Barnett Banks Inc. reported a decline in third-quarter earnings for a reason tied to its Aug. 29 merger agreement with NationsBank Corp.

Jacksonville, Fla.-based Barnett took a $72.2 million pretax charge to cover the value of employee stock options that increased sharply with the share price.

Net income fell 3%, to $122.6 million, or 62 cents a share. Without the charge, the company said it would have earned a fully diluted 86 cents a share, up from 65 cents a year earlier.

The first of the 25 largest bank holding companies to report for the third quarter, Barnett could be a harbinger for the rest, analysts said.

"The key for all the banks was continued strength in fee services," said Anthony Davis of SBC Warburg Dillon Read. "Barnett is a classic example of that," reporting a 13% revenue increase.

Banks generally are expected to post healthy year-to-year increases along the lines of those in the second quarter.

A Merrill Lynch report projected 11% to 12% advances in earnings per share for regional banks, with efficiency gains and share repurchases more than offsetting rising credit costs.

The firm noted pressure on net interest margins, "which doesn't bode well for spread revenue-the lifeblood of the typical, undifferentiated regional bank."

Therefore, major banks' results could range widely. The consensus of analysts polled by First Call Corp. has NationsBank Corp.'s per-share earnings increasing 2.9%, and J.P. Morgan & Co.'s rising 30.1%.

Barnett's would have exceeded 30% but for the fact it had to account for the value of employee stock options as an expense item, according to chief financial officer Charles W. Newman.

On Aug. 29, Barnett's shares soared 24%, to $68.12, as NationsBank announced its $15.5 billion acquisition agreement. On Thursday, Barnett closed at $75.81, up 18.7 cents.Analysts had anticipated Barnett would come in at 82 cents a share instead of 62 cents. Some were surprised at the size of the charge but "it's clearly a merger-related expense," said Michael Mayo at Credit Suisse First Boston.

"A lot of companies are using expense controls to increase earnings," said Mr. Newman. "We have had a revenue growth strategy."

Noninterest income soared 47%, to $287.6 million. The Equicredit subprime mortgage unit fueled a 93% increase in consumer finance income, to $58.8 million.

Oxford Resources Corp., an auto lending and leasing company Barnett bought in April for $570 million, brought in $47.5 million of "net rental income" that Barnett didn't have a year before.

Brokerage income jumped 44%, to $14.9 million. Trust grew 8%, to $21.3 million.

Net interest income dipped 2%, to $460.9 million, because of funding costs for Oxford Resources, the bank said. The net interest margin narrowed to 5.09% from 5.22% a year earlier, also attributed to Oxford.

With a decline in net credit card losses, the bank said, total chargeoffs fell 15%, to $38.2 million, or 0.49% of outstanding loans.

NationsBank's acquisition of Barnett is expected to be completed in the first quarter. +++

Barnett Banks Inc. Jacksonville, Fla. Dollar amounts in millions (except per share) Third Quarter 3Q97 3Q96 Net income $122.6 $127.0 Per share 0.62 0.65 ROA 1.12% 1.40% ROE 13.85% 17.19% Net interest margin 5.09% 5.22% Net interest income 460.9 469.0 Noninterest income 287.5 194.8 Noninterest expense 509.0 409.0 Loss provision 38.4 44.9 Net chargeoffs 38.2 45.1 Year to Date 1997 1996 Net income $425.3 $414.7 Per share 2.20 2.10 ROA 1.32% 1.40% ROE 16.96% 17.33% Net interest margin 5.14% 5.27% Net interest income 1,393.8 1,424.6 Noninterest income 773.8 604.6 Noninterest expense 1,357.9 1,217.2

Loss provision 106.3 126.0 Net chargeoffs 106.0 125.9 Balance Sheet 9/30/97 9/30/96 Assets $43,219.0 $41,271.0 Deposits 32,920.0 33,238.0 Loans 30,835.0 30,638.0 Reserve/nonp. loans 263% 264% Nonperf. loans/loans 0.60% 0.63% Nonperf. assets/assets 0.53% 0.61% Nonperf. assets/loans + OREO 0.74% 0.82% Leverage cap. ratio 7.82% 6.84% Tier 1 cap. ratio NA NA Tier 1+2 cap. ratio NA NA ===

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