1st Union, Wachovia Feel Recession

ATLANTA - Two major North Carolina banks reported Thursday a rise in nonperforming assets in the second quarter, reflecting the effects of the economy. But earnings at both First Union Corp. and Wachovia Corp. were within analysts' expectations.

"Things are happening the way you would expect them to happen, given where we are in the recession," said banking analyst Henry J. Coffey Jr. of J.C. Bradford & Co., Nashville.

First Union's Net Declines

Charlotte, N.C.-based First Union reported net income of $66.3 million, a 14.9% decline from the second quarter of last year. The $39.7 billion-asset company set aside $113.7 million for possible loan losses, more than three times as much as a year earlier.

Nonperforming assets rose 8.5%, to $1.2 billion, from the first quarter. The company said the increase came primarily in two areas: its $16.6 billion-asset Florida bank and its corporate banking group, which is heavily exposed to problem commercial real estate loans in the Washington area.

Despite First Union's continuing asset-quality problems, analysts took heart from the fact that the rate of increase in problem loans seemed to be slowing from last year, when the percentage surges from quarter to quarter ran in the double digits.

|In the Right Direction'

"Things are headed in the right direction," said Thomas K. Brown of Donaldson, Lufkin & Jenrette Securities Corp. in New York. "Nobody would get overly encouraged by these results, but they do show the company is making progress."

Wachovia, a $25.3 billion-asset company based in Winston-Salem, N.C., reported a 5.7% increase in net income, to $79.5 million, from $75.2 million the previous year. The profits were bolstered by an 84% boost in securities gains, to $3.8 million.

An Impressive Loss Ratio

The superregional company has traditionally maintained the best asset quality among the largest southeastern banks, but it demonstrated in the second quarter that it is not immune from loan problems.

Wachovia took a $26.2 million provision for loan losses, up 16% from $22.6 million a year ago. Nonperforming assets rose 4% from the first quarter, to $160.9 million, from $154.9 million in the first quarter. But Wachovia's ratio of nonperforming assets to total loans, at 0.98%, is still among the lowest in the region.

In their public statements, both First Union and Wachovia alluded to the recession's impact on their institutions. First Union chairman and chief executive Edward E. Crutchfield Jr. said, "Our progress in increasing net interest and fee income and in controlling expenses continues to be offset by the effects of the recession."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.