Major banking companies reporting third-quarter earnings Tuesday said fee-generating businesses were largely responsible for their continued momentum.

NationsBank Corp., for one, said fee-based activities it gained in the acquisition early this year of Boatmen's Bancshares fueled its 26% gain in net income, to $788 million.

"Strong fee income growth across all of our business lines is driving our earnings momentum," said chairman Verne G. Istock of First Chicago NBD Corp., which reported an 8% increase, to $385 million.

SunTrust Banks Inc. was also up 8%, to $169 million. Chairman James B. Williams cited both "strong revenue increases and outstanding loan growth"- net interest income was up 5% to $486 million, but the net interest margin declined to 4.04% from 4.38%.

Also reporting Tuesday, National City Corp. said profits rose 10% to $204 million, while Mellon Bank Corp. was up 11% to $195 million.

"Net interest income is somewhat sluggish and fee income is making up for a lot of the slack," said Joseph Duwan, an analyst with Keefe, Bruyette & Woods Inc. "That's true even at the more traditional banks like National City."

"The one place where the revenue is not coming from at these large banks is lending," agreed James Schutz, an analyst with ABN Amro Chicago Corp.

Observers cited a variety of reasons for the lower interest factor, including competition for commercial loans and credit card customers.

Analysts also noted an apparent improvement in consumer loan quality. Most notably, First Chicago, one of the top five bank credit card issuers, reported a decline in the chargeoff rate for its managed credit card portfolio to 6.7% from 7.7% in the second quarter.

"The credit outlook is pretty stable to solid at all these companies," Mr. Duwan said.


Income per share at NationsBank, at $1.11, was up from $1.06 and 3 cents better than the consensus projection of analysts.

Officials of the Charlotte, N.C., company said expense control efforts combined with an increasingly diversified revenue stream to keep the bottom line rising.

The acquisition of St. Louis-based Boatmen's Bancshares kicked in revenue of about $600 million in the third quarter, said Susan Carr, a NationsBank spokeswoman.

Efforts to boost noninterest income paid off as total fees increased 38% to $1.22 billion. Executives of the $242 billion-asset NationsBank pointed to gains from a variety of sources, including service charges on deposit accounts, asset management, trading, and investment banking.

The company also realized a gain on the sale of a credit card portfolio, though it declined to reveal the amount. Analysts said it was between $30 million and $50 million.

Dillon Read analyst Anthony Davis said NationsBank "showed pretty good momentum in fee income" and overall appeared to be moving forward with its integration of acquisitions.

Keefe Bruyette analyst Harold R. Schroeder said "the only true revenue growth on the noninterest side was in the service charge area.

"It supports our concern that revenue growth, while you're going through a merger and integration process, is difficult to maintain," he added. "We're going to have to learn to live with this type of revenue performance over the next couple of years as they grow their franchise."

First Chicago NBD

Distinguishing First Chicago's report was a 17% increase in noninterest income, including market-driven revenues and higher service charges. Earnings per share of $1.26 exceeded analysts' estimates by a penny.

Net interest income was down 5% from a year earlier, to $921 million.

The $113.3 billion-asset First Chicago got moderate increases from credit cards, which continue to be a major source of revenue. Credit card feestotaling $233 million were up 2%. First Chicago said it had tempered its marketing of credit card offers over the past year.

The market-based revenues were up 70% to $68 million as a result of stronger trading profits. But this is "still below historical norms" for the company, said Mr. Duwan.

First Chicago benefited from repurchasing its stock. It said Tuesday that it bought up 10 million of its shares in the third quarter, bring it to 35.7 million of a planned 40 million-share buyback announced last October.

SunTrust Banks

At $55.5 billion-asset SunTrust, earnings per share rose 10 cents from the 1996 quarter, to 80 cents, which was 1 cent higher than the analyst consensus.

The Atlanta company had a third-quarter return on assets of 1.29%, down from 1.35% a year earlier, but the return on equity of 21.38% was up from 18.86%.

SunTrust spokesman James Armstrong said the results reflected initiatives to increase both fee income and commercial and residential loans. These efforts included hiring 70 people in the last quarter and 350 people over the last year. As a result, personnel expenses were up 10% for the year to date, to $712 million.

But the hiring binge was seen paying dividends in both loan growth and significantly higher trust and investment income. Trust was up 16%, while corporate and institutional investment income was up 153%. Retail investment income was up 32%, while total noninterest income, excluding securities gains, grew 18%.

"The strength of the equation is the fee income," said Mr. Armstrong.

Analyst Thomas D. McCandless of Natwest Securities said SunTrust was "a little bit stronger than what we've been looking for in fee income."

Total loans for the quarter were up 14% and has been funded "with higher-priced borrowed money," said Mr. Armstrong. The net interest margin "is not going in the direction we'd like to see it going in."

Nonperforming assets declined to $190.7 million, its lowest level in more than a decade.

National City

The $52.7 billion-asset National City of Cleveland increased earnings per share by 11 cents, to 93 cents, which was the analysts' projection. Fee-based income was up 13% and net interest income was flat.

Increases in trust, mortgage banking, service charges, and growth in the National Processing Inc. transaction processing subsidiary contributed to the results.

Processing was the biggest fee income business, with $97.4 million of revenue, up by 4%. Mortgage banking revenue nearly doubled to $35 million in part due to an acquisition earlier this year.


Mellon Bank Corp. of Pittsburgh said increases in individual and institutional trust businesses were responsible for boosting earnings per share to 73 cents from compared to 66 cents in the comparable period last year.

Fee income rose 33% to $635 million, driven by sharp gains in mutual funds and other asset management, in institutional trust and other speciality corporate businesses.

The ABN Amro analyst Mr. Schutz said Mellon has been building momentum in its trust businesses for the past year, but he described the current quarter as "explosive."

Further distancing itself from traditional lending, the $42.9 billion- asset Mellon increased its percentage of profits from fee businesses to 63% from 59% in the second quarter and 56% in last year's third quarter.

Net interest income was down 2% to $366 million, partly due to the November 1996 sale of a $770 million American Automobile Association credit card portfolio to PNC Bank Corp.

"Strong performance across Mellon's broad-based lines of business continues to drive our favorable stock price and valuation in the market," said Frank V. Cahouet, Mellon's chairman and chief executive officer.

The credit card bank MBNA Corp. posted another high-double-digit earnings increase defying predictions of a turn in its industry's cycle. Net income was up 33% to $171.8 million, while managed loans grew 33% and delinquencies rose to 4.44% from 4%.

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