Merger charges, market turmoil, and even a hurricane marred fourth- quarter earnings results at major regional banks.
However, some of the institutions managed to benefit from the roiling capital markets as corporate customers sought less risky financing in traditional bank loans.
Among the results reported Tuesday, BankAmerica Corp.'s net income dropped 21%, to $1.16 billion, due partly to its relationship with hedge fund operator D.E. Shaw & Co.
Bank One Corp.'s fourth-quarter net income was off 75% because of merger and restructuring charges. And Wells Fargo & Co. suffered a $194 million loss attributed to merger expenses and problems at a finance company in Puerto Rico.
"Most of the disruptions in the capital markets area did contribute to higher demand in the commercial loan sector in the fourth quarter," said analyst Frank Barkocy of Josephthal & Co.
"And, for the most part, credit seems to be holding in there," said Joseph Duwan, an analyst with Keefe, Bruyette & Woods Inc.
At KeyCorp, fourth-quarter profits rose 5% to $260 million, while PNC Bank Corp. posted a 7.5% earnings jump to $285 million. State Street Corp. credited gains in its processing business for a 9% increase in net income, and a spurt in commercial lending at Comerica Inc. boosted net income there by 13% to $158 million.
BankAmerica Corp.
The Charlotte, N.C.-based banking company reported earnings per share of 91 cents, which were 2 cents shy of the analysts' consensus estimate. Operating earnings totaled $1.6 billion in the fourth quarter, a 5% decline.
The bank said it took a $441 million after-tax charge to cover its merger with NationsBank Corp.
BankAmerica said it lost $201 million pretax in the fourth quarter because of its connection to D.E. Shaw.
Most of that loss came from a $158 million writedown of a loan the company made to Shaw. The rest came from trading losses.
In the third quarter, BankAmerica took a $372 million Shaw-related charge.
Despite the sizable losses, analysts said the $618 billion-asset bank has dealt with the D.E. Shaw problems much faster than expected. R. Jay Tejera, an analyst with Dain Rauscher in Minneapolis, said he was expecting Shaw-related fourth-quarter trading losses of roughly $175 million- significantly larger than the $43 million BankAmerica reported.
"It was a pleasant surprise," Mr. Tejera said. "They are dealing with this quite aggressively."
Global financial market turbulence seriously affected BankAmerica's fourth-quarter overall noninterest income, which declined 18%, to $2.66 billion. The bank cited a $286 million reduction in investment banking fees and a $255 million decline in other income-including the writedown of the Shaw loan-from the same period a year earlier.
These declines were the main reason earnings came in slightly below expectations, analysts said.
James R. Bradshaw of Pacific Crest Securities in Portland, Ore., said he expected a fuller recovery from the third quarter, when BankAmerica reported a 78% decline in net income and established a $500 million reserve against trading losses.
"It was better than the third quarter, which was a disaster, but it was still a little lighter than we had anticipated," Mr. Bradshaw said.
BankAmerica did manage to eke out a 1% increase, to $4.7 billion, in net interest income. Asset securitizations, loan sales, and a shrinking margin were offset by strong loan and deposit growth, the bank said. Average loans grew 11%, to $382 billion; deposits climbed 3%, to $357 billion. The net yield on earning assets dropped by 27 basis-points, to 3.58%, due to lower loan and deposit spreads and a higher level of investment securities.
For the full year, BankAmerica earned $5.17 billion, or $2.90 per share, a 21% decline.
Bank One Corp.
At Bank One, the nation's largest credit card issuer and fifth- biggest banking company with $260 billion of assets, loan growth was strong in its commercial banking and card businesses.
As expected, Bank One took merger and restructuring charges of $1.2 billion mostly to account for its acquisition of First Chicago NBD Corp. About $200 million of the charges was unrelated to the merger and related to writeoffs in auto leasing and teller machine businesses.
Credit card loan growth helped fuel revenues. Credit card fee revenue was $1.1 billion, up 39%, and accounted for half of the quarter's noninterest income, which was $2.1 billion.
Net interest income at the Chicago-based company was up 2% to $2.3 billion. Much of Bank One's loan growth is in credit cards, which are not included in net interest income because the loans are securitized.
Excluding merger and other one-time expenses, Bank One's fourth-quarter noninterest expense was $2.8 billion, a 15% increase.
The company said marketing and expansion of its credit card business accounted for most of the expenses.
"The fundamental performance in our first quarter as a merged company demonstrates Bank One's earnings power," said chief executive officer John B. McCoy.
"I think they're feeling pretty good about where they are today and the prospects going forward," Mr. Duwan said.
Bank One had profits of $3.108 billion for the full-year 1998, a 5% gain. Earnings per share for the year were $2.61.
Wells Fargo & Co.
San Francisco-based Wells earned $768 million on an operating basis in the fourth quarter on earnings per share of 46 cents, which met analysts' expectations.
The $202 billion-asset company took a $835 million charge because of its Nov. 2 merger with Norwest Corp.
In addition, the bank said provisions due to loan losses at Island Finance, its Caribbean consumer finance unit, totaled $320 million.
"A $320 million loss on a $1 billion loan portfolio is a lot more than just a hickey," said Ben Crabtree, an analyst with Dain Rauscher in Minneapolis.
Norwest in 1995 acquired Island Finance, which has 144 offices in the Caribbean and Latin America. The bank said the recent deterioration of economic conditions in Puerto Rico, compounded by hurricane damage last year, caused the loss.
But Wells benefited from a 6% increase in net interest income, to $2.3 billion. Excluding a 54% jump in noninterest expense due to the merger- related charges, fee and other income increased 5%, to $1.6 billion. The improvement came from higher fees and commissions, service charges on deposit accounts, and greater mortgage banking revenue.
Fourth-quarter merger charges consisted of roughly $375 million in severance, outplacement, relocation, and employee contracts; $250 million in charges stemming from the closure of branches and facilities; and a $210 million charge for community development commitments.
In 1998, Wells earned $1.95 billion, or $1.17, down 22%.
KeyCorp
Net interest at Cleveland-based KeyCorp was down 4% to $713 million.
The $80 billion-asset company also reported 9% growth in noninterest expenses to $685 million. The higher costs were related to an $8 million charge for the acquisition of McDonald & Company Securities, a Cleveland investment firm.
Excluding merger charges, earnings per share was 59 cents, a penny better than Wall Street estimates.
KeyCorp also reported higher employee costs in its capital markets and investment banking divisions.
But noninterest income rose 22% to $447 million sparked by higher revenues in trust and asset management, investment banking and insurance. The company said the acquisition of McDonald helped boost gains in these areas.
The McDonald acquisition has "been a good fit so far," said Mr. Barkocy of Josephthal & Co.
"This was their highest quarter for noninterest income in their history," he added. Thirty-nine percent of KeyCorp's revenues for the quarter came from fee businesses, he said.
For all of 1998, KeyCorp earned $996 million, or $2.23 per share, up 8%.
"We are convinced that the strategies we have implemented are driving Key toward true distinctiveness as a financial services provider," said CEO Robert W. Gillespie.
PNC Bank Corp.
Earnings per share of 92 cents at Pittsburgh-based PNC met analysts' estimates.
A 90% increase in mortgage banking, a 59% increase in asset management, and a 34% increase in service charges on deposit accounts helped PNC post $797 million in noninterest income, a 54% increase.
The $77.2 billion-asset PNC derived most of its revenue from fee businesses.
Net interest income of $659 million was up 4% from the same period a year ago.
Chairman and CEO Thomas H. O'Brien hailed PNC's results as a "strong performance across a diverse portfolio of businesses" despite a "challenging environment."
In the fourth quarter, PNC completed its acquisition of Hilliard-Lyons Inc., a retail brokerage firm, and completed the sale of its corporate trust and escrow business and $821 million in credit card receivables.
The sale of the credit card business should "strengthen our capital position, improve our risk profile, and allow us to redeploy capital," Mr. O'Brien said.
Full-year earnings of $1.1 billion, or $3.60 per share, were up 6%.
State Street Corp.
Boston-based State Street earned 68 cents per share in line with analysts' estimates.
For the full year, profits rose 15%, to $436 million, or $2.66 per share.
Fees at the $47 billion-asset bank rose 17%, to $530 million during the fourth quarter. Revenues from fiduciary compensation rose 19%, to $398 million. Fees from securities servicing and processing gained 18%, to $50 million.
Custody assets grew 23%, to $4.8 trillion. Assets under management grew 24%, to $485 million.
Expenses rose 18%, to $559 million.
Comerica Inc.
Detroit-based Comerica's earnings per share of 97 cents met analysts' estimates.
Net interest income rose 1% to $371 million. Noninterest income was $167 million, up 19% from a year ago.
The $36.6 billion-asset company said commercial loans grew 21% from a year ago to $19 billion. Consumer loans shrunk from $4.3 billion to $1.9 billion. The net interest margin was up 6 basis points from a year ago to 4.54%, which bucked an industry trend of narrowing margins.
Noninterest expenses were $263 million, up 2% from a year ago. Excluding nonrecurring items, expenses would have increased 6% from a year ago. "Our financial performance reflects continued strong loan demand and the successful implementation of revenue enhancements and expense control strategies," said Eugene A. Miller, chairman and CEO.
For the full year, Comerica earned $607 million, or $3.72, up 14%. +++
Wells Fargo & Co. San Francisco Dollar amounts in millions (except per share) Fourth Quarter 4Q98 4Q97 Net income ($194.0) $650.0 Per share (0.12) 0.39 ROA NA 1.42% ROE NA 13.12% Net interest margin 5.60% 5.88% Net interest income 2,315.0 2,195.0 Noninterest income 1,557.0 1,479.0 Noninterest expense 3,482.0 2,258.0 Loss provision 624.0 343.0 Net chargeoffs (686.0) (339.0) Year to Date 1998 1997 Net income $1,950.0 $2,499.0 Per share 1.17 1.48 ROA 1.04% 1.37% ROE 9.86% 12.81% Net interest margin 5.79% 5.86% Net interest income 9,049.0 8,705.0 Noninterest income 6,427.0 5,675.0 Noninterest expense 10,579.0 8,990.0 Loss provision 1,545.0 1,140.0 Net chargeoffs 1,617.0 1,305.0 Balance Sheet 12/31/98 12/31/97 Assets $202,475.0 $185,685.0 Deposits 136,788.0 127,656.0 Loans 104,860.0 103,249.0 Reserve/nonp. loans 441.41% 428.25% Nonperf. loans/loans 0.70% 0.70% Nonperf. assets/assets 0.44% 0.53% Nonperf. assets/loans + OREO 0.82% 0.92% Leverage cap. ratio 6.60% 6.72% Tier 1 cap. ratio 8.10% 8.16% Tier 1+2 cap. ratio 10.90% 11.20%
PNC Bank Corp. Pittsburgh, Pa. Dollar amounts in millions (except per share) Fourth Quarter 4Q98 4Q97 Net income $285.0 $265.0 Per share 0.92 0.85 ROA 1.46% 1.49% ROE 20.25% 20.28% Net interest margin 3.77% 3.95% Net interest income 665.0 639.0 Noninterest income 797.0 518.0 Noninterest expense 896.0 715.0 Loss provision 115.0 25.0 Net chargeoffs 180.0 80.0 Year to Date 1998 1997 Net income $1,115.0 $1,052.0 Per share 3.60 3.28 ROA 1.49% 1.49% ROE 20.81% 20.01% Net interest margin 3.85% 3.94% Net interest income 2,599.0 2,524.0 Noninterest income 2,623.0 1,855.0 Noninterest expense 3,261.0 2,662.0 Loss provision 225.0 70.0 Net chargeoffs 447.0 272.0 Balance Sheet 12/31/98 12/31/97 Assets $77,207.0 $75,120.0 Deposits 47,496.0 47,649.0 Loans 57,650.0 54,245.0 Reserve/nonp. loans 255.25% 351.79% Nonperf. loans/loans 0.51% 0.51% Nonperf. assets/assets 0.43% 0.44% Nonperf. assets/loans + OREO 0.58% 0.61% Leverage cap. ratio 7.22% 7.30% Tier 1 cap. ratio 7.70%* 7.43% Tier 1+2 cap. ratio 11.00%* 11.11%
* Estimated
KeyCorp Cleveland, Ohio Dollar amounts in millions (except per share) Fourth Quarter 4Q98 4Q97 Net income $260.0 $248.0 Per share 0.57 0.56 ROA 1.31% 1.38% ROE 17.12% 19.16% Net interest margin 4.10% 4.50% Net interest income 713.0 716.0 Noninterest income 447.0 366.0 Noninterest expense 685.0 630.0 Loss provision 77.0 76.0 Net chargeoffs 77.0 76.0 Year to Date 1998 1997 Net income $996.0 $919.0 Per share 2.23 2.07 ROA 1.32% 1.33% ROE 17.97% 18.89% Net interest margin 4.18% 4.62% Net interest income 2,783.0 2,838.0 Noninterest income 1,575.0 1,306.0 Noninterest expense 2,548.0 2,435.0 Loss provision 297.0 320.0 Net chargeoffs 297.0 293.0 Balance Sheet 12/31/98 12/31/97 Assets $80,020.0 $73,699.0 Deposits 42,583.0 45,073.0 Loans 62,012.0 53,380.0 Reserve/nonp. loans 246.58% 236.22% Nonperf. loans/loans 0.59% 0.71% Nonperf. assets/assets 0.50% 0.58% Nonperf. assets/loans + OREO 0.65% 0.81% Leverage cap. ratio 6.95% 6.40% Tier 1 cap. ratio 7.01% 6.65% Tier 1+2 cap. ratio 11.35% 10.83%
Comerica Inc. Detroit, Mich. Dollar amounts in millions (except per share) Fourth Quarter 4Q98 4Q97 Net income $158.0 $140.0 Per share 0.97 0.85 ROA 1.78% 1.57% ROE 22.49% 21.68% Net interest margin 4.54% 4.48% Net interest income 372.0 368.0 Noninterest income 167.0 141.0 Noninterest expense 263.0 257.0 Loss provision 36.0 37.0 Net chargeoffs 23.0 25.0 Year to Date 1998 1997 Net income $607.0 $530.0 Per share 3.72 3.19 ROA 1.74% 1.52% ROE 22.54% 21.32% Net interest margin 4.57% 4.53% Net interest income 1,468.0 1,452.0 Noninterest income 603.0 528.0 Noninterest expense 1,020.0 1,008.0 Loss provision 113.0 146.0 Net chargeoffs 85.0 89.0 Balance Sheet 12/31/98 12/31/97 Assets $36,601.0 $36,292.0 Deposits 24,313.0 22,586.0 Loans 30,152.0 28,471.0 Reserve/nonp. loans 391.03% 494.68% Nonperf. loans/loans 0.38% 0.30% Nonperf. assets/assets 0.33% 0.28% Nonperf. assets/loans + OREO 0.39% 0.36% Leverage cap. ratio 7.68% 7.09% Tier 1 cap. ratio 6.36% 6.28% Tier 1+2 cap. ratio 10.45% 9.90%
Bank One Corp. Chicago Dollar amounts in millions (except per share) Fourth Quarter 4Q98 4Q97 Net income $226.0 $890.0 Per share 0.19 0.75 ROA 0.37% 1.52% ROE 4.40% 19.10% Net interest margin 4.40% 4.55% Net interest income 2,368.0 2,332.0 Noninterest income 2,068.0 1,866.0 Noninterest expense 3,856.0 2,448.0 Loss provision 272.0 448.0 Net chargeoffs 297.0 467.0 Year to Date 1998 1997 Net income $3,108.0 $2,960.0 Per share 2.61 2.43 ROA 1.30% 1.29% ROE 15.90% 15.80% Net interest margin 4.52% 4.75% Net interest income 9,469.0 9,619.0 Noninterest income 8,071.0 6,694.0 Noninterest expense 11,545.0 9,740.0 Loss provision 1,408.0 1,988.0 Net chargeoffs 1,498.0 1,887.0 Balance Sheet 12/31/98 12/31/97 Assets $261,496.0 $239,372.0 Deposits 161,542.0 153,726.0 Loans 153,127.0 156,762.0 Reserve/nonp. loans 312% 463% Nonperf. loans/loans 0.47% 0.38% Nonperf. assets/assets 0.31% 0.28% Nonperf. assets/loans + OREO 0.53% 0.42% Leverage cap. ratio 8.10% 7.80% Tier 1 cap. ratio 8.00% 8.20% Tier 1+2 cap. ratio 11.50% 12.30%
BankAmerica Corp. Charlotte, N.C. Dollar amounts in millions (except per share) Fourth Quarter 4Q98 4Q97 Net income $1,162.0 $1,459.0 Per share 0.66 0.81 ROA 0.76% 1.04% ROE 10.23% 13.33% Net interest margin 3.58% 3.85% Net interest income 4,650.0 4,598.0 Noninterest income 2,655.0 3,225.0 Noninterest expense 4,687.0 4,736.0 Loss provision 510.0 498.0 Net chargeoffs 544.0 491.0 Year to Date 1998 1997 Net income $5,165.0 $6,542.0 Per share 2.90 3.61 ROA 0.88% 1.20% ROE 11.56% 15.26% Net interest margin 3.69% 4.00% Net interest income 18,461.0 18,589.0 Noninterest income 12,189.0 11,756.0 Noninterest expense 18,741.0 17,625.0 Loss provision 2,920.0 1,904.0 Net chargeoffs 2,467.0 1,851.0 Balance Sheet 12/31/98 12/31/97 Assets $617,679.0 $570,983.0 Deposits 357,260.0 346,297.0 Loans 357,328.0 342,140.0 Reserve/nonp. loans 287% 321% Nonperf. loans/loans 0.69% 0.62% Nonperf. assets/assets 0.45% 0.42% Nonperf. assets/loans + OREO 0.77% 0.71% Leverage cap. ratio 6.22% 5.57% Tier 1 cap. ratio 7.06% 6.50% Tier 1+2 cap. ratio 10.94% 10.89%
State Street Corp. Boston Dollar amounts in millions (except per share) Fourth Quarter 4Q98 4Q97 Net income $110.7 $100.9 Per share 0.68 0.61 ROA 0.86% 1.03% ROE 19.40% 20.40% Net interest margin 1.80% 2.12% Net interest income 200.0 173.0 Noninterest income 530.0 453.0 Noninterest expense 559.0 473.0 Loss provision 4.0 5.0 Net chargeoffs 3.0 2.0 Year to Date 1998 1997 Net income $435.9 $380.3 Per share 2.66 2.32 ROA 0.95% 1.07% ROE 20.20% 20.60% Net interest margin 1.90% 2.18% Net interest income 745.0 641.0 Noninterest income 1,997.0 1,673.0 Noninterest expense 2,068.0 1,734.0 Loss provision 17.0 16.0 Net chargeoffs 16.0 6.0 Balance Sheet 12/31/98 12/31/97 Assets $47,081.0 $37,975.0 Deposits 27,539.0 24,878.0 Loans 6,225.0 5,479.0 Reserve/nonp. loans 683% 4,082% Nonperf. loans/loans 0.20% 0.04% Nonperf. assets/assets 0.03% 0.02% Nonperf. assets/loans + OREO 0.25% 0.10% Leverage cap. ratio 5.50% 5.90% Tier 1 cap. ratio 14.10% 13.70% Tier 1+2 cap. ratio 14.40% 13.80% ===
