Solid loan growth and cost controls boosted Fleet Financial Group and BankAmerica Corp. to double-digit earnings growth in the second quarter.
Boston-based Fleet Financial, which has been under pressure to perform in the wake of its much-publicized mergers with Shawmut National Corp. and National Westminster Bank, dazzled Wall Street Wednesday by reporting net income of $328 million-17% higher than the year before.
The nation's 12th-largest banking company delivered earnings per share of $1.19, which was 4 cents above analysts' consensus estimate.
"This was a watershed quarter for Fleet," said Terrence Murray, chairman and chief executive officer, in a prepared statement. "Fleet made a number of bold promises to the market 18 months ago .... Today that vision is a reality."
Meanwhile, San Francisco-based BankAmerica, the nation's third-largest banking company, said its earnings jumped 11%, to $799 million. Its earnings per share of $1.07 bested the analysts' consensus by 3 cents.
Shares of $85.5 billion-asset Fleet rose 56 cents to close at $62.062. BankAmerica, which has $258.4 billion of assets, rose $2.50 to close at $69.12.
The results came on a day when other large banks, including PNC Bank Corp., State Street Corp., Wachovia Corp., and Republic New York Corp., either beat or met analysts' expectations.
"In general, everybody seems to be seeing solid but unspectacular loan growth, and margins have been pretty stable," said David M. West, an analyst at Davenport & Co., Richmond, Va.
Earnings at State Street, for example, jumped 29%, to $92 million, fueled by boosts in fee income from fiduciary and asset management services. The bank reported earnings per share of 56 cents, 2 cents higher than analysts' consensus.
Fleet Financial Group
Fleet also said it had achieved $700 million in annualized cost savings from the integrations of Shawmut and Natwest, an increase of $100 million over its previously stated target.
Expenses fell 4.7%, to $797 million and the bank's efficiency ratio improved 3 percentage points, to 55.8%
"That is an unmistakable trend in banking," said Michael Mayo, an analyst at Credit Suisse First Boston. "Banks are achieving bigger cost savings and adding revenues without adding as much in infrastructure."
But it was the evidence of revenue growth, particularly in Fleet's loan commercial loan business, that proved most heartening to analysts.
For the last year, Fleet has been battling critics on Wall Street who said the bank was failing to live up to its revenue growth potential because it was distracted by internal issues related to the integration of the operations of Shawmut and Natwest.
Fleet said loans grew 9%. New commercial loans accounted for the lion's share of that growth, adding $1.2 billion to the portfolio. Overall, new loans totaled $1.4 billion.
A balance sheet restructuring undertaken by Fleet was also a major contributor to this quarter's results, said analysts. Net interest income rose 6%, to $916 million, as a result of the Natwest acquisition, the bank said.
The results include one-time charges of $155 million-$125 million of that toward technology investments and $30 million toward a back office reengineering project. Fleet also had net gains of $175 million from its sale of Option One (a mortgage subsidiary), corporate trust, and indirect auto lending units.
"We are seeing a higher quality of earnings at Fleet," said Mr. Mayo. "That means we can be more confident that the level of earnings can be sustained in future quarters."
interest income rose 9.5%, to $514 million. Investment services revenue grew 10%, to $103 million.
BankAmerica Corp.
BankAmerica Corp. attributed its earnings growth to strong revenue from securities trading and customer fees, in addition to loan growth.
But the bank also managed to keep its operating expenses relatively flat during the year ending June 30. Excluding special charges, total noninterest expenses increased a mere .7%, to $2 billion.
A strengthening California economy helped drive the company's earnings, BankAmerica's chief financial officer Michael E. O'Neill said in a conference call Wednesday.
Adjusted for the sale of a $1.8 billion mortgage portfolio, loans grew 10% during the quarter, he said. Consumer loans rose 13%. These increases helped drive a 1.6% rise in net interest income, to $2.19 billion
Increased revenue from deposit account fees, trading income, and other fees and commissions boosted noninterest income 9.2%, to $1.44 billion. Noninterest expenses rose only 2.5%, to $2.05 billion, in part because of increased spending on salaries.
"We've seen very little growth here, despite the fact that we've increased our variable pay based on performance," Mr. O'Neill said. "We have not put our producers on a starvation diet."
Trading income jumped 23% to a record $218 million during the year ending June 30, which helped drive a healthy increase in overall noninterest income. That figure rose 9% to $1.4 billion during the last year.
Despite the fact that BankAmerica beat their per share earning forecasts, analysts said they weren't too surprised by the company's performance.
"This was a classic BofA quarter," said Joseph K. Morford 3d, an analyst for Alex. Brown. "They had excellent cost control and strong asset quality."
"They have been delivering consecutive quarters of improving returns," added Joel W. Silverstein, an analyst with Deutsche Morgan Grenfell.
Mr. O'Neill said the only negatives on the credit side continued to crop up in the credit card portfolio. Cards are a relatively small business for the company-it currently has fewer than $10 billion in cards outstanding, he said. However, over the last year credit card losses increased 15%, to $124 million.
Wachovia Corp.
As expected, higher credit expenses and heavy investment in operations partially offset revenue gains at Wachovia Corp., which reported $165.6 million in earnings-a modest 3.9% increase over the second quarter last year.
"We're spending money on the future," Wachovia executive vice president and chief financial officer Robert S. McCoy Jr. said, adding: "This is exactly where we told Wall Street we'd be."
The Winston-Salem, N.C., company's second quarter per share earnings matched analysts consensus estimates, increasing 8.4% from a year ago to $1.01.
The bank's stock rose .312 to close at 61.93.
The $48.5 billion-asset company's revenues climbed 10.4%, to $62.2 million. But Wachovia's loan loss provision was $15.3 million higher than last year at $49.7 million. Net loan losses for the quarter were up 15.4 million to $49.7 million or .62% of average loans.
The earnings report reflected higher losses in consumer loans, principally credit cards. Net credit card chargeoffs were $43.4 million for the second quarter, 37% higher than the year before.
"We would expect to see credit card losses to rise through the rest of the year," Mr. McCoy noted.
Wachovia's noninterest expense rose 14.4%, or $44.6 million, largely reflecting a higher salary base and growth initiative costs. The bank reported that core salaries rose by $3.5 million during the quarter due to new hires.
The company also spent $16 million upgrading computers to recognize the year 2000.
"We've started spending money all over the bank this quarter," Mr. McCoy said.
He said that the company aims to expand 69 different business lines. For example, Wachovia's international group will convert its London office to a branch and buy new computer systems for its brokerage operations.
Analysts predicted the growth plans will pay off in the next two years.
"The considerable investment will restrain earnings in 1997, but they should accelerate considerably in 1998 and 1999 as the company realizes the fruits of this spending," said Edward R. Najarian, an analyst with Wheat First Securities.
PNC Bank Corp
PNC Bank Corp. said quarterly income rose 4.4% to $259 million, or 81 cents per share, matching analysts' estimates. The company attributed the improvement to strong growth in fee income.
The news pushed the bank's stock up $1 to close at $43.37.
PNC said noninterest income rose 28%. The jump to $433 million came mostly from gains in its asset management business and from service fees.
Net interest income was flat at $613 million. Loan volume grew 6% over the level a year ago because of significant growth in credit cards, the company said. The loan growth was offset by a planned reduction in the company's securities portfolio, which accounted for the flat net interest income.
PNC was able to meet estimates despite a 13% increase in noninterest expense that arose from the large costs of marketing the company's affinity credit card with the American Automobile Association. Of the $639 million in expenses, PNC said $49 million was spent to market credit cards and other bank products to AAA's 26 million members. PNC said it has $2 billion in loans outstanding through its AAA program.
Despite the higher costs, most analysts looked at the AAA marketing expenditure as a positive investment.
"I think it will pay dividends in meaningful ways in 1998," said Frank Barkocy, an analyst with Josephthal Lyon & Ross, New York.
Analysts also noted that credit quality has been good at PNC. Net chargeoffs were down slightly from the first quarter. Consumer chargeoffs at PNC have been relatively low. The bank reported consumer chargeoffs of $18 million in the quarter, of which half were related to credit cards, compared with $12 million a year earlier.
PNC, which has been repositioning itself as more of a consumer bank over the past two years, said 40% of its total revenue came from fee businesses, compared with 35% a year ago. That's significant, said analyst Gerard Cassidy of Tucker Anthony Inc., Portland, Me., because it has led to more consistent earnings. "One of the real positives about PNC is not surprising people," Mr. Cassidy said.
Republic New York Corp.
Republic New York Corp. posted net income of $110.5 million, a 7.2% gain from last year that was largely due to a 41.5% jump in income from foreign exchange, to $32.6 million.
The bank's shares closed at $110.75, up $1.312.
Earnings per share of the $56.1 billion New York money-center bank $1.93 topped Wall Street's target by 2 cents. The result was "certainly in line with our expectations," said Ronald Mandle, an analyst at Sanford C. Bernstein & Co.
Net interest income rose 3.8%, to $259.7 million. Noninterest income rose 14.5%, to $125.1 million.
Investment securities gains were up 46%, to $6.7 million.
Commission income-largely from revenue in private banking, retail banking, and international correspondent banking-rose 8.9%, to $20.7 million.
The revenue gains were offset by a 9.4% increase in expenses to $214 million.
The bank said the increase reflected the impact of branch acquisitions during 1996 and the expansion of its network of branches overseas during 1996 and 1997.
CoreStates
CoreStates Financial Corp. said quarterly income more than doubled to $200 million from the period a year earlier.
The year-ago quarter, however, included one-time merger and restructuring charges. Excluding those costs, operating income rose 3%. Earnings per share of 97 cents were a penny shy of analysts' estimates, yet the bank's stock closed at $55.62, a 62 cent increase for the day.
The $46.8 billion-asset bank continues to struggle with its acquisition last year of Meridian Bancorp, although analysts noted some improvement.
"The company is still being challenged by the Meridian acquisition as well as slow growth in its market area of Philadelphia," Mr. Cassidy said.
Net interest income was flat at $541 million, while noninterest income declined 1% to $226 million. Excluding year-ago merger charges, expenses were down about 1%.
The positives, said analysts, were growth in fee businesses, including trust; loan growth; and better expense control.
"CoreStates has been one of the most disappointing companies to estimate, but they had a pretty decent quarter," said Mr. Barkocy.
CoreStates benefited from share buybacks, the analysts said. CoreStates said it bought back six million shares in the second quarter, and its board authorized the repurchase of up to six million additional shares by yearend. +++
BankAmerica Corp. San Francisco Dollar amounts in millions (except per share) Second Quarter 2Q97 2Q96 Net income $799.0 $723.0 Per share 1.07 0.92 ROA 1.26% 1.21% ROE 16.73% 15.42% Net interest margin 4.11% 4.27% Net interest income 2,194.0 2,159.0 Noninterest income 1,442.0 1,320.0 Noninterest expense 2,047.0 1,997.0 Loss provision 250.0 250.0 Net chargeoffs 224.0 246.0 Year to Date 1997 1996 Net income $1,579.0 $1,443.0 Per share 2.09 1.81 ROA 1.26% 1.21% ROE 16.62% 15.31% Net interest margin 4.13% 4.32% Net interest income 4,368.0 4,305.0 Noninterest income 2,827.0 2,594.0 Noninterest expense 4,080.0 4,010.0 Loss provision 470.0 430.0 Net chargeoffs 428.0 485.0 Balance Sheet 6/30/97 6/30/96 Assets $258,363.0 $238,841.0 Deposits 173,168.0 161,845.0 Loans 168,806.0 160,640.0 Reserve/nonp. loans 307.69% 219.67% Nonperf. loans/loans 0.69% 0.99% Nonperf. assets/assets 0.45% 0.67% Nonperf. assets/loans + OREO 0.69% 0.99% Leverage cap. ratio 7.24% 6.75% Tier 1 cap. ratio 7.65% 7.17% Tier 1+2 cap. ratio NA 11.37%
Corestates Financial Corp. Philadelphia Dollar amounts in millions (except per share) Second Quarter 2Q97 2Q96 Net income $199.7 $79.6 Per share 0.97 0.36 ROA 1.78% 0.73% ROE 23.54% 8.32% Net interest margin 5.37% 5.56% Net interest income 540.6 540.0 Noninterest income 226.4 228.6 Noninterest expense 403.0 511.5 Loss provision 50.0 110.0 Net chargeoffs 62.7 70.7 Year to Date 1997 1996 Net income $397.8 $256.7 Per share 1.91 1.17 ROA 1.80% 1.18% ROE 22.69% 13.28% Net interest margin 5.42% 5.54% Net interest income 1,071.9 1,077.9 Noninterest income 441.4 438.1 Noninterest expense 794.9 927.7 Loss provision 93.0 148.8 Net chargeoffs 111.9 113.9 Balance Sheet 6/30/97 6/30/96 Assets $46,847.0 $43,668.0 Deposits 34,213.0 32,521.0 Loans 34,448.0 31,950.0 Reserve/nonp. loans 262% 324% Nonperf. loans/loans NA NA Nonperf. assets/assets 0.60% 0.58% Nonperf. assets/loans + OREO 0.82% 0.79% Leverage cap. ratio 8.21% 8.33% Tier 1 cap. ratio 8.70% 9.47% Tier 1+2 cap. ratio 12.36% 12.94%
Fleet Financial Group Boston Dollar amounts in millions (except per share) Second Quarter 2Q97 2Q96 Net income $328.0 $278.0 Per share 1.19 0.96 ROA 1.61% 1.32% ROE 20.24% 17.20% Net interest margin 5.25% 4.76% Net interest income 916.0 863.0 Noninterest income 689.0 501.0 Noninterest expense 952.0(a) 837.0 Loss provision 83.0 48.0 Net chargeoffs 102.0 75.0 Year to Date 1997 1996 Net income $639.0 $542.0 Per share 2.28 1.89 ROA 1.56% 1.36% ROE 19.52% 17.09% Net interest margin 5.21% 4.60% Net interest income 1,818.0 1,595.0 Noninterest income 1,215.0 979.0 Noninterest expense 1,793.0(a) 1,554.0 Loss provision 148.0 84.0 Net chargeoffs 192.0 135.0 Balance Sheet 6/30/97 6/30/96 Assets $83,401.0 $87,728.0 Deposits 63,229.0 68,145.0 Loans 58,186.0 59,093.0 Reserve/nonp. loans 289.59% 230.83% Nonperf. loans/loans 0.86% 1.17% Nonperf. assets/assets 0.64% 0.85% Nonperf. assets/loans + OREO 0.91% 1.26% Leverage cap. ratio 7.21% 6.59% Tier 1 cap. ratio 7.23% 6.85% Tier 1+2 cap. ratio 10.82% 10.60%
(a) includes $155 million of technology investments and operational restructuring charges
PNC Bank Corp. Pittsburgh Dollar amounts in millions (except per share) Second Quarter 2Q97 2Q96 Net income $259.1 $248.1 Per share 0.81 0.72 ROA 1.47% 1.38% ROE 20.21% 17.33% Net interest margin 3.84% 3.72% Net interest income 620.6 619.9 Noninterest income 433.4 336.6 Noninterest expense 638.8 564.3 Loss provision 15.0 - Net chargeoffs 59.0 36.0 Year to Date 1997 1996 Net income $525.4 $486.4 Per share 1.61 1.41 ROA 1.50% 1.36% ROE 19.84% 16.99% Net interest margin 3.92% 3.72% Net interest income 1,257.9 1,236.0 Noninterest income 858.5 658.1 Noninterest expense 1,275.0 1,130.0 Loss provision 25.0 - Net chargeoffs 119.0 70.0 Balance Sheet 6/30/97 6/30/96 Assets $71,973.0 $71,961.0 Deposits 45,216.0 44,852.0 Loans 53,497.0 49,223.0 Reserve/nonp. loans 310.34% 312.19% Nonperf. loans/loans 0.65% 0.77% Nonperf. assets/assets 0.61% 0.71% Nonperf. assets/loans + OREO 0.83% 1.03% Leverage cap. ratio 7.35%(a) 6.96% Tier 1 cap. ratio 7.70%(a) 8.45% Tier 1+2 cap. ratio 11.00%(a) 11.99%
(a) estimated
Republic New York Corp. New York Dollar amounts in millions (except per share) Second Quarter 2Q97 2Q96 Net income $110.5 $103.1 Per share 1.93 1.71 ROA 0.76% 0.79% ROE 14.87% 15.41% Net interest margin 2.31% 2.52% Net interest income 251.2 241.9 Noninterest income 125.1 109.2 Noninterest expense 214.5 195.9 Loss provision 4.0 4.0 Net chargeoffs 4.1 4.3 Year to Date 1997 1996 Net income $220.7 $202.6 Per share 3.82 3.35 ROA 0.78% 0.80% ROE 14.99% 15.26% Net interest margin 2.39% 2.51% Net interest income 504.8 465.0 Noninterest income 251.5 216.4 Noninterest expense 428.7 380.2 Loss provision 8.0 8.0 Net chargeoffs 4.9 12.3 Balance Sheet 6/30/97 6/30/96 Assets $56,052.0 $48,580.0 Deposits 33,235.0 30,080.0 Loans 12,801.0 11,304.0 Reserve/nonp. loans 340.62% 285.87% Nonperf. loans/loans 0.75% 1.05% Nonperf. assets/assets 0.23% 0.33% Nonperf. assets/loans + OREO NA NA Leverage cap. ratio 5.40%(a) 5.37% Tier 1 cap. ratio 13.10%(a) 12.67% Tier 1+2 cap. ratio 21.90%(a) 21.73%
(a) estimated
Wachovia Corp. Winston-Salem, N.C. Dollar amounts in millions (except per share) Second Quarter 2Q97 2Q96 Net income $165.6 $159.4 Per share 1.01 0.94 ROA 1.42% 1.42% ROE 18.44% 17.49% Net interest margin 4.11% 3.99% Net interest income 427.1 399.2 Noninterest income 233.2 198.4 Noninterest expense 354.7 310.1 Loss provision 49.7 34.4 Net chargeoffs 49.7 34.3 Year to Date 1997 1996 Net income $328.7 $309.2 Per share 2.00 1.81 ROA 1.42% 1.38% ROE 18.15% 16.87% Net interest margin 4.12% 3.97% Net interest income 846.1 788.0
Noninterest income 435.2 383.2 Noninterest expense 678.8 618.3 Loss provision 97.7 61.7 Net chargeoffs 97.7 61.5 Balance Sheet 6/30/97 6/30/96 Assets $48,512.0 $46,049.0 Deposits 28,938.0 25,973.0 Loans 33,256.0 30,673.0 Reserve/nonp. loans 746% 741% Nonperf. loans/loans 0.16% 0.18% Nonperf. assets/assets 0.14% 0.16% Nonperf. assets/loans + OREO 0.21% 0.24% Leverage cap. ratio NA 8.12% Tier 1 cap. ratio 10.20%(a) 9.05% Tier 1+2 cap. ratio 13.70%(a) 13.04%
(a) estimated ===
