Loan growth and fee income helped lift NationsBank Corp.'s earnings in the first quarter, but they would have been flat if not for a $30 million reduction in the loan-loss provision.
The Charlotte-based company reported net income of $443 million, up by 6%, or $26 million. Meanwhile, the loss provision fell to $70 million - $13 million less than net chargeoffs.
Analysts saw no problem with the move, considering the current low level of bad loans at NationsBank and in the industry as a whole. NationsBank's reserve covers 254% of nonperforming loans, which is larger than the comparable percentages at First Union Corp. or Barnett Banks Inc.
NationsBank's earnings per share of $1.58 topped Wall Street consensus estimates by 3 cents. "From a fundamental operating basis, things look good," said Dean Witter analyst Anthony R. Davis.
Nancy Bush, a Brown Brothers Harriman & Co. analyst, said NationsBank purposefully held back some earnings power to report stronger numbers later in the year, when proceeds from maturing securities can be reinvested at higher yields.
"In past years, they've had a bit more volatile earnings stream," she said. "They're trying not to show that right now."
NationsBank's stock price suffered in 1994 when securities gains boosted earnings early but the $184 billion-asset company couldn't sustain the momentum in the second half.
Loans grew by $4 billion, or 4%, from the fourth quarter to the first. The net interest margin gained a basis point from the fourth quarter, to 3.41%, but was down 28 basis points from the year-earlier quarter due to rising deposit costs.
Noninterest income was up 7%, to $726 million, driven by deposit fees, investment banking revenue, and acquisition-related mortgage servicing fees. Earlier in the year, NationsBank added $35 billion to its mortgage servicing portfolio in two separate deals.
Noninterest expense rose 6% in the quarter, to $1.3 billion, primarily because of new hires in capital markets and financial products, additional spending on marketing programs, and an accounting change related to taking back 100% control of a securities subsidiary from joint venture partner Dean Witter.
"If they can keep their discipline on expenses, I think they'll see some very good earnings for the balance of the year," said Sanford C. Bernstein & Co. analyst Moshe Orenbuch.
During a conference call with analysts Monday, NationsBank chief financial officer James H. Hance Jr. reportedly downplayed recent speculation that NationsBank might bid to acquire New York-based Chase Manhattan Corp., saying bank prices generally were "too high" right now.
Also in the Southeast, Regions Financial Corp. reported first-quarter earnings of $40.2 million, up 16% from a year earlier. Regions, based in Birmingham, Ala., has $13 billion of assets.