Assets and earnings at the 25 largest U.S. bank holding companies edged up to new heights during the first quarter, causing some analysts to take a more sunny view of the industry.

As of March 31, total assets among the big banks reached $2.47 trillion, up 3.7% from a year earlier. Net income rose by slightly more than 1% over 1995's first quarter to nearly $6.3 billion, according to the the American Banker's latest quarterly roundup.

Analysts said that the relatively modest increase in assets was linked to both a slowdown in the U.S. economy and an increasing trend among banks to move into off-balance-sheet activities.

"We've reached a point where the economy is maturing," observed Larry Cohn, a banking analyst with PaineWebber Inc. "It's becoming increasingly difficult for the banking industry to generate earning assets faster than nominal GDP growth."

Mr. Cohn also noted that as banks become more dependent on off-balance- sheet businesses - such as those related to trading and capital markets - "there is some question going forward whether asset growth reflects the health of the industry as a whole."

Still, the better-than-expected earnings prompted analysts to rethink earlier forecasts that regular improvements in earnings were unsustainable and that banks would progressively see higher credit expenses cut into their profits.

"The thing that's interesting is that these are pretty strong results despite some pretty strong head winds," said David Berry, an analyst with Keefe, Bruyette & Woods Inc.

Commenting on first-quarter results, Mr. Berry said that there were "some surprises and some disappointments." He said, however, that following first-quarter results he upgraded more estimates for future earnings than he downgraded.

"We've got a long buy list," Mr. Berry noted.

Keefe Bruyette, which compiles its own aggregate assessments for the top 50 U.S. banks, found that despite first quarter non-recurring expenses of $2.6 billion and a 50% increase in loan loss provisions to $2.4 billion, net income for the 50 banks climbed 9%, return on equity averaged a strong 15% and return on assets 1.04%

Excluding nonrecurring charges and securities gains, Mr. Berry reported, the same banks would have registered a 17% return on equity and a 1.2% return on assets.

"There was a lot of concern about rising credit expenses, but here we are and the industry is still posting strong results," Mr. Berry said.

Other analysts also said they were somewhat more bullish than in previous quarters, but added they still remained cautious about future trends.

"I believe earnings are still being overstated because of underprovisioning and the still lower than normal amount of nonperforming assets," said Raphael Soifer, a banking analyst with Brown Brothers Harriman & Co.

He also pointed out that much of the first-quarter growth in earnings came from trading revenues - among the most volatile of earnings components.

Asset rankings changed dramatically during the quarter. Chase, following its merger with Chemical Banking Corp., became the nation's biggest bank - with nearly $302 billion in assets. Citicorp, long the nation's biggest banking company, fell to second, while BankAmerica dropped from No. 2 to No. 3.

Other banks moved up dramatically in the rankings, mainly as a result of acquisitions. Norwest Corp. jumped from 13th to 10th place, while Republic New York Corp. moved into 17th place from 21st after acquiring Brooklyn Bancorp, parent company of Crossland Federal Savings.

Among the top performers in terms of absolute earnings were Citicorp, BankAmerica, J.P. Morgan & Co., and NationsBank Corp.

Citicorp earned a record $914 million during the quarter, BankAmerica $720 million, Morgan $439 million, and NationsBank $513 million.

Wells Fargo & Co. was the top bank in terms of profitability, posting an impressive 2.15% return on average assets. Banks which slipped significantly in terms of net profitability did so mainly as a result of one-time charges against earnings for mergers.

Among other notable trends, net interest margins continued to strengthen despite earlier predictions by analysts that they would fall. Average margins for the top 25 increased slightly to 4.15% from 4.12% during the fourth quarter. Return on average assets also improved slightly, to 1.19% from 1.18%.

Testifying to the rapid consolidation in the banking industry, however, banks are still moving up and down the rankings - with several large mergers being completed this quarter or scheduled to close soon.

Bank of Boston, for example, will soon move into 15th place from 19th after it completes its merger with BayBanks Inc., while National City Corp. will move into 17th place from 25th now that its merger with Integra Financial Corp. has been consummated.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.