Cleveland-based National City Corp. and State Street Corp. of Boston each reported strong fourth-quarter earnings gains Wednesday, driven by revenue growth in fee-based businesses.
National City, with $54.7 billion of assets, said its profits were up 9%, to $209 million. State Street, a $38 billion-asset banking company that specializes in custody and asset management, reported a 29% jump, to $101 million.
"We've seen a continuation of growth in fee income, and fee revenues are a more important factor to total revenues," said Frank Barkocy, an analyst at Josephthal & Co.
Moreover, as loan growth has been mixed-stronger growth in the Southeast than the Midwest, for instance-banks have generally kept expenses down and decreased their losses. "Net interest income is up, but margins are under a little pressure," Mr. Barkocy said. However, "excellent asset quality is in place."
Though different factors are influencing individual reports, analyst Fred Cummings of McDonald & Company Securities in Cleveland said banks are either meeting or beating analysts' projections.
National City's earnings per share of 96 cents beat consensus estimates by 1 cent. State Street performed similarly, with earnings per share of 61 cents also topping the consensus by a penny.
Net interest income at National City was up about $1 million, to $489 million, although loans were up 8%, to $837 million. Net interest income for the year was flat at $1.9 billion. Commercial loans at yearend equaled $17.9 billion, up 11% from a year earlier.
Noninterest expenses for the quarter rose nearly 9% at National City due to higher personnel costs and $26 million in merger-related costs, mostly associated with a deal, announced last month, to buy First of America Bank Corp. The acquisition is to close at the end of the second quarter.
First of America, a $21 billion-asset company in Kalamazoo, Mich., said Wednesday that its quarterly earnings declined 1%, to $83 million. Excluding one-time charges and gains in the fourth quarter a year ago, income would have been up 11% from the year before, the company said.
At State Street, revenues grew 26%, to $631 million, boosted by fee income and better-than-expected results in currency trading.
"It was a much stronger quarter than we had expected," said Sally Pope Davis, an analyst at Goldman, Sachs & Co.
Marshall N. Carter, chairman and chief executive officer, said the banking company "signed a record amount of new business during the quarter."
Analysts said the results bode well for other big companies with specialties in custody and asset management, particularly Mellon Bank Corp., Bank of New York Co., and Northern Trust Corp.
For the year, State Street's profits rose 30%, to $380 million, on revenues of $2.3 billion. Revenues grew 24% in 1997. Yearend earnings per share of $2.32 beat the consensus by 2 cents.
But 1998 may not be so heady. State Street executives are already telling analysts to expect yearend results more in line with a long-term growth target of 16%. Global market conditions, which carried State Street to record profits in 1996 and 1997, might not be sustainable, analysts said.
"We do not expect the environment to be as favorable this year," said Ronald L. O'Kelley, State Street's chief financial officer. "We expect there to be less volatility in the currency markets, and we expect a slowdown in the increase in securities values."
State Street makes the bulk of its revenues-71% last year-from fee-based businesses like asset management, custody, and trustee services.
Fiduciary compensation, the biggest contributor to fee-based revenue, grew 24% in the quarter, to $334 million. Revenue from securities processing grew 16%, to $43 million. At yearend, assets under custody had grown 33%, to $3.9 trillion.
State Street Global Advisors, the bank's asset management unit, increased total assets under management 34% during the year, to $390 billion.
Foreign exchange trading was also strong. Because of a volatile market for currencies in December, particularly in Asia, State Street's trading revenues of $75 million more than doubled from the same period last year and bested the bank's previous record of $74 million, set in the third quarter.
Analysts said market turmoil, which hurt banks like Chase Manhattan Corp. and J.P. Morgan & Co., benefited State Street. Volatility leads to more trading volume as clients seek to hedge their holdings; higher volume means higher revenues, analysts explained. +++
State Street Corp. Boston Dollar amounts in millions (except per share) Fourth Quarter 4Q97 4Q96 Net income $100.5 $78.0 Per share 0.61 0.47 ROA 1.03% 1.00% ROE 20.40% 18.10% Net interest margin 2.12% 2.23% Net interest income 173.0 147.0 Noninterest income 453.0 348.0 Noninterest expense 473.0 375.0 Loss provision 5.0 2.0 Net chargeoffs 2.0 1.0 Year to Date 1997 1996 Net income $380.3 $292.8 Per share 2.32 1.78 ROA 1.07% 0.99% ROE 20.60% 18.10% Net interest margin 2.18% 2.23% Net interest income 641.0 551.0 Noninterest income 1,673.0 1,302.0 Noninterest expense 1,734.0 1,398.0 Loss provision 16.0 8.0 Net chargeoffs 6.0 (1.0) Balance Sheet 12/31/97 12/31/96 Assets $37,975.0 $31,524.0 Deposits 24,878.0 19,519.0 Loans 5,479.0 4,640.0 Reserve/nonp. loans 40.82% 6.05% Nonperf. loans/loans 0.04% 0.25% Nonperf. assets/assets 0.02% 0.04% Nonperf. assets/loans + OREO 0.10% 0.27% Leverage cap. ratio 5.90% 5.90% Tier 1 cap. ratio 13.70% 13.40% Tier 1+2 cap. ratio 13.80% 13.60%
National City Corp. Cleveland, Ohio Dollar amounts in millions (except per share) Fourth Quarter 4Q97 4Q96 Net income $209.0 $191.1 Per share 0.96 0.85 ROA 1.58% 1.55% ROE 19.11% 17.53% Net interest margin 4.18% 4.43% Net interest income 495.0 493.2 Noninterest income 405.7 338.4 Noninterest expense 570.2 521.1 Loss provision 31.2 38.5 Net chargeoffs 41.1 42.4 Year to Date 1997 1996 Net income $807.4 $736.6 Per share 3.66 3.27 ROA 1.59% 1.51% ROE 18.53% 17.69% Net interest margin 4.25% 4.44% Net interest income 1,962.2 1,963.5 Noninterest income 1,375.9 1,239.4 Noninterest expense 2,010.6 1,977.1 Loss provision 139.7 146.5 Net chargeoffs 139.0 146.5 Balance Sheet 12/31/97 12/31/96 Assets $54,683.5 $50,855.8 Deposits 36,861.1 35,999.7 Loans 39,573.1 35,830.1 Reserve/nonp. loans 473.5% 493.3% Nonperf. loans/loans 0.37% 0.40% Nonperf. assets/assets 0.30% 0.33% Nonperf. assets/loans + OREO 0.42% 0.47% Leverage cap. ratio 7.01% 8.16% Tier 1 cap. ratio 8.12% 9.84% Tier 1+2 cap. ratio 12.65% 14.79% ===
