Barnett Banks Inc. and First Bank System Inc. reported slight declines in first-quarter earnings, reflecting efforts to shed undesirable businesses and focus on core strategies.

Barnett's net was down 2%, to $145.7 million; First Bank's was off 3%, to $172 million.

Both companies' realignments are "works in progress," said analysts. Their consensus earnings projections fell 1 cent short of what both Barnett and First Bank reported Wednesday.

"You're seeing more banks, such as Barnett, focus on businesses that get the biggest bang for the buck," said analyst Michael Mayo of Credit Suisse First Boston Corp. "I think it's fantastic that banks have been more selective about revenue growth."

Extraordinary gains last year made this year's first-quarter results look worse than they were, but analysts said the banks have been putting new emphasis on different areas: Barnett on consumer finance and fee-based businesses, First Bank on corporate trust and specialty credit card products.

Minneapolis-based First Bank registered a pretax gain of $46 million a year ago from selling its mortgage business. Barnett sold its $750 million credit card portfolio late last year.

At $41.8 billion-asset Barnett, net income was down primarily because of a $19 million pretax gain in last year's first quarter from the sale of stock in Bank South Corp., which became part of NationsBank Corp.

However, earnings per share, aided by the Florida holding company's repurchase of 12.4 million shares, were up 4 cents, to 78 cents.

Net interest income was $474 million, down slightly because of the late 1996 sale of the card receivables.

"In terms of fundamentals, it was a pretty solid quarter," said Sally Pope Davis, an analyst with Goldman Sachs & Co.

Barnett revenues grew 3%, excluding securities transactions. Loans were up to $30.7 billion from $30.4 billion, mostly on the consumer side.

Fees contributed substantially. Noninterest income climbed 10% to $215.7 million. Barnett's Equicredit consumer finance company kicked in $41.6 million of pretax revenue, a 32% increase.

Analysts applauded Barnett's credit quality. Though the company saw some deterioration from the fourth quarter, net chargeoffs dropped 23% from the first quarter of 1996 and nonperforming assets were down 5$ from the previous March, at $233 million.

Noninterest expense ticked up 2% to $415.9 million, primarily due to advertising and marketing for a brand-building campaign.

At First Bank System, revenue growth was negligible. The Minneapolis company cited one-time gains in the first quarter of 1996 for the year-to- year income decline.

Excluding those gains, operating profits rose 7%, and earnings per share were up 11% to $1.27.

The $36 billion-asset company, which recently agreed to acquire U.S. Bancorp of Portland, Ore., reported increases in credit card fees and corporate trust, aided by the acquisition of Comerica Inc.'s bond indenture business.

Credit card gains were offset by a higher provision for consumer losses. The company raised its provision by 19%, to $37 million.

Credit card fees were up 23%, trust fees 17% and service charges on deposits 7%. Net interest income was up only 1.5% to $385 million.

One-time gains last year were attributed to the sale of the mortgage business and a $115 million payment First Bank received for terminating its planned acquisition of First Interstate.

First Bank said quarterly noninterest expense was $296 million, down from $424 million a year earlier. Acquisitions and branch reductions amounted to nonrecurring charges last year of $127 million. When those items are excluded, the expense trend was flat.

Analysts said they were not concerned about the relatively slight revenue growth and lauded the cost-cutting. "People say you can't grow by cutting costs and I say that's baloney," said Ben Crabtree, an analyst with Dain Bosworth Inc.

Joseph Duwan of Keefe, Bruyette & Woods Inc. said gains in corporate trust and specialty credit cards signal further growth potential for First Bank, while it runs off residential loans and veers from traditional bank lending. "There are growth business embedded in First Bank," he said.

"First Bank is trying to do more with profitable customers and they're letting unprofitable customers go away," added Mr. Crabtree.

Analysts noted that First Bank has the potential for more traditional lending growth after completion of the U.S. Bancorp deal. Mr. Crabtree said the Pacific Northwest economy is much more vibrant than the Midwest, where First Bank has experienced sluggish loan growth. +++

First Bank System Inc.


Dollar amounts in millions (except per share)

First Quarter 1Q97 1Q96

Net income $171.8 $176.8*

Per share 1.27 1.26*

ROA 2.00% 2.03%*

ROE 23.10% 23.20%*

Net interest margin 4.98% 4.86%

Net interest income 384.8 379.3

Noninterest income 225.8 383.5*

Noninterest expense 296.0 424.4*

Loss provision 37.0 31.0

Net chargeoffs 41.3 33.5

Balance Sheet 3/31/97 3/31/96

Assets $36,000.0 $36,572.0

Deposits 23,423.0 24,346.0

Loans 27,173.0 26,878.0

Reserve/nonp. loans 446% 467%

Nonperf. loans/loans 0.42% 0.43%

Nonperf. assets/assets 0.37% 0.43%

Nonperf. assets/loans + OREO 0.50% 0.58%

Leverage cap. ratio 6.90% 6.70%

Tier 1 cap. ratio 7.20% 7.10%

Tier 1+2 cap. ratio 12.00% 11.90%

*After nonrecurring items.

Barnett Banks Inc.

Jacksonville, Fla.

Dollar amounts in millions (except per share)

First Quarter 1Q97 1Q96

Net income $145.7 $148.2

Per share 0.78 0.74

ROA 1.41% 1.44%

ROE 19.34% 17.89%

Net interest margin 5.28% 5.27%

Net interest income 474.0 475.2

Noninterest income 215.7 215.6

Noninterest expense 415.9 407.6

Loss provision 31.8 41.6

Net chargeoffs 31.8 41.4

Balance Sheet 3/31/97 3/31/96

Assets $41,848.0 $41,519.0

Deposits 33,839.0 33,930.0

Loans 30,701.0 30,378.0

Reserve/nonp. loans 259% 279%

Nonperf. loans/loans 0.60% 0.60%

Nonperf. assets/assets 0.56% 0.59%

Nonperf. assets/loans + OREO 0.76% 0.80%

Leverage cap. ratio 7.50% 6.31%

Tier 1 cap. ratio NA NA

Tier 1+2 cap. ratio NA NA ===

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