Bank One's Earnings Show Signs of Budding Recovery

Bank One (ONE) posted earnings that show signs of slow-but-steady improvement at the once beleaguered bank under Chief Executive Jamie Dimon's watch.

The company reported second-quarter earnings of $708 million, or 60 cents a share, in line with the Thomson Financial/First Call consensus. Including an accounting charge in the latest quarter, Bank One earned 56 cents a share. The results were an improvement from the year-ago loss of $1.11 a share, which included a charge of $1.9 billion. Excluding the charge, the company earned $644 million, or 55 cents a share last year.

Bank One stepped up its action on shaky loans. In the latest quarter, the bank hoisted $232 million of problem commercial credits off the balance sheet, with the sale resulting in a net charge-off of $42 million. The bank bulked up its loan loss provision -- a financial cushion to cover the cost of bad loans. In the latest quarter, the net addition to the bank's loan loss reserve was $24 million bringing its reserve coverage up to 2.54% of its loans at the end of the quarter, well above the year-ago 1.73%.

While a number of other banks have been criticized for letting the loss reserve wind down amid higher credit costs and a slowing economy, Bank One has taken pains to build reserves.

Bank One is far from out of the woods on credit quality. Nonperforming assets, those which are past due but have not been charged off yet, jumped $497 million from a year ago, an increase the bank said was mostly due to a $435 million increase in consumer nonperforming loans.

Earnings-per-share are up 9% in the latest quarter once last year's hefty restructuring charge is excluded. For a number of quarters, it seemed there was no end in sight to credit deterioration and flat short-term profit growth. However, Wall Street has been patient with the new regime: Since Dimon's arrival in March 2000, the stock is up about 30%.

Elsewhere, Bank One's retail-banking business showed solid growth. Net income rose 30%, or $75 million, to $322 million, driven in part by strength in its mortgage business. Bank One, like a number of other banks, has seen a spike in mortgage activity thanks to the Fed's aggressive series of rate hikes this year. The bank said it produced a record $3.1 billion of home-equity loan origination through its banking centers, a 56% jump from year-ago levels.

However, commercial banking may be getting the effects of Bank One's efforts to exit unprofitable lending relationships. Net income dropped $47 million, or 22% from the year-ago period. The company said results "continued to reflect ongoing efforts to review all relationships in the portfolio to manage overall exposure as well as relationship profitability."

At midday, Bank One was off three cents to $35.01.