Lower credit costs and improved expense control helped Barnett Banks Inc. overcome sluggish revenue growth to post a 16% gain in second quarter earnings. Net income reached $121.2 million, from $104.2 million in the year-ago quarter.

Barnett's per-share earnings of $1.15 were right in line with analysts' consensus estimates, according to First Call.

Meanwhile, two Virginia-based banks continued the strong earnings trend that has emerged in the Southeast.

Crestar Financial Corp., Richmond, earned a record $42.6 million, up 26% from the year-ago quarter, driven by solid gains in both loans and fee income. Crestar has $14.3 billion of assets.

Central Fidelity Banks Inc., also based in Richmond, reported net income of $29.6 million, up 12% from the previous year's quarter. Central Fidelity, with $9.6 billion of assets, credited loan growth and improving asset quality for its performance.

The earnings improvement at Barnett, which has $38 billion in assets, continues to be driven by lower credit costs and expense control. The loan-loss provision fell 60% to $13.7 million from $34.5 million in the year-ago quarter. Net chargeoffs were down 61% to $13.6 million.

Goal Was Met

Nonperforming assets fell by $60 million from the first quarter to $336 million, which allowed Barnett to attain its target nonperforming asset ratio of 1.25%. That provided a good send-off for chief credit policy officer Richard D. Jordan, who retired in the second quarter.

"That was always his goal," chief financial officer Charles W. "Chuck" Newman said of Mr. Jordan. "Here he is heading out the door and he's made the target."

The revenue picture is more mixed. Barnett did break its previous string of five consecutive quarterly declines when second quarter net interest income and noninterest income combined reached $553.7 million, up $1.1 million from the first quarter's $552.6 million.

But the year-to-year comparisons still look poor. Net interest income of $416.3 million was down 3% from the year-ago quarter and noninterest income of $137.4 million was off even more: 9%.

Mr. Newman said much of the decline is related to Barnett's sale last year of its Atlanta bank. Disposing of the student lending, bond administration, and correspondent data processing businesses also cut back fee income.

On the other hand, those sales contributed to a 10% decline in noninterest expense, which fell to $341.8 million, from $378.5 million in the year-ago quarter.

Favorable Loan Picture

Loan growth is clearly improving at Barnett, up 7% on an annualized basis compared to 4% in the first quarter. This is still below the double-digit increases reported by other regional banks, but much of the disparity is accounted for by a continuing runoff in commercial realty loans.

Barnett's commercial real estate portfolio was down an annualized 10% in the second quarter, while consumer lending rose 10% and commercial loans increased 9%.

Barnett's much-publicized small-business lending program produced about $145 million in new loans, compared to $137 million in the first quarter.

"The loan growth really helped the margin and the net interest income," Mr. Newman said. "Had we not seen the growth, we would have seen more contraction there."

Barnett's net interest margin fell 2 basis points from the first quarter, to 4.90%, because of higher deposit costs.

Good loan growth was also a theme at Crestar, which chalked up a 19% annualized increase, led by credit cards and commercial lending. As a result, Crestar's net interest income gained 3% from the previous quarter to reach $144.9 million.

Crestar also bucked the trend of sluggish fee income growth seen at other banks by boosting noninterest income by 5% from the first quarter to $68.2 million.


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