Fee income had a strong impact - and loan growth was a lesser factor - on the income statements that three major banking companies released Monday.

Norwest Corp., spurred by its mortgage and trust units, posted third- quarter earnings of $289 million. They were up 18% despite a $19 million charge for its Savings Association Insurance Fund payment.

National City Corp., unencumbered by one-time charges and bolstered by its processing businesses, saw its income rise 17%, to $186 million.

And even though First Union Corp. registered a 6% decline, to $357 million, attributable to its $86 million thrift fund charge, analysts said they were thrilled at the strong acceleration in the Charlotte, N.C., company's investment products and capital markets businesses.

With credit quality an increasing concern, and commercial loan demand showing signs of tailing off, "these banks are much more likely to grow their fee businesses," said Dean Witter analyst Anthony Davis.

Noninterest income was up 28% at $134 billion-asset First Union, to $598 million. The jump came from a 38% increase in income from First Union's consumer fee businesses such as trust, brokerage, mutual funds, and insurance.

First Union's commercial businesses were up 52% from growth in areas like risk management, asset securitization, and loan syndications.

"Loan growth is slowing, especially commercial loan growth," said Catherine Murray, an analyst with J.P. Morgan & Co. "So the trend we see at First Union is not any different than the trend we see at other banks. But banks like First Union are seeing more growth in their fee businesses."

Net interest income rose 6% from a year earlier, to $1.3 billion. The provision for loan losses was raised 75%, to $105 million, primarily because of higher credit card chargeoffs. Credit cards account for 6% of First Union's $90.5 billion loan portfolio.

First Union chairman and chief executive officer Edward E. Crutchfield said he was pleased with the "fee-income-generating businesses that we have spent the past several years building to complement our traditional banking business."

"It was another strong quarter for First Union," said Keefe, Bruyette & Woods Inc. analyst Hal Schroeder. "They did all the things we expected them to do."

At $75 billion-asset Norwest, noninterest income rose 31%, to $631.8 million.

Mortgage banking was the biggest contributor, at $203.5 million in income, a 52% increase over the year-ago period. Other increases came from trust banking and service charges on deposits, while credit card income declined as Norwest has halved its portfolio.

Norwest Financial, the Minneapolis-based company's consumer finance unit, reported net income of $67.6 million, a 5.2% increase.

Ms. Murray of J.P. Morgan said Norwest's diversification and the operating efficiencies realized by mortgage-banking acquisitions have been consistent contributors to the bottom line. "Norwest continues to do basic blocking and tackling," Ms. Murray said.

Acquisitions are driving Norwest's income, said Mr. Davis. Mortgage banking and service charge improvements are direct results of acquisitions. The company closed five bank acquisitions in the third quarter and the purchase of Prudential's mortgage business in the second quarter.

Norwest's fee income, while up over the comparable 1995 period, was down 1.6% from the June 30 quarter. In fact, net income rose just 1.3% from the second quarter, primarily because of the thrift fund assessment.

Net interest income rose 13% to $948 million, while the provision for loan losses grew 22% to $106 million. Norwest said it experienced higher chargeoffs, due mostly to loans acquired through bank acquisitions. It said it has had slight increases in loan delinquencies in credit cards, consumer finance, and mortgage banking.

At $50 billion-asset National City, processing continued to boost income while operating expenses came down.

Noninterest income rose 3.4% from a year ago, to $292.5 million, while noninterest expense declined 3.1%. The largest gain in fee income came from its processing business, up 15% to $93.9 million.

The biggest piece of National City's processing business is its merchant credit card operation. When combined with other fee businesses, it made up for the lack of loan growth.

Compared with the 1995 quarter, interest income was down while net interest income rose 5%, to $490 million, principally due to a decline in total interest expense of 12%.

National City also showed fee-related gains in trust, credit cards, and mortgage banking, but analysts said the credit card merchant business is the fastest-growing sector.

Merchant processing "is carrying the day for National City right now," said Fred Cummings, an analyst with Cleveland-based McDonald & Company Securities. "That and strong cost control."

National City chairman and CEO David Daberko said the performance stems from "building upon solid core competencies of customer service, risk management, and cost control."

Two other Midwest institutions also reported earnings Monday, both hurt by payments to the Savings Association Insurance Fund.

First of America Bank Corp., a $22 billion-asset company based in Kalamazoo, Mich., said third quarter income declined 24%, to $51 million, primarily due to a $14.8 million thrift fund charge. Noninterest income was up 7.4%, to $99 million, while net interest income was flat at $225.6 million. The company did improve its net interest margin from 4.23% to 4.59% as it continued to reduce its asset size and concentrate on deposit growth.

As expected, earnings at TCF Financial Corp. were nearly wiped out by a $21.7 million thrift fund charge. The $7.1 billion-asset Minneapolis thrift company earned $5.3 million, down from $24.4 million in the 1995 third quarter. Excluding the special assessment, income rose 11%, fueled by both fee income and a better net interest margin. +++

First Union Corp. Charlotte, N.C. Dollar amounts in millions (except per share) Third Quarter 3Q96 3Q95 Net income $356 $376 Per share 1.29 1.36 ROA 1.06% 1.25% ROE 15.91% 17.84% Net interest margin 4.27% 4.41% Net interest income 1,265.0 1,185.0 Noninterest income 600.0 479.0 Noninterest expense 1,211.0 1,018.0 Loss provision 105.0 60.0 Net chargeoffs 144.0 71.0 Year to Date 1996 1995 Net income $1,031.0 $1,073.0 Per share 3.69 3.85 ROA 1.30% 1.26% ROE 18.81% 17.24% Net interest margin 4.21% 4.55% Net interest income 3,741.0 3,468.0 Noninterest income 1,672.0 1,335.0 Noninterest expense 3,555.0 2,955.0 Loss provision 255.0 156.0 Net chargeoffs 394.0 232.0 Balance Sheet 9/30/96 9/30/95 Assets $133,882.0 $121,919.0 Deposits 91,444.0 87,395.0 Loans 92,520.0 86,189.0 Reserve/nonp. loans 188.00% 236.00% Nonperf. loans/loans 0.79% 0.72% Nonperf. assets/assets 0.62% 0.67% Nonperf. assets/loans + OREO 0.89% 0.95% Leverage cap. ratio 5.22%* 5.45% Tier 1 cap. ratio 6.33%* 6.81% Tier 1+2 cap. ratio 10.84%* 11.64%


National City Corp. Cleveland Dollar amounts in millions (except per share) Third Quarter 3Q96 3Q95 Net income $185.8 $158.9 Per share 0.82 0.71 ROA 1.53% 1.28% ROE 17.55% 16.75% Net interest margin 4.50% 4.22% Net interest income 494.8 471.4 Noninterest income 292.7 264.2 Noninterest expense 474.1 489.0 Loss provision 38.6 32.2 Net chargeoffs 38.5 27.5 Year to Date 1996 1995 Net income $545.5 $462.3 Per share 2.42 2.07 ROA 1.50% 1.30% ROE 17.82% 17.30% Net interest margin 4.44% 4.30% Net interest income 1,470.3 1,387.5 Noninterest income 843.5 760.9 Noninterest expense 1,479.7 1,413.8 Loss provision 108.0 86.3 Net chargeoffs 104.1 82.1 Balance Sheet 9/30/96 9/30/95 Assets $49,728.9 $49,413.8 Deposits 35,443.1 34,678.0 Loans 35,616.9 33,714.0 Reserve/nonp. loans 1.99% 2.14% Nonperf. loans/loans 0.44% 0.55% Nonperf. assets/assets 0.35% 0.41% Nonperf. assets/loans + OREO 0.49% 0.61% Leverage cap. ratio 8.22% 7.18% Tier 1 cap. ratio 10.36% 9.40% Tier 1+2 cap. ratio 15.08% 13.84%

Norwest Corp. Minneapolis Dollar amounts in millions (except per share) Third Quarter 3Q96 3Q95 Net income $289.0 $245.2 Per share 0.76 0.69 ROA 1.48% 1.43% ROE 21.00% 22.30% Net interest margin 5.66% 5.59% Net interest income 955.6 848.1 Noninterest income 631.8 483.7 Noninterest expense 1,032.4 866.2 Loss provision 105.9 86.5 Net chargeoffs 99.4 85.9 Year to Date 1996 1995 Net income $845.8 $696.3 Per share 2.26 2.01 ROA 1.49% 1.45% ROE 21.90% 22.40% Net interest margin 5.63% 5.58% Net interest income 2,778.4 2,406.7 Noninterest income 1,826.5 1,325.9 Noninterest expense 2,986.7 2,447.4 Loss provision 281.1 216.5 Net chargeoffs 268.8 208.3 Balance Sheet 9/30/96 9/30/95 Assets $78,427.6 $71,411.9 Deposits 48,025.8 39,691.1 Loans 40,085.6 36,554.8 Reserve/nonp. loans 560.0% 650.3% Nonperf. loans/loans 0.46% 0.36% Nonperf. assets/assets 0.29% 0.24% Nonperf. assets/loans + OREO 0.58% 0.46% Leverage cap. ratio 6.12% 5.74% Tier 1 cap. ratio 8.62% 8.01% Tier 1+2 cap. ratio 10.57% 10.10% ===

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