Credit Card Growth Drives Bank Profits Earnings Reports Illustrate Banking Trends

A seemingly unquenchable demand for credit cards and other loans from consumers and businesses, plus lower payments for deposit insurance pushed third-quarter profits higher at large banks.

Encouraging financial results were announced by several major banks Monday. The reports come amid a wave of mergers designed to create bigger, more competitive banks with even greater earnings power.

NationsBank Corp. said earnings rose 23 percent; First Chicago Corp.’s profits were up 35 percent; First Interstate Corp.’s profits jumped 83 percent, and Bank of New York Corp.’s earnings rose 21 percent. In the Northwest, U.S. Bancorp reported a 29 percent earnings increase.

Bucking the trend was Chase Manhattan Corp., which said earnings fell 7 percent from a year ago, when it had gains from selling real estate assets and investment securities. Chase plans to merge with Chemical Banking Corp. in a $10 billion deal that will create the nation’s largest financial institution.

Bankers say they must join forces because the long-term outlook for revenue growth is clouded by competition from companies like AT&T Corp. and The Charles Schwab Corp. that can offer credit cards and other bank-like products.

But in the near term, bank profits are swelling from interest and fees earned from credit cards, corporate loans and checking accounts. Lower interest rates, which cuts the cost of bank funding, and a drop in Federal Deposit Insurance Corp. premiums, are also beefing up the bottom line.

“We’re seeing reasonably good business conditions in the banking industry,” said Charles Vincent, an analyst at PNC Asset Management Group.

But he warned that banks’ booming plastic business could backfire if the economy falters and consumers lose jobs and can’t pay their bills.

“It’s a dark cloud on the horizon,” said Vincent.

At New York-based Chase, the nation’s sixth-largest bank and fourth-largest credit card issuer, loans from plastic rose $2 billion. Other businesses turned in mixed results.

Investment banking fees jumped 35 percent to $62 million. Foreign exchange trading and derivatives sales also improved. The bank received a $19 million FDIC refund in the third quarter, which added 6 cents to earnings per share.

But securities trading and underwriting lagged last year’s levels and revenue from equity stakes and investment securities was down.

Chase earned $283 million, or $1.40 a share, compared to $305 million, or $1.49 a share, a year ago.

At Charlotte, N.C.-based NationsBank, a 16 percent surge in loans fueled a $90 million jump in net interest income to $1.42 billion. Net interest income is what the bank earns on loans minus the interest it pays on deposits and for its own borrowings.

On the whole, NationsBank earned $530 million, or $1.95 a share, a quarterly record. The results compare to $431 million, or $1.55 a share in the 1994 third quarter. NationsBank’s shares were unchanged at $71.62-1/2 on the NYSE.

Credit card loans drove earnings higher at First Chicago. Earnings totaled $207.2 million, or $2.12 a share, compared to $153.8 million, or $1.51 a share a year ago.

The bank said card receivables surged 31 percent to $1.49 billion and it signed up 800,000 new accounts for a record 2.5 million accounts.

Chairman Richard Thomas said the strong results show First Chicago is on solid footing as it prepares to merge with Detroit-based NBD Bancorp Inc. Shareholders of both companies will vote Friday on the merger, which will create the seventh-largest U.S. bank.

Loan growth also drove profits at Los Angeles-based First Interstate and Bank of New York.

First Interstate said average loans grew 21 percent. The bank earned $237.8 million, or $2.96 a share, compared to $130 million, or $1.49 a share last year. The 1994 third quarter included a restructuring charge.

First Interstate’s shares were unchanged at $105.75.

At Bank of New York, net income totaled $234 million, or $1.11 a share, compared to $194 million, or 96 cents a share last year.

The largest Northwest-based banking company, U.S. Bancorp, reported a 29 percent increase in earnings in the third quarter.

Net income totaled $81 million, or 79 cents per share, up from $63 million, or 60 cents per share, for the third quarter of 1994.

“Interest rates were stable this quarter and the economy continues to be healthy,” chairman and chief executive Gerry B. Cameron said.

“I am particularly delighted we not only met but exceeded our return on assets goal as well as our goal of reducing overhead expenses to under 59 percent this quarter.”