Newly acquired brokerage firms helped push profits up at Bank-America Corp., Fleet Financial Group, and U.S. Bancorp.
Continuing the positive trends in second-quarter earnings established earlier in the week, these and several other major banking companies on Wednesday reported especially healthy increases in fee income.
Ahead of its merger with NationsBank Corp., which reported a 53% profit increase Monday, to $1.4 billion of net income, BankAmerica's net climbed 11%, to $890 million. Commissions earned by the Robertson Stephens investment banking unit helped total noninterest income soar 29%, to $1.84 billion.
Fleet cited fees from its Quick & Reilly brokerage as a factor in a 13% profit increase, to $393 million. The Boston company's noninterest income grew 35%, to $809 million.
U.S. Bancorp, Minneapolis, said its May acquisition of Piper Jaffray had contributed to a 6% rise in net income, to $320 million. The brokerage helped push the holding company's noninterest income up 38%, to $561 million.
At these banks and elsewhere, gains in noninterest income are compensating for thinner loan margins. But some analysts said it is too early to view brokerage activities and other nontraditional businesses as a long-term offset to cycles like the current one in which interest income is stalled.
"There is no question they boost fee income," said James Schutz, an analyst at ABN Amro in Chicago. "But they also boost expenses. Some (acquisitions) will work out, some won't."
Fees from mortgage banking, item processing, and credit cards also helped offset sluggish interest revenues. At National City Corp., Cleveland, net income increased 22%, to $331 million, thanks in part to its National Processing subsidiary.
The transaction processing business contributed $118 million, a 30% increase, to the parent's profits, while mortgage banking revenues grew 162%, to $97 million.
BankAmerica Corp.
Earnings included a pretax gain of $84 million on the sale of a building in Seattle and an estimated $45 million loss linked to the decision to sell Robertson Stephens Investment Management.
Excluding these effects, the $263.9 billion-asset San Francisco company's earnings per share of $1.21 matched analysts' consensus estimate.
"Recurring fees were strong, leading to an overall solid quarter," said Joseph K. Morford, an analyst at Van Kasper & Co. in San Francisco.
Commissions earned by Robertson Stephens-which BankAmerica in May agreed to sell to BankBoston Corp.-drove a $234 million, or 56%, increase in fee income. Loan servicing fees and loan sales also contributed to robust noninterest income.
But noninterest expense climbed 13%, to $2.3 billion. BankAmerica cited increased salary expenses of $134 million, paid primarily to Robertson Stephens employees. Volatility in overseas markets-primarily Asia-reduced trading income by $99 million, the bank said.
Domestic consumer loans fell 14%, to $68.5 billion. Mr. Morford ascribed that mainly to securitizations. Adjusted for that, the BankAmerica consumer loan portfolio grew 37%, driven by strong economic conditions in California, he said.
Net interest income, however, was down $104 million from a year earlier, and the net interest margin was off 26 basis points, to 3.86%.
Fleet Financial Group
The 10th-largest U.S. banking company earned $1.29 a share, ahead of Wall Street's consensus by 3 cents.
Analysts cited marketing and sales results after three years of big-bank acquisitions and integrations.
"It was an incredible quarter," said Gerard Cassidy, an analyst at Tucker Anthony. "They haven't done a big-bank deal recently, so they can finally focus on running the businesses. The results are paying off."
The Boston company broke through the $100 billion-asset level in the second quarter.
Fee revenues jumped 35%, to $809 million, and made up 45% of the bank's total revenues. This year, Fleet acquired the New York-based Quick & Reilly Group and the credit card portfolio of Spring House, Pa.-based Advanta Corp.
Analysts said those acquisitions put Fleet in position for solid revenue gains. "It all adds up to very broad-based, very strong fee-based growth going forward," said Thomas Theurkauf, an analyst at Keefe, Bruyette & Woods Inc.
Investment services revenue, including brokerage and mutual funds, grew 34%, to $202 million. Capital markets revenues jumped 65%, to $107 million, on strong venture capital business and trading.
Fees from credit cards grew more than fivefold, to $98 million, thanks to the Advanta acquisition. Last week Fleet announced it would buy part of the card portfolio of Crestar Financial Corp., Richmond, Va.
Fleet's mortgage unit originated $9 billion of loans during the quarter, double the 1997 period's volume. Revenues from the mortgage business gained 20%, to $180 million.
Fleet Mortgage has underperformed in recent years as management was in flux. "It looks like they have their house in order," Mr. Theurkauf said.
Eugene McQuade, Fleet's chief financial officer, said the company would seek to make continued investments in cards and mortgages, including more acquisitions.
Net interest income grew 5.1%, to $981 million. As at other banks, the net interest margin fell, to 4.60%, from 5.07% a year earlier. Nonperforming assets declined to 0.50% of loans, from 0.90% the year before. Expenses grew 17%, to $1.1 billion.
U.S. Bancorp
Excluding costs related to the May acquisition of Piper Jaffray and other one-time items, earnings at U.S. Bancorp rose 20%, to $358 million. At 48 cents, operating earnings per share were in line with analyst estimates.
"Fee revenues continue to increase, we're seeing a little more strength in loan demand, efficiencies remain solid, and asset quality problems are trending down," said Mr. Schutz of ABN Amro. "The news overall is fairly positive."
With Piper Jaffray, U.S. Bancorp more than doubled its investment product fees, to $58 million. It recorded a 24% rise in trust and investment management fees, to $108 million, and added $29 million in fees from investment banking.
The 17th-largest bank holding company, said that, excluding Piper Jaffray, noninterest income would have risen 13%.
Net interest income, meanwhile, was flat at $778 million. Average loans were up $1.9 billion, or 4%. Mr. Schutz said loan demand remains strong but "there is pressure on the loan margins."
That explains why banks are buying investment firms, he said, as they aim to "cross-sell sophisticated products."
Noninterest expenses were up 23%, to $724 million. Excluding merger charges, expenses decreased 4%.
National City Corp.
National City of Cleveland earned 99 cents a share, three cents ahead of the consensus guess.
Fee-based businesses accounted for 43% of revenues when securities gains are excluded, said analyst Joseph Duwan of Keefe, Bruyette & Woods Inc.
The $81.3 billion-asset National City said average loans were up 11%, to $56.7 billion, led by a 15% increase in commercial loans. Net interest income was up 3%, to $730 million, while the net interest margin fell 26 basis points, to 4.15%.
Net chargeoffs were $43 million, down 13% from a year ago. The ratio of chargeoffs to average loans was 0.30%, down from 0.38% a year earlier.
Mr. Schutz said National City also benefited from its March 30 acquisition of Fort Wayne National Corp. in Indiana.
Wachovia Corp.
Atlanta-based Wachovia increased net income by 7%, to $210 million. The company said merger costs came in higher than expected.
The $64.8 billion-asset company said it had $31 million of integration and employee benefits expenses related to two Virginia acquisitions, Jefferson National Bankshares in Charlottesville and Central Fidelity Banks Inc. in Richmond. Both sets of computer systems were melded into Wachovia's at the end of March.
Without that cost, Wachovia's net income grew 17%, to $230 million. The corresponding earnings per share of $1.09 beat analysts' estimates by a penny.
"There is definitely a little disappointment in that higher integration expense," said David M. West, an analyst at Davenport & Co. in Richmond.
Wachovia posted strong results in other areas, such as a 22% gain in noninterest income, to $318 million.
"Fee-based income increasingly is driving the growth," said L.M. Baker Jr., chief executive officer. "We are realizing benefits from our growth initiatives."
But as fees grew, so did personnel expenses: by 20%, to $262 million.
"When you have good fee income, you generally see higher levels of incentive pay for the employees who are bringing in that money," Mr. West noted.
Net interest income rose 14%, to $582 million. Average loans climbed 13% from a year earlier, to $44 billion.
Republic New York Corp.
Profits rose 8%, to $118.8 million, fueled by strong foreign exchange trading. The $1.05 per share was in line with Wall Street expectations.
Analysts said the $60 billion-asset institution has benefited from fee sources as income from lending grows more slowly.
Net interest income increased 7%, to $268 million, including an $8.9 million gain on the sale of an international loan, the bank said. Meanwhile, noninterest income grew 15%, to $144.3 million.
Trading revenues gained 13%, to $63.7 million, of which foreign exchange revenues grew 29%, to $42 million.
Republic also benefited from its minority stake in Safra Republic Holdings, analysts said. The bank's share of that Swiss private bank's earnings grew 20%, to $36.8 million.
Expenses rose 13%, to $243 million, including $8.6 million for Year-2000 computer upgrades.
State Street Corp.
Net income at State Street rose 18%, to $109 million, on the strength of custody, trust, and asset management revenues.
Earnings per share of 66 cents matched analysts' expectations.
Analysts said the $46.7 billion-asset, Boston-based bank continued to benefit from favorable market conditions for its fiduciary and investment management services to institutions and corporations.
Fee revenues grew 22%, to $493 million, and made up 73% of the total.
Fees from fiduciary services - State Street's biggest source of noninterest income - rose 23%, to $380 million. Fees from foreign exchange trading jumped 35%, to $67 million. Processing fees increased 2%, to $40 million. Assets under management rose 29%, to $459 billion.
State Street continued to invest in overseas markets as well as new technology during the quarter. Expenses rose 21%, to $507 million.
Elsewhere, Comerica Inc., Detroit, saw its net income climb 16%, to $150 million. The quarter's earnings per share of 92 cents was a penny better than analysts' projections.
Noninterest income rose 23%, to $149 million. The $35 billion-asset banking company benefited from gains on service charges and in trust income.
Net interest income was flat at $364 million, affected by the sale of $2 billion in indirect consumer loans and credit card receivables. Factoring out the sale, net interest income would have increased 4% from a year earlier.
Comerica's noninterest expenses were up 1% to $503 million.
Fifth Third Bancorp, Cincinnati, reported a 48% drop in earnings, to $58 million, due to merger expenses.
The $28.3 billion banking company acquired two Ohio thrifts, CitFed Bancorp and State Savings Co., in the second quarter.
Operating income was up 20%, to $133 million. Earnings per share on an operating basis were 50 cents, 2 cents better than analysts' projections.
Brett Chase, Olaf de Senerpont Domis, and Liz Moyer contributed to this report. +++
National City Corp. Cleveland, Ohio Dollar amounts in millions (except per share) Second Quarter 2Q98 2Q97 Net income $331.2 $271.4 Per share 0.99 0.83 ROA 1.66% 1.64% ROE 19.47% 19.61% Net interest margin 4.15% 4.41% Net interest income 739.9 717.9 Noninterest income 580.7 452.9 Noninterest expense 756.1 708.3 Loss provision 43.0 54.6 Net chargeoffs 43.0 49.2 Year to Date 1998 1997 Net income $435.0 $547.0 Per share 1.32 1.65 ROA 1.13% 1.55% ROE 13.18% 17.98% Net interest margin 4.16% 4.40% Net interest income 1,448.2 1,420.1 Noninterest income 1,081.5 887.3 Noninterest expense 1,736.0 1,366.5 Loss provision 99.3 113.3 Net chargeoffs 95.4 101.7 Balance Sheet 6/30/98 6/30/97 Assets $81,257.9 $73,627.2
Deposits 54,832.0 52,390.5 Loans 57,478.1 51,919.3 Reserve/nonp. loans 428% 420% Nonperf. loans/loans 0.40% 0.44% Nonperf. assets/assets 0.32% 0.36% Nonperf. assets/loans + OREO 0.45% 0.51% Leverage cap. ratio 7.32% 7.74% Tier 1 cap. ratio 8.92% 9.49% Tier 1+2 cap. ratio 12.91% 13.79%
Fleet Financial Group Boston Dollar amounts in millions (except per share) Second Quarter 2Q98 2Q97 Net income $393.0 $347.0 Per share 1.29 1.17 ROA 1.59% 1.62% ROE 18.97% 20.14% Net interest margin 4.60% 5.07% Net interest income 981.0 933.0 Noninterest income 809.0 775.0 Noninterest expense 1,017.0 1,025.0 Loss provision 118.0 83.0 Net chargeoffs 118.0 102.0 Year to Date 1998 1997 Net income $716.0 $681.0 Per share 2.35 2.26 ROA 1.51% 1.59% ROE 17.51% 19.65% Net interest margin 4.67% 5.03% Net interest income 1,919.0 1,851.0 Noninterest income 1,504.0 1,388.0 Noninterest expense 2,014.0 1,929.0 Loss provision 210.0 148.0 Net chargeoffs 210.0 192.0 Balance Sheet 6/30/98 6/30/97 Assets $100,713.0 $87,573.0 Deposits 66,992.0 63,229.0 Loans 66,754.0 59,177.0 Reserve/nonp. loans 490.82% 289.76% Nonperf. loans/loans 0.47% 0.84% Nonperf. assets/assets 0.33% 0.61% Nonperf. assets/loans + OREO 0.50% 0.90% Leverage cap. ratio 7.05% 7.25% Tier 1 cap. ratio 6.84% 7.28% Tier 1+2 cap. ratio 10.95% 10.76%
Comerica Inc. Detroit, Mich. Dollar amounts in millions (except per share) Second Quarter 2Q98 2Q97 Net income $150.0 $130.0 Per share 0.92 0.78 ROA 1.74% 1.49% ROE 22.57% 21.31% Net interest margin 4.62% 4.57% Net interest income 364.0 364.0 Noninterest income 149.0 121.0 Noninterest expense 253.0 249.0 Loss provision 28.0 34.0 Net chargeoffs 19.0 21.0 Year to Date 1998 1997 Net income $295.0 $253.0 Per share 1.80 1.52 ROA 1.67% 1.48% ROE 22.33% 20.86% Net interest margin 4.56% 4.58% Net interest income 730.0 715.0 Noninterest income 284.0 251.0 Noninterest expense 503.0 498.0 Loss provision 56.0 75.0 Net chargeoffs 41.0 38.0 Balance Sheet 6/30/98 6/30/97 Assets $35,050.0 $35,854.0 Deposits 22,619.0 22,677.0 Loans 28,003.0 27,725.0 Reserve/nonp. loans 491.60% 603.34% Nonperf. loans/loans 0.32% 0.24% Nonperf. assets/assets 0.27% 0.26% Nonperf. assets/loans + OREO 0.34% 0.34% Leverage cap. ratio 7.52% 6.97% Tier 1 cap. ratio 7.20% 6.91% Tier 1+2 cap. ratio 11.22% 11.08%
BankAmerica Corp. San Francisco Dollar amounts in millions (except per share) Second Quarter 2Q98 2Q97 Net income $890.0 $799.0 Per share 1.24 1.07 ROA 1.37% 1.26% ROE 18.20% 16.73% Net interest margin 3.86% 4.12% Net interest income 2,100.0 2,200.0 Noninterest income 1,800.0 1,400.0 Noninterest expense 2,300.0 2,000.0 Loss provision 230.0 250.0 Net chargeoffs 230.0 224.0 Year to Date 1998 1997 Net income $1,730.0 $1,580.0 Per share 2.41 2.10 ROA 1.33% 1.26% ROE 18.05% 16.62% Net interest margin 3.85% 4.14% Net interest income 4,200.0 4,400.0 Noninterest income 3,700.0 2,800.0 Noninterest expense 4,600.0 4,100.0 Loss provision 475.0 470.0 Net chargeoffs NA 428.0 Balance Sheet 6/30/98 6/30/97 Assets $263,900.0 $258,400.0 Deposits 178,100.0 173,200.0 Loans 163,100.0 166,600.0 Reserve/nonp. loans 369.66% 413.99% Nonperf. loans/loans 0.57% 0.51% Nonperf. assets/assets 0.36% 0.33% Nonperf. assets/loans + OREO 0.57% 0.51% Leverage cap. ratio NA 7.24% Tier 1 cap. ratio 7.40% 7.70% Tier 1+2 cap. ratio 11.10% 11.66%
U.S. Bancorp Minneapolis, Minn. Dollar amounts in millions (except per share) Second Quarter 2Q98 2Q97 Net income $320.6 $303.9 Per share 0.43 0.41 ROA 1.80% 1.77% ROE 20.80% 21.50% Net interest margin 4.91% 5.05% Net interest income 777.9 779.6 Noninterest income 561.1 407.5 Noninterest expense 724.6 589.5 Loss provision 93.0 101.1 Net chargeoffs 106.7 98.0 Year to Date 1998 1997 Net income $649.1 $597.2 Per share 0.86 0.80 ROA 1.85% 1.76% ROE 21.40% 21.20% Net interest margin 4.95% 5.07% Net interest income 1,545.9 1,541.5 Noninterest income 1,019.6 785.0 Noninterest expense 1,330.2 1,165.0 Loss provision 183.0 185.3 Net chargeoffs 209.9 181.9 Balance Sheet 6/30/98 6/30/97 Assets $73,750.0 $71,675.0 Deposits 49,307.0 50,812.0 Loans 55,778.0 54,158.0 Reserve/nonp. loans 359% 310% Nonperf. loans/loans 0.49% 0.59% Nonperf. assets/assets 0.41% 0.49% Nonperf. assets/loans + OREO 0.54% 0.65% Leverage cap. ratio 7.40% 7.50% Tier 1 cap. ratio 7.20% 7.60% Tier 1+2 cap. ratio 11.50% 11.90%
Wachovia Corp.
Winston-Salem, N.C. Dollar amounts in millions (except per share) Second Quarter 2Q98 2Q97 Net income $210.0 $197.0 Per share 1.00 0.98 ROA 1.31% 1.38% ROE 16.11% 17.99% Net interest margin 4.21% 4.10% Net interest income 595.0 527.0 Noninterest income 318.0 260.0 Noninterest expense 517.0 420.0 Loss provision 68.0 63.0 Net chargeoffs 68.0 63.0 Year to Date 1998 1997 Net income $405.0 $390.0 Per share 1.93 1.94 ROA 1.28% 1.38% ROE 15.71% 17.63% Net interest margin 4.21% 4.12% Net interest income 1,175.0 1,045.0 Noninterest income 605.0 489.0 Noninterest expense 1,011.0 809.0 Loss provision 143.0 125.0 Net chargeoffs 142.0 125.0 Balance Sheet 6/30/98 6/30/97 Assets $64,727.0 $59,178.0 Deposits 39,915.0 37,015.0 Loans 44,459.0 40,201.0 Reserve/nonp. loans 429.89% 530.95% Nonperf. loans/loans 0.29% 0.24% Nonperf. assets/assets 0.24% 0.22% Nonperf. assets/loans + OREO 0.34% 0.32% Leverage cap. ratio NA 9.38% Tier 1 cap. ratio 8.90%(a) 10.19% Tier 1+2 cap. ratio 11.60%(a) 13.63%
(a) estimated
State Street Corp.
Boston
Dollar amounts in millions (except per share)
Second Quarter 2Q98 2Q97
Net income $108.6 $92.1
Per share 0.66 0.56
ROA 1.00% 1.09%
ROE 20.50% 20.70%
Net interest margin 1.96% 2.21%
Net interest income 182.0 154.0
Noninterest income 493.0 404.0
Noninterest expense 507.0 419.0
Loss provision 4.0 3.0
Net chargeoffs 0.0 (1.0)
Year to Date 1998 1997
Net income $214.3 $178.5
Per share 1.30 1.09
ROA 1.03% 1.08%
ROE 20.80% 20.3%
Net interest margin 2.02% 2.22%
Net interest income 358.0 304.0
Noninterest income 956.0 778.0
Noninterest expense 981.0 810.0
Loss provision 9.0 6.0
Net chargeoffs (1.0) 5.0
Balance Sheet 6/30/98 6/30/97
Assets $46,711.0 $36,686.0
Deposits 29,421.0 24,858.0
Loans 6,044.0 5,453.0
Reserve/nonp. loans 10.69% 7.41%
Nonperf. loans/loans 0.14% 0.18%
Nonperf. assets/assets 0.02% 0.03%
Nonperf. assets/loans + OREO 0.18% 0.19%
Leverage cap. ratio 5.90% 6.20%
Tier 1 cap. ratio 14.10% 13.00%
Tier 1+2 cap. ratio 14.40% 13.10%
Republic New York Corp.
New York
Dollar amounts in millions (except per share)
Second Quarter 2Q98 2Q97
Net income $118.8 $110.5
Per share 1.05 0.98
ROA 0.80% 0.76%
ROE 14.77% 14.83%
Net interest margin 2.30% 2.31%
Net interest income 268.4 251.2
Noninterest income 144.3 125.1
Noninterest expense 243.4 214.5
Loss provision 4.0 4.0
Net chargeoffs 3.9 4.1
Year to Date 1998 1997
Net income $236.3 $220.7
Per share 2.08 1.94
ROA 0.80% 0.77%
ROE 14.96% 14.94%
Net interest margin 2.33% 2.39%
Net interest income 528.6 504.8
Noninterest income 266.9 251.5
Noninterest expense 495.1 428.7
Loss provision 8.0 8.0
Net chargeoffs 9.4 4.9
Balance Sheet 6/30/98 6/30/97
Assets $59,919.0 $56,052.0
Deposits 34,221.0 33,235.0
Loans 13,816.0 12,801.0
Reserve/nonp. loans 404.90% 340.62%
Nonperf. loans/loans 0.58% 0.75%
Nonperf. assets/assets 0.15% 0.23%
Nonperf. assets/loans + OREO NA NA
Leverage cap. ratio 5.95%(a) 5.38%
Tier 1 cap. ratio 12.70%(a) 12.59%
Tier 1+2 cap. ratio 21.10%(a) 21.17%
(a) estimated ===
