Profits Rise At KeyCorp, National City, And Comerica

Several of the nation's largest banks reported solid earnings gains Thursday as their efforts to expand beyond traditional commercial banking continued to pay off.

Growth in fee income particularly helped KeyCorp, which scored a 12% boost in profits to $280 million.

The Cleveland banking company has been struggling to overhaul its retail operation.

KeyCorp said Thursday that while it has fallen $3 million short of its six-month revenue goals for the restructuring, it has exceeded its profit goals. The retail overhaul has added $36 million to the company's profits to date, $1 million ahead of projections.

"This is evidence of improvement, but there has to be further evidence down the road," said Joseph C. Duwan, bank analyst at Keefe, Bruyette & Woods.

Separately, National City Corp., also of Cleveland, reported a 7% increase in second-quarter profits, to $354.5 million; Detroit-based Comerica earned $167 million, up 11%; BankBoston Corp. notched a 3% rise, to $250 million; and profits at PNC Bank Corp. of Pittsburgh climbed 13%, to $315 million.

Asset management, capital markets and brokerage businesses fueled the results, said Edward Najarian, of First Union Capital Markets Corp. in Charlotte, N.C. "Though we've seen some rise in nonperforming assets out of certain banks, credit loss ratios are a little better than we anticipated."

KeyCorp

The $80.8 billion-asset banking company posted earnings of 62 cents per share, beating analysts' expectations by 3 cents.

Fee income, which totaled $536 million, was up 38% primarily because of profits from McDonald & Co. Investments, a Cleveland-based investment bank that KeyCorp acquired last year.

"McDonald had a very strong quarter," said Mr. Duwan. "All of these investment banking-brokerage houses are doing great."

Income from investment banking and capital markets doubled to $100 million. Insurance and brokerage fees rose to $59 million, from $24 million in the same period last year.

KeyCorp's earnings were helped by $38 million in securities gains and by reducing the percentage of funds allowed for loan-loss reserves to 1.50% of all loans from 1.56% in last year's second quarter.

"They're still stealing some of their earnings from other areas," said Diana Yates, bank analyst at A.G. Edwards & Sons Inc. in St. Louis. In a briefing for analysts, KeyCorp president and chief operating officer Henry L. Meyer 3d said the retail bank was expected to produce $25 million in revenue by June 30 but only generated $22 million. It made up for the revenue shortfall with $14 million in cost savings-$4 million ahead of plan.

By yearend, KeyCorp expects its retail operations to contribute $83 million to earnings-$51 million from revenue and $32 million in cost savings. The company's loan portfolio, however, has failed to grow since March 30, holding steady at $61.6 million.

Analysts said Key's fee-driven earnings this quarter show the company may be turning the corner, but the retail bank must show more improvement.

"They had a very good quarter, but they will continue to be under pressure," said Michael M. Moran, bank analyst at Roney & Co. in Detroit.

KeyCorp's shares closed at $32.875, up 31.25 cents.

National City Corp.

National City released "noisy" second quarter results that were clouded by business line sales and restructuring charges.

"When you get through all of the nonrecurring items, they posted a very strong bottom line," said Mr. Moran. "They are delivering."

National City earned $1.12 per share, beating analysts' consensus estimates by a penny.

The one-time events, which canceled each other out financially, included the sale of some business lines under National Processing Inc., a transaction processor that is 88% owned by National City.

National City also took an unexpected $37.8 million charge reflecting efforts to make its branches more efficient.

"We believe these actions will enhance shareholder returns over the longer term," said David A. Daberko, National City's chairman and chief executive officer.

Expenses were down 4% to $719.5 million as the $84 billion-asset company continued to find cost savings from its 1998 acquisition of First of America Bank Corp., Kalamazoo, Mich. The company's efficiency ratio also improved to 55.52% for the quarter, from 56.05% at March 31 and 57.9% a year earlier.

Net interest income was up 2.5% to $758.2 million since the second quarter 1998 due to a more profitable deposit mix, but was partially offset as National City borrowed to fund its share-repurchase program.

The net interest margin improved since the first quarter to 4.04% from 4.02%, but was down from 4.15% in the second quarter of 1998.

Asset quality also strengthened since March 30, with nonperforming assets falling to $294.5 million or 0.44% of total loans, down from $271.9 million or 0.47% of total loans.

Shares in National City, the country's 11th-largest banking company, closed Thursday's trading at $64.625, up 68.75 cents.

BankBoston Corp.

At BankBoston, the nation's 14th-largest bank, net income of 83 cents per share beat the analysts' consensus by 3 cents.

"It looked like a real solid quarter" for the $78 billion-asset company, said George Bicher, a bank analyst at Deutsche Banc Alex. Brown.

Noninterest income surged 50%, to $687 million. Underwriting, commission, and advisory revenue from Robertson Stephens, BankBoston's investment banking subsidiary, powered the gain.

"Robertson Stephens knocked the cover off the ball," said Ronald Mandle, a bank analyst for Sanford Bernstein & Co.

Particularly impressive was Robertson Stephens' success in merger and acquisition advisory. "You don't normally think of Robertson Stephens as having a strong M&A practice," Mr. Bicher said. "They are leveraging their (underwriting) presence in the Internet sector" to gain merger business in that area, he said.

Underwriting and advisory fees rose $100 million in the quarter, Mr. Bicher said.

The gains at Robertson Stephens, which BankBoston bought last year, did not come without a cost. Noninterest expenses reached $899 million in the quarter, up from $647 million a year earlier. And 85% of that increase stemmed from increased compensation, mostly to Robertson Stephens employees.

"It's easy come, easy go," Mr. Bicher said of the income and expense increases. The key question is whether the company will be able to curb compensation outlays when investment banking fee revenue slides down, he said.

BankBoston's large presence in Brazil and Argentina also boosted earnings. The company's operations in those countries generated an earnings gain of about 50% in the first half of the year from the same period in 1998.

BankBoston is slated to be acquired by Fleet Financial Group in the fourth quarter. "Their momentum comes at a nice time for the merger with Fleet, because Fleet doesn't have as much momentum," Mr. Bicher said. "It's a good time for Fleet to hook up."

BankBoston's stock closed at $50.8125, up $1.8125.

PNC Bank Corp.

At PNC, the country's 15th-largest bank, earnings per share of 98 cents beat the consensus estimate by 2 cents.

This year's second quarter included a $16 million, or 5-cent-per-share, gain from the sale of Concord EFS Inc.

But analysts were still pleased with the $76 billion-asset company's performance.

"They had very strong asset management, mutual fund services was a good number, and mortgage banking did well," said First Union's Mr. Najarian.

Noninterest income jumped 17% in the second quarter, to $664 million.

PNC did suffer a 4% decrease in net interest income, to $612 million. That drop resulted primarily from the company's sale of its credit card business in the first quarter. As a result, the net interest margin slipped to 3.64% in the second quarter from 3.81% in the same period a year earlier.

PNC had a "good quarter with respect to credit quality," Mr. Najarian said. While PNC's ratio of nonperforming assets to total assets rose to 0.59% in the period from 0.55% a year earlier, "we have seen bigger increases at other banks."

PNC shares rose 50 cents to $55.0625.

Comerica Inc.

Comerica reported earnings per share of $1.03, beating analysts estimates by a penny.

The $37 billion-asset banking company boosted commercial loans and fee income and reported a decline in nonperforming assets.

"Comerica comes out the winner with top-line revenue growth and improvements in asset quality," said Ms. Yates, of A.G. Edwards & Sons Inc. "Fee income was strong across the board and expenses were in check."

"We are very pleased with the underlying trends," said Roney & Co.'s Mr. Moran.

Net interest income was up 5% to $380.9 million driven by a 15.1% growth in commercial loans. The company's total loan portfolio has grown 14% to $32 billion over the last 12 months.

Noninterest income was up 30.8% to $194 million due to a 25.4% gain in commercial lending fees to $11.3 million and a 42.4% boost in fiduciary and investment management income to $59.8 million.

Nonperforming assets as a percentage of all loans declined since March 30 to .46% from .52%.

Ms. Yates said Comerica's strong commercial loan portfolio bodes well for the soundness of all banks' middle-market business loans.

"If there were any credit quality issues out there, you would think you'd see it at Comerica first," she said.

Expenses at the 25th-largest U.S. banking company crept up during the second quarter by 11% to $289 million, but Comerica said half of the increase stemmed from costs associated with fixing year-2000 problems.

Shares in Comerica closed Thursday's trading at $59, up $1. +++

PNC Bank Corp.

Pittsburgh

Dollar amounts in millions (except per share) Second Quarter 2Q99 2Q98

Net income $315.0 $280.0

Per share 1.03 0.90

ROA 1.68% 1.53%

ROE 22.38% 21.42%

Net interest margin 3.64% 3.81%

Net interest income 612.0 637.0

Noninterest income 664.0 569.0

Noninterest expense 767.0 739.0

Loss provision 25.0 35.0

Net chargeoffs 24.0 89.0

Year to Date 1999 1998

Net income $640.0 $550.0

Per share 2.08 1.77

ROA 1.70% 1.52%

ROE 22.66% 21.26%

Net interest margin 3.75% 3.88%

Net interest income 1,276.0 1,281.0

Noninterest income 1,395.0 1,075.0

Noninterest expense 1,590.0 1,447.0

Loss provision 103.0 65.0

Net chargeoffs 102.0 179.0

Balance Sheet 6/30/99 6/30/98

Assets $75,558.0 $75,873.0

Deposits 47,685.0 47,096.0

Loans 52,075.0 56,237.0

Reserve/nonp. loans 224.33% 315.81%

Nonperf. loans/loans 0.58% 0.48%

Nonperf. assets/assets 0.44% 0.43%

Nonperf. assets/loans + OREO 0.59% 0.55%

Leverage cap. ratio 7.49%* 7.18%

Tier 1 cap. ratio 8.10%* 7.24%

Tier 1+2 cap. ratio 11.60%* 10.79%

* Estimated

National City Corp.

Cleveland

Dollar amounts in millions (except per share) Second Quarter 2Q99 2Q98

Net income $354.5 $331.2

Per share 1.12 0.99

ROA 1.71% 1.66%

ROE 22.96% 19.47%

Net interest margin 4.04% 4.15%

Net interest income 758.2 739.9

Noninterest income 600.9 573.8

Noninterest expense 757.3 749.2

Loss provision 59.6 43.0

Net chargeoffs 60.0 43.0

Year to Date 1999 1998

Net income $705.5 $435.0

Per share 2.20 1.32

ROA 1.68% 1.13%

ROE 22.01% 13.18%

Net interest margin 4.03% 4.16%

Net interest income 1,522.9 1,448.2

Noninterest income 1,215.4 1,068.7

Noninterest expense 1,496.4 1,723.2

Loss provision 127.6 99.3

Net chargeoffs 128.0 95.4

Balance Sheet 6/30/99 6/30/98

Assets $84,022.0 $81,258.0

Deposits 52,091.0 54,832.0

Loans 57,317.0 54,918.0

Reserve/nonp. loans 435.47% 433.99%

Nonperf. loans/loans 0.39% 0.41%

Nonperf. assets/assets 0.30% 0.32%

Nonperf. assets/loans + OREO 0.44% 0.47%

Leverage cap. ratio 6.12% 7.09%

Tier 1 cap. ratio 7.19% 8.41%

Tier 1+2 cap. ratio 12.67% 12.36%

KeyCorp

Cleveland

Dollar amounts in millions (except per share) Second Quarter 2Q99 2Q98

Net income $280.0 $249.0

Per share 0.62 0.56

ROA 1.40% 1.35%

ROE 18.16% 18.47%

Net interest margin 3.97% 4.10%

Net interest income 704.0 675.0

Noninterest income 526.0 380.0

Noninterest expense 717.0 602.0

Loss provision 76.0 72.0

Net chargeoffs 76.0 72.0

Year to Date 1999 1998

Net income $573.0 $484.0

Per share 1.27 1.09

ROA 1.45% 1.34%

ROE 18.81% 18.36%

Net interest margin 3.96% 4.12%

Net interest income 1,397.0 1,334.0

Noninterest income 1,135.0 736.0

Noninterest expense 1,465.0 1,188.0

Loss provision 187.0 149.0

Net chargeoffs 157.0 149.0

Balance Sheet 6/30/99 6/30/98

Assets $80,889.0 $75,778.0

Deposits 43,016.0 41,794.0

Loans 61,041.0 56,869.0

Reserve/nonp. loans 247.34% 240.64%

Nonperf. loans/loans 0.61% 0.65%

Nonperf. assets/assets 0.51% 0.55%

Nonperf. assets/loans + OREO 0.66% 0.72%

Leverage cap. ratio 7.41%* 7.04%

Tier 1 cap. ratio 7.39%* 7.15%

Tier 1+2 cap. ratio 11.60%* 11.86%

* Estimated

Comerica Inc.

Detroit, Mich.

Dollar amounts in millions (except per share) Second Quarter 2Q99 2Q98

Net income $167.0 $150.0

Per share 1.03 0.92

ROA 1.83% 1.74%

ROE 22.08% 22.57%

Net interest margin 4.53% 4.62%

Net interest income 381.0 366.0

Noninterest income 195.0 149.0

Noninterest expense 289.0 253.0

Loss provision 28.0 28.0

Net chargeoffs 21.0 19.0

Year to Date 1999 1998

Net income $326.0 $295.0

Per share 2.01 1.80

ROA 1.80% 1.67%

ROE 21.99% 22.33%

Net interest margin 4.52% 4.56%

Net interest income 751.0 734.0

Noninterest income 352.0 284.0

Noninterest expense 552.0 503.0

Loss provision 48.0 56.0

Net chargeoffs 40.0 41.0

Balance Sheet 6/30/99 6/30/98

Assets $36,950.0 $35,050.0

Deposits 22,354.0 22,619.0

Loans 31,106.0 27,564.0

Reserve/nonp. loans 330.41% 491.60%

Nonperf. loans/loans 0.44% 0.32%

Nonperf. assets/assets 0.39% 0.27%

Nonperf. assets/loans + OREO 0.46% 0.34%

Leverage cap. ratio 8.08% 7.52%

Tier 1 cap. ratio 6.74% 6.47%

Tier 1+2 cap. ratio 10.75% 10.09%

BankBoston Corp.

Boston

Dollar amounts in millions (except per share) Second Quarter 2Q99 2Q98

Net income $250.0 $242.0

Per share 0.83 0.80

ROA 1.25% 1.36%

ROE 19.92% 20.70%

Net interest margin 4.03% 4.17%

Net interest income 684.0 645.0

Noninterest income 712.0 457.0

Noninterest expense 899.0 647.0

Loss provision 95.0 60.0

Net chargeoffs 61.0 51.0

Year to Date 1999 1998

Net income $473.0 $480.0

Per share 1.58 1.58

ROA 1.22% 1.37%

ROE 19.25% 21.01%

Net interest margin 4.03% 4.12%

Net interest income 1,324.0 1,252.0

Noninterest income 1,307.0 1,047.0

Noninterest expense 1,705.0 1,309.0

Loss provision 165.0 200.0

Net chargeoffs 127.0 192.0

Balance Sheet 6/30/99 6/30/98

Assets $77,564.0 $70,499.0

Deposits 49,036.0 45,196.0

Loans 41,789.0 43,254.0

Reserve/nonp. loans 218% 207%

Nonperf. loans/loans 0.90% 0.80%

Nonperf. assets/assets 0.50% 0.50%

Nonperf. assets/loans + OREO 0.90% 0.90%

Leverage cap. ratio 6.80% 7.80%

Tier 1 cap. ratio 7.50% 8.40%

Tier 1+2 cap. ratio 11.90% 13.00% ===