Strong loan growth and improved asset quality powered Wachovia Corp. to third-quarter earnings of $138 million, up 11% from the year-ago quarter.
Wachovia's earnings per share of 80 cents came in One cent above consensus estimates as compiled by First Call.
"It was the classic Wachovia quarter in terms of strong profitability, and more importantly, very sustainable levels of profitability," said analyst George A. Bicher with Kidder Peabody in New York.
Meanwhile, Crestar Financial Corp. reported earnings up 17% to $43.6 million from the year-ago quarter.
Crestar, which has $14.5 billion of assets, attributed the improvement to revenue growth and expense control.
Crestar investor relations spokesman Eugene Putnam said the Richmond-based bank achieved 10% annualized loan growth in the third quarter, with the consumer portion of the portfolio growing slightly faster than the commercial.
Net income at Compass Bancshares, Birmingham, Ala., rose 9% to $24.8 million, largely on the strength of a lower loan-loss provision and strong fee income. Compass has $8.4 billion of assets.
Two other southeastern regionals illustrated a negative trend that has also become apparent. in the recent reporting round: securities losses due to rising interest rates. New Orleans-based. First Commerce Corp., as expected, lost $13.3 million after tax on the sale of $500 million of Treasury securities, which drove net income down 1o$9.4 million, 61% below the year-ago period.
Central Fidelity Banks Inc., Richmond, Va., took a $4.4 million securities loss, which held its net income down to $27.4 million, only 2.5% above the year-ago quarter. Central Fidelity also had trouble with its net interest margin, which slipped 8 basis points from the second quarter to 3.77% due to higher deposit costs.
Wachovia, which is based in Winston-Salem, N.C., did better than some of its superregional peers in the quarter in the sense that it was able to report increases in both net interest income (up 3% to $358 million from the year-ago quarter) and noninterest income (up 1% to $152 million). Net interest income was driven by good loan growth, just under 10% on an annualized basis, which is level with peers but a slowdown from the 15% annualized rate attained in the second quarter.
Chief financial officer Robert S. McCoy Jr. said the growth came primarily from commercial loans and credit cards. "When the Federal Reserve raised interest rates on Aug. 16, we did see a slowdown" in commercial loans, Mr. McCoy said. "But I would say, in general, the markets we serve have seen good growth."
Wachovia's bottom line was also helped by a 23% drop in its loan-loss provision, to $18.1 million, and a 4% fall in net chargeoffs, also to $18, 1 million.
Earnings per-share at Crestar ($1.15) and Compass (67 cents) were right in line with consensus estimates. But securities losses caused problems at Central Fidelity and First Commerce. Central Fidelity's 70 cents in earnings came in five cents under consensus estimates. First Commerce reported 32 cents a share, compared with a consensus estimate of 78 cents that was in place before the bank announced its $13.3 million securities loss on Oct. 3.
The basic problem at both banks was a need to realign securities portfolios in the face of rising interest rates, which meant selling low-yielding bonds at a loss to put on higher-yielding instruments.
Excluding the securities loss, First Commerce, which has $6.5 billion in assets, reported some good underlying fundamentals. Vigorous loan growth, across all areas of the portfolio, produced a 7% increase in average loans from the second quarter and a 19% improvement over the last 12 months.
This loan growth helped push First Commerce's net interest margin to 4.47%, nine basis points higher than in the second quarter.
Central Fidelity, which has $9.9 billion in assets, benefited from improving real estate markets in Virginia, which pushed nonperforming assets down to $96.6. million, or 0.97% of total assets, compared with $135 million, or 1.48%, in the year-ago quarter.
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