Strong loan growth at NationsBank Corp., particularly in the consumer category, helped lift earnings 7% in the second quarter to $467 million. But falling net interest margins and mediocre profitability ratios also raised some analysts' concerns.

NationsBank's earnings per share of $1.70 came in 7 cents above Wall Street consensus estimates because of a lower-than-expected loan-loss provision and tax rate and the repurchase of six million shares. Even so, the stock fell TKtkTK on the news Monday, a day in which the bank group generally drifted lower.

NationsBank expanded loans by $4.1 billion, for a 16% annualized rate, in the second quarter. Consumer loans, primarily residential mortgages, led the way, contributing to a 62% surge in net income at the company's general bank, or retail branch operation.

NationsBank's other two major divisions, global finance and financial services, reported 31% and 6% net income gains, respectively.

Fee income provided another source of strength, as noninterest income jumped 16%, to $730 million, driven by deposit fees, trust revenues, investment banking fees, and acquisition-related mortgage servicing fees.

But darkening the picture was a 22-basis-point drop in the net interest margin, to 3.19%, from the first quarter. Three factors contributed to this problem: the addition of $6 billion in trading assets, which provide no spread; the reinvestment of $3 billion of securities at yields below the bank's average portfolio yield; and an increased reliance on wholesale funding, which is more expensive than core deposits.

NationsBank spokesman Rusty Page said the company expects its margin to stabilize at the current level in the second half. But NationsBank's margin, at 3.19%, is now lower than those of most of its peers, as is its 0.96% return on assets.

"Their margins are so narrow that, despite the balance sheet growth, they're not getting the revenue contribution to return on assets that they probably ought to be getting," said Dean Witter analyst Anthony R. Davis.

"They're just not competitive with what we're seeing at other superregional banks," Mr. Davis added, noting that NationsBank trades at eight times this year's earnings, compared with an average of 10 times earnings for peers.

Meanwhile, banks elsewhere in the Southeast generally reported strong earnings.

Net income at Crestar Financial Corp., Richmond, Va., was up 11% to $47.4 million, driven by credit card growth. Crestar, which has $14.6 billion of assets, also benefited from a stable net interest margin.

But falling margins at Central Fidelity Banks Inc., also based in Richmond, drove earnings down 12% to $26 million. Central Fidelity, with $10.4 billion of assets, realigned its investment portfolio last year in the face of rising interest rates. That move has hurt earnings this year.

Regions Financial Corp., Birmingham, Ala., earned $40.9 million in the quarter, representing a 12% gain over the year-earlier quarter. Regions, which has $13.5 billion of assets, overcame lower spreads with robust loan growth.

That story was repeated at Compass Bancshares, another Birmingham-based bank, whose earnings rose 13% to $27.8 million. Compass, with $9.7 billion of assets, also benefited from securities gains and trading profits, compared with losses a year earlier.

Losses on riverboat casino loans forced New Orleans-based First Commerce Corp. to nearly double its nonperforming assets in the second quarter, to $34 million from $18.2 million at March 30. But loan growth and lack of securities losses, compared with the year-ago quarter, boosted net income at the $7.1 billion-asset bank by 17%, to $23.7 million.

Hibernia Corp., also based in New Orleans, earned $28.8 million, up 41% from the year-earlier quarter. Hibernia, which has $6.7 billion of assets, reported a zero loan-loss provision, compared with $285 million in last year's quarter. +++ NationsBank Corp. Charlotte, N.C. Dollar amounts in millions (except per share) Second Quarter 2Q95 2Q94 Net income $467.0 $437.0 Per share 1.70 1.57 ROA 0.96% 1.08% ROE 16.69% 17.04% Net interest margin 3.19% 3.70% Net interest income 1,367.0 1,339.0 Noninterest income 730.0 629.0 Noninterest expense 1,288.0 1,228.0 Loss provision 70.0 70.0 Net chargeoffs 83.0 64.0 Year to Date 1995 1994 Net income $910.0 $854.0 Per share 3.28 3.07 ROA 0.99% 1.07% ROE 16.36% 16.93% Net interest margin 3.30% 3.69% Net interest income 2,702.0 2,649.0 Noninterest income 1,456.0 1,309.0 Noninterest expense 2,576.0 2,447.0 Loss provision 140.0 170.0 Net chargeoffs 166.0 154.0 Balance Sheet 6/30/95 6/30//94 Assets $184,188.0 $164,398.0 Deposits 100,606.0 92,244.0 Loans 109,802.0 94,622.0 Reserve/nonp. loans 239% 235% Nonperf. loans/loans 0.82% 0.99% Nonperf. assets/assets 0.60% 0.86% Nonperf. assets/loans + OREO 0.99% 1.48% Leverage cap. ratio 5.65% 6.38% Tier 1 cap. ratio 7.03% 7.63% Tier 1+2 cap. ratio 10.90% 11.57% ===

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