N.C. bank profits up 15% in '95 NationsBank earns $1.95 billion despite higher loss provision

January 17, 1996|By Timothy J. Mullaney | Timothy J. Mullaney,SUN STAFF

NationsBank Corp. said yesterday that its profits grew 15 percent in 1995, and approached $2 billion as the company consolidated its ever-growing heft to make itself more efficient.

NationsBank earned $1.95 billion last year, a 15 percent increase over the $1.69 billion earned in 1994, the Charlotte, N.C.-based bank said. But the stock traded lower for much of the day, before it recovered to close up 50 cents at $66.125, because the fourth quarter's profit was about a nickel a share lower than analysts had predicted.

The stock's quick drop sparked a sharp response from the company, which insisted profits were short of analysts' targets for a simple reason: NationsBank accelerated its write-offs of shaky loans and other small problems because it had already met its own financial goals for 1995.

"We took the charges in the fourth quarter because we could," NationsBank spokesman Rusty Page said, adding that the quarter was still the second-best the company has ever had.

The company reduced its short-term profit by setting aside $142 million during the fourth quarter to cover possible loan losses. That figure was more than double the provision in the last quarter of 1994, and up from $100 million in the third quarter of 1995.

That deci-sion helped hold down the increase in fourth-quarter profits to 26 percent, or $510 million, compared to $405 million in the fourth quarter of 1994.

Earnings per share in the fourth quarter of 1995 increased 28 percent to $1.87, from $1.46 per common share in 1994.

The big reasons: 19 percent more noninterest income, driven by growth in fee-driven businesses such as mortgage banking and by the sale of NationsBank's corporate trust business, and lower expense ratios as the company reduced its employee count by about 3,100 during 1995, to 58,322. The company also saw its loan portfolio grow, which meant more interest income.

However, the spike in loan write-offs and associated reserves spooked investors, who worried that the moves show consumers are having more problems paying their bills, which can signal an economic slowdown.

"It's clearly the story of the moment, that the provision was up sharply," said analyst Merrill Ross of Wheat First Butcher Singer Inc. in Richmond, Va.

Mr. Page said the figure was unusually high in the fourth quarter because NationsBank decided to take many of its potential future losses all at once. He said loan write-offs are rising but the gains are small and normal in a cyclical business.

In addition, NationsBank disclosed that the percentage of all loans that are seriously past due fell 25 percent during 1995.

"Credit quality has been pristine, the best maybe it has ever been in banking history," said Mr. Page, explaining that the bank has been writing off less than half of 1 percent of its loans.

"We see credit quality continuing to be excellent. We see consumer credit [write-offs] trying to approach normal and quite acceptable levels of 0.5 [percent of all loans]. We're not rattled by that, and we hope you're not," Mr. Page said.

That defense was part of the reason the stock came back late in the day, two Virginia-based analysts said.

Banks "can take any number they want because loan loss reserve levels are so high and they're overcapitalized," Scott & Stringfellow Inc.'s Vernon Plack said. "They maneuvered the last few years so when the charge-offs rose it would not be a big deal."

"They comforted the market by saying they have taken an aggressive stand," David West of Davenport & Co. said. "They have not seen any deterioration in their consumer portfolio."

Mr. Page said NationsBank expects a strong 1996 as well. The company believes its revenue will climb by 8 to 10 percent, while expenses will rise only 2 to 3 percent.

"That will give us excellent core earnings while still allowing us to spend where it's appropriate," he said.

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