Gains in fee income helped boost profits at several large banks reporting Thursday, though KeyCorp didn't quite make the grade.
A decline in noninterest income and a restructuring charge pushed Cleveland-based KeyCorp's fourth-quarter net down by 27%, to $151 million. But other major superregionals conformed to the broader revenue and bottom- line trends that have left analysts heartened by the industry's performance.
First Union Corp., Charlotte, N.C., posted a 39% gain in net income, to $459 million. It credited a 23% jump in fees, mostly from its capital markets and management groups.
Minneapolis-based Norwest Corp. reported a 41% jump in noninterest income, helping boost fourth-quarter profits by 19%, to $308 million.
Bank of New York Co., which has put fees from its securities processing business at the center of its strategy, earned $250 million in the quarter, up 4%.
"It's been a great fee year," said Sally Pope Davis, an analyst at Goldman, Sachs & Co. The robust economy has created a "spillover effect" in the form of fees for banks and other financial services providers.
"The conclusion we're going to come away with this quarter is that the better-managed companies are maintaining fee businesses, rather than focusing on spread businesses," said Anthony Davis, an analyst at Dean Witter Reynolds.
First Union Corp.
First Union earned $1.66 a share in the fourth quarter, compared to $1.19 in the 1995 period, when earnings were dampened by merger-related restructuring charges. The latest result beat analysts' consensus estimate by a penny.
For the year, net income was up 6%, to $1.49 billion.
Company officials said the 1996 results reflected the consolidation of the former First Fidelity Bancorp. The merger closed last January, and operations were fully combined by midyear. This produced improvements in operating efficiency and revenues, officials said.
But the real growth came from mutual funds and capital markets. The latter saw income jump 63%, to $169 million.
The company's capital management income of $157 million in the fourth quarter was up 34% from the 1995 quarter. Overall, fee income excluding securities transactions leaped 26%, to $2.3 billion in 1996.
"Clearly the capital markets income was very strong in the fourth quarter ... a real boost," said Merrill H. Ross of Wheat First Butcher Singer.
Meanwhile, average loans grew by 6%, to $94 billion, from the fourth quarter of 1995. Nonperforming assets as a percentage of loans and foreclosed properties declined nine basis points to 0.80% from the third quarter.
The company also improved its efficiency ratio to 54% from 56% a year earlier.
"There really aren't any soft spots anywhere in our markets," said Malcolm T. Murray, First Union's chief credit officer. "Loan growth was solid and credit quality trends remained very strong."
"We think we've been very successful in transforming First Union from a regional bank to a national full-service financial institution," said its chief financial officer, Robert T. Atwood.
Its shares closed Thursday's trading at $80, up 37.5 cents.
Norwest Corp.
Helped by its massive mortgage operation, Norwest said fourth-quarter income had increased 13%, to 81 cents per share, meeting the analysts' consensus.
While loan growth was flat, the $80.2 billion-asset company compensated with strong revenue growth in its fee businesses.
Mortgage banking contributed income of $225 million, a 61% gain. Norwest also reported strong improvements in venture capital and insurance to boost noninterest income to $738 million.
While loan growth in the quarter was flat, analysts predict even slower growth in 1997. That means banks are going to have to look even more intently to fee businesses for revenue growth, Mr. Davis said.
"To be real aggressive on the lending side in this part of the cycle is something you're not going to see," he added.
Norwest earned $1.2 billion for the year, up 20% from 1995. The company's shares were down 12.5 cents in Thursday's trading, to $46.25.
KeyCorp
KeyCorp was adversely affected by a previously announced $100 million restructuring charge related to severance, branch closings, and other costs of reorganization.
While the $67.6 billion-asset company reported a 27% decline in net income, earnings per share plunged 19 cents, to 67 cents, or 2 cents shy of analysts' estimates.
Loan growth was flat, and fee income was down by 6.25%, but KeyCorp benefited from securitization gains in the 1995 fourth quarter that inflated that result. Factoring out the unusual gain, KeyCorp would have shown a 2% increase in fees.
Analyst Fred Cummings of McDonald & Company Securities said KeyCorp's expense control was good. Eliminating the $100 million restructuring charge, the company would have shown a slight decrease in expenses, he said.
However, revenues are flat, he said, as a result of two years of indecision on strategy.
"KeyCorp is in a state of transition, and they have been for the past couple of years," Mr. Cummings said. "They're still struggling on the revenue side, and that's why they're repositioning with the restructuring."
KeyCorp, which resulted from the 1994 merger of Society Corp. in Cleveland and Albany, N.Y.-based KeyCorp, said in November it would slash 280 branches and cut 10% of its work force to become more profitable.
The company's full-year net income declined 4%, to $775 million. Its shares were down 25 cents Thursday, to $52.125
Bank of Boston Corp.
Bank of Boston's gain in loan income helped offset a slight drop in fees.
The $62.3 billion-asset company's fourth-quarter net income rose 12%, to $202 million, or $1.24 per share fully diluted, from $180 million, or $1.08 a share.
The results were a few cents off Wall Street expectations. The stock fell 62.5 cents, to $70.
The bank suffered an 8% drop in the quarter's fee income, to $367 billion. The decline was largely attributed to a $29 million fall in mortgage servicing fees from the sale of a business unit last year.
The bank's other fee growth, such as in deposit accounts, automated teller machines, letters of credit, and syndications, was stagnant.
However, net interest income rose 6.7% to $611.2 million in the quarter, thanks to lower borrowing costs and growth in commercial and domestic portfolios and higher levels of Latin American loans.
"The quarter was pretty much as expected," said Sanford C. Bernstein analyst Ronald I. Mandle.
Bank of New York Co.
Strong fee income from securities processing helped Bank of New York register a 9% increase in earnings per share, to 61 cents, which met analysts' consensus estimates.
The growth helped offset a 5.5% decline in loan income, due largely to the bank's sale in the second quarter of its AFL-CIO credit card portfolio.
Income from securities processing, the bank's leading fee business, rose 58% in the quarter, to $171 million.
The jump reflected a combination of 14% internal growth, the acquisition of the corporate trust business of NationsBank, and the purchase of custody businesses from BankAmerica Corp. and J.P. Morgan & Co.
The $55.9 billion-asset Bank of New York also reported trust and investment fees of $42 million, up 7%. Overall, noninterest income rose 5.2% to $441 million.
"Though expenses were a little higher than expected, revenue growth remains strong," said Mr. Mandle.
Credit card chargeoffs jumped 15%, to $93 million. This writedown was an expected outgrowth of the bank's decision last June to set aside $350 million in a special reserve for potential credit card losses.
Bank of New York's shares ended Thursday at $34.75, down 25 cents.
This article was written by Jacqueline S. Gold based on reporting by Carey Gillam in Atlanta, Brett Chase in Chicago, and John Kimelman in New York. +++
First Union Corp. Charlotte, N.C. Dollar amounts in millions (except per share) Fourth Quarter 4Q96 4Q95 Net income $459.0 $331.0 Per share 1.66 1.19 ROA 1.35% 1.06% ROE 19.63% 15.13% Net interest margin 4.20% 4.20% Net interest income 1,272.0 1,190.0 Noninterest income 673.0 546.0 Noninterest expense 1,113.0 1,044.0 Loss provision 120.0 64.0 Net chargeoffs 174.0 107.0 Year to Date 1996 1995 Net income $1,490.0 $1,404.0 Per share 5.35 5.04 ROA 1.31% 1.27% ROE 18.85% 17.55% Net interest margin 4.21% 4.46% Net interest income 5,080.0 4,740.0 Noninterest income 2,322.0 1,848.0 Noninterest expense 4,254.0 3,999.0 Loss provision 375.0 220.0 Net chargeoffs 568.0 339.0 Balance Sheet 12/31/96 12/31/95 Assets $140,127.0 $131,880.0 Deposits 94,815.0 92,555.0 Loans 94,493.0 89,055.0 Reserve/nonp. loans 204% 233% Nonperf. loans/loans 0.07% 0.07% Nonperf. assets/assets 0.01% 0.01% Nonperf. assets/loans + OREO 0.80% 0.91% Leverage cap. ratio 6.13%* 5.49% Tier 1 cap. ratio 7.28%* 6.70% Tier 1+2 cap. ratio 12.23%* 11.45%
* Estimated
Norwest Corp. Minneapolis Dollar amounts in millions (except per share) Fourth Quarter 4Q96 4Q95 Net income $308.1 $259.7 Per share 0.81 0.72 ROA 1.55% 1.42% ROE 22.00% 22.00% Net interest margin 5.60% 5.60% Net interest income 955.1 896.1 Noninterest income 738.1 522.3 Noninterest expense 1,103.0 934.9 Loss provision 113.6 95.9 Net chargeoffs 113.6 95.9 Year to Date 1996 1995 Net income $1,153.9 $956.0 Per share 3.07 2.73 ROA 1.51% 1.44% ROE 21.90% 22.30% Net interest margin 5.63% 5.58% Net interest income 3,733.5 3,302.8 Noninterest income 2,564.6 1,848.2 Noninterest expense 4,089.7 3,382.3 Loss provision 394.7 312.4 Net chargeoffs 382.4 304.2 Balance Sheet 12/31/96 12/31/95 Assets $80,175.4 $72,134.4 Deposits 50,130.2 42,028.8 Loans 39,381.0 36,153.1 Reserve/nonp. loans 664.4% 542.9% Nonperf. loans/loans 0.40% 0.47% Nonperf. assets/assets 0.25% 0.29% Nonperf. assets/loans + OREO 0.51% 0.57% Leverage cap. ratio 6.15% 5.65% Tier 1 cap. ratio 8.63% 8.11% Tier 1+2 cap. ratio 10.42% 10.18%
KeyCorp Cleveland, Ohio Dollar amounts in millions (except per share) Fourth Quarter 4Q96 4Q95 Net income $151.0 $207.0 Per share 0.67 0.86 ROA 0.92% 1.23% ROE 12.53% 16.31% Net interest margin 4.80% 4.53% Net interest income 695.0 673.0 Noninterest income 285.0 304.0 Noninterest expense 700.0 622.0 Loss provision 57.0 34.0 Net chargeoffs 57.0 34.0 Year to Date 1996 1995 Net income $783.0 $825.0 Per share 3.37 3.45 ROA 1.21% 1.24% ROE 15.73% 17.35% Net interest margin 4.78% 4.47% Net interest income 2,767.0 2,693.0 Noninterest income 1,087.0 933.0 Noninterest expense 2,464.0 2,312.0 Loss provision 197.0 100.0 Net chargeoffs 195.0 99.0 Balance Sheet 12/31/96 12/31/95 Assets $67,621.0 $66,339.0 Deposits 45,317.0 47,282.0 Loans 49,235.0 48,332.0 Reserve/nonp. loans 249.28% 263.15% Nonperf. loans/loans 0.71% 0.69% Nonperf. assets/assets 0.59% 0.57% Nonperf. assets/loans + OREO 0.81% 0.78% Leverage cap. ratio 6.95%* 6.20% Tier 1 cap. ratio 7.94%* 7.53% Tier 1+2 cap. ratio 12.94%* 10.85%
*Estimated
Bank of Boston Corp. Boston Dollar amounts in millions (except per share) Fourth Quarter 4Q96 4Q95 Net income $201.5 $180.3 Per share 1.24 1.08 ROA 1.31% 1.24% ROE 17.71% 16.66% Net interest margin 4.47% 4.50% Net interest income 611.2 572.9 Noninterest income 339.5 367.7 Noninterest expense 547.9 545.7 Loss provision 60.0 81.0 Net chargeoffs 75.0 51.0 Year to Date 1996 1995 Net income $650.2 $678.3 Per share 3.93 4.09 ROA 1.09% 1.22% ROE 14.47% 16.86% Net interest margin 4.42% 4.58% Net interest income 2,339.6 2,248.7 Noninterest income 1,344.2 1,309.8 Noninterest expense 2,319.5 2,076.2 Loss provision 231.0 275.0 Net chargeoffs 230.0 196.0 Balance Sheet 12/31/96 12/31/95 Assets $62,306.0 $59,423.0 Deposits 42,831.0 41,064.0 Loans 41,061.0 38,870.0 Reserve/nonp. loans 220% 239% Nonperf. loans/loans 1.00% 1.00% Nonperf. assets/assets 0.70% 0.70% Nonperf. assets/loans + OREO 1.10% 1.10% Leverage cap. ratio 8.20%* 7.40% Tier 1 cap. ratio 9.30%* 8.50% Tier 1+2 cap. ratio 13.70%* 12.80%
*Estimated
Bank of New York Co. New York Dollar amounts in millions (except per share) Fourth Quarter 4Q96 4Q95 Net income $250.0 $241.0 Per share 0.61 0.56 ROA 1.84% 1.77% ROE 19.48% 18.87% Net interest margin 4.33% 4.58% Net interest income 500.0 529.0 Noninterest income 441.0 419.0 Noninterest expense 480.0 446.0 Loss provision 45.0 105.0 Net chargeoffs 101.0 95.0 Year to Date 1996 1995 Net income $1,020.0 $914.0 Per share 2.41 2.15 ROA 1.90% 1.72% ROE 19.98% 19.42% Net interest margin 4.35% 4.53% Net interest income 1,999.0 2,068.0 Noninterest income 2,130.0 1,491.0 Noninterest expense 1,835.0 1,708.0 Loss provision 600.0 330.0 Net chargeoffs 455.0 353.0 Balance Sheet 12/31/96 12/31/95 Assets $55,891.0 $53,720.0 Deposits 39,468.0 35,918.0 Loans 36,229.0 36,931.0 Reserve/nonp. loans 423.7% 336.0% Nonperf. loans/loans 0.60% 0.60% Nonperf. assets/assets 0.50% 0.60% Nonperf. assets/loans + OREO 0.70% 0.70% Leverage cap. ratio 8.88% 8.46% Tier 1 cap. ratio 8.24% 8.42% Tier 1+2 cap. ratio 12.64% 13.08% ===
Net income is reflected from a one-time assessment related to SAIF and merger-related restructuring charges.
