Two of the nation's largest banking companies reported strong third-quarter earnings on Monday that far exceeded analyst's estimates.
NationsBank Corp., based in Charlotte, N.C., said profits quadrupled to $ 350 million over the level in the year-earlier period. The fourth-largest U.S. banking company recorded $99 million of nonrecurring gains, but also showed improved credit quality, wide net interest margins, and a gain in loan demand.
Chase Manhattan Corp. reported a 29% jump in third-quarter profits, to $ 176 million. The nation's sixth-biggest banking company said record trading revenues and robust interest income propelled the gain. The results translated into 94 cents a share, exceeding analysts' consensus of 79 cents a share, according to Zacks Investment Research.
In New England, Shawmut National Corp. used securities sales and other extraordinary gains to fuel profits of $13 million, more than five times those in its year-earlier third quarter. The company said cost-control efforts and higher net interest margins contributed to a rise in core earnings. NET CHANGE INCOME FROM 1991NationsBank $350 +332%ROA/ROE 1.22%/18.87%ChaseManhattan $176 +29%RROA/ROE 0.17%/12.00%ShawmutNational $13 +465%ROA/ROE 0.06%/ 0.99%Source: Company reports
The company's third-quarter profits of $1.36 a share is in comparison to a consensus estimate from analysts of $1.06 a share.
NationsBank, which has assets of $117.9 billion, recorded a $55 million after-tax gain from the sale of a mortgage servicing unit and pretax gains of $44 million on the sale of securities. Analysts said they were pleasantly surprised that the company did not have to offset these gains with other charges.
"It's a good quarter," said John Mason, an analyst with Interstate Johnson Lane in Atlanta. "Any time you come up with 30 cents more than expectations, you did good."
The company's loan loss provision fell 65% to $150 million from the level in the year-ago quarter, while met chargeoffs declined 50% to $141 million. Nonperforming assets of $2.45 billion were down 9% from non-performers in the year-earlier period and unchanged since the end of NationsBank's second quarter.
The company said loan growth surged by $800 million. during the last three months by $800 million. Net interest income concurrently jumped 8% over the year-earlier quarter to $1 billion.
The company saw improvements in both commercial and consumer loan demand, said chief financial officer James H. Hance Jr. He also noted that loan payoffs fell below new volume for the first time in over a year.
Fee income was up from the year-earlier period by 16% to $514 million. Without the $55 million gain from the sale of the mortgage servicing unit, noninterest income rose by 3%.
Nationsbank's net interest margin gained five basis points from the second quarter, and 33 basis points from the year-ago quarter. Mr. Hance cited lower deposit costs as the key factor.
The positive trends pushed NationsBank's return on assets over the 1% mark for the first time since the company was created by the merger of NCNB Corp. and C&S/Sovran Corp. at the end of 1991.NationsBankCharlotteDollar amounts in millions (except per share)Third Quarter 3Q92 3Q91Net income $350.0 $81.0Per share 1.36 0.31ROA 1.22% 0.28%ROE 18.97% 4.41%Net interest margin 4.16% 3.83%Net interest income 1,059.0 978.0Noninterest income 514.0 444.0Noninterest expense 977.0 942.0Loss provision 150.0 430.0Net chargeoffs 141.0 280.0Year to Date 1992 1991Net income $911.0 $446.0Per share 3.59 1.87ROA 10.6% 0.52%ROE 17.27% 9.03%Net interest margin 4.05% 3.84%Net interest income 3,092 2,959Noninterest income 1,452 1,304Noninterest expense 2,899 2,816Loss provision 565 1,057Net chargeoffs 496.0 762.0Balance Sheet 9/30/92 9/30/91Assets $117,926 $116,601Deposits 80,447 90,070Loans 70,260 69,586Reserve/nonp.loans 98.38% 85.35%Nonperf. loans/loans 3.46% 3.86%Nonperf. asset/asset 2.08% 2.32%Leverage cap. ratio 6.20% 5.46%Tier 1 cap. ratio 7.54% 6.66%Tier 1+2 cap. ratio 11.68% 10.33%
CHASE MANHATTAN CORP.
The New York company tempered its upbeat report by warning of "continued economic weakness" in the world economy, and particularly in U.S. commercial real state. Chase said it was "likely that the provision for possible credit losses will continue at relatively high levels."
Chase, which ended the quarter with $7.4 billion of domestic commercial real estate loans, set aside $320 million as a loss provision in the third quarter, up 20% from the level a year ago and 8.4% from the provision in the second quarter.
It also wrote off $314 million of loans other than to refinancing countries, including $97 million related to commercial,l real estate. The writeoffs were 9.4% higher than in the second quarter and 18.9% higher than in the third quarter of 1991.
A Change of Attitude
Raphael Soifer, an analyst with Brown Brothers Harriman & Co., said he would reduced his 1992 and 1993 earnings estimates on Chase. "I assumed we would begin to see some asset-quality improvement about now, and we're not seeing it," said Mr. Soifer.
On the revenue side, Chase's trading gains climbed 150% from the level a year earlier, to $180 million, including $120 million from foreign exchange. Chase is one of the first big banks to report sizable results from the recent volatility in the currency markets.
Analysts commended the bank for dedicating so much of its revenues gains to improving credit problems.
"I was cheered that rather than adding trading gains to earnings, they invested the money by putting it toward cleaning up credit problems," said Diane Glossman, an analyst at Salomon Brothers Inc.
Analysts said that Chase, which has never before shown such acumen in trading, may be enjoying the benefits of its new connection with Susquehanna Partnership, an options trading firm. But Ms. Glossman said it would be another few quarters before investors could assume that such trading gains are sustainable.
Chase's net interest margin soared to 4.08% this quarter, from 3.81% a year ago, while net interest revenue rose 4% to $898 million.
Refinancings a Problem
While Chase enoyed wide interest spreads between funding and investments, its fee income was hurt by "a significant increase in homeowner refinancings and prepayments" during the quarter, the company said.
The bank wrote down $15 million of excess mortgage servicing receivables and wrote off $16 million of purchased mortgage servicing rights.
Operating expenses increased by 3% over the third quarter of 1991, to $984 million, though employment fell by 7% to 34,930 people. Chase attributed much of the expense jump to charges related to its purchase of two Connecticut banks, a year-end 1991 consolidation of Chase Australia, and the weakness of the U.S. dollar.Chase Manhattan Corp.New YorkDollar amounts in millions (except per share)Third Quarter 3Q92 3Q91Net income $176.0 $136.0Per share 0.94 0.79ROA 0.71% 0.53%ROE 12.00% 10.50%Net interest margin 4.08% 3.81%Net interest income 888.0 849.0Noninterest income 636.0 539.0Noninterest expense 964.0 958.0Loss provision 320.0 265.0Net chargeoffs 321.0 656.0Year to Date 1992 1991Net income $470.0 $385.0Per share 2.59 2.31ROA 0.63% 0.51%ROE 11.20% 10.50%Net interest margin 4.01% 3.82%Net interest income 2,607.0 2,491.0Noninterest income 1,830.0 1,595.0Noninterest expense 2,901.0 2,831.0Loss provision 915.0 770.0Net chargeoffs 912.0 1,608.0Balance Sheet 9/30/92 9/30/91Assets 97,073.0 97,366.0Deposits 65,406.0 70,674.0Loans 63,507.0 69,586.0Reserve/nonp.loans 45.22% 44.26%Nonperf. loans/loans 6.84% 6.53%Nonperf. asset/asset 5.61% 5.39%Leverage cap. ratio 6.5% 5.2%Tier 1 cap. ratio 6.5% 5.2%Tier 1+2 cap. ratio 10.8% 9.6%
Shawmut sold $75.4 million worth of residential mortgages and foreclosed properties during the quarter to GE Capital and Lehman Brothers, and also recorded securities gains of $11.2 million.
Shawmut took a $2.7 million charge to earnings to complete the sale. But the company, jointly based in Hartford, Conn., and Boston, said it would have reported a loss of about $1.2 million loss without its special gains.
Several analysts said they were heartened by the progress Shawmut has made in shedding bad assets, but still concerned about the New England economy.
"Shawmut is on the path out of the woods, but there are still some obstacles the company has to overcome," said Gerard Cassidy, an analyst with Tucker Anthony, Inc.
Shawmut is more affected than most of its competitors, he added, by trouble in Connecticut's economy.
Shawmut said its problem loans and foreclosed properties fell 20% to $1.1 billion from the second quarter, representing 7.63% of total loans and foreclosed real estate. That compares with 9.5% ratio at June 30 and a 10.34% ratio at the end of the third quarter of 1991.
NORTHERN TRUST CORP.
Chicago-based Northern Trust Corp. said an increase in fees and other noninterest income fueled a 22% increase in net income, to $38.1 million. Such revenues now account for 60% of total taxable-equivalent revenues.
Fully diluted, net income per share rose 20% to $1.01, from 84 cents, in the 1991 third quarter. More Signs of the Industry's Recovery Third-quarter earnings, in millions