third-quarter profits -- a 19% plunge, to $802 million.

The Charlotte, N.C.-based company, which twice advised analysts to cut estimates earlier in the year, is having difficulty integrating three acquisitions. In addition, the company suffered declines in its mortgage operation and in trading.

"First Union is caught up in some negative developments that are affecting the industry as a whole: slower mortgage activity because of higher interest rates, increased problems in U.S. business loans, and subdued trading results due to volatile financial markets," said Michael Mayo, a bank analyst at Credit Suisse First Boston. "But their problems are more severe than at the average bank."

On an operating basis, the profit decline was even steeper -- 21%. Earnings per share fell to 84 cents, which matched Wall Street predictions.

Non-performing assets in-creased 26%, to $1.04 billion, largely because of bad loans to health-care companies -- particularly nursing home operators, which suffered from lower Medicare reimbursements, First Union officials said.

"Credit quality is showing continued signs of deterioration," said Katrina Blecher, a bank analyst at Brown Brothers Harriman & Co. "And I think it will remain a problem."

Net interest income rose only 2%, to $1.91 billion. Loans outstanding at the $235 billion-asset company slipped less than 1%, to $135 billion, largely reflecting loan securitizations.

Non-interest income dropped 5%, to $1.52 billion. Residential mortgage fee income plunged 78%, to $40 million, as rising interest rates curbed home refinancings.

First Union took a $79 million loss in securities transactions, compared with a gain of $211 million in the same period a year earlier. The loss stemmed mostly from the sale of interest-only strips on home-equity loans made by Money Store Inc., which First Union bought last year.

On the positive side, First Union reported $270 million of income from investment banking, nearly tripling the amount earned in last year's third quarter. However, the company's venture capital operation accounted for about $150 million of that $270 million, officials said.

"They benefited from nice venture capital gains," said Ms. Blecher. "But venture capital is not necessarily the way you want to see earnings targets achieved."

Expenses excluding merger-related and restructuring charges totaled $1.9 billion, up 2% from the same quarter last year, but down 6% from second quarter. "At least the company is not sitting on its hands,'' said Mr. Mayo. "They are looking at aggressive cost-cutting."

Nonetheless, First Union still has to prove it has overcome the problems integrating last year's two big acquisitions -- Money Store and CoreStates Financial Corp. -- and this year's big purchase -- Everen Capital Corp.

Shares in First Union, the nation's sixth-largest banking company, fell $1.125 Thursday, or 3.2%, to $35.875, while the Standard & Poor's composite index of 29 bank stocks fell 1.52 points, or 0.3%, to 575.14.

Gains in fee-based businesses and lending helped profits rise 21% at U.S. Bancorp, to $396 million.

Earnings per share of 56 cents matched analysts' estimates.

Noninterest income jumped 16%, to $713 million. Sales of investment products, investment banking revenue, and trading at U.S. Bancorp's Piper Jaffray and Libra units all showed improvement.

In addition, noninterest income was supplemented by a one-time, $20 million gain on the sale of 28 branches and $363 million of deposits in Kansas and Iowa. The $77 billion-asset banking company is leaving some Midwestern markets that do not meet profitability targets, said James R. Bradshaw, an analyst with Pacific Crest Securities in Portland, Ore.

"They are finding that the sales price of deposits in some rural markets are higher than they think they can generate by continuing to operate in these markets," he said.

Average loans increased 13%, to $56.2 billion. Growth came from commercial, home equity, and second mortgage credits, and from and the purchase of several consumer loan portfolios.

Compared to last year's third quarter, net interest income increased 8.5%, to $845 million.

Shares in U.S. Bancorp, the 13th-largest U.S. banking company rose 81.25 cents Thursday, or 2.8%, to $31.9375.

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