More Banking Giants Post Gains Despite Some One-Time Charges

Five of the largest U.S. banking companies reported strong profits Thursday, though the results were dragged down somewhat by one-time gains and charges.

First Union Corp. exemplified the mixed picture. Restructuring and merger charges drove first-quarter net income down 11%, to $706 million. But on an operating basis, the company earned $965 million, up 19% from a year earlier.

Profits at National City Corp. soared 238%, to $351 million, from last year's first quarter-but that was a period when the company took large charges for acquisitions. Excluding these special charges from last year's results, profits rose a more modest 17%.

KeyCorp posted earnings of $293 million, up 25%, or an 11% jump without one-time gains. BankBoston Corp. slipped 6%, to $223 million, but only because last year's first period scored several one-time benefits. And Comerica Inc. boosted earnings 10%, to $159 million.

Analysts said robust capital markets and a brisk economy helped hold earnings aloft, and many predicted more upbeat quarters to come.

"Loan growth is relatively strong, fee income looks pretty good, and cost control is good," said Joseph Duwan, an analyst at Keefe, Bruyette & Woods Inc. "There's increased confidence the companies will make expectations for the full year."

Said David C. Stumpf, of A.G. Edwards in St. Louis: "This is a quarter that should give people a lot of comfort. Things haven't fallen off the table for this group of banks. They are capable of sustaining their performance for some time yet."

First Union Corp.

The Charlotte, N.C., company took a $398 million pretax charge, mostly stemming from a cost-cutting program announced last month. About $50 million of that charge was related to last year's acquisition of CoreStates Financial Corp.

Earnings per share matched analysts' consensus estimates of 88 cents.

"Although we view 1999 as a challenging year, we continue to invest in areas that promise higher revenue growth," said Edward E. Crutchfield Jr., chairman and chief executive officer.

Fees from capital markets activities increased 71%, to $483 million, led by trading and investment banking. Income from capital management, particularly in retail brokerage and asset management, rose 16%, to $499 million.

"The revenue coming from their growth areas was extremely strong," said Mr. Stumpf. "These areas are the future of First Union."

Thursday's report wrapped up what one analyst called a "roller coaster" quarter for First Union. In January, two weeks after a mostly positive conference call about last year's fourth quarter, the company said it would not be able to hit earnings targets.

In March, First Union announced the restructuring charge, which will cover the cost of cutting 5,850 employees, or 7% of its work force.

Mr. Stumpf said the difficulties of the past three months have brought about a change in the way First Union communicates with the investment community. "Today is the first time in my memory they have done a live conference call to discuss earnings," he said. Usually, he said, the call is taped.

Shares of $223 billion-asset First Union, the country's sixth-largest banking company, closed Thursday's trading at $55.875, up 81.25 cents.

National City Corp.

The Cleveland-based regional company cited gains in mortgage banking, commercial lending, and asset management for its improved earnings.

It also benefited from expense savings associated with last year's acquisitions of First of America Bank Corp. of Kalamazoo, Mich., and Fort Wayne (Ind.) National Corp. Noninterest expense, excluding nonrecurring items, was $739 million, down 6%.

Operating earnings per share of $1.07 exceeded analysts' estimates by 3 cents.

National City, the 11th-largest U.S. banking company, posted a first- quarter gain from the sale of its stake in the teller machine network Electronic Payment Services Inc., which was owned by several banks. Excluding one-time gains, noninterest income rose 12%, to $554 million.

The $84 billion-asset company also posted a loss on the sale of portions of its National Processing Inc. subsidiary.

Net interest income reached $765 million, up 8%. Loan growth was strongest for commercial and consumer installment credits, though the company said it continued to de-emphasize its residential mortgage business.

National City increased its provision for loan losses 21%, to $68 million. It recorded net chargeoffs of $68 million, up 31%. The company attributed the bulk of the charges to one-time writeoffs for consumer and credit card loans and exposure to losses at United Companies Financial Corp. of Baton Rouge, La.

Shares of National City were up 87.5 cents, to $69.6875.

KeyCorp

Cleveland-based KeyCorp, with $80 billion of assets, said its revenues were helped by consumer and commercial loan growth and from asset management and brokerage business related to the October acquisition of McDonald & Company Securities.

Noninterest income rose 71% to $609 million. Operating earnings per share of 57 cents were a penny short of analysts' estimates.

The country's 12th-largest bank also benefited from the sale of Electronic Payment Services.

Excluding one-time gains, noninterest income rose 36%.

The strongest revenue growth came from insurance, brokerage, asset management, and investment banking, the bank said.

"I think they're doing very well with the acquisition of McDonald & Co.," said Diana Yates, an analyst with A.G. Edwards. "It's just not a big a component of overall business to make an impact yet."

Net-interest income grew 5% to $693 million. The provision for loan losses jumped 44% to $111 million.

KeyCorp recorded net loan chargeoffs of $81 million, up 5%. The company attributed the increase to anticipated losses in its commercial and credit card portfolios, among other things. Mr. Duwan said he believed KeyCorp was being conservative, earmarking proceeds from the sale of Electronic Payment Services to build its cushion against losses.

"We're not seeing an overall deterioration of credit quality, but there are selected areas we're keeping an eye on," Ms. Yates said.

KeyCorp's stock closed Thursday at $30.375, down $1.375.

BankBoston Corp.

Double-digit gains in investment banking and foreign operations helped BankBoston beat Wall Street's expectations. Earnings per share for the quarter were 75 cents, 2 cents above the estimate.

Profits from the year-earlier period included $25 million in gains on securities sales and a $165 million gain from selling its remaining stake in HomeSide Inc., a mortgage company.

Analysts said the $75.7 billion-asset banking company showed momentum in its underlying businesses, particularly in wholesale banking activities, which languished last fall from severe market turmoil abroad.

"They had a nice rebound," said Thomas Theurkauf, an analyst at Keefe Bruyette. "But these businesses are notoriously volatile. We are probably returning to a more normal trading environment."

The results also come on the heels of BankBoston's agreement last month to merge with Fleet Financial Group.

"It was a strong operating quarter," said Susannah M. Swihart, BankBoston's chief financial officer. "We feel comfortable with our business prospects and more and more confident about our synergies" with Fleet.

The two companies are headed into their merger "with a strong platform," said Nancy A. Bush, an analyst at Ryan Beck & Co. Fleet reported a 36% gain in profits on Wednesday.

Noninterest revenues edged up 1%, to $595 million, dampened by sluggish venture capital gains and a $2 million loss from securities sales.

Total revenues grew almost 20%, to $1.23 million, driven by strong results in wholesale activities, the bank said.

BancBoston Robertson Stephens, an investment banking unit acquired from BankAmerica Corp. last August, posted record profits of $30 million during the quarter, the bank said.

Fees from underwriting, syndication, and brokerage rose 10-fold over the year-earlier period with the addition of Robertson Stephens. Compared to the fourth quarter, fees from those businesses jumped 40%, to $135 million. Trading profits soared 60% over the year-earlier period.

In addition, BankBoston said it had a 40% gain in income from Brazilian operations, to $30 million, and a 25% gain in Argentina, to $20 million.

The bank has been aggressively expanding its presence in Latin America. That effort, coupled with higher compensation expenses related to the acquisition of Robertson Stephens, helped push expenses 21% higher, to $806 million.

Shares of BankBoston, which ranks 15th among the nation's banks, closed Thursday at $51, up $1.5625.

Comerica

Comerica, with $36 billion of assets, said its earnings were helped by strong commercial loan growth and expense control.

Net interest income of $369 million was up about 1%, slowed by the last year's sale of $2 billion in indirect consumer and credit card loans.

Over the past year, however, the company added nearly $3 billion in commercial loans, bringing total commercial assets to $19 billion.

Noninterest income reached $157 million, up 16%. Excluding the effect of acquisitions, divestitures, and securities gains, noninterest income grew 10%. Earnings per share of 98 cents met consensus estimates.

Comerica's provision for loan losses was $20 million, down 29%. Net chargeoffs declined 13% to $19.5 million.

"Our first quarter financial performance reflects continued strong commercial loan growth, emphasis on maintaining high asset quality and dedication to efficiency," said Eugene A. Miller, Comerica's chairman and chief executive.

Shares in the Detroit-based company, ranked 24th in asset size, declined 68.75 cents, to $64. +++

National City Corp.

Cleveland

Dollar amounts in millions (except per share)

First Quarter 1Q99 1Q98

Net income $351.0 $103.7

Per share 1.08 0.32

ROA 1.66% 0.56%

ROE 21.13% 6.70%

Net interest margin 4.02% 4.19%

Net interest income 764.7 708.3

Noninterest income 590.9 493.8

Noninterest expense 739.2 974.0

Loss provision 68.0 56.3

Net chargeoffs 68.0 52.4

Balance Sheet 3/31/99 3/31/98

Assets $84,094.0 $80,716.0

Deposits 52,051.0 55,387.0

Loans 56,342.0 53,343.0

Reserve/nonp. loans 400.14% 392.60%

Nonperf. loans/loans 0.42% 0.45%

Nonperf. assets/assets 0.32% 0.35%

Nonperf. assets/loans + OREO 0.47% 0.52%

Leverage cap. ratio 6.10% 7.64%

Tier 1 cap. ratio 7.50% 8.67%

Tier 1+2 cap. ratio 12.20% 12.75%

KeyCorp

Cleveland

Dollar amounts in millions (except per share)

First Quarter 1Q99 1Q98

Net income $293.0 $235.0

Per share 0.65 0.53

ROA 1.49% 1.32%

ROE 19.48% 18.25%

Net interest margin 3.95% 4.14%

Net interest income 693.0 659.0

Noninterest income 609.0 356.0

Noninterest expense 748.0 586.0

Loss provision 111.0 77.0

Net chargeoffs 81.0 77.0

Balance Sheet 3/31/99 3/31/98

Assets $79,992.0 $73,198.0

Deposits 41,323.0 41,661.0

Loans 61,045.0 54,900.0

Reserve/nonp. loans 235.44% 241.29%

Nonperf. loans/loans 0.65% 0.68%

Nonperf. assets/assets 0.54% 0.58%

Nonperf. assets/loans + OREO 0.70% 0.77%

Leverage cap. ratio 7.21% 6.61%

Tier 1 cap. ratio 7.30% 6.81%

Tier 1+2 cap. ratio 11.68% 11.38%

First Union Corp.

Charlotte, N.C.

Dollar amounts in millions (except per share)

First Quarter 1Q99 1Q98

Net income $706.0 $790.0

Per share 0.73 0.81

ROA 1.27% 1.52%

ROE 17.83% 20.74%

Net interest margin 3.74% 4.08%

Net interest income 1,811.0 1,859.0

Noninterest income 1,950.0 1,349.0

Noninterest expense 2,509.0 1,838.0

Loss provision 164.0 135.0

Net chargeoffs 164.0 129.0

Balance Sheet 3/31/99 3/31/98

Assets $222,955.0 $219,944.0

Deposits 134,224.0 137,935.0

Loans 133,416.0 133,814.0

Reserve/nonp. loans 217% 210%

Nonperf. loans/loans 0.63% 0.66%

Nonperf. assets/assets 0.43% 0.46%

Nonperf. assets/loans + OREO 0.71% 0.75%

Leverage cap. ratio 6.00% 6.97%

Tier 1 cap. ratio 7.08% 8.66%

Tier 1+2 cap. ratio 11.44% 13.09%

Comerica Inc.

Detroit

Dollar amounts in millions (except per share)

First Quarter 1Q99 1Q98

Net income $159.1 $144.4

Per share 0.98 0.88

ROA 1.76% 1.61%

ROE 21.90% 22.09%

Net interest margin 4.51% 4.50%

Net interest income 370.2 367.6

Noninterest income 156.9 134.9

Noninterest expense 263.4 249.9

Loss provision 20.0 28.0

Net chargeoffs 19.5 22.5

Balance Sheet 3/31/99 3/31/98

Assets $36,447.5 $36,492.4

Deposits 22,585.3 23,193.3

Loans 30,529.6 26,779.5

Reserve/nonp. loans 292.61% 526.19%

Nonperf. loans/loans 0.50% 0.30%

Nonperf. assets/assets 0.44% 0.24%

Nonperf. assets/loans + OREO 0.52% 0.32%

Leverage cap. ratio 7.87% 7.21%

Tier 1 cap. ratio 6.47% 6.26%

Tier 1+2 cap. ratio 10.46% 9.79%

BankBoston Corp.

Boston

Dollar amounts in millions (except per share)

First Quarter 1Q99 1Q98

Net income $223.0 $238.0

Per share 0.75 0.79

ROA 1.19% 1.39%

ROE 18.54% 21.31%

Net interest margin 4.03% 4.07%

Net interest income 639.0 607.0

Noninterest income 595.0 589.0

Noninterest expense 806.0 661.0

Loss provision 70.0 140.0

Net chargeoffs 66.0 141.0

Balance Sheet 3/31/99 3/31/98

Assets $75,708.0 $71,428.0

Deposits 48,468.0 46,397.0

Loans 42,775.0 43,822.0

Reserve/nonp. loans 212% 222%

Nonperf. loans/loans 0.80% 0.70%

Nonperf. assets/assets 0.50% 0.50%

Nonperf. assets/loans + OREO 0.90% 0.80%

Leverage cap. ratio 6.90%* 7.30%

Tier 1 cap. ratio 7.20%* 7.90%

Tier 1+2 cap. ratio 11.60%* 12.30%

* Estimated ===