First Union's earnings drop 31 percent First Fidelity merger costs are blamed

April 12, 1996|By Bill Atkinson | Bill Atkinson,SUN STAFF

Expenses from its merger with First Fidelity Bancorp in January caused First Union Corp.'s earnings to tumble 31 percent to $242.9 million in the first quarter, the company said yesterday.

The giant Charlotte, N.C.-based banking company took a $181 million after-tax restructuring charge announced earlier in the year, which decreased earnings a share by 65 cents.

Merrill H. Ross, an analyst with Wheat First Butcher Singer Inc., said First Union's earnings were in line with her estimates, and she was upbeat about its prospects. She expects the company's stock to trade as high as $74 a share in the next 12 months from its close yesterday of $58.25, which was up 75 cents.

"I think there are a lot of good things going on here," she said. "I am optimistic because it is a company that has good brand recognition and a good balance sheet."

With First Union's acquisition of First Fidelity, the company created a mega-bank with offices in 12 states, including Maryland, where it has 52 branches and about $3.5 billion in deposits.

Excluding the restructuring charges, First Union had operating earnings of $420 million in the quarter ended March 31, up 24 percent from the same period a year ago. The results represented a return on common equity of 18.67 percent and a return on assets of 1.30 percent, which is excellent performance by industry standards.

"We are extremely pleased with the performance of many divisions of our company," said Edward E. Crutchfield, chairman and chief executive of the $130 billion-asset First Union.

Income from mutual funds, mortgage banking and service charges on deposits jumped 27 percent to $526.5 million, while income from loans and investments grew 15.7 percent to $2.3 billion.

Ms. Ross voiced concern over the spurt in loans on which the bank isn't receiving interest payments on a monthly basis. Such loans are know as "nonaccrual," and they jumped to $727 million, up 15 percent.

"That's a big slug," she said.

Ms. Ross said most of the loans are residential, and she blamed the rise on First Fidelity's practice of placing a loan on nonaccrual status only when it reached 360 days past due. First Union's standards are much stricter; it places a loan on nonaccrual status when it is 90 days late on the payment, she said.

Pub Date: 4/12/96

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