Fees Boost Profits at BankAmerica, Bank of N.Y.

Fees from businesses well outside traditional lending and deposit- taking helped several large banks post double-digit growth in second- quarter profits.

BankAmerica Corp. reported a 12% increase in net income, to $723 million, thanks to a 7% revenue gain mostly from credit cards and securities trading.

Bank of New York Co. posted a 23% rise, to $278 million, aided by recent securities processing acquisitions and the sale of a credit card portfolio.

And Wachovia Corp. of Winston-Salem, N.C., beat the per-share consensus estimate of Wall Street analysts by 3 cents due to stronger-than-expected revenue growth, although its $159.4 million of net income was down 2.2% from last year's second quarter when a special gain was recorded.

"The growth in fee income kind of blew us away," said Anthony R. Davis of Dean Witter.

Like other big regionals that managed to keep a tight hand on costs last quarter, BankAmerica benefited from a 3% decline in noninterest expense.

Because of share repurchases, earnings per share at the San Francisco- based bank rose 19%, to $1.84, beating analysts' consensus estimate by 6 cents.

"They knocked the cover off the ball," said Rodman & Renshaw Inc. analyst Campbell K. Chaney in San Francisco.

Results at BankAmerica, the country's third-largest bank company, were buoyed by 16% growth in noninterest income, to $1.3 billion.

BankAmerica's credit business also did well. Total average loans grew $2.7 billion, to $157.6 billion, while the ratio of nonaccrual loans to total assets dropped from 1.1% to 0.9%.

Credit card losses, an area of concern at other banks, were not a problem; the ratio of credit card chargeoffs to total balances rose only 13 basis points, to 4.76%. Analysts said the rise was so small that it was actually a positive.

"It was remarkable given what other banks have been doing," said Salomon Brothers analyst Carole Berger.

However, BankAmerica's net interest margin declined nine basis points, to 4.27%. The bank said it was unable to increase core deposits fast enough to fund its loan growth and, as a result, had to use more expensive wholesale funding.

"The only thing that sticks out as contrary is that their margin continues to deteriorate," said Bear, Stearns & Co. analyst Lawrence R. Vitale.

But the margin decline wasn't so serious that it took the luster off an otherwise stellar quarter.

"We had a good, strong quarter," said BankAmerica chief financial officer Michael O'Neill.

Second-quarter earnings at Wachovia followed the trend seen at many other regional banks: Strong revenue growth, particularly in fee income, overcame higher credit card chargeoffs.

The bank cited a surge in service charge revenue, driven by strong volume in both the consumer and corporate categories; electronic banking fees, principally from consumer use of debit cards and automated teller machines; and investment fee income derived from the sale of securities.

Wachovia earned 94 cents per share. Fee income was particularly strong, up 10% from the year-earlier quarter, to $198.4 million.

Like other banks this quarter, Wachovia reported a weakening of loan volume but only a slight one, 10% annualized growth compared to 11% during 1995. Net interest income improved 5% from the 1995 quarter, to $399.2 million.

Wachovia's loan-loss provision rose 20%, to $34.4 million, matching its net chargeoffs. Wachovia's heavy emphasis on credit cards, which comprise 13.5% of its total loans, was reflected in the fact that $31.7 million of its $34.3 million in chargeoffs - 92% - came from credit cards.

But Wachovia's credit card chargeoff ratio, which rose to 3.14% from 2.82% in the first quarter, remains at least 150 basis points below the industry average. Analysts also found comfort in the fact that Wachovia's card chargeoffs dipped slightly in June, the last month of the quarter.

"One month doesn't make a trend, but that might mean the percentage of losses is stabilizing, to some degree, in the short term," said Michael Mayo of Lehman Brothers Inc.

Chief financial officer Robert S. McCoy Jr. said Wachovia expected only minor deterioration in credit card chargeoffs during the next quarter or so, noting that delinquencies have actually fallen during the past four months.

"We're not looking for catastrophic-type stuff at all - a little bit up but not catastrophic," he said.

R. Harold Schroeder of Keefe, Bruyette & Woods Inc. said he expects credit card problems in the industry generally to worsen slightly during the next two quarters. But he predicted bank earnings would continue to maintain their momentum despite this problem.

"You've got some really strong noninterest revenue growth, particularly seen in this quarter, that will mask or offset any additional credit card chargeoff problems going forward," Mr. Schroeder said.

Indeed, the strong improvement in earnings at Bank of New York occurred despite a $350 million provision related to credit cards, which was made in addition to a $75 million quarterly provision for other loan losses. Net interest income fell slightly, mainly as a result of the bank's sale of the AFL-CIO credit card portfolio.

Net chargeoffs on credit cards rose sharply, to 4.57% from 3.17%, but were still below levels at a number of other large U.S. banks, including Citicorp, which had a 4.99% chargeoff ratio.

Analysts said losses on credit card portfolios at Bank of New York and other institutions would probably rise in the second half of this year and then level out either at the end of this year or early next year, assuming there is no deterioration in the economy.

"The secular increase in bankruptcies continues to bother us because it's hard to get a handle on, and banks themselves are somewhat befuddled," said Sally Pope Davis, an analyst at Goldman, Sachs & Co.

"But if the economy weakens, the worst is yet to come," she added.

At State Street Boston Corp., which is also a big securities processing bank like Bank of New York, earnings were up 14%, to $72 million.

The bank attributed the improvement to a 27% rise in net interest revenue and a 17% boost in fee revenues.

Ronald L. O'Kelley, chief financial officer, noted that much of the improvement in noninterest and interest income came from strong growth in activity outside the United States. Total assets under custody rose 31%, to $2.6 trillion.

Meanwhile, at another bank based in Boston, Fleet Financial Group Inc. posted a 9% earnings improvement, to $278 million, although profits were boosted by a $91.6 million special gain from branch sales.

Loan-loss provisions also rose sharply at Fleet, to $48 million.

At Republic New York Corp., record earnings of $103 million were $11.1 million better than in 1995's second quarter, when the bank took a $120 million pretax provision for restructuring.

Republic credited a 28% improvement in net interest income, to $242 million, largely to New York City-area acquisitions.

Continuing its international expansion, Republic reported that it has obtained regulatory approvals to operate commercial banking subsidiaries in Russia and Brazil.

Both subsidiaries are to start operations late this year and will focus on capital markets and multinational corporate banking.

This article was written by Jacqueline S. Gold based on reporting by James R. Kraus, Kenneth Cline, and Barton Crockett. +++

Wachovia Corp. Winston-Salem, N.C. Dollar amounts in millions (except per share) Second Quarter 2Q96 2Q95 Net income $159.4 $162.9 Per share 0.94 0.95 ROA 1.42% 1.59% ROE 17.49% 19.48% Net interest margin 3.99% 4.19% Net interest income 399.2 381.1 Noninterest income 198.4 219.1 Noninterest expense 310.1 306.6 Loss provision 34.4 28.7 Net chargeoffs 34.3 28.5 Year to Date 1996 1995 Net income $309.2 $305.1 Per share 1.81 1.77 ROA 1.38% 1.53% ROE 16.87% 18.49% Net interest margin 3.97% 4.27% Net interest income 788.0 753.9 Noninterest income 383.2 376.1 Noninterest expense 618.3 589.6 Loss provision 61.7 50.4 Net chargeoffs 61.5 47.9 Balance Sheet 6/30/96 6/30/95 Assets $46,049.0 $42,867.0 Deposits 25,973.0 23,892.0 Loans 30,673.0 28,251.0 Reserve/nonp. loans 741% 706% Nonperf. loans/loans 0.18% 0.21% Nonperf. assets/assets 0.16% 0.18% Nonperf. assets/loans + OREO

0.24% 0.27% Leverage cap. ratio 8.12% 8.47% Tier 1 cap. ratio 9.10% 9.30% Tier 1+2 cap. ratio 13.10% 13.10%

Republic New York Corp. New York Dollar amounts in millions (except per share) Second Quarter 2Q96 2Q95 Net income $103.1 $11.1 Per share 1.71 0.02 ROA 0.79% 0.01% ROE 15.41% 0.21% Net interest margin 2.52% 2.56% Net interest income 242.0 189.2 Noninterest income 109.2 119.9 Noninterest expense 195.9 297.7 Loss provision 4.0 3.0 Net chargeoffs 4.3 7.8 Year to Date 1996 1995 Net income $202.6 $98.6 Per share 3.35 1.50 ROA 0.80% 0.39% ROE 15.26% 7.89% Net interest margin 2.51% 2.70% Net interest income 465.0 405.2 Noninterest income 216.5 219.1 Noninterest expense 380.2 490.3 Loss provision 8.0 6.0 Net chargeoffs 12.30 11.50 Balance Sheet 6/30/96 6/30/95 Assets $48,580.0 $41,716.0 Deposits 30,080.0 23,935.0 Loans 10,965.0 9,338.0 Reserve/nonp. loans 286.71% 592.68% Nonperf. loans/loans 1.45% 0.56% Nonperf. assets/assets 0.32% 0.19% Nonperf. assets/loans + OREO

NA NA Leverage cap. ratio 5.50%* 6.30%* Tier 1 cap. ratio 13.00%* 15.80% Tier 1+2 cap. ratio 22.30%* 27.29%

*Estimated

Fleet Financial Group Boston Dollar amounts in millions (except per share) Second Quarter 2Q96 2Q95 Net income $278.0 $254.0 Per share 0.96 0.91 ROA 1.32% 1.22% ROE 17.20% 16.79% Net interest margin 4.76% 4.15% Net interest income 863.0 777.0 Noninterest income 549.0 476.0 Noninterest expense 885.0 797.0 Loss provision 48.0 28.0 Net chargeoffs 75.0 76.0 Year to Date 1996 1995 Net income $542.0 $480.0 Per share 1.89 1.73 ROA 1.36% 1.18% ROE 17.09% 16.47% Net interest margin 4.60% 4.21% Net interest income 1,595.0 1,546.0 Noninterest income 1,069.0 880.0 Noninterest expense 1,643.0 1,564.0 Loss provision 84.0 48.0 Net chargeoffs 135.0 135.0 Balance Sheet 6/30/96 6/30/95 Assets $87,728.0 $87,168.0 Deposits 68,145.0 55,715.0 Loans 59,093.0 52,325.0 Reserve/nonp. loans 230.83% 219.08% Nonperf. loans/loans 1.17% 1.30% Nonperf. assets/assets 0.85% 0.89% Nonperf. assets/loans + OREO 1.26% 1.47% Leverage cap. ratio 6.62% 6.81% Tier 1 cap. ratio 6.99% 8.22% Tier 1+2 cap. ratio 10.85% 12.01%

Bank of New York Co. New York Dollar amounts in millions (except per share) Second Quarter 2Q96 2Q95 Net income $278.0 $226.0 Per share 1.32 1.09 ROA 2.05% 1.68% ROE 21.97% 19.85% Net interest margin 4.26% 4.45% Net interest income 499.0 514.0 Noninterest income 846.0 350.0 Noninterest expense 457.0 425.0 Loss provision 425.0 62.0 Net chargeoffs 185.0 99.0 Year to Date 1996 1995 Net income $521.0 $438.0 Per share 2.45 2.11 ROA 1.92% 1.67% ROE 20.40% 19.92% Net interest margin 4.36% 4.47% Net interest income 1,017.0 1,017.0 Noninterest income 1,266.0 668.0 Noninterest expense 902.0 841.0 Loss provision 515.0 112.0 Net chargeoffs 289.0 195.0 Balance Sheet 6/30/96 6/30/95 Assets $51,499.0 $53,464.0 Deposits 35,494.0 36,878.0 Loans 35,523.0 36,187.0 Reserve/nonp. loans 489.0% 322.4% Nonperf. loans/loans 0.60% 0.60% Nonperf. assets/assets 0.50% 0.60% Nonperf. assets/loans + OREO 0.80% 0.90% Leverage cap. ratio 7.75% 8.17% Tier 1 cap. ratio 7.97% 8.62% Tier 1+2 cap. ratio 12.92% 13.20%

Bank of America Corp. San Francisco Dollar amounts in millions (except per share) Second Quarter 2Q96 2Q95 Net income $723.0 $645.0 Per share 1.84 1.56 ROA 1.21% 1.13% ROE 15.42% 14.30% Net interest margin 4.27% 4.54% Net interest income 2,159.0 2,123.0 Noninterest income 1,320.0 1,138.0 Noninterest expense 1,997.0 1,108.0 Loss provision 250.0 100.0 Net chargeoffs 246.0 130.0 Year to Date 1996 1995 Net income $1,443.0 $1,256.0 Per share 3.63 3.03 ROA 1.21% 1.21% ROE 15.31% 14.09% Net interest margin 4.32% 4.54% Net interest income 4,305.0 4,182.0

Noninterest income 2,594.0 2,231.0 Noninterest expense 4,010.0 4,042.0 Loss provision 430.0 200.0 Net chargeoffs 485.0 207.0 Balance Sheet 6/30/96 6/30/95 Assets $238,841.0 $226,599.0 Deposits 161,845.0 155,780.0 Loans 160,640.0 148,766.0 Reserve/nonp. loans 219.67% 179.28% Nonperf. loans/loans 0.99% 1.37% Nonperf. assets/assets 0.67% 0.92% Nonperf. assets/loans + OREO 0.99% 1.17% Leverage cap. ratio 6.75% 6.68% Tier 1 cap. ratio 7.24% 7.17% Tier 1+2 cap. ratio 11.37% 11.37% ===

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