Going in to the biggest day for earnings this January, four U.S. banking companies Friday reported profits that met Wall Street's expectations, fueled by strong growth in revenues from capital markets and other fee income businesses.

Still, analysts continued to be cautious about their expectations for the banking sector, having been burned last year by successive profit warnings by some of the biggest U.S. banking companies. One of those companies, First Union Corp. of Charlotte, N.C., Friday reported a 2% decline in fourth-quarter profits, to $842 million or 86 cents a share, from a year earlier.

National City Corp. in Cleveland - another company that issued a profit warning last year - said its earnings rose 18%, to $343.5 million or 56 cents a share. Firstar Corp. in Milwaukee said profits rose 16%, to $324.9 million or 33 cents a share. Both reports were in line with Wall Street's expectations.

Fifth Third Bancorp of Cincinnati said its net income fell 35%, to $116 million. The company took $108.4 million of charges related to two deals completed in the quarter. Excluding the charges, earnings per share were 64 cents.

"It was a relief," said Lori Appelbaum, an analyst at Goldman, Sachs & Co. "There is a general feeling that it wasn't as bad as it could have been."

First UnionFor the full year, First Union's earnings rose 12%, to $3.2 billion, or $3.33 a share. The per-share figure was a penny above the average estimate of analysts polled by First Call, but it was also 38 cents below full-year 1998 earnings.

The results were in line with expectations but not good enough to alleviate analyst concerns about the company.

First Union twice revised earnings estimates last year, as it struggled to integrate its April 1998 purchase of CoreStates Financial Corp. of Philadelphia. The company announced last summer that it had lost 19% of CoreStates' customer base because of customer service issues, and said it would hire employees for its branches in order to stop the bleeding.

During Friday's conference call with analysts, First Union executives said they were halfway through the staffing campaign. The bank said customer retention jumped to 97% in 1999 from 93% in 1998, and that deposits and investment figures are growing in all markets, including Philadelphia.

"The steps we have taken to address customer service issues are serving us well," Kennedy Thompson, president of $253 billion-asset First Union, said during the call. "We feel we have turned the corner, and our business model is working well for us."

"They have a reasonable set of expectations, which is important for them after 1999," said Peyton N. Green, a senior analyst at Sterne, Agee & Leach in Atlanta. "The key for this year is to get the branch problems ironed out."

Despite the positive outlook, analysts found reason for concern in some areas. For example, 1999 profits got a boost from a $578 million gain from venture capital investments - a feat that will be hard to repeat in 2000, analysts said. Fee revenues grew 5% in the quarter to $1.8 billion, driven by a 45% jump in revenues from capital markets and investment management over last year, to $1.64 billion.

Katrina Blecher, an analyst at Brown Brothers Harriman & Co. in New York, estimated that without the venture capital gains and other capital markets fee income, non-interest income would have grown by only 3%. "On the surface, earnings looked very good," she said. "But I would like to see some more strength in some of the basic business lines."

Ms. Blecher agreed that the branches, spread throughout the fast-growing southeast region, are pivotal to First Union's long-term success. "The crown jewel of the company is the branch system," Ms. Blecher added. "If they can get that growing, it would be fabulous."

Shares of First Union spiked up more than $3 on Friday after earnings were released, before closing at $34.875, up 87.5 cents.

National CityThe $87.1 billion-asset company struggled to compensate for a narrowing net interest margin during the quarter. Net income for the full year rose 31% to $1.4 billion or $2.22 per share.

National City has taken it on the chin from investors since it announced in November that its earnings would come in two to five cents below expectations because of rising interest rates. The bank's margins have fallen or come up flat each of the last five quarter. Last year, National City's deposits shrank 3.8% between the first and fourth quarters, while interest rates rose sharply.

"The big culprit industry wide is interest rate margin," said analyst Joseph Duwan, of Keefe, Bruyette & Woods Inc. "NatCity saw it earlier than most."

The company's net interest margin decreased to 3.87% in the fourth quarter from 4.03% in the third and 4.00% in the fourth quarter last year.

"Our margin for the quarter was lower, but our volumes were strong," said Thomas Richlovsky, senior vice president and treasurer. The bank partially offset its interest rate worries through acquisitions that won it more loan origination capacity, said Mr. Richlovsky. It is also embarking on a campaign to keep deposits and to increase the number of higher yielding consumer loans on its books.

The bank will focus its 2000 efforts on investments and strategic acquisitions that increase will its revenue generating capacity, said Mr. Richlovsky.

The company did achieve "pretty strong loan growth" in the fourth quarter, said Diana Yates, of A.G. Edwards & Sons Inc. That growth included a 12.5% increase in consumer installment loans and a 12.7% increase in commercial loans.

National City's shares rose 6.25 cents, to close at $22.125.

FirstarEarnings for 1999 rose 19%, to $1.25 billion or $1.25 a share.

Noninterest income, an increasingly important source of revenues for Firstar, rose 5%, to $361.4 million.

"That's pretty much as we expected for the first full quarter with Mercantile," said Ms. Yates. What was surprising was how well the firm's interest rate margin held up, she said.

The $72.7 billion-asset company made its way around the net interest income pressure that its peers faced in part by reconfiguring the balance sheet it inherited from Mercantile Bancorp, the St. Louis bank it acquired last year.

Firstar sold off excess interest bearing securities to fund loans, a move that helped it increase its net interest margin to 4.17%.

Bank executives promised to wring the rest of the savings out of the deal by the end of 2000.

The company signaled that it would give itself plenty of time to digest its acquisitions before heading out to buy more banks, pledging analysts six to nine months to integrate Mercantile "flawlessly."

This year's earnings growth was below the bank's lofty 19% historic averages because of the mergers, said chief financial officer David Moffett. But he said merger savings should help the company earn even stronger growth nest year. He said the company's early estimates put growth at about 21.6% in 2000.

Firstar shares were unchanged, closing at $23.25.

Fifth ThirdExcluding one-time gains and losses, the company earned $344.9 million. It earned $1.4 billion, or $2.22 a share, for the year.

Standout Fifth Third "was not immune to margin pressure," said Mr. Duwan of Keefe Bruyette & Woods. But its strong loan growth and very strong data processing gains helped it ride out an 11 basis point drop in its net interest margin, to 3.82%.

"It was just another ho-hum, awesome quarter at FifthThird," said Bradley S. Vander Ploeg, a First Union Securities Inc. analyst, pointing out that the company came in with strong numbers despite acquiring a considerably weaker CNB Bancshares of Indiana this year.

The company's growth was fueled by a "huge increase" in income at its data processing unit, Midwest Payments Systems, said president and chief executive officer George Schaefer Jr. The unit's earnings climbed 28% for the year.

Mr. Schaefer also said the bank had managed to improve its industry leading efficiency rating to 43.6% in 1999, a 1.02 improvement over 1998, and had maintained its "fortress-like" balance sheet despite seven acquisitions. He said the "physical conversion" of CNB and six other acquisitions into the FifthThird network would be the bank's top priority in the coming months.

Fifth Third shares rose 87.5 cents, to close at $66.375.

"It's encouraging that these banks are hitting the numbers and doing it even with some margin compression," said Mr. Duwan. "And asset quality looks pretty good too."

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