Strong sales of nontraditional products boosted first-quarter earnings at several of the major banks that reported Wednesday, although merger charges marred some results.
Profits at BankAmerica Corp., in the spotlight earlier this week when announcing its merger deal with NationsBank Corp., improved by 7%, to $835 million.
BankAmerica chairman David Coulter said the performance was indicative of "the tremendous financial strength we contribute" to the combined entity.
By contrast, Fleet Financial Group said net income fell 3%, to $323 million, primarily due to charges from the acquisitions of the discount broker Quick & Reilly Group and of Advanta Corp.'s credit card business. But those additions helped propel Fleet's fee revenues 13% higher, to $695 million.
U.S. Bancorp's results were also dampened by acquisition charges, but quarterly income still rose 12%, to $328.5 million.
Republic New York Corp. said its earnings were up 7%, to $117.5 million, while Detroit-based Comerica Inc. posted profits of $144 million, up 17%.
"With the strong economy, the industry is benefiting from a wonderful environment for selling investment products," said R. Jay Tejera, an analyst with Dain Rauscher in Minneapolis.
"Banks are almost giving away their lending products to pick up fee- based income," he said.
BankAmerica Corp.
Earnings per share increased 14%, to $1.17, beating analyst's consensus estimates by 2 cents.
The $265.4 billion-asset BankAmerica's numbers were driven by noninterest income growth of 32% over the year-earlier period, to $1.8 billion.
Fees and commissions generated from fourth-quarter acquisition of the securities firm Robertson Stephens & Co., together with loan servicing charges and retail customer fees, contributed $187 million during the first quarter. Earnings from equity investment and trading activities climbed significantly as well, adding $147 million to noninterest income.
But $211 million in salaries and commissions paid to traders at the new subsidiary also played a big part in increasing the noninterest expenses by 13%, to $2.3 billion.
During the first quarter the bank securitized $750 million of card loans, which took a $49 million bite out of revenue by cutting out some interest income and credit card fees.
The net interest margin dropped 33 basis points, to 3.84%. Net credit losses increased 17%, to $239 million, though this did not concern analysts.
"BankAmerica has had a phenomenal credit quality trend from 1995 to 1997," said Mr. Tejera of Dain Rauscher. "At some point there is a floor as to how low you can take the chargeoff rate, and they are bouncing along a pretty nice floor right now."
Delinquent consumer loans decreased 17% during the quarter, to $1.5 billion.
The San Francisco bank also made a significant recovery from problems related to ailing Asian economies. Its Asian exposure declined 3.1%, to $22.9 billion, which Mr. Tejera called "a huge rebound."
Fleet Financial Group
Boston-based Fleet's $1.06 in earnings per share was 15 cents short of the analyst consensus estimate. If merger-related charges were excluded, the resulting $1.21 would have met Wall Street expectations.
Analysts said double-digit growth in loans and fee businesses indicated strong underlying results.
"Their earnings mix has shown dramatic improvement over last year," said Anthony Polini, an analyst at Advest Inc. Recent acquisitions have "added sex appeal to a bank that did not have it before."
Fleet, with $98 billion of assets, is frequently mentioned as a potential takeover target. But chairman and chief executive officer Terrence Murray told shareholders Wednesday the bank will remain independent as long as its performance continuously improves.
Analysts said acquisitions over the last year in asset management, brokerage, and credit cards are boosting the company's vale.
"I would not be surprised to see them in a merger of equals," said Gerard Cassidy, an analyst at Tucker Anthony, citing PNC Bank Corp., Mellon Bank Corp., and KeyCorp as potential partners.
Fleet's first-quarter loan growth was 10%, to $66 billion. Commercial loans rose 9%, to $31.8 billion, buoyed by a stronger New England economy, analysts said.
Nonperforming assets decreased 50%, to $373 million. Net chargeoffs and the provision for credit losses were both $92 million in the first quarter.
Revenues from investment services grew 14%, to $201 million, fueled by strong sales in mutual funds and annuities. Credit card revenues grew threefold, to $54 million, with the addition of the Advanta portfolio, the bank said.
U.S. Bancorp
The $71 billion-asset U.S. Bancorp said net income was affected by $46.5 million in pretax merger-related expenses and $12.6 million in securities gains.
The expenses came from last year's acquisition by Minneapolis-based First Bank System of U.S. Bancorp of Portland, Ore. The new U.S. Bancorp, which has headquarters in Minneapolis, said another $65 million in after- tax merger costs would be incurred over the next two quarters.
Excluding nonrecurring items, the company's income was 20% better than in the year-ago quarter. Major factors were fee businesses including trust and credit cards, and cost savings.
"We once again experienced strong revenue growth while maintaining effective cost control," said president and chief executive officer John F. Grundhofer. "Our performance ratios continue to be among the best in the banking industry."
Excluding the nonrecurring items, U.S. Bancorp earned 23.5% on equity and 2% on assets, and had an expense-to-revenue ratio of 46%.
Noninterest income, led by a 40% jump in credit card fees, rose 21% to $459 million.
Net interest income rose 0.8%, to $768 million. Loan growth came from the home equity, credit card, and commercial sectors, but ABN Amro Inc. analyst James Schutz discounted it. "What we're seeing is outstanding fee income growth and expenses are being cut," he said.
Republic New York Corp.
Earnings per share of $2.07 beat the consensus estimate by 4 cents.
Analysts said Republic's results were generally positive, though some saw an 81% reduction in taxes as surprising. Repubic reached its goals "but did it a little differently," said Marni Pont O'Doherty, an analyst at Keefe, Bruyette & Woods.
The $54.7 billion-asset Republic used its reduced tax liability to offset a $9 million loss from investment securities during the quarter, analysts said.
Noninterest income declined 3%, to $122.6 million, from the loss in investment securities and sharply lower trading results in precious metals. Overall trading revenues gained 5%, to $40 million, as foreign exchange trading yielded an 11% increase, to $30 million. Expenses rose 18% to $251.7 million, including an $18.9 million charge for year-2000 computer upgrades.
Comerica Inc.
The $36 billion-asset Detroit company had a 5% increase in noninterest income, to $135 million. However, last year's first quarter included an extraordinary gain of $17 million related to the sale of a bond indenture service business. Excluding the special gain, first-quarter noninterest income would have been up 20%.
Fee income was boosted by trust and investments, up 23% from a year earlier. Comerica also had gains on service charges assessed to its deposit accounts.
Noninterest expense increased $1 million from 1997's first quarter, to $250 million.
Expense control has been a major focus at the company. It said Wednesday that a two-year restructuring program had officially concluded at the end of the first quarter. Comerica expects $90 million in additional income in 1998 as a result.
Analysts said Comerica has done a good job of cutting costs throughout the restructuring, but "the revenue picture is still something we're going to be watching very, very closely" in light of this program, said analyst Michael Moran of Roney & Co. in Detroit.
