A lending slowdown, higher provisions for credit card losses, and one- time charges for deposit insurance drove down third-quarter earnings at First Bank System Inc. and Barnett Banks Inc. Each reported a 5% decline in net income, the biggest factor being their payments to replenish the Savings Association Insurance Fund.

First Bank reported income of $137.5 million following an after-tax assessment of $31.6 million. Barnett, also reporting on Wednesday, came in at $127 million, with a $15.3 million charge.

Excluding the nonrecurring events, First Bank said its income jumped 16.1% from the year-earlier quarter, while Barnett would have been up 6%.

Dean Witter analyst Anthony Davis said he was surprised by the slack loan growth at Minneapolis-based First Bank. While the $37 billion-asset company hit analysts' consensus estimates for the third quarter, Mr. Davis said he is lowering his yearend target by 5 cents, to $4.70 a share.

First Bank recorded a 2% decline in loans from the second quarter, though loans were up by $1.2 billion, or 4.8%, from the year-earlier period.

The provision for loan losses, $35 million, was $3 million short of what Mr. Davis felt it should be. First Bank's provision was 12.9% higher than a year ago.

Mr. Davis said he is also worried about revenue growth at First Bank. Much of the earnings momentum stems from fee businesses and the bank's propensity to cut costs.

"Given their record," Mr. Davis said, "you expect them to hit on all 12 cylinders. But the last few quarters, their earnings have been driven by the eradication of expenses and the repurchase of their stock."

The company achieved what chairman John F. Grundhofer proclaimed as a "milestone:" an efficiency ratio below 50%. The measure of expenses to revenue, before nonrecurring items, was 49.8% for the third quarter, down from 51.3% a year earlier.

Lehman Brothers analyst Michael Mayo said he wasn't alarmed by First Bank's loan sluggishness, because it reflects industry trends.

He expects First Bank to continue to build on earnings by keeping expenses down while generating fee income from corporate credit cards, merchant credit card processing, and trust banking.

The story is somewhat different at Jacksonville, Fla.-based Barnett. The $41 billion-asset holding company is in the midst of implementing a strategy intended to clear up past problem in business lines such as credit cards, Mr. Mayo noted, while First Bank has already made progress in those areas.

"We think Barnett is on the cusp of becoming more like First Bank System," he said.

Barnett chairman and chief executive Charles E. Rice said the bank is trying to "optimize business lines and develop new sources of profitable revenue. We continue to realize the earning power of our franchise."

Barnett posted a 33% increase in loan chargeoffs from the year-ago quarter and a 31% increase in its loss provision, in anticipation of the pending sale of $780 million of card loans to Household Credit Services Inc.

The selloff was part of a strategic alliance Barnett struck with Household last month. The deal is expected to close in the fourth quarter.

Mr. Mayo said the sale will include the "worst portion" of Barnett's credit card portfolio. "It's an existing eyesore that has held back the stock a little bit," he said.

While Mr. Davis said the credit quality problems for banks have not yet peaked, he predicted more companies will either sell their card portfolios or enter into partnerships with speciality lenders such as Household.

"Before the year is out," Mr. Davis said, "I think more banks will be taking steps to get their credit cards better positioned."

Some large regionals reported slight earnings gains on Wednesday. Huntington Bancshares of Columbus, Ohio, eked out a 0.8% increase, to $66.5 million. But the company had to increase its loan-loss provision 182%, to $20.3 million; $4 million was due to a single $10 million commercial loan, and the rest was attributed to consumer loan problems.

New loans of $13.9 billion were 3.6% higher than a year earlier, mostly driven by consumer loans and leases.

First Empire State Corp. of Buffalo reported $35.9 million in third- quarter profits, up a negligible $300,000 from the third quarter of 1995. The $12.4 billion-asset bank took a $7 million charge to cover its Savings Association Insurance Fund assessment.

The bank also said last year's third quarter income was skewed by a $2.8 million gain from the sale of securities.

A standout was SouthTrust Corp., a $24.8 billion-asset company in Birmingham, Ala., which gained 30% in net income, to $65.7 million. However, SouthTrust also increased its loss provision by 39%, to $22.9 million.

SouthTrust credited loan and deposit growth for its earnings increase.

Marshall & Ilsley Corp. of Milwaukee, which reported late Tuesday, posted a 7.4% drop in quarterly income, to $45 million. The $14.4 billion- asset company blamed a $9.6 million charge on acquisition costs and its SAIF assessment.

Loans in the quarter were down slightly, to $9.1 billion from $9.2 billion a year ago. +++

First Bank System Inc. Minneapolis Dollar amounts in millions (except per share) Third Quarter 3Q96 3Q95 Net income $137.5 $145.7 Per share 0.99 1.08 ROA 1.90% 1.76% ROE 21.40% 21.20% Net interest margin 4.91% 4.85% Net interest income 391.3 360.5 Noninterest income 220.3 216.5 Noninterest expense 355.5 311.1 Loss provision 35.0 31.0 Net chargeoffs 42.7 30.0 Year to Date 1996 1995 Net income $568.4 $417.4 Per share 4.08 3.05 ROA 1.87% 1.70% ROE 21.20% 20.90% Net interest margin 4.89% 4.94% Net interest income 1,162.4 1,090.3

Noninterest income 963.7 585.8 Noninterest expense 1,086.1 918.6 Loss provision 101.0 84.0 Net chargeoffs 112.2 92.0 Balance Sheet 9/30/96 9/30/95 Assets $36,843.0 $32,958.0 Deposits 25,008.0 21,895.0 Loans 27,037.0 25,877.0 Reserve/nonp. loans 431% 400% Nonperf. loans/loans 0.45% 0.45% Nonperf. assets/assets 0.40% 0.51% Nonperf. assets/loans + OREO 0.54% 0.64% Leverage cap. ratio 6.40% 6.70% Tier 1 cap. ratio 6.70% 7.40% Tier 1+2 cap. ratio 11.40% 12.30%

Barnett Banks, Inc. Jacksonville, Fla. Dollar amounts in millions (except per share) Third Quarter 3Q96 3Q95 Net income $127.0 $134.1 Per share 0.65 0.65 ROA 1.40% 1.30% ROE 17.19% 16.02% Net interest margin 5.22% 4.90% Net interest income 469.0 446.9

Noninterest income 194.9 182.7 Noninterest expense 384.4 379.3 Loss provision 44.9 34.2 Net chargeoffs 45.1 34.0 Year to Date 1996 1995 Net income $430.0 $395.0 Per share 2.10 1.89 ROA 1.40% 1.28% ROE 17.33% 15.94% Net interest margin 5.27% 4.83% Net interest income 1,424.6 1,312.9 Noninterest income 604.6 528.6 Noninterest expense 1,192.7 1,124.7 Loss provision 126.0 85.3 Net chargeoffs 125.9 85.8 Balance Sheet 9/30/96 9/30/95 Assets $41,271.0 $41,175.0 Deposits 33,238.0 33,248.0 Loans 30,638.0 30,469.0 Reserve/nonp. loans 264% 242% Nonperf. loans/loans 0.63% 0.68% Nonperf. assets/assets 0.61% 0.69% Nonperf. assets/loans + OREO 0.82% 0.92% Leverage cap. ratio 6.84% 6.35% Tier 1 cap. ratio NA NA Tier 1+2 cap. ratio NA NA ===

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