The mountain is still shrouded in cloud.

First Union

(FTU)

, which in its commercials refers to itself as a mountain, reported second-quarter results Wednesday that failed to clear up big doubts surrounding the institution's growth strategy.

Charlotte, N.C.-based First Union, the nation's sixth biggest bank, is out of favor with investors for making expensive acquisitions over the past 18 months that have taken longer than expected to benefit revenue and earnings. In May, it made a hefty downward revision in its earnings forecast. And now, analysts and investors say there was little in second-quarter numbers to suggest that a swift turnaround is imminent.

First Union posted operating profits of $873 million, or 90 cents a share, in the second quarter, compared with $883 million, or 92 cents a share, in the year-ago quarter. (Analysts were concentrating on operating profits instead of net income, which includes merger charges, because this year's second quarter contained no merger charges, while the year-earlier period was weighed down by $634 million of merger-related costs.)

And excluding a one-time gain from the sale of assets from its factoring business, the bank earned 82 cents a share, beating the

First Call

consensus forecast of 81 cents a share.

In the second quarter, the bank could have won back some credibility had it shown reasonable, across-the-board revenue growth and higher-than-expected cost savings. It didn't.

"This was an unimpressive quarter," says Adam Levy, financial services analyst for a number of

Invesco's

funds, none of which hold First Union. "These guys have got a long way to go."

Revenue -- defined as net interest income plus fees and other income -- was only up 3.4%, or $113 million, in the second quarter of this year, excluding the $72 million after-tax gain on the sale of the factoring assets, compared with the year-ago period.

Meanwhile, noninterest expenses (excluding merger costs but including amortization of goodwill) jumped 10.6% in the second quarter from a year earlier.

Mergers are supposed to help reduce costs, chiefly because areas of overlap can be eliminated. "You'd expect to see some fairly dramatic reductions in costs, but this has yet to happen," says Scott Edgar, manager of the

(SIFEX)

SIFE Trust Fund, which holds First Union shares.

First Union, however, did have a couple of bright spots to point to in the second quarter. Revenue in its capital management segment leapt $72 million, or 16.1%, to $520 million, compared with the year-earlier period. This was attributable to strong performances by First Union's retail brokerage and CAP accounts, which provide customers with a range of financial services.

And Bob Atwood, First Union's chief financial officer, said in a conference call that fee income was up nearly 90% in its

CoreStates

unit, which was acquired last year and identified by the bank in May as a source of sluggish revenue growth.

But fee income from the capital markets segment dropped 29.9% to $260 million in the second quarter, against $371 million in the first quarter. The decline was mainly due to the fact that the bank didn't repeat the large venture capital gains of the first quarter.

In addition, second-quarter fee income was given an extra boost by $149 million of securitization revenue, which is significantly higher than the $18 million gained from securitization in the year-earlier period.

Also, to some, First Union's second-quarter numbers were blurry. In a conference call Wednesday, the bank apparently failed to give probing analysts the information they were after. In particular, a number of analysts wanted to know the contribution made to revenue and expenses by recent acquisitions like CoreStates and the

Money Store

, acquired last year as well. Atwood only said that the Money Store contributed $200 million to second-quarter revenue.

Atwood also announced some revenue growth and expense reduction targets that some analysts and investors later said were overly ambitious, based on the second-quarter performance.

Atwood said that the capital markets division could grow revenue at around 20%, capital management at 17% to 19%, while consumer and commercial would likely achieve 5% and 10% growth, respectively. He added that costs at capital markets could rise by 15%, and at capital management by 12%, while the consumer division would see a reduction in costs.

A First Union official later said that Atwood was referring to a period that encompassed the next six quarters.

Now that Atwood has announced these new growth targets "everything has to go perfectly," says Peter Kuper, banking analyst at

Keefe Bruyette & Woods

, which has no underwriting relationship with First Union. "If they don't kick in, First Union's in trouble again."