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Updated from 10:19 a.m. EDT:

First Union


Thursday posted third-quarter earnings that slightly exceeded Wall Street's expectations.

Third-quarter earnings slipped to 71 cents a share from 84 cents a year ago, putting latest-quarter results 2 cents ahead of the 22-analyst estimate. Operating income was $703 million, down from $802 million in the year-ago period.

The bank is in the midst of a $3 billion restructuring announced in June aimed at boosting revenue growth in the wake of integration problems with a number of acquisitions. Including the effects of the restructuring charges and gains on the sale of certain businesses, third-quarter net income was $852 million, or 86 cents a share.

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As higher interest rates continue to pressure lending margins, many banks are increasingly turning to fee-based businesses to boost income. First Union had mixed results on that front in the latest quarter. While commissions and fiduciary and asset management fees were higher compared with year-ago results, they dropped from the prior quarter. Underwriting and capital market fees were also up compared with year-ago results but down from prior quarter. The area in which the bank saw the steepest drop was in principal investing revenue, which sank to $37 million in the latest quarter compared with $185 million in the second quarter and $176 million in the year ago period.

Income from the bank's lending business declined in the latest quarter, to $1.66 billion from $1.74 billion from the year-ago period. First Union joined the ranks of other banks taking precautionary measures in an increasingly shaky credit environment, by bulking up its loan-loss reserve, or stockpile against bad loans. The bank added $200 million to the provision in the latest quarter, which is $60 million more than it had to cough up in charge-offs and $25 million more than the prior year.

One move that may raise a few eyebrows, and which certainly garnered much attention in a conference call with analysts today, was the bank's decision to move $719 million of mostly poorly performing commercial loans to assets held for sale, which essentially steers First Union clear of the possibility of having to add those loans to its total of nonperforming assets, or loans that are past due but have not yet been charged off. In addition, the $120 million writedown that First Union took on those loans was tucked in with other restructuring charges rather than included in loss-loan provisions, a line item which would affect operating earnings. Of the $719 million total, the bank said about $46 million of the loans were classified as nonperforming.

The Scheme of Things

"It's one of those things that always clouds the results, but you have to look at it in the overall scheme of things," said Nancy Bush, banks analyst at

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Prudential Securities

. (Prudential hasn't done any underwriting and rates the stock a hold.) "I'd rather see more straightforward accounting, but what I'd really like to see for this company is for them to get everything out of the way," said Bush, noting the flurry of restructuring activity and its sometimes confusing effect on earnings. "They have so much going on in cutting off all these businesses and shutting these assets. Going into 2001, we should be able to gauge more correctly the quality of their earnings."

One area Bush said she is pleased about is the bank's improvement in presenting information in the wake of its decision to name Ken Thompson CEO, succeeding longtime CEO Edward Crutchfield.

"There is clear progress being made there in the quality of management," said Bush, adding that this morning's conference call showed a "far greater command of the numbers and far more professionalism" than in the past. Crutchfield had often been criticized for problems that began under his watch, namely First Union's acquisition of Philadelphia-based

CoreStates Financial

in 1998. The less-than-smooth integration resulted in weaker-than-expected cost savings and new business, and First Union was eventually weighed down by earnings shortfalls.

Additionally, the bank said today it expects to name a new CFO within the next two weeks.

First Union was performing well today along with a number of other bank stocks. It was lately up $1.56, or 5.8%, to $28.75, while the

KBW Banks Index

was up 3.8%.