Despite an 11% jump in second-quarter earnings, to $992 million, investors dumped Bank One Corp. shares Tuesday, responding to a drop in the company's net interest margin.

Mellon Bank Corp. reported a 10.7% gain, meeting analysts' expectations.

Chicago-based Bank One, which was created last year by the merger of the old Banc One Corp. and First Chicago NBD Corp., reported lower-than- expected spreads on credit cards and consumer loans. Though the margin,at 5.55%,was higher than a year earlier, it was down from 5.66% at March 31.

Executives said they expect still more declines throughout the year.

Shares in Bank One ended Tuesday's trading down $1.1875, at $59.25.

Bank One is suffering as rivalry for borrowers increases and credit card users seek out lower interest rates and fees, said Michael Ancell, a bank analyst at Edward D. Jones LP in St. Louis. "Revenue growth might not be as good as we thought," he said.

Outside of the margin difficulties, Bank One's "numbers were good," said Michael L. Granger, an analyst at Fox-Pitt, Kelton in New York. "We like the trends in terms of revenue growth and expenses being down."

After adjusting for a credit card securitization, managed net interest income was up 10%, to $3.675 billion. Earnings per share of 93 cents met analysts' expectations.

Bank One's loan portfolio grew 9%, credit card loans 18%, commercial loans 8%, and consumer loans 1%.

Noninterest income was up 6%, to $1.688 billion, thanks to a 13% surge in fee income. Credit card fees were up 33% on higher transaction volume and a boost in securitization activity.

Noninterest expenses were up 4%, at $2.627 billion, but declined by $110 million from the first quarter. About $50 million of that decrease was due to cost savings from the merger with First Chicago.

"Bank One has reduced noninterest expense for two consecutive quarters and is already operating at a rate that will produce 75% of our targeted merger expense savings for this year," said John B. McCoy, president and chief executive officer.

The second-quarter report was a relatively uncomplicated one for the $256 billion-asset company. Bank One, the nation's fifth-largest banking company, is known for releasing quarterly results marred by special charges. The company took a $179 million charge during the quarter, related to the First Chicago deal.

"This is the third quarter in a row where they've had relatively clean earnings," said Mr. Granger of Fox-Pitt, Kelton.

Mellon Bank Corp. of Pittsburgh posted second-quarter results Tuesday that included a 10.7% profit gain, to $238 million.

Earnings per share of 45 cents met analysts' expectations.

"The fee income side was driving earnings and revenue," said Joseph Duwan, a bank analyst at Keefe, Bruyette & Woods Inc. in New York.

Profits from fees jumped 14.2%, to $787 million. Most of the gains came from trust and investment management, a specialty area for No. 20-ranked Mellon.

"We are already benefiting from the sharpening of our strategic focus on our high-growth, high-return businesses," said Martin G. McGuinn, Mellon chairman and chief executive officer.

Net interest revenue grew by $4 million, to $363 million, and has jumped $7 million since the end of the first quarter.

Credit quality looked solid, with the company's provision for credit losses shrinking to $10 million from $15 million a year earlier. Fewer bad loans are expected because the $49 billion-asset company sold its credit card business in March.

But at least one analyst was left unimpressed. "Mellon had a boring quarter," said bank analyst Michael Mayo of Credit Suisse First Boston in New York. "The retail bank is still sluggish."

Mellon shares ended Tuesday's trading down $1.625, at $35. +++

Mellon Bank Corp.


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

Net income $238.0 $215.0

Per share 0.45 0.40

ROA 1.92% 1.79%

ROE 21.60% 20.80%

Net interest margin 3.74% 3.97%

Net interest income 363.0 374.0

Noninterest income 846.0 713.0

Noninterest expense 823.0 738.0

Loss provision 10.0 15.0

Net chargeoffs 11.0 13.0

Year to Date 1999 1998

Net income $492.0 $421.0

Per share 0.93 0.79

ROA 1.97% 1.84%

ROE 22.30% 21.20%

Net interest margin 3.76% 4.02%

Net interest income 734.0 741.0

Noninterest income 1,718.0 1,411.0

Noninterest expense 1,603.0 1,454.0

Loss provision 25.0 30.0

Net chargeoffs 28.0 31.0

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

Assets $49,088.0 $47,448.0

Deposits 32,975.0 33,197.0

Loans 30,544.0 30,654.0

Reserve/nonp. loans 338% 465%

Nonperf. loans/loans 0.40% 0.35%

Nonperf. assets/assets 0.29% 0.36%

Nonperf. assets/loans + OREO 0.46% 0.55%

Leverage cap. ratio 6.70%* 6.65%

Tier 1 cap. ratio 6.90%* 6.51%

Tier 1+2 cap. ratio 11.20%* 10.83%

* Estimated

Bank One Corp.


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

Net income $992.0 $895.0

Per share 0.83 0.75

ROA 1.57% 1.49%

ROCE 19.10% 18.60%

Net interest margin 4.26% 4.53%

Net interest income 2,341.0 2,379.0

Noninterest income 2,222.0 2,088.0

Noninterest expense 2,627.0 2,537.0

Loss provision 275.0 400.0

Net chargeoffs 275.0 442.0

Year to Date 1999 1998

Net income $2,143.0 $1,828.0

Per share 1.79 1.53

ROA 1.71% 1.54%

ROCE 21.00% 19.40%

Net interest margin 4.28% 4.54%

Net interest income 4,650.0 4,699.0

Noninterest income 4,812.0 4,004.0

Noninterest expense 5,364.0 4,968.0

Loss provision 556.0 791.0

Net chargeoffs 556.0 856.0

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

Assets $256,033.0 $244,178.0

Deposits 156,454.0 154,507.0

Loans 157,464.0 160,023.0

Reserve/nonp. loans 218% 430%

Nonperf. loans/loans 0.66% 0.40%

Nonperf. assets/assets 0.72% 0.44%

Nonperf. assets/loans + OREO 0.72% 0.44%

Leverage cap. ratio 8.10% 8.00%

Tier 1 cap. ratio 8.10% 8.30%

Tier 1+2 cap. ratio 11.40% 12.30% ===

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