Fees Fuel KeyCorp, PNC, BankBoston

Three more major banking companies announced strong second-quarter results Thursday thanks to gains in fee income.

KeyCorp of Cleveland said net income rose 12% from a year earlier, to $249 million. As at nearly every other big bank that reported earnings this week, noninterest income growth dwarfed that of interest income, even as commercial loans grew 19%.

At PNC Bank Corp., Pittsburgh, earnings rose 8%, to $280 million, largely on the strength of asset management and mutual fund servicing. Though commercial and credit card loans increased, PNC too benefited most from fee-based growth.

BankBoston Corp. was up 14%, to $242 million. In addition to healthy noninterest income in the United States, BankBoston had higher fees from asset management and private banking operations in Latin America.

The revenue growth was "more robust than everyone was expecting," said George Bicher, analyst at BT Alex. Brown. "They have been making investments in product areas and in Latin America, and it looks like the potential is there for even stronger revenue growth."

"We're seeing some midwestern banks experience stronger loan growth than those in other sectors of the country," said Frank Barkocy, an analyst with Josepthal & Co. "But pricing has gotten a little more competitive, and you're seeing a modest decline in the net interest margin."

KeyCorp's net interest margin fell 4 basis points from the first quarter's level, to 4.19%. It was down 50 basis points from a year before.

PNC's net interest margin was 3.81%, down 15 basis points from the first quarter and 3 basis points from the second quarter of 1997.

KeyCorp

Earnings per share came in at 56 cents, a penny better than Wall Street estimates.

The $75.8 billion-asset KeyCorp said higher interest expenses pushed net interest income down 2%, to $680 million.

Making up for that decline was a 32% improvement in noninterest income, to $380 million, fueled by investment banking, capital markets activities, and trust and asset management. The bank also booked a $33 million gain on branch sales. Excluding that gain, noninterest income jumped 25% from a year earlier.

Noninterest expenses grew 6%, to $616 million. Personnel costs related to acquisitions contributed the most to expenses, the company said. Incentive programs related to investment banking and capital markets also increased costs.

Net loan chargeoffs were $72 million, up 11% from the 1997 second quarter but down 7% from the 1998 first quarter.

"Key's second quarter featured strong growth in noninterest income, continued growth in commercial loans, and strong asset quality," said Robert W. Gillespie, chairman and chief executive officer.

PNC Bank Corp.

PNC earned 90 cents a share in the second quarter, a penny more than Wall Street expected. The $73.6 billion-asset company benefited from a 38% gain in noninterest income, to $611 million.

The biggest boosts came from mortgage banking, asset management, mutual fund servicing, and corporate finance. Excluding the sale of 16 branches, which added $56 million in income, noninterest income rose 25%.

"If you've got the breadth on the product side," said BT Alex. Brown's Mr. Bicher, "it helps manage what's going to be a sluggish net-interest- margin environment."

Net interest income grew 3% to $630 million, PNC said.

Noninterest expenses rose 20%, to $781 million, including a $55 million charge for "consumer delivery initiatives, employee displacements, and the streamlining of credit card operations."

Analysts remained skeptical about PNC's ability to control costs.

"The good news is on the fee side," Mr. Bicher said. "The cause for concern is expense control."

BankBoston Corp.

Earnings per share of 80 cents beat Wall Street forecasts by a penny.

Noninterest income, including fees from capital markets, investment services, and deposit products, rose 21%, to $457 million. That helped push total revenues up 11%, to $1 billion.

Foreign exchange profits increased 60%, to $32 million, offsetting a $4 million loss in emerging markets trading.

The bank attributed the trading loss to Asian woes that spilled over to other emerging markets. BankBoston also said it lost $10 million during the quarter from loans in Indonesia. But it said it reduced its credit exposure in that country, to $75 million from $200 million at the beginning of the year.

Interest income grew 4%, to $639.5 million, while the net interest margin shrank to 4.17% from 4.38%.

Loan growth was 2%. Domestic loans declined $250 million, because the bank sold certain consumer finance operations. That sale offset 12% growth in the bank's U.S. commercial lending portfolio.

While expenses rose 12%, to $647.4 million, analysts said ongoing investments in fee-generating businesses like capital markets and in Latin American branch operations foreshadow big revenue gains.

"They are making strategic investments today that will pan out (in revenue) next year," said Gerard Cassidy, an analyst at Tucker Anthony.

BankBoston opened 26 new branches in Brazil and Argentina during the quarter. It also agreed to buy the investment bank Robertson Stephens & Co. from BankAmerica Corp. in a $540 million deal scheduled to close in the fourth quarter. +++

Summit Bancorp

Princeton, N.J.

Dollar amounts in millions (except per share)

Second Quarter 2Q98 2Q97

Net income $118.5 $105.1

Per share 0.66 0.59

ROA 1.56% 1.46%

ROE 17.86% 17.16%

Net interest margin 4.16% 4.28%

Net interest income 294.9 286.8

Noninterest income 87.1 70.8

Noninterest expense 191.9 181.3

Year to Date 1998 1997

Net income $230.9 $187.5

Per share 1.29 1.06

ROA 1.54% 1.32%

ROE 17.46% 15.59%

Balance Sheet 6/30/98 6/30/97

Assets $31,142.0 $29,224.0

Deposits 22,106.5 22,167.1

Loans 19,395.4 18,303.6

PNC Bank Corp.

Pittsburgh

Dollar amounts in millions (except per share)

Second Quarter 2Q98 2Q97

Net income $280.4 $259.1

Per share 0.90 0.81

ROA 1.53% 1.47%

ROE 21.42% 20.21%

Net interest margin 3.81% 3.84%

Net interest income 637.0 620.6

Noninterest income 611.2 444.4

Noninterest expense 780.7 649.8

Loss provision 35.0 15.0

Net chargeoffs 89.0 59.0

Year to Date 1998 1997

Net income $549.7 $525.4

Per share 1.77 1.61

ROA 1.52% 1.50%

ROE 21.26% 19.84%

Net interest margin 3.88% 3.92%

Net interest income 1,281.2 1,257.9

Noninterest income 1,150.1 877.7

Noninterest expense 1,521.9 1,294.2

Loss provision 65.0 25.0

Net chargeoffs 179.0 119.0

Balance Sheet 6/30/98 6/30/97

Assets $75,873.0 $71,973.0

Deposits 47,096.0 45,216.0

Loans 56,237.0 53,497.0

Reserve/nonp. loans 315.09% 310.34%

Nonperf. loans/loans 0.48% 0.65%

Nonperf. assets/assets 0.43% 0.61%

Nonperf. assets/loans + OREO 0.57% 0.83%

Leverage cap. ratio 7.20%(a) 7.35%

Tier 1 cap. ratio 7.30%(a) 7.74%

Tier 1+2 cap. ratio 10.80%(a) 10.98%

(a) estimated

M&T Bank Corp.

Buffalo, N.Y.

Dollar amounts in millions (except per share)

Second Quarter 2Q98 2Q97

Net income $44.7 $42.8

Per share 5.32 6.17

ROA 0.92% 1.31%

ROE 10.77% 18.55%

Net interest margin 3.99% 4.41%

Net interest income 177.1 138.2

Noninterest income 66.4 44.0

Noninterest expense 155.0 102.1

Year to Date 1998 1997

Net income $93.7 $84.1

Per share 12.16 11.98

ROA 1.12% 1.30%

ROE 13.89% 18.40%

Balance Sheet 6/30/98 6/30/97

Assets $20,138.0 $13,441.0

Deposits 14,813.0 11,186.2

Loans 14,934.0 10,708.2

KeyCorp

Cleveland, Ohio

Dollar amounts in millions (except per share)

Second Quarter 2Q98 2Q97

Net income $249.0 $223.0

Per share 0.57 0.51

ROA 1.35% 1.32%

ROE 18.47% 18.85%

Net interest margin 4.19% 4.69%

Net interest income 689.0 707.0

Noninterest income 380.0 288.0

Noninterest expense 616.0 582.0

Loss provision 72.0 75.0

Net chargeoffs 72.0 65.0

Year to Date 1998 1997

Net income $484.0 $435.0

Per share 1.10 0.99

ROA 1.34% 1.31%

ROE 18.36% 18.46%

Net interest margin 4.21% 4.72%

Net interest income 1,362.0 1,407.0

Noninterest income 736.0 547.0

Noninterest expense 1,216.0 1,157.0

Loss provision 149.0 142.0

Net chargeoffs 149.0 132.0

Balance Sheet 6/30/98 6/30/97

Assets $75,778.0 $69,672.0

Deposits 41,794.0 44,626.0

Loans 57,769.0 51,644.0

Reserve/nonp. loans 240.64% 236.56%

Nonperf. loans/loans 0.65% 0.72%

Nonperf. assets/assets 0.55% 0.62%

Nonperf. assets/loans + OREO 0.72% 0.84%

Leverage cap. ratio 7.04%(a) 6.65%

Tier 1 cap. ratio 6.86%(a) 7.14%

Tier 1+2 cap. ratio 11.38%(a) 11.66%

(a) estimated

Fifth Third Bancorp

Cincinnati, Ohio

Dollar amounts in millions (except per share)

Second Quarter 2Q98 2Q97

Net income $133.3 $111.3

Per share 0.50 0.42

ROA 1.86% 1.71%

ROE 18.40% 18.50%

Net interest margin 3.87% 3.83%

Net interest income 261.5 235.9

Noninterest income 148.3 121.6

Noninterest expense 171.1 158.2

Year to Date 1998 1997

Net income $257.6 $222.2

Per share 0.96 0.83

ROA 1.81% 1.72%

ROE 18.20% 18.30%

Balance Sheet 6/30/98 6/30/97

Assets $28,292.7 $26,686.0

Deposits 18,792.3 17,953.2

Loans 17,975.1 16,740.9

Dime Bancorp

New York

Dollar amounts in millions (except per share)

Second Quarter 2Q98 2Q97

Net income $58.0 $28.0

Per share 0.50 0.26

ROA 1.09% 0.56%

ROE 17.70% 10.67%

Net interest margin 2.66% 2.52%

Net interest income 131.0 119.0

Noninterest income 128.0 29.0

Noninterest expense 165.0 81.0

Year to Date 1998 1997

Net income $116.0 $61.0

Per share 0.99 0.57

ROA 1.07% 0.62%

ROE 17.66% 11.66%

Balance Sheet 6/30/98 6/30/97

Assets $20,914.0 $20,087.0

Deposits 14,033.0 13,335.0

Loans 12,800.0 11,493.0

Crestar Financial Corp.

Richmond, Va.

Dollar amounts in millions (except per share)

Second Quarter 2Q98 2Q97

Net income $87.4 $75.8

Per share 0.77 0.68

ROA 1.39% 1.42%

ROE 16.46% 16.48%

Net interest margin 4.06% 4.58%

Net interest income 233.4 218.3

Noninterest income 116.5 111.0

Noninterest expense 191.7 179.0

Year to Date 1998 1997

Net income $172.3 $147.6

Per share 1.52 1.32

ROA 1.40% 1.37%

ROE 16.43% 16.47%

Balance Sheet 6/30/98 6/30/97

Assets $26,161.2 $22,809.8

Deposits 17,870.2 15,846.5

Loans 15,950.9 14,258.7 ===