556.8 $451.1 Per share 1.50 1.32 ROA 1.50% 1.47% ROE 22.40% 22.40% Net interest margin 5.62% 5.58% Net interest income 1,822.8 1,558.6 Noninterest income 1,203.6 842.2 Noninterest expense 1,963.2 1,581.2 Loss provision 175.2 130.0 Net chargeoffs 169.4 122.4 Balance Sheet 6/30/96 6/30/95 Assets $77,849.3 $66,623.0 Deposits 46,284.4 38,189.5 Loans 38,652.3 36,276.8 Reserve/nonp. loans 549.7% 696.6% Nonperf. loans/loans 0.47% 0.34% Nonperf. assets/assets 0.29% 0.23% Nonperf. assets/loans + OREO 0.58% 0.43% Leverage cap. ratio 6.09% 5.85% Tier 1 cap. ratio 8.53% 8.04% Tier 1+2 cap. ratio 10.49% 10.18%

Comerica Inc. Detroit Dollar amounts in millions (except per share) Second Quarter 2Q96 2Q95 Net income $118.0 $102.0 Per share 1.00 0.86 ROA 1.37% 1.19% ROE 17.73% 16.02% Net interest margin 4.55% 4.15% Net interest income 356.0 323.0 Noninterest income 121.0 118.0 Noninterest expense 270.0 273.0 Loss provision 25.0 16.0 Net chargeoffs 18.0 13.0 Year to Date 1996 1995 Net income $235.0 $202.0 Per share 1.98 1.71 ROA 1.35% 1.20% ROE 17.50% 16.28% Net interest margin 4.47% 4.16% Net interest income 706.0 636.0 Noninterest income 258.0 234.0 Noninterest expense 549.0 537.0 Loss provision 54.0 28.0 Net chargeoffs 41.0 19.0 Balance Sheet 6/30/96 6/30/95 Assets $35,386.0 $35,451.0 Deposits 22,948.0 21,889.0 Loans 26,029.0 23,994.0 Reserve/nonp. loans 290.36% 215.92% Nonperf. loans/loans 0.48% 0.65% Nonperf. assets/assets 0.45% 0.56% Nonperf. assets/loans + OREO 0.62% 0.82% Leverage cap. ratio 7.72% 6.59% Tier 1 cap. ratio 8.04% 7.61% Tier 1+2 cap. ratio 11.39% 10.85%

National City Corp. Cleveland Dollar amounts in millions (except per share) Second Quarter 2Q96 2Q95 Net income $182.8 $152.5 Per share 0.81 0.69 ROA 1.51% 1.28% ROE 18.12% 17.23% Net interest margin 4.45% 4.25% Net interest income 489.9 456.9 Noninterest income 282.1 241.4 Noninterest expense 540.2 469.9 Loss provision 37.4 27.6 Net chargeoffs 34.6 27.5 Year to Date 1996 1995 Net income $359.7 $303.7 Per share 1.60 1.37 ROA 1.48% 1.30% ROE 17.97% 17.62% Net interest margin 4.41% 4.33% Net interest income 965.1 904.2 Noninterest income 550.8 497.1 Noninterest expense 1,005.7 924.9 Loss provision 69.4 54.2 Net chargeoffs 65.6 54.7 Balance Sheet 6/30/96 6/30/95 Assets $48,805.8 $49,372.4 Deposits 34.696.3 34,715.3 Loans 35,122.9 33,013.6 Reserve/nonp. loans 3.85% 3.66% Nonperf. loans/loans 0.52% 0.59% Nonperf. assets/assets 0.42% 0.45% Nonperf. assets/loans + OREO 0.54% 0.67% Leverage cap. ratio 7.85% 7.21% Tier 1 cap. ratio 10.13% 9.40% Tier 1+2 cap. ratio 15.00% 12.87%

First Chicago NBD Chicago Dollar amounts in millions (except per share) Second Quarter 2Q96 2Q95 Net income $361.0 $331.0 Per share 1.09 0.98 ROA 1.25% 1.07% ROE 17.40% 16.80% Net interest margin 3.74% 3.10% Net interest income 935.0 808.0 Noninterest income 643.0 631.0 Noninterest expense 814.0 821.0 Loss provision 185.0 90.0 Net chargeoffs 153.0 53.0 Year to Date 1996 1995 Net income $701.0 $667.0 Per share 2.14 2.00 ROA 1.19% 1.12% ROE 17.00% 17.30% Net interest margin 3.62% 3.16% Net interest income 1,848.0 1,623.0 Noninterest income 1,269.0 1,234.0 Noninterest expense 1,642.0 1,620.0 Loss provision 360.0 175.0 Net chargeoffs 298.0 97.0 Balance Sheet 6/30/96 6/30/95 Assets $113,714.0 $123,180.0 Deposits 64,593.0 66,319.0 Loans 66,431.0 58,484.0 Reserve/nonp. loans 402% 401% Nonperf. loans/loans 0.50% 0.50% Nonperf. assets/assets 0.30% 0.26% Nonperf. assets/loans + OREO 0.60% 0.60% Leverage cap. ratio 7.60% 7.00% Tier 1 cap. ratio 8.10% 8.50% Tier 1+2 cap. ratio 12.10% 12.80%

Boatmen's Bancshares St. Louis, Mo. Dollar amounts in millions (except per share) Second Quarter 2Q96 2Q95 Net income $146.10 $127.80 Per share 0.92 0.80 ROA 1.44% 1.27% ROE 16.49% 15.46% Net interest margin 4.48% 4.19% Net interest income 398.20 369.70 Noninterest income 208.40 190.80 Noninterest expense 358.10 356.10 Loss provision 19.40 10.20 Net chargeoffs 11.10 8.90 Year to Date 1996 1995 Net income $257.20 $218.10 Per share 1.61 1.37 ROA 1.27% 1.09% ROE 14.18% 13.18% Net interest margin 4.44% 4.20% Net interest income 787.40 732.90 Noninterest income 420.90 355.10 Noninterest expense 757.60 730.60 Loss provision 45.60 20.90 Net chargeoffs 27.00 17.00 Balance Sheet 6/30/96 6/30/95 Assets $40,682.60 $40,893.90 Deposits 30,629.0 30,458.5 Loans 24,416.5 24,307.4 Reserve/nonp. 214.30% 269.30% Nonperf. loans/loans 0.90% 0.70% Nonperf. assets/assets 0.63% 0.57% Nonperf. assets/loans + OREO 1.04% 0.95% Leverage cap. ratio 8.29% 7.61% Tier 1 cap. ratio 11.52% 10.84% Tier 1+2 cap. ratio 14.18% 13.56% ===

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