Star Banc Corp. received upgrades from two analysts on Wednesday, a day after it reported higher than expected first quarter earnings of $1.09 per share. (See related story on page 5.)

Smith Barney Inc. analyst Henry C. "Chip" Dickson upgraded the Cincinnati-based regional to "outperform" from "neutral," and Lehman Brothers Inc. analyst James Rosenberg raised his rating to "outperform" from "hold."

"Our rating change reflects an expectation that Star's earnings per share growth will accelerate relative to other regionals," said Mr. Dickson.

The consensus expectation was for earnings of only $1.04 per share. But the results included a boost of 3 cents per share from the sale of $1.3 million in securities gains, and a boost of approximately 2 cents from a lower tax rate.

Mr. Dickson increased his 1995 earnings estimate to $4.40 from $4.25, and his 1996 forecast to $4.90 from $4.60.

The $9.1 billion holding company's stock rose 50 cents, to $43.375.

The consensus earnings estimates compiled by First Call were $4.31 for 1995 and $4.77 for 1996, but those figures are expected to rise in the wake of the earnings report.

Mr. Dickson set a $50 target price for Star.

With a first-quarter efficiency ratio of 56.3%, Star was one of Smith Barney's efficient five in a core bank/managed bank analysis.

Star has also won kudos from Dean Witter Reynolds Inc., with analyst Anthony A. Lombardi reiterating his strong buy rating on Wednesday.

Mr. Lombardi has an even higher 12-month target price of $55, and anticipates favorable results from the bank's most recent acquisition of 27 Ohio branches from Household Bank.

Several analysts thought those acquisitions and the purchase of branches from TransOhio, a Cleveland-based thrift, would strengthen the Star franchise.

"Star is now one of the only banks in Ohio that has a major presence in all three of the largest cities (Cincinnati, Cleveland, and Columbus)," said Mike Granger, a vice president at Fox-Pitt, Kelton. Most of the other Ohio banks have strong operations in two, but not all three, said Mr. Granger.

To be sure, the acquisitions have taken a toll on the net interest margin and on bank ratings.

Standard & Poor's downgraded Star to A from A-plus on March 13, citing the increased leverage from the Household acquisition.

The net interest margin declined in the first quarter to 4.27% from 4.55% at the end of the first quarter of 1994.

"Margins are substantially lower than my numbers," said Thomas K. Maier, an analyst at Kemper Securities Inc.

"The question is whether they are seeing pricing pressure in their lending," said Mr. Maier. "I'm not sure that bodes extraordinarily well for the rest of the year."

Nonetheless, analysts and shareholders greeted the higher earnings news positively, and anticipated further fee income growth.

In other news, Union Bank stock surged through much of the day. It ended up $2 to a 52-week high of $37.25.

Some thought the market might be reacting to anticipated earnings of around $1 per share, well over the 15 cents for the first quarter of last year.

Others thought that the Bank of Tokyo might be trying to purchase the remaining 30% of Union for a potential merger with the Bank of California, which is owned by Mitsubishi Bank.

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