By Jonathan Stempel
Reuters
Tuesday, January 23, 2007; 1:21 PM

NEW YORK (Reuters) - Bank of America Corp. (BAC.N) and Wachovia Corp. (WB.N), two of the biggest U.S. banks, on Tuesday posted larger-than-expected quarterly profit increases, as acquisitions and fee growth offset weakened credit quality.

Fourth-quarter net income rose 47 percent at Bank of America, the nation's second-largest bank, to $5.26 billion, or $1.16 per share, from $3.57 billion, or 88 cents. Profit rose 35 percent at Wachovia, the fourth-largest bank, to $2.3 billion, or $1.20 per share, from $1.71 billion, or $1.09.

Profits also rose at two regional banks, more than doubling at Cleveland's National City Corp. (NCC.N) and rising 6 percent at Pittsburgh's PNC Financial Services Group Inc. (PNC.N).

Banks are making acquisitions and emphasizing fee growth after 17 interest-rate increases by the Federal Reserve boosted their borrowing costs and crimped lending margins. Such growth helps offset an increase in credit losses from recent low levels, a trend many banks expect to continue through 2007.

"Fee income helps banks not be too overly reliant on net interest income," said Joe Price, chief financial officer of Bank of America, whose $34.2 billion purchase last January of credit card issuer MBNA Corp. fueled a 66 percent jump in fees. He spoke in an interview.

In afternoon trading, Bank of America shares fell 0.8 percent, while Wachovia shares rose 0.2 percent.

BANK OF AMERICA

Profit excluding merger costs at Bank of America totaled $1.19 per share, a penny more than expected by analysts polled by Reuters Estimates. Revenue rose 34 percent to $18.47 billion, topping forecasts for $18.16 billion.

Results nevertheless disappointed some investors. Expenses rose and revenue fell from the third quarter and the bottom line benefited from a doubling of equity investment gains, which might not be repeated.

Charlotte, North Carolina-based Bank of America also projected slowing growth in 2007 as interest-rate pressures persist and loan losses rise by 20 percent or more.

Earnings topped the $5.13 billion posted on Friday by Citigroup Inc. (C.N), the largest U.S. bank, whose profit rose 3 percent.

Credit quality, though, fell from the third quarter. Bank of America set aside $1.57 billion for credit losses, up 34 percent, and net charge-offs rose 11 percent to $1.42 billion.

WACHOVIA, NATIONAL CITY, PNC

At Charlotte-based Wachovia, profit excluding merger costs totaled $1.21 per share, topping the average analyst forecast by three cents. Revenue rose 31 percent to $8.59 billion, topping forecasts for $7.91 billion.

Results benefited from the $24.2 billion purchase on October 1 of Golden West Financial Corp., an Oakland, California adjustable-rate mortgage specialist and 285-branch thrift.

The purchase helped boost consumer and business banking profit 73 percent to $1.67 billion. Earnings also rose incorporate and investment banking, capital management and wealth management.

"We think we've got really good momentum," Chief Executive Ken Thompson said on a conference call. "Although credit costs are rising, this largely reflects (loan) growth, including our reentry into the credit card business."

Net income at National City rose to $842 million, or $1.36 per share, from $398 million, or 64 cents.

Excluding a gain from selling a subprime mortgage unit and credit losses from that unit, profit totaled 64 cents per share, a nickel below forecasts.

Chief Executive David Daberko in an interview said consumer borrowers, except in subprime, appear "very healthy," while commercial borrowing trends remain healthy apart from "stress" in commercial real estate.

At PNC, net income rose to $376 million, or $1.27 per share, from $355 million, or $1.20, helped by higher revenue from brokerage and asset management units. Excluding items, profit totaled $1.30 per share, matching forecasts.

(Additional reporting by Christian Plumb)