MEMPHIS - Union Planters Corp. devoted last year to building the franchise. But 1995 is shaping up as the year when the company finally has to show it can perform.

Union Planters spent 1994 consolidating a series of acquisitions - including the largest in its history - which boosted the size of the company 58% to $10 billion. "That growth, even if we weren't doing anything else, would be a challenge," says chairman and chief executive Benjamin W. Rawlins Jr.

But Union Planters has been doing plenty. The acquisitions were layered on top of a complete revamping of Union Planters' data processing system, a reorganization of its subsidiaries, a cost-cutting "reegineering" thrust, a major credit card marketing campaign, and an effort to put more than 100 investment product salespeople in the branches by this February.

The result of all this activity has been a plethora of special charges that hammered earnings in the third and fourth quarters.

"This is a well-run company that's done an awful lot to obscure its profitability over the last couple of quarters," says Henry J. Coffey Jr. with J.C. Bradford & Co. in Nashville.

The ultimate goal of the various programs is to boost Union Planters into the ranks of high-performing peer banks. The target, which has no publicly announced deadline, is to return 1.20% on assets and 15% on equity, and operate at a 60% efficiency ratio.

But that will take time. For the first nine months of last year, Union Planters posted an ROA of 0.97% and an ROE of 13.18%, and had 65% of its revenues absorbed by operating expenses.

The Memphis-based company on Thursday reported fourth-quarter earnings of TK, down tk%, and full-year earnings of tk, up TK%. The performance was affected by acquisition-related charges.

Bank stocks generally did poorly in 1994, but Union Planters fell more than most. It's currently down to about $22 a share, 23% below its 52-week high of $28.75 reached last June.

The year had actually been going well until July 1, when Union Planters announced the largest deal in its history: the purchase of Grenada Sunburst System Corp. for $288 million. The company admitted that the deal, struck at twice the Mississippi-based company's book value, would be dilutive.

Third-quarter earnings, released shortly afterward, ended Union Planters' streak of 16 consecutive quarterly earnings increases. The main culprits were $4.9 million in securities losses related to a bond portfolio restructuring and $1.5 million in acquisition-related expenses.

"They've always been on the verge of doing very well, for a quarter here and a quarter there. Then, something seems to come along that sets them back a step," says analyst Peter Tuz, with Morgan Keegan in Memphis.

In September, Union Planters announced plans to take an additional $18 million to $27 million in charges in the fourth quarter to help pay for Grenada Sunburst.

Mr. Rawlins defends the deal as necessary franchise building that will yield long-term benefits. Grenada Sunburst, with $2.5 billion of assets, takes Union Planters into the major urban markets of Jackson, Miss., and Baton Rouge, La., while strengthening its existing presence in prosperous northern Mississippi.

Union Planters has also seized on the merger as an opportunity to take a meat ax to expenses at both companies and has hired a management consultant to undertake a full-scale reegineering effort.

Unfortunately, Grenada Sunburst isn't the only drag on Union Planters' performance. Operating expenses have been historically high and loan growth weak. The company's loan-to-deposit ratio, currently 64%, compares to peer norms of 75% and higher.

One explanation involves $600 million in deposits Union Planters picked up from a failed Nashville thrift in 1992, but wasn't able to reinvest immediately at attractive rates.

In addition, the lead Memphis bank, which has $2.2 billion of assets, has been focused on cleaning up bad loans and maintaining its existing customer base in the wake of credit problems dating back to the late 1980s. Only in the last two years has the bank begun aggressively seeking out new business again.

Partly to boost loan production at the Memphis bank, Union Planters unrolled a national credit card marketing campaign in the third quarter. Chief financial officer Jack W. Parker says Union Planters is on track with a direct mail program that is expected to triple its card portfolio to $300 million this year.

The bank announced in September that it would take a fourth-quarter after-tax charge of between $7 million and $9 million to pay for the program, which involves "risk adjusted pricing." To keep its losses down, Union Planters will peg card rates and loan limits to a customer's creditworthiness as ascertained by credit scoring models.

Analysts see little risk for Union Planters, given that it will remain a niche player in credit cards. "I don't think a $300 million card portfolio in a $10 billion bank is aiming too high," Mr. Tuz says.

To help improve its efficiency ratio, Union Planters has invested more than $3.5 million during the last three years to put all its 47 subsidiary banks on one data processing system. Mr. Rawlins expects the last bank subsidiary to be converted by the third quarter.

Another consolidation has to do with state charters. The company has been gradually absorbing its smaller banks into larger units, so that the total number of subsidiaries is expected to decline from 47 to 31 later this year.

In another departure from tradition, a number of the community banks have begun dropping their old, pre-merger names for Union Planters' three- leaves-in-a-pyramid logo. Mr. Rawlins predicts that between 75% and 80% of the company's subsidiaries will operate under the Union Planters name "fairly soon."

Change is nothing new at Union Planters. Mr. Rawlins, 56, took over in 1984 from William M. Matthews Jr., who had diversified the bank into electronic banking technology, real estate syndications, and bond brokerage. Since, most of these side ventures were performing poorly, Mr. Rawlins gradually closed them down and returned the focus to nuts-and-bolts commercial banking.

To diversify the company's banking assets beyond Memphis, he embarked, in 1987, on a program of buying up community banks in smaller markets. Until Grenada Sunburst last year, none of Union Planters' acquisitions had been over $1 billion in assets. They were, however, quite profitable.

Difficulties returned in the late 1980s, when Union Planters suffered some commercial realty losses and a series of expensive lawsuits emanating from securities losses at a broker-dealer unit that was dismantled in 1990. Combined, the two problems produced a $22 million loss in 1989.

Earnings gradually improved after that, reaching $63 million in 1993, producing a 1.01% ROA and a 15.70% ROE. But the recent heavy acquisition pace (11 deals in 1993, 13 in 1994) slowed the momentum again.

When asked to review his decade-long career at Union Planters, Mr. Rawlins thinks hard before replying, "I just wish we could have done better from an ROA and ROE standpoint."

He points out, correctly, that Union Planters is as strong as it has ever been in terms of credit quality, capital, and liquidity. But the performance issue clearly nags at him.

"I think we'll have to produce the numbers that will keep us competitive," he says.

The alternative is a buyout. Union Planters is a perennial name on Wall Street takeover lists. J.C. Bradford's Mr. Coffey calculates the company could fetch more than $30 a share from an acquirer, which compares to its current trading value of $22.

"Somebody's going to close that gap - management or an acquirer," Mr. Coffey says.

Mr. Rawlins lives with that speculation daily and shrugs it off. "We don't have a 'For Sale' sign up," he says. "We never have."

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