NationsBank surprises with 33% earnings gain 'Very good quarter' nourished by fees and loan profits, Banking

April 16, 1996|By Jay Hancock | Jay Hancock,SUN STAFF

NationsBank Corp. is collecting billions more in fees and interest but is processing the business with about the same number of workers it had a year ago, helping its quarterly profit to soar.

Its operating earnings for the three months ending March 31 rose by 33 percent to $590 million, compared with the same period a year ago. The $1.95-per-share profit was more than a nickel higher than most Wall Street analysts expected, and NationsBank stock rose by $2 per share yesterday, to $79.

"It was a very good quarter, and none of these earnings sources look like they're a one-time thing," said Merrill H. Ross, banking analyst for Wheat First Butcher Singer in Richmond. "It looks like it's sustainable."

Revenue from fees for checking, mortgage processing and other services rose by 22 percent to $885 million for the Charlotte, N.C.-based banking company. Loan profits -- interest charged minus interest paid -- rose 19 percent to $1.58 billion. Deposits increased from $100.7 billion to $109.6 billion.

But NationsBank has only 61,070 employees, just 350 more, or 0.6 percent, than it did a year ago. The result: Costs stayed mainly flat and profits bounced. NationsBank spent 56.4 cents in operating expenses for each dollar of revenue for the latest quarter, compared with 62.5 cents a year ago.

Hugh L. McColl, NationsBank's chief executive and chairman, said the results were helped by the company's recent purchase of banks in Florida and Georgia as well as "our solid internal earnings growth."

Analysts flashed some warning signals, however.

The company set aside $155 million to pay for bad loans, more than double the $70 million booked in loan losses a year ago and up from $140 million in the fourth quarter.

Most of its loan growth came from new markets, not existing ones. And many of its new loans were to consumers, who some economists worry are borrowing too much and who may start defaulting if the economy gets weaker.

But bank watchers add that commercial and industrial lending has slowed to a crawl across the industry.

"If you're going to make any play in loan growth at all, it pretty much has to be the consumer," Ms. Ross said.

"NationsBank is well prepared to be a significant player in the consumer area. They have equity. They have reserves."

In addition to the bad-loan costs, NationsBank set aside some of its profit to pay for merger expenses and possible losses from an alleged swindle executed through Signet Banking Corp. One-time merger expenses cut $77 million from its operating profit, yielding a net profit of $513 million, up 16 percent from last year's net. The latest quarter's net profit came to $1.70 a share.

This year's results also included $40 million in costs to pay for NationsBank's share of an allegedly fraudulent loan, Bloomberg Business News reported.

NationsBank's assets at quarter's end came to $194.4 billion, up 5.7 percent.

Pub Date: 4/16/96

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