NationsBank 2nd-quarter profits surge

July 19, 1994|By David Conn | David Conn,Sun Staff Writer

NationsBank Corp. yesterday reported a stronger-than-expected increase in second-quarter earnings, largely due to its acquisitions last year, including Baltimore-based MNC Financial Inc.

NationsBank, based in Charlotte, N.C., said earnings rose 43 percent in the period that ended June 30, to $437 million, or $1.58 a share. A year ago the company earned $306 million, or $1.20 a share.

Aside from its four major acquisitions last year, NationsBank's financial improvement came from higher loan volumes, lower expenses and better credit quality.

"Steady revenue growth and careful expense management were key factors in our impressive bottom-line results," said Hugh McColl, chairman and chief executive officer. "In addition, continued credit-quality improvement and the resulting lower credit costs have directly contributed to higher earnings."

The company was able to add $40 million less to the reserves that are set aside for future loan problems. Those reserve additions -- $70 million in the latest quarter, down from $110 million a year ago -- are deducted from earnings.

Those improvements to credit quality, and the resulting lower costs, continue to drive bank earnings growth around the nation. But for most banks those days are dwindling, and earnings are beginning to depend more on basic banking activities -- loan growth and fee-based products and services.

For NationsBank, the sluggish economic growth has proved to be only a small obstacle. Loans grew 12 percent compared with a year ago, even excluding the four recent acquisitions -- MNC; Chicago Research & Trading; the consumer loan portfolio of a Chrysler Corp. subsidiary; and the commercial loans from a unit of US West.

Those divisions added 20 cents to the per-share earnings in the second quarter, the same as in the prior quarter. The company had expected the acquisitions to contribute only 50 cents a share for the entire year.

MNC's results, though not detailed, were stronger than expected. "I think it's fair to say that MNC did better this quarter than they did first quarter," said Investor Relations Director Rusty Page. "Those folks are doing great, and that acquisition has been superb."

One inconsistent area for the company was the income derived from trading securities. Mostly because of the CRT unit, trading income fell to $54 million in the second quarter from $89 million in the first quarter. But it was still dramatically higher than a year ago, when the $9 million in trading income came before CRT joined NationsBank.

With trading and other stock market-based revenues starting to weaken, NationsBank must focus again on core banking, said Michael Starr, an analyst at A. G. Edwards in St. Louis.

"When you talk about bank earnings, I would tend to agree that when you look to reduction in asset quality expenses and growth in net interest margins, we've seen the peak," Mr. Starr said.

"I think clearly there's pressure building on the [net interest] margin," he said, referring to the spread between loan revenues and deposit expenses, "and eventually I would expect to see some contraction."

NationsBank Corp. ... ... ... ... Ticker ... ... ... Yesterday's

... ... ... ... ... ... ... .. .. .. Symbol ... ... ... Cls. ... Chg.

... ... ... ... ... ... ... .. .. .. NB ... ... ... ... 55 1/8 .. .. + 5/8 Period ended

6/30/94 ... ... ... ... 2nd qtr. ... ... ... Year ago ... ... Chg.

Net Income .. .. .. ... $437,000 ... ... ... $306,000 ... ... +42.8%

Primary EPS ... ... ... $1.58 ... .. ... ... $1.20 ... .. ... +31.7%

Annualized return

on assets ... ... .. .. 1.08 ... ... ... ... 1.00

Add. to allowance

for loan losses ... ... $70,000 .. .. .. ... $110,000 ... ... -36.4%

... ... ... ... ... ... 6 mos. ... ... .. .. Year ago ... ... Chg.

Net Income ... .. .. .. $854,000 ... ... ... $787,000 ... ... +8.5%

Primary EPS .. .. .. .. $3.10 ... ... ... .. $3.09* ... .. .. +0.3%

Annualized

return on assets ... .. 1.07 ... ... ... ... 1.31*

Add. to allowance

for loan losses ... ... $170,000 ... ... ... $230,000 ... ... -26.1%

Balances as of ... ... ... 6/30/94 ... ... ... 6/30/93

Assets ... ... ... ... ... $164,398,000 .. ... $123,784,000 ... .. +32.8%

Deposits ... .. .. ... ... $92,244,000 ... ... $80,028,000 ... ... +15.3%

Loans outst. .. .. ... ... $94,622,000 ... ... $76,820,000 ... ... +23.2%

Loan loss

reserve ... ... ... .. ... 2,196,000 ... .. .. 1,583,000 .. .. ... +38.7%

* Includes gain of $200 million, or 79 cents a share, stemming from change in income tax accounting.

Figures in thousands (except per share data.)

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