A trio of major southeastern banks reported strong second-quarter earnings this week, aided by good loan growth, improved fee income, and stable net interest margins.

First Union Corp., based in Charlotte, N.C., earned $249.1 million, a 12% gain from the year-earlier quarter. First Union's earnings per share of $1.45 came in at the top of the range the company forecast on June 19 when it agreed to purchase New Jersey-based First Fidelity Bancorp.

"First Union had a very good quarter," said analyst Nancy Bush, an analyst with Brown Brothers Harriman & Co. "It's a great foundation for them to go into the First Fidelity deal. It gives them a lot of firepower."

Barnett Banks Inc., Jacksonville, Fla., reported $132.2 million of net income, a 9% improvement from the '94 quarter. "It was a very strong, solid quarter," said PaineWebber Inc. analyst Thomas D. McCandless.

Barnett's $1.26 in earnings per share came right in line with Wall Street consensus estimates.

Wachovia Corp., Winston-Salem, N.C., earned $162.9 million, 21% more than a year earlier. Wachovia's 95 cents in earnings per share came in 10 cents above the consensus because of an after-tax gain on the sale of a $9 billion mortgage servicing portfolio.

Wachovia, First Union, and Barnett all reported strong loan growth, albeit at a slightly less robust pace than the past several quarters. Wachovia achieved annualized growth of 15%, First Union 13%, and Barnett 9%.

Wachovia's chief financial officer Robert S. McCoy Jr. said more than half of the $984 million increase in the bank's loan portfolio came from business loans, with commercial real estate also a major factor.

But credit cards, which have spurred Wachovia's earnings in previous quarters, slowed to a 4% annualized growth rate. "It's a case of being selective and growing outstandings in a way we're comfortable with," said Mr. McCoy, who predicted an industrywide increase in credit card chargeoffs.

Credit cards did lead the loan surge at First Union, with a 10% growth rate, fueled by a national solicitation effort begun last year. In addition, First Union enjoyed "solid loan growth in all parts of the franchise and in all areas," according to chief credit officer Malcolm T. Murray Jr.

Mr. Murray cautioned that overall loan growth may moderate in the second half. "Frankly, I think we've seen very strong performance in our market areas during the first half of this year. I don't think the change in the second half will be dramatic, but it would be very difficult for me to forecast a steady diet of middle-teens sorts of loan growth numbers," he said .

Many banks struggled with higher deposit costs in the second quarter as customers switched their funds into certificates of deposit from savings and money market accounts. At the same time, CDs purchased in earlier years rolled off at higher rates. Barnett overcame this pressure partially by converting low-yielding securities into higher-yielding loans. It also received a boost from the upward repricing of adjustable-rate mortgages booked last year.

"You get a little bit higher cost of funds, but your yield is better because you've got these higher-yielding assets replacing investment securities," said Charles W. Newman, Barnett's chief financial officer.

First Union benefited from recent thrift acquisitions in Florida, which brought in new low-cost core deposits. "It really turned out that deposit up-pricing was not a significant adverse factor influencing the quarter," said First Union chief financial officer Robert T. Atwood.

"CDs continued some up-pricing, but it was a lot less than what we anticipated could have happened," Mr. Atwood said.

First Union's net interest margin actually rose 5 basis points from the first quarter, to 4.62%. Barnett's margin gained 3 basis points, to 4.80%.

Wachovia, which is more reliant on wholesale funding than First Union or Barnett, saw its margin drop 17 basis points to 4.19%. But strong loan growth helped propel net interest income to an 8% gain.

All three banks reported sharp upticks in their loan-loss provisions and net chargeoffs, mostly related to increased credit card delinquencies at First Union and Barnett. Wachovia's problem mainly involved one large commercial real estate credit.

"Net chargeoffs are going up because recoveries are coming down," said Ms. Bush, the analyst. "Loan recoveries had been very strong in the industry up until a few months ago. It's not that the losses are getting that much worse, it's just that the recoveries are not keeping pace."

Overall, nonperforming loans remain at historically low levels for the three banks. Wachovia's nonperforming assets ratio is currently 0.18%, compared with 0.68% for First Union and 0.67% at Barnett.

Fee income was a bright spot at all the banks, though in Barnett's case most of a 33% surge in noninterest income derived from the recent acquisition of Equicredit Corp., a consumer finance company in Jacksonville, Fla.

Noninterest income grew 18% at First Union, reaching $634.4 million. Some of the improvement came from First Union's new capital markets group, which increased revenues in the quarter by $6 million to $35 million.

Expenses were up for everyone: 12% for both Wachovia and Barnett and 10% in First Union's case. Technology investment was a major factor at all three banks. First Union and Barnett have also been digesting some recent acquisitions.

Barnett's efficiency, or overhead, ratio stayed flat from the first quarter at 61.7%. Barnett's announced goal was to bring that ratio down to 60% this year, but the company has been backing away from that promise in the wake of the Equicredit purchase, because consumer finance companies tend to operate with higher expense ratios. +++ First Union Corp. Charlotte Dollar amounts in millions (except per share) Second Quarter 2Q95 2Q94 Net income $249.1 $223.4 Per share 1.45 1.32 ROA 1.25% 1.28% ROE 17.71% 17.53% Net interest margin 4.62% 4.84% Net interest income 836.4 775.0 Noninterest income 326.5 276.0 Noninterest expense 714.7 651.2 Loss provision 44.0 25.0 Net chargeoffs 64.2 31.8 Year to Date 1995 1994 Net income $479.0 $440.1 Per share 2.77 2.59 ROA 1.24% 1.28% ROE 17.22% 17.53% Net interest margin 4.61% 4.78% Net interest income 1,593.9 1,477.9 Noninterest income 634.4 554.5 Noninterest expense 1,399.4 1,291.1 Loss provision 76.5 50.0 Net chargeoffs 106.7 63.0 Balance Sheet 6/30/95 6/30//94 Assets $83,102.0 $72,604.0 Deposits 58,842.0 53,772.0 Loans 59,051.0 47,918.0 Reserve/nonp. loans 222% 192% Nonperf. loans/loans 0.74% 1.09% Nonperf. assets/assets 0.68% 0.91% Nonperf. assets/loans + OREO 0.95% 1.35% Leverage cap. ratio 5.75% 6.67% Tier 1 cap. ratio 6.90% 9.30% Tier 1+2 cap. ratio 11.85% 14.68% Barnett Banks Inc. Jacksonville, Fla. Dollar amounts in millions (except per share) Second Quarter 2Q95 2Q94 Net income $132.2 $121.2 Per share 1.26 1.15 ROA 1.28% 1.29% ROE 16.34% 16.65% Net interest margin 4.80% 4.90% Net interest income 435.6 416.3 Noninterest income 183.1 137.4 Noninterest expense 381.9 341.8 Loss provision 26.8 13.7 Net chargeoffs 27.3 13.6 Year to Date 1995 1994 Net income $260.9 $239.2 Per share 2.49 2.27 ROA 1.27% 1.27% ROE 16.42% 16.68% Net interest margin 4.79% 4.92% Net interest income 866.1 831.5 Noninterest income 345.9 274.6 Noninterest expense 745.5 682.4 Loss provision 51.1 33.0 Net chargeoffs 51.7 33.0 Balance Sheet 6/30/95 6/30//94 Assets $41,787.0 $38,063.0 Deposits 33,970.0 31,753.0 Loans 29,952.0 26,694.0 Reserve/nonp. loans 241% 232% Nonperf. loans/loans 0.70% 0.84% Nonperf. assets/assets 0.67% 0.88% Nonperf. assets/loans + OREO 0.93% 1.25% Leverage cap. ratio 6.31% 7.60% Tier 1 cap. ratio NA NA Tier 1+2 cap. ratio NA NA WACHOVIA CORP. Winston-Salem, N.C. Dollar amounts in millions (except per share) Second Quarter 2Q95 2Q94 Net income $162.9 $134.1 Per share 0.95 0.78 ROA 1.59% 1.46% ROE 19.48% 17.52% Net interest margin 4.19% 4.34% Net interest income 381.1 352.2 Noninterest income 219.1 153.5 Noninterest expense 306.6 274.5 Loss provision 28.7 16.3 Net chargeoffs 28.5 15.9 Year to Date 1995 1994 Net income $305.1 $258.9 Per share 1.77 1.50 ROA 1.53% 1.43% ROE 18.49% 17.03% Net interest margin 4.27% 4.35% Net interest income 753.9 694.5 Noninterest income 376.1 299.0 Noninterest expense 589.6 544.6 Loss provision 50.4 34.1 Net chargeoffs 47.9 33.0 Balance Sheet 6/30/95 6/30//94 Assets $42,867.0 $37,069.0 Deposits 23,892.0 22,218.0 Loans 28,251.0 24,300.0 Reserve/nonp. loans 706% 403% Nonperf. loans/loans 0.21% 0.41% Nonperf. assets/assets 0.18% 0.34% Nonperf. assets/loans +

OREO 0.27% 0.51% Leverage cap. ratio 8.47% 8.43% Tier 1 cap. ratio 9.20% 9.60% Tier 1+2 cap. ratio 13.00% 13.40% ===

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