First Union posts 21% gain in earnings Income generated from products keyed 2nd quarter surge

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

First Union Corp. said yesterday that earnings jumped 21 percent in the second quarter as the company experienced a surge in income from products ranging from loans to mutual funds.

The nation's sixth-largest banking company earned $436 million in the second quarter ended June 30, or $1.55 a share, compared with $359 million, or $1.30 a share, for the same quarter last year.

"All around it was a rock-solid quarter," said Anthony J. Polini, a banking analyst with New York-based Advest Group.

"You've got to love it," said Samuel J. Beebe, a banking analyst with William R. Hough & Co., a St. Petersburg, Fla.-based brokerage firm.

Beebe said Charlotte-based First Union is meeting his earnings expectations of $6.20 a share for the full year.

Shares of First Union stock yesterday closed at $62.875 a share, down 37.5 cents.

First Union earned $682.2 million for the first six months of 1996, compared with $714.2 million for the same period a year ago. But net income in 1996 was reduced by $181 million because of a first-quarter charge from its January acquisition of First Fidelity Bancorp.

First Union acquired First Fidelity to expand into New England and mid-Atlantic states. The deal enabled it to pick up 52 branches in the Baltimore area with about $3.5 billion in deposits. The company has nearly $140 billion in assets.

Today, First Union will change the First Fidelity signs to the green and white First Union signs at its branch locations.

The primary drivers of First Union's earnings were fees from loans and a variety of services the company provides. Income from loans alone totaled $1.9 billion in the quarter, up 6 percent from the same period in 1995.

Income from businesses that include mortgage banking, mutual fund sales and fees collected on deposit accounts jumped to $545.6 million in the second quarter, up 24 percent from the same time a year ago.

Sales of mutual funds and annuities have been booming.

The company sold $421 million in annuities in the first six months of the year, compared with $166 million for all of 1995.

Mutual fund balances among First Union's Evergreen Funds have increased by about 75 percent to $15.2 billion in assets under management in about a year's time. Evergreen has 30 mutual funds.

About one-third of the growth in mutual funds, annuities and other services is being generated by Northern states such as Pennsylvania, New Jersey and New York, where such services have not been offered to middle-income individuals on such a wide scale.

"Our customers are telling us that we are on the right track with these innovative products," said John R. Georgius, First Union's vice chairman.

Several other key ratios rose in the quarter.

First Union's return on equity, which is the investors' return on their investment in the bank, was 19.11 percent.

The ratio means that investors earned 19.11 cents for every dollar invested in the company.

Most banks aim for 15 percent.

First Union also squeezed down costs, reporting a 57 percent efficiency ratio in the second quarter, down from 60 percent in the second quarter of 1995.

The lower the ratio the better, because it means that it costs First Union 57 cents to generate $1 in net interest income and other fee income.

Troubled loans fell by 1 percent, to $836 million, in the second quarter, and represent less than 1 percent of total loans.

"The only bugaboo is the possible run-up in credit card" loan losses, said Beebe, the analyst. "Credit card loans are still only 3.8 percent of their loan portfolio, but no one knows if that [recent losses] is the tip of the iceberg."

Pub Date: 7/12/96

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