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EXHIBIT (19)
10-Q
MANAGEMENT'S ANALYSIS OF OPERATIONS
FIRST UNION
CORPORATION
AND SUBSIDIARIES
MANAGEMENT'S ANALYSIS
OF OPERATIONS
QUARTERLY FINANCIAL SUPPLEMENT
NINE MONTHS ENDED SEPTEMBER 30, 2000
THIRD QUARTER 2000
DIVIDEND GROWTH
Current dividend
annualized
(In dollars)
(A line chart appears here. See the table for plot points.)
0.145 0.155 0.165 0.18 0.20 0.225 0.245 0.29 0.325 0.385 0.43 0.50 0.54 0.56 0.64 0.75 0.86 0.98 1.10 1.22 1.58 1.88 1.92
78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 Current
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FIRST UNION CORPORATION AND SUBSIDIARIES
QUARTERLY FINANCIAL SUPPLEMENT
NINE MONTHS ENDED SEPTEMBER 30, 2000
TABLE OF CONTENTS
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PAGE
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Financial Highlights 1
Management's Analysis of Operations 2
Consolidated Summaries of Income, Per Share, Balance Sheet and Other Data T-1
Restructuring Charges T-2
Business Segments T-3
Fee and Other Income - Capital Markets T-11
Selected Performance, Dividend Payout and Other Ratios T-12
Loans - On-Balance Sheet, and Managed and Servicing Portfolios T-13
Loans Held for Sale T-14
Allowance for Loan Losses and Nonperforming Assets T-15
Intangible Assets T-16
Deposits T-16
Time Deposits in Amounts of $100,000 or More T-17
Long-Term Debt T-18
Changes in Stockholders' Equity T-19
Capital Ratios T-20
Unrealized Losses in Certain Financial Instruments T-21
Securities Available for Sale T-22
Investment Securities T-23
Off-Balance Sheet Derivative Financial Instruments T-24
Off-Balance Sheet Derivatives - Expected Maturities T-25
Off-Balance Sheet Derivatives Activity T-26
Net Interest Income Summaries - Five Quarters Ended September 30, 2000 T-27
Net Interest Income Summaries - Nine Months Ended September 30, 2000 and 1999 T-29
Consolidated Balance Sheets T-30
Consolidated Statements of Income (Loss) - Five Quarters Ended September 30, 2000 T-31
Consolidated Statements of Income (Loss) - Nine Months Ended September 30, 2000 and 1999 T-32
Consolidated Statements of Cash Flows T-33
SUPPLEMENTAL FINANCIAL INFORMATION (OPERATING EARNINGS) S-1
Consolidated Condensed Statements of Income (Loss) S-2
Restructuring and Other Charges S-2
Consolidated Statements of Operating Earnings - Five Quarters Ended September 30, 2000 S-3
Consolidated Statements of Operating Earnings - Nine Months Ended September 30, 2000 and 1999 S-4
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FINANCIAL HIGHLIGHTS
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Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- 3 Q 00 ------------------------- 9 M 00
vs vs
(Dollars in millions, except per share data) 2000 1999 3 Q 99 2000 1999 9 M 99
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FINANCIAL HIGHLIGHTS
Net income before restructuring
and other charges (Operating earnings) $ 702 802 (12)% $ 2,254 2,640 (15)%
After-tax restructuring and other
charges/gains 150 -- -- (2,761) (259) --
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Net income (loss) after restructuring
and other charges $ 852 802 6 % $ (507) 2,381 -- %
=================================================================================================================================
PER SHARE DATA
Diluted earnings
Net income before restructuring
and other charges $ 0.71 0.84 (15)% $ 2.29 2.74 (16)%
Net income (loss) after restructuring
and other charges 0.86 0.84 3 (0.54) 2.47 --
Basic earnings
Net income before restructuring
and other charges 0.72 0.84 (15) 2.30 2.76 (16)
Net income (loss) after restructuring
and other charges 0.87 0.84 4 (0.54) 2.49 --
Cash dividends 0.48 0.47 2 1.44 1.41 2
Book value 15.00 16.19 (7) 15.00 16.19 (7)
Period-end price $ 32.19 35.63 (10) $ 32.19 35.63 (10)
Dividend payout ratio
(Based on operating earnings) 67.42 % 55.95 -- 62.87 % 51.46 --
Average shares (In thousands)
Diluted 986,763 953,964 3 984,340 961,165 2
Basic 971,453 946,802 3 971,111 953,728 2
Actual shares (In thousands) 986,004 958,440 3 % 986,004 958,440 3 %
=================================================================================================================================
PERFORMANCE HIGHLIGHTS
Before restructuring and other charges
Return on average assets (a) 1.12 % 1.39 -- 1.20 % 1.56 --
Return on average stockholders' equity (a) 15.76 20.47 -- 17.88 22.25 --
Overhead efficiency ratio (b) 66.42 57.91 -- 64.30 57.07 --
Net charge-offs as a percentage of
average loans, net (a) 0.46 0.55 -- 0.58 0.53 --
Nonperforming assets to loans, net, and
foreclosed properties 0.77 0.79 -- 0.77 0.79 --
Net interest margin (a) 3.52 % 3.82 -- 3.58 % 3.81 --
=================================================================================================================================
CASH EARNINGS (EXCLUDING GOODWILL
AND OTHER INTANGIBLE AMORTIZATION)
Before restructuring and other charges
Net income $ 778 881 (12)% $ 2,517 2,880 (13)%
Diluted earnings per share $ 0.79 0.92 (14) $ 2.56 2.99 (14)
Return on average tangible assets (a) 1.26 % 1.56 -- 1.36 % 1.74 --
Return on average tangible stockholders'
equity (a) 22.15 32.82 -- 28.20 35.27 --
Overhead efficiency ratio (b) 64.17 % 55.07 -- % 61.75 % 54.40 -- %
=================================================================================================================================
(a) Annualized.
(b) The overhead efficiency ratio is equal to noninterest expense divided by the
sum of tax-equivalent net interest income and fee and other income.
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The following discussion and other portions of this Financial Supplement
contain various forward-looking statements. Please refer to our 1999 Annual
Report on Form 10-K and 2000 Third Quarter Report on Form 10-Q for a discussion
of various factors that could cause our actual results to differ materially from
those expressed in such forward-looking statements.
EARNINGS HIGHLIGHTS
In the first nine months of 2000, First Union reported a net loss of $507
million, or 54 cents per share, compared with net income of $2.4 billion, or
$2.47 per share, in the first nine months of 1999. The reported results in the
first nine months of 2000 included net after-tax restructuring and other charges
of $2.8 billion, or $2.83 per share. These net charges were recorded in
connection with our strategic repositioning, which was announced on June 26,
2000. Operating earnings, which exclude these net restructuring and other
charges, were $2.3 billion, or $2.29 per share, in the first nine months of
2000. Operating earnings in the first nine months of 1999 were $2.6 billion, or
$2.74 per share, which excluded after-tax restructuring and other charges of 27
cents per share.
In the third quarter of 2000, reported net income was $852 million, or 86
cents per share, which included a net after-tax gain of $150 million, or 15
cents per share, related to the strategic repositioning. The gains resulted from
the sale of the credit card portfolio and the mortgage servicing portfolio, and
they are net of certain restructuring and other charges. Operating earnings,
which excluded this net gain, were $702 million, or 71 cents per share in the
third quarter of 2000. In the third quarter of 1999, net income and operating
earnings were $802 million, or 84 cents.
The first nine months of 2000 included the impact of the purchase
accounting acquisition of EVEREN Capital Corporation, a full-service brokerage
and asset management firm acquired on October 1, 1999.
On an operating basis, fee and other income, excluding portfolio securities
transactions, was $5.2 billion in the first nine months of 2000 and in the first
nine months of 1999. Fee income generated by Capital Markets and Capital
Management increased 34 percent to $3.7 billion in the first nine months of 2000
compared with $2.8 billion in the first nine months of 1999. The 2000 results
included $581 million in brokerage and other fee income from EVEREN. Offsetting
this strong growth was a 19 percent decline in fee income in the Consumer
segment in the first nine months of 2000 from the first nine months of 1999
resulting from the effect of the rising interest rate environment on mortgage
lending, a reduction in securitization activity and the impact of the strategic
repositioning decisions. Also, the first nine months of 1999 included $286
million of gains from the sale of certain assets and investments. On an
operating basis, fee income as a percentage of total revenue, excluding
portfolio securities transactions, was 48 percent in the first nine months of
2000 and in the first nine months of 1999.
Noninterest expense, excluding restructuring and other charges associated
with the strategic repositioning, amounted to $7.1 billion in the first nine
months of 2000 compared with $6.1 billion in the first nine months of 1999.
Expenses in the first nine months of 2000 included the impact of EVEREN as well
as higher personnel expense, primarily related to Capital Markets and Capital
Management.
The loan loss provision was $887 million in the first nine months of 2000
compared with $519 million in the first nine months of 1999. In the second and
third quarters of 2000, we recorded incremental provisions amounting to $325
million to reflect the current risk profile of the loan portfolio. Annualized
net charge-offs in the first nine months of 2000 were 0.58 percent of average
net loans, compared with 0.53 percent in the year-ago period. Nonperforming
assets as a percentage of net loans and foreclosed properties were 0.77 percent
at September 30, 2000. Including nonperforming loans in assets held for sale,
nonperforming assets to net loans, foreclosed properties and assets held for
sale were 0.98 percent at September 30, 2000.
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OUTLOOK We are now intently focused on generating core earnings growth
from three key business lines Capital Management, the General Bank and Capital
Markets - as a result of the strategic repositioning we announced on June 26,
2000. The strategic repositioning involved the disposition of certain
businesses, assets and branches. We ceased subprime mortgage lending at The
Money Store and sold our $35 billion residential mortgage servicing portfolio
and our $5.7 billion credit card portfolio. We completed the sale of $12.7
billion of securities in mid-October. We also made the decision to sell certain
commercial and consumer loans, and in connection with that decision, transferred
these loans to assets held for sale. We expect to complete the sale of 84
nonstrategic branch office locations during the fourth quarter of 2000 and the
first quarter of 2001, which will result in the sale of approximately $3.0
billion of deposits.
On June 26, 2000, in connection with announcing the strategic
repositioning, we stated that the total net after-tax restructuring and other
charges would be approximately $2.8 billion. In the first nine months of 2000,
these net restructuring and other charges related to the strategic
repositioning, were $2.7 billion after-tax, which excludes merger-related
charges. We expect to incur additional restructuring and other charges and to
realize certain gains, principally from the sale of nonstrategic branches, in
the fourth quarter of 2000 and in the first quarter of 2001 such that the
total, excluding merger-related charges, will approximate the $2.8 billion we
announced in June.
Capital Management's broad and deep product line, including asset
management, mutual funds, brokerage, insurance, trust, CAP Account, employee
benefit plans and other products and services, is ideally positioned to benefit
from key demographic trends, such as the huge generational transference of
wealth that is under way. Capital Management also benefits by leveraging the
General Bank's broad distribution system, as well as by making First Union
products and services available through its own nationwide brokerage network.
The General Bank, while a more mature business with long-term relationships in
commercial, small business and consumer lending and deposit activities, is
emerging from service quality issues and has been energized through new
leadership. Capital Markets, which primarily targets middle market and growth
companies in specific industry groups, is leveraging a combination of corporate
banking, investment banking, principal investing and private equity
relationships to provide a more integrated value proposition for clients. With
this strong platform in place, we believe we are solidly positioned to focus on
our strengths and on growing our core business lines.
We recognize the significance of the comprehensive actions we have taken in
connection with our strategic repositioning, and we have analyzed the related
risks and their potential impact on the corporation. We are taking appropriate
steps, including dedicating the necessary resources and utilizing operational
plans to facilitate the smooth disposition of the assets and businesses.
Market risk related to assets held for sale is an area we are closely
monitoring. The assets held for sale have been recorded at the lower of cost or
market value at September 30, 2000, and we have developed marketing plans to
sell these assets in an orderly manner. The valuations of the assets held for
sale and the impact of discontinuing the subprime mortgage lending business at
The Money Store on the valuation of certain securities, specifically residual
interests from The Money Store securitizations, were made based on our best
estimates given information currently available. In these valuations, we have
used the best available information to develop reasonable assumptions; however,
changes in market conditions and the illiquid nature of some of the markets may
cause future valuations and/or the ultimate proceeds to differ from our
September 30, 2000, estimates.
We will continue to evaluate our operations and organizational structures
to ensure they are closely aligned with our goal of maximizing performance in
our core business lines. When consistent with our overall business strategy, we
may consider the disposition of certain assets, branches, subsidiaries or lines
of business. While acquisitions are no longer a primary business activity, we
continue to routinely explore
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acquisition opportunities, particularly in areas that would complement our core
business lines, and frequently conduct due diligence activities in connection
with possible acquisitions. As a result, acquisition discussions and, in some
cases, negotiations frequently take place and future acquisitions involving
cash, debt or equity securities can be expected.
CORPORATE RESULTS OF OPERATIONS
RESTRUCTURING AND OTHER CHARGES As shown on page S-2, we reported $3.5 billion
pretax of net restructuring and other charges in connection with the strategic
repositioning in the first nine months of 2000. This included $3.8 billion of
charges in the second quarter of 2000 and a net gain of $238 million in the
third quarter of 2000. Our operating earnings of $2.3 billion in the first nine
months of 2000 excluded these net restructuring and other charges. The $3.5
billion of net restructuring and other charges in the first nine months of 2000
included $2.1 billion of restructuring charges, $2.4 billion of other charges
associated with the strategic repositioning actions, and gains of $1.0 billion
including $937 million from the sale of our credit card portfolio and $71
million from the sale of our mortgage servicing portfolio. The actions
associated with the strategic repositioning began on June 26, 2000, and will be
completed within one year.
RESTRUCTURING CHARGES The restructuring charges of $2.1 billion, substantially
all of which were recorded in the second quarter of 2000, included $162 million
of employee termination benefits, occupancy-related charges of $108 million, a
$1.8 billion write-down of the goodwill and other identified intangibles
associated with The Money Store, write-downs of $19 million associated with the
impairment of certain long-lived assets and contract cancellation costs of $84
million. We also recorded a reversal of $16 million related to the March 1999
restructuring charge.
Employee termination benefits of $162 million included severance, which may
be paid in a lump sum or over a defined period, and related benefits and
outplacement services for 5,538 employees terminated in connection with the
strategic repositioning. Of these terminated employees, 1,303 are officers and
4,235 are non-officers. We notified substantially all of the employees
individually about their termination on or before June 30, 2000, for the second
quarter 2000 restructuring charge, and before September 30, 2000, for the third
quarter 2000 restructuring charge . Of the terminated employees, approximately
82 percent were from the Consumer segment, 6 percent from the Capital Markets
segment and 12 percent primarily from the Treasury/Nonbank segment. Through
September 30, 2000, $39 million in employee termination benefits had been paid.
Occupancy charges of $108 million primarily represent the present value of
future lease obligations or lease cancellation penalties in connection with the
closure of sales offices as well as certain other business operations space.
In connection with the acquisition of The Money Store in 1998, we recorded
$1.9 billion of goodwill and a $304 million identified intangible associated
with the subprime mortgage origination network. As a result of the decision to
discontinue the subprime mortgage lending business at The Money Store, and
therefore generate no future cash flows from that business, we concluded that
the goodwill associated with that business and the related network intangible
were no longer recoverable. Therefore, an impairment charge for the unamortized
balance of these intangibles of $1.8 billion at June 30, 2000, was included in
the restructuring charge. Much of this charge is not deductible for federal or
state income tax purposes, and accordingly, our effective tax rate is
significantly different than the applicable statutory rate. The
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effective tax rate for 2000 is not reflective of the rate in 1999 or of our
expectation of our effective tax rate in 2001. The unamortized balance of
goodwill associated with the small business and student lending businesses of
The Money Store is fully recoverable from future cash flows, and accordingly, is
not impaired.
Other assets, primarily computer hardware and software, the value of which
was considered to be impaired as a result of the strategic repositioning, were
written down to fair value (less cost to sell). The total charge for other asset
impairments amounted to $19 million. The net book value of long-lived assets
held for sale or disposal at September 30, 2000, was not significant.
Also included in the restructuring charge was $84 million related to
contract cancellations. Of this amount, $70 million represents termination fees
for contracts that will be cancelled in connection with the sale of the credit
card portfolio. The remaining $14 million represents costs to buy out the
remaining term or the present value of the remaining payments on various system
and service-related contracts that will provide no future benefit to the
corporation as a result of the strategic repositioning.
In connection with the EVEREN acquisition, we have incurred $62 million in
merger-related charges, of which $42 million was incurred in the first nine
months of 2000. We estimate we will incur an additional $30 million during the
rest of 2000 to substantially complete the EVEREN integration and to continue to
convert the operations of our other acquisitions that occurred in 2000.
The restructuring charge of $2.1 billion, as well as merger-related charges
of $44 million, is reflected in noninterest expense within the Treasury/Nonbank
segment. If we were to allocate the restructuring charge to the various segments
affected, substantially all of the charges would have been allocated to the
Consumer segment.
In the first nine months of 1999, merger-related and restructuring charges
amounted to $398 million. This included net merger-related charges of $51
million related to the April 1998 CoreStates acquisition and a $347 million
restructuring charge related to a restructuring plan announced in March 1999.
This restructuring plan included reengineering numerous processes and functions,
closing or consolidating branches, service centers and corporate office space,
as well as exiting the indirect auto lending and leasing business. Through
September 30, 2000, $296 million had been charged against the accrual. Based on
revised estimates, $18 million of the initial accrual, primarily relating to
asset write-downs, has been reversed. At September 30, 2000, $33 million of the
accrual remained, principally representing amounts still to be paid in employee
termination benefits and contract cancellations.
In 1998, in connection with the acquisition of CoreStates, we recorded a
$753 million restructuring charge. Through September 30, 2000, $664 million had
been charged against the accrual and $54 million had been reversed from the
accrual. The remaining balance of the accrual of $35 million at September 30,
2000, represents employee termination benefits to be paid over future periods.
Also included in the balance of the restructuring accrual at September 30, 2000,
was $33 million primarily related to the 1997 acquisition of Signet, which
represents amounts still to be paid in employee termination benefits.
OTHER CHARGES The $2.4 billion of other charges associated with the strategic
repositioning includes incremental loan loss provisions of $325 million, which
are described further in the Provision and Allowance for Loan Losses section;
$1.9 billion of charges netted in fee and other income that are described below;
and $95 million in other noninterest expense, the significant components of
which are $47 million in personnel-related incentives and other compensation
arrangements associated with exiting businesses, a $27 million write-down of
advances to certain of The Money Store's securitization trusts and $8 million in
costs incurred principally in connection with the upcoming branch sales.
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The $1.9 billion of other charges in fee and other income in the first nine
months of 2000 consisted principally of $1.0 billion of losses on the sale of
securities and other impairment charges as described further in the Securities
Available for Sale section. It also included $388 million primarily consisting
of a write-down to market value of certain consumer loans, principally The Money
Store subprime mortgage loans, that were transferred to assets held for sale in
connection with the strategic repositioning. Substantially all of this
write-down was recorded in the second quarter of 2000 when the loans were
transferred to assets held for sale.
Also included in the $1.9 billion of other charges was $457 million, which
included $268 million to reduce the net book value of certain commercial loans
to market value as described further in the Loans and Asset Quality section, a
charge in the second quarter of 2000 of $175 million in additional reserves
against the lease residuals in the auto leasing portfolio and net other charges
of $14 million. In the first quarter of 1999, we exited the indirect auto
lending and leasing business. The $175 million of additional lease reserves
related to this portfolio, which is in a run-off phase and which was affected by
ongoing deterioration in the used car resale market.
The other charges in fee and other income also included a $46 million
write-down, substantially all of which was recorded in the second quarter of
2000 and which related to the impairment of The Money Store subprime mortgage
servicing asset resulting from revisions to assumptions used to value this
servicing asset as a direct result of the decision to cease subprime mortgage
lending at The Money Store.
The rest of this discussion of Corporate Results of Operations is on an
operating basis, and accordingly, excludes these restructuring and other charges
and gains.
NET INTEREST MARGIN Tax-equivalent net interest income increased 3 percent to
$5.8 billion in the first nine months of 2000 from $5.6 billion in the first
nine months of 1999. The net interest margin, which is the difference between
the tax-equivalent yield on earning assets and the equivalent rate paid to fund
those assets, was 3.58 percent in the first nine months of 2000 compared with
3.81 percent in the first nine months of 1999. The average rate on earning
assets increased 70 basis points to 8.26 percent in the first nine months of
2000 from 7.56 percent in the first nine months of 1999, while the average rate
paid on liabilities increased 92 basis points to 5.24 percent from 4.32 percent
over the same period.
A higher amount of lower yielding assets and a greater use of market-based
wholesale funding in a period in which we were in a liability sensitive position
negatively affected the net interest margin. The series of interest rate
increases by the Federal Reserve generally has resulted in downward pressure on
the net interest margins of many financial services companies. As part of our
strategic repositioning, from July through mid-October we sold $12.7 billion of
lower-yielding securities. The sale of these securities will have a favorable
impact on our net interest margin. The Market Risk Management section provides
additional information on our methodology for interest rate risk management. It
should be noted that we focus on net income and economic contribution when
evaluating corporate strategies and we place less importance on the net interest
margin impact of these decisions.
FEE AND OTHER INCOME On an operating basis, fee and other income, excluding
portfolio securities transactions, was $5.2 billion in the first nine months of
2000 and in the first nine months of 1999. Commissions, which include brokerage
and insurance commissions, almost doubled in the first nine months of 2000 to
$1.2 billion from $616 million in the first nine months of 1999, reflecting
strong results from retail brokerage and insurance services, including the
addition of EVEREN. Additionally, fiduciary and asset management fees, which
include personal trust, personal financial consulting, corporate trust,
institutional trust, mutual funds, CAP Account and other fee income, increased
27 percent to $1.1 billion
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in the first nine months of 2000 from $885 million in the first nine months of
1999. Advisory, underwriting and other capital markets fees increased 8 percent
to $537 million in the first nine months of 2000 from $497 million in the first
nine months of 1999.
Principal investing, which includes the results of investments in equity
and mezzanine securities, amounted to $425 million in the first nine months of
2000, an increase of 11 percent from $382 million in the first nine months of
1999. We anticipate only moderate principal investing revenue in the fourth
quarter of 2000. These activities are discussed further in the Business Segments
section.
Other income, which includes results from portfolio securities transactions
and asset sales and securitizations, declined to $454 million in the first nine
months of 2000 from $1.2 billion in the first nine months of 1999. The first
nine months of 1999 included $286 million of gains from the sale of certain
assets and investments. Portfolio securities transactions resulted in a net loss
of $13 million in the first nine months of 2000. In the first nine months of
1999, portfolio securities transactions amounted to a net loss of $56 million,
including a $79 million impairment loss on residual interests in certain
securitizations of home improvement loans. Asset sales and securitizations
resulted in a net gain of $194 million in the first nine months of 2000,
including gains from the securitization and sale of credit card receivables,
Small Business Administration (SBA) loans and student loans. In the first nine
months of 1999, these gains were $552 million, which included $126 million of
gains from the sale and securitization of residential mortgage loans and higher
levels of gains from the securitization and sale of credit card receivables, SBA
loans and student loans.
NONINTEREST EXPENSE On an operating basis, noninterest expense was $7.1 billion
in the first nine months of 2000 and $6.1 billion in the first nine months of
1999. In addition to the full impact of EVEREN, expenses in the first nine
months of 2000 reflected higher personnel costs, primarily incentives associated
with revenue growth. On an operating basis, the overhead efficiency ratio was
64.30 percent in the first nine months of 2000 and 57.07 percent in the first
nine months of 1999.
We had $3.8 billion in goodwill and other intangible assets at September
30, 2000, and $5.6 billion at December 31, 1999. The significant decline in the
balance from year-end was principally the result of the second quarter 2000
write-off of $1.8 billion of goodwill and other identified intangibles that were
determined to be impaired as a result of the decision to discontinue subprime
mortgage lending at The Money Store. This write-off has the effect of reducing
quarterly amortization expense by $21 million. The remaining balance of goodwill
associated with The Money Store is $301 million and is related to the small
business and student lending businesses that are being retained.
BUSINESS SEGMENTS
First Union's operations are divided into five business segments
encompassing more than 60 distinct product and service units. These segments are
Capital Markets, Capital Management, Consumer, Commercial and Treasury/Nonbank.
Additional information can be found in Table 3. The following discussion of
segment results is on an operating basis, and accordingly excludes restructuring
and other charges and gains related to the strategic repositioning.
CAPITAL MARKETS Our Capital Markets products and services are designed to
provide a full range of capital raising, market making and financial advisory
services to meet the needs of corporate and institutional clients. Our strategy
is to focus on middle-market and growth companies, and we leverage the strong
relationship coverage in our East Coast banking markets with our newly
streamlined focus on eight key industries nationwide: technology,
telecommunications, new media and media communications,
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health care, business and consumer services, industrial growth, real estate and
financial institutions. We provide full execution including corporate finance,
equity research, merger and acquisition advisory services, and debt and equity
financing. In addition, our International unit continues to develop and utilize
strong correspondent banking relationships overseas.
Capital Markets has three primary lines of business: (1) Investment
Banking, which includes merger and acquisition advisory services; principal
investing; loan syndication; investment grade debt; high yield debt; equity
sales, trading, research and underwriting; fixed income sales and trading;
municipal sales, trading and underwriting; fixed income and equity derivatives;
foreign exchange; asset securitization; and commercial real estate investment
banking; (2) Corporate Banking, which includes lending activities for corporate
clients with annual sales greater than $100 million; asset-based lending;
operating, finance and leveraged leasing; and railcar leasing; and (3)
International, whose mission is to meet the trade finance and foreign exchange
needs of our domestic customers and correspondent financial institutions around
the world, and to provide commercial banking products to financial institutions
and corporate clients overseas.
On an operating basis, in the first nine months of 2000 compared with the
first nine months of 1999, Capital Markets net income declined to $647 million
from $780 million. Fee and other income increased modestly to $1.3 billion from
$1.2 billion. Net interest income was flat at $1.2 billion.
The growth in Capital Markets fee and other income was primarily the result
of a $27 million increase in Investment Banking fee income and a $43 million
increase in Corporate Banking fee income, which was driven primarily by gains on
the sale of certain loans and rail car assets, and increased income from our
rail car leasing business.
Fee income from principal investing activities increased $43 million to
$425 million in the first nine months of 2000 from $382 million in the first
nine months of 1999. Principal investing revenue, which was exceptionally strong
in the third quarter of 1999 and in the first half of 2000, was more modest in
the third quarter of 2000, as we had anticipated. Similar trends are expected in
the fourth quarter. In the first nine months of 2000, we committed additional
funds of $1.8 billion in the principal investing area, and ended the quarter
with total committed funds of $4.5 billion. Invested funds in the first nine
months of 2000 amounted to $1.2 billion.
Equity capital markets revenues of $83 million in the first nine months of
2000 reflected a $30 million increase from the first nine months of 1999,
primarily due to continued growth in our equity platform, increased
institutional sales and trading, and equity syndicate revenues.
Growth in these Investment Banking businesses was somewhat offset by
decreases in commercial real estate and loan syndications. Loan syndication
revenue was reduced by the impact of market value adjustments on certain loans
held for sale. Commercial real estate results were down from 1999 because the
results in the first nine months of 1999 were unusually strong and were related
to recoveries of market losses in commercial mortgage-backed securitization
activities in the third quarter of 1998.
In Corporate Banking, net income declined to $302 million in the first nine
months of 2000 from $351 million in the first nine months of 1999, largely
reflecting increased charge-offs in the second quarter of 2000, particularly
health care industry-related.
The revenues from Capital Markets businesses are typically more volatile
than revenues from more traditional banking businesses and can vary
significantly with market conditions.
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Noninterest expense was $1.2 billion in the first nine months of 2000
compared with $1.1 billion in the first nine months of 1999. The increase in
expenses was largely due to higher personnel and related costs, much of which
relates to our continuing build-up of the equity capital markets business.
CAPITAL MANAGEMENT Through the Capital Management Group (CMG), we have created
a growing and diversified trust, investment management and brokerage business
with products and services that provide the link between traditional banking and
investing for retail and institutional customers. Our Capital Management Group
is organized into four major lines of business: Retail Brokerage and Insurance
Services, Wealth and Trust Services, Mutual Funds and CAP Account. CMG offers a
full line of investment products and services distributed through multiple
channels, including our national retail brokerage branch network, full-service
retail financial centers in our East Coast marketplace and online brokerage.
Assets under management increased to $173 billion at September 30, 2000, from
$170 billion at December 31, 1999. Assets under management include $85 billion
in Evergreen mutual funds and $88 billion in trust assets and other
institutional accounts.
On an operating basis in the first nine months of 2000 compared with the
first nine months of 1999, Capital Management net income increased to $527
million from $398 million, with strong increases in net interest income and fee
and other income partially offset by a rise in noninterest expense. Net interest
income increased 30 percent to $479 million from $369 million, while fee and
other income increased 57 percent to $2.4 billion from $1.5 billion. EVEREN
contributed $581 million of the increase in fee and other income.
Noninterest expense in the first nine months of 2000 was $2.1 billion
compared with $1.3 billion in the first nine months of 1999 primarily reflecting
increased variable expenses associated with the strong growth in our Retail
Brokerage and Insurance Services business and the impact of the EVEREN
acquisition.
Fee and other income from Retail Brokerage and Insurance Services increased
by $751 million to $1.4 billion in the first nine months of 2000 from $685
million in the first nine months of 1999. Retail brokerage results in the first
nine months of 2000 included the impact of EVEREN mentioned above. The market
value of client assets increased to $184 billion at September 30, 2000, from
$168 billion at December 31, 1999.
Our Wealth and Trust Services businesses encompass personal trust and
private client banking, corporate trust and benefit services, and institutional
trust services. Wealth and Trust Services fee and other income was $541 million
in the first nine months of 2000 compared with $507 million in the first nine
months of 1999. Wealth and Trust Services had $4.3 billion in average net loans
in the first nine months of 2000 compared with $3.9 billion in the fourth
quarter of 1999, and average deposits of $5.9 billion in the first nine months
of 2000 and in the fourth quarter of 1999.
Mutual fund fees increased 19 percent to $397 million in the first nine
months of 2000 from $335 million in the first nine months of 1999, primarily as
a result of asset growth. Assets in the First Union-advised Evergreen mutual
funds at September 30, 2000, were $85 billion compared with $80 billion at
December 31, 1999, and $75 billion at September 30, 1999.
The CAP Account is an asset management product that enables our customers
to manage their securities trading and banking activities in a single,
consolidated account. Income related to the CAP Account is therefore reflected
in both Retail Brokerage and Insurance Services and in Mutual Funds. CAP Account
amounts in Table 3 reflect CAP Account fees and the funding benefit attributed
to the on-balance sheet deposits. Fee and other income in CAP Account increased
$36 million to $121 million in the first nine months of 2000 from $85 million in
the first nine months of 1999, largely due to an increase in sales
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and in customer asset balances. CAP Account customer assets were $61 billion at
September 30, 2000, compared with $56 billion at year-end 1999. The number of
brokerage trades in CAP Account increased 41 percent in the first nine months of
2000 from the first nine months of 1999.
CONSUMER Our strategic repositioning is felt most broadly in our Consumer
segment. As we chose to focus on areas with higher growth potential and on areas
in which we can leverage our competitive strengths, we identified the
manufacture of certain proprietary products as no longer being essential to our
core strategies. In the mortgage servicing and credit card businesses, for
example, we lacked scale and competitive advantage, and therefore believe we can
offer a better selection and more competitive products if we repositioned those
businesses to meet our customers' needs through third party agreements.
Therefore, as part of our strategic repositioning, we sold the credit card
portfolio and our mortgage servicing portfolio. Both of these sales closed in
the third quarter of 2000. In addition, for reasons discussed in the Outlook
section, we ceased subprime mortgage lending at The Money Store on June 26,
2000. We believe that the repositioning actions we have taken will improve the
profitability of the Consumer segment.
Our retail distribution strategy continues to be premised on building
lifetime customer relationships by providing quality customer service, a full
range of superior products and flexible delivery across all channels. Our
multiple channels, including full-service retail financial centers, direct
telephone bank, ATMs and the Internet, are integrated, enabling customers to
have a single view of their accounts. The Consumer segment includes: First Union
Mortgage (FUMC), our mortgage origination and servicing business; Home Equity,
encompassing First Union Home Equity (FUHEB) and The Money Store; Credit Cards;
and Retail Branch Products, which includes installment loans, ATM, consumer
credit, eChannels and the various consumer deposit products with the exception
of the CAP Account, which is included in Capital Management.
On an operating basis in the first nine months of 2000 compared with the
first nine months of 1999, Consumer net income declined to $480 million from
$617 million. Fee and other income declined to $1.1 billion from $1.3 billion in
the first nine months of 1999, reflecting declines in home equity, residential
mortgage and credit cards. Results from these businesses were dampened by the
impact of a rising interest rate environment, a reduction in securitizations and
loan sales and the impact of strategic repositioning decisions.
The sale of the FUMC mortgage servicing portfolio closed on September 1,
2000. We will continue to originate mortgages, but we will sell the servicing.
The sale of the servicing portfolio will have minimal impact on the volume of
originations. The net contribution for this line of business will continue to be
nominal. In connection with the sale, we entered into a subservicing agreement
with the purchaser under which we will continue to service the portfolio for a
period of approximately six months and for which we will be paid a market-based
fee.
FUMC's net income for the first nine months of 2000 declined to $2 million
from $80 million in the first nine months of 1999. FUMC net interest income
declined by $26 million to $37 million in the first nine months of 2000
primarily as a result of lower loan production volume in a higher interest rate
environment. Fee and other income declined to $135 million in the first nine
months of 2000 from $266 million in the first nine months last year largely due
to a lower level of gains on loan sales and securitization activity and lower
loan production volume in the first nine months of this year. Noninterest
expense decreased by $32 million to $167 million in the first nine months of
2000 from $199 million in the first nine months of 1999, reflecting lower
personnel, incentive and servicing costs related to the lower production levels.
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In the home equity businesses, there was a net loss of $10 million in the
first nine months of 2000 compared with net income of $36 million in the first
nine months of 1999. Net interest income increased to $424 million in the first
nine months of 2000 from $398 million a year ago largely due to an increase in
average loans generated through FUHEB. Net charge-offs increased by $16 million
to $64 million in the first nine months of 2000 from the first nine months of
1999 due to an increase in loan balances and maturity of The Money Store and
FUHEB portfolios. Fee and other income in the home equity businesses declined to
$79 million in the first nine months of 2000 from $172 million in the first nine
months of 1999 primarily due to a decrease in securitization gains in connection
with home equity loans, an impairment loss on certain retained interests and
lower levels of securitizations of non-home equity products.
The sale of the credit card portfolio closed on September 30, 2000.
Accordingly, these results include the credit card business for the full quarter
of 2000. Beginning with the fourth quarter of 2000, we will originate First
Union-branded credit cards under a referral arrangement with the purchaser of
the portfolio. In connection with the sale, we entered into a subservicing
agreement with the purchaser under which we will continue to service the
portfolio for a period of approximately nine months and for which we will be
paid a market-based fee.
Net income from Credit Cards declined to $85 million in the first nine
months of 2000 from $87 million in the first nine months of 1999. Net interest
income declined $15 million in the period as a result of a decline in average
loans due to securitization. Fee and other income declined by $47 million in the
period due to a lower level of securitization gains from the first nine months
of 1999. Net charge-offs declined substantially in the period due to lower loan
balances as a result of ongoing securitization activity and due to the transfer
of the portfolio to assets held for sale at the end of the second quarter of
2000. Average loans decreased by $1.2 billion reflecting the sale and
securitization of $555 million in receivables in the second quarter of 1999 and
$543 million in the third quarter of 1999 as well as the movement of credit card
receivables to assets held for sale in the second quarter of 2000.
Retail Branch Products results were essentially unchanged year over year.
Net income decreased by $11 million to $403 million in the first nine months of
2000, driven primarily by a $66 million increase in net interest income to $1.9
billion in the first nine months of 2000, offset by a $92 million increase in
noninterest expense. Average loans were $10.9 billion in the first nine months
of 2000 and $10.4 billion in the fourth quarter of 1999. However, average loans
year over year declined by $3.5 billion as a result of the securitization and
transfer to the securities available for sale portfolio of prime equity loans
with a balance of $6.7 billion at the date of transfer in June 1999.
COMMERCIAL Our wholesale delivery strategy is to provide a comprehensive array
of financial solutions, including traditional commercial lending and cash
management products, primarily to small-business customers (annual sales up to
$10 million) and commercial customers (annual sales of $10 million to $100
million). In the first quarter of 2000, corporate client relationships (annual
sales over $100 million) were moved to the Capital Markets segment.
We have an integrated relationship approach that leverages the strong
relationships in our Commercial business with the capabilities of our Capital
Markets business to provide complex financing solutions, risk management
products and international services. We also leverage the capabilities of our
Capital Management business to provide property and casualty insurance, pension
plans and 401(k) plans. The Commercial segment is divided into four lines of
business: Small Business Banking, which represents only the lending that is done
through our Small Business Banking Division (SBBD); Lending, which is all other
commercial lending within our state delivery network and loans to small
businesses originated within our state delivery network rather than through
SBBD; Real Estate Banking, which is lending by
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our specialized real estate bankers; and Cash Management and Deposit Services.
The majority of SBA lending is included in the Consumer segment. Our combined
portfolio of $9.6 billion in small business loans at September 30, 2000,
includes loans originated through the SBBD, the SBA loan program and other
origination channels.
On an operating basis in the first nine months of 2000, Commercial net
income of $366 million was down from $394 million in the first nine months of
1999. In the same period, net interest income decreased by $18 million to $1.0
billion due to a decrease in average deposits of $845 million, partially offset
by an increase in average loans of $625 million. Fee and other income rose
modestly to $424 million from $414 million.
Average commercial loans increased by $483 million to $26.6 billion in the
first nine months of 2000 from the fourth quarter of 1999, primarily in Real
Estate Banking. This increase in Real Estate Banking commercial loans was offset
by a decrease of $159 million in Lending, primarily reflecting our emphasis on
providing capital markets financing alternatives for our clients and seasonality
in the credit requirements of our customers.
Average deposits were $21.9 billion in the first nine months of 2000
compared with $22.4 billion in the fourth quarter of 1999. The majority of the
decline was in commercial money market deposits and commercial demand deposit
accounts, partially offset by an increase in commercial savings and commercial
certificate of deposit accounts. Commercial deposit balances are typically
highest in the fourth quarter of the year, due to the seasonality of our
customers' cash needs.
TREASURY/NONBANK Treasury/Nonbank includes management of our securities
portfolios and our portfolio of first mortgage loans, as well as overall funding
requirements and asset and liability management functions. Treasury/Nonbank also
contains merger-related and restructuring charges; the goodwill asset and the
associated amortization expense and funding cost; certain nonrecurring revenue
items discussed in the Fee and Other Income section; certain expenses that are
not allocated to the business segments; corporate charges; and the results of
our discontinued indirect auto lending and leasing business. The Liquidity and
Funding Sources and Market Risk Management sections provide information about
our funding sources, asset and liability management functions and securities
portfolios.
LOANS AND ASSET QUALITY
LOANS Net loans were $123 billion at September 30, 2000, and $133 billion at
December 31, 1999. Average net loans were $129 billion in the first nine months
of 2000 and $131 billion in the fourth quarter of 1999. Commercial loans
represented 66 percent and consumer loans 34 percent of the loan portfolio at
September 30, 2000. Managed loans were $164 billion at September 30, 2000, and
$171 billion at December 31, 1999. Managed commercial loans increased 4 percent
from year-end 1999, while managed consumer loans declined 13 percent primarily
as a result of the sale of our credit card portfolio and the run-off of the
portfolio associated with our discontinued indirect auto lending and leasing
business. The average rate earned on loans was 8.86 percent in the first nine
months of 2000 compared with 8.15 percent in the first nine months of 1999.
At September 30, 2000, unused loan commitments related to commercial and
consumer loans were $98 billion and $24 billion, respectively. Commercial and
standby letters of credit were $13 billion. Loan participations sold to other
lenders amounted to $3.4 billion at September 30, 2000.
ASSETS HELD FOR SALE In connection with the strategic repositioning, in the
second quarter of 2000 we decided to sell $7.2 billion of loans, and in the
third quarter, we decided to sell an additional $719 million of loans. As a
result of these decisions, these loans were transferred to assets held for sale,
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which is included in other assets. Included in the net restructuring and other
charges was $537 million in the second quarter of 2000 and $120 million in the
third quarter of 2000 recorded in connection with the transfer to reduce the net
book value of these loans to their market value at the respective quarter ends.
The transfer in the second quarter 2000 included $1.7 billion of credit
card receivables, $4.8 billion of The Money Store subprime mortgage loans, $589
million of commercial loans and $123 million of residential real estate loans.
The third quarter 2000 transfers consisted of $719 million of commercial loans.
Included in the transfers were $463 million of nonperforming loans in the second
quarter of 2000 and $46 million in the third quarter of 2000. In Table 8, the
nonperforming loans in assets held for sale of $349 million at September 30,
2000, as well as those for prior periods, are presented at their net book value
after the transfer to assets held for sale.
At September 30, 2000, we completed the sale of the on-balance sheet, $1.7
billion credit card receivables and $250 million of certain commercial and
consumer loans related to our strategic repositioning. As a result of these
sales, the balance of loans transferred to assets held for sale at September 30,
2000, and which relate to our strategic repositioning, was $5.9 billion.
As we sell the remaining loans, nonperforming assets will be reduced,
particularly in health care, subprime mortgage lending and residential real
estate. This will mitigate our exposure to increases in nonperforming assets in
these loan categories. The sale of the credit card portfolio eliminated our
exposure to the higher charge-offs typically associated with credit card
receivables.
NONPERFORMING ASSETS At September 30, 2000, nonperforming assets were $951
million, or 0.77 percent of net loans and foreclosed properties, compared with
$1.1 billion, or 0.80 percent, at December 31, 1999. Including nonperforming
loans in assets held for sale, the percentage of nonperforming assets to net
loans, foreclosed properties and assets held for sale was 0.98 percent at
September 30, 2000. In general there is an industry-wide trend toward increasing
pressure on credit quality, and we are seeing evidence of this in our commercial
loan portfolio. Using various modeling techniques, we project that nonperforming
loans will increase. In addition, in late October of this year, the financial
condition of a single large borrower deteriorated significantly. As of the date
of this filing, it is not possible to estimate the loss content of this credit.
We will continue our review of the credit, and it is possible that it may be
classified as nonperforming in the fourth quarter of 2000.
Nonperforming loans reduce interest income because the contribution from
these loans is eliminated or sharply reduced. In the first nine months of 2000,
$78 million in gross interest income would have been recorded if all nonaccrual
and restructured loans had been performing in accordance with their original
terms and if they had been outstanding throughout the entire period (or since
origination if held for part of the period). The amount of interest income
recorded on these assets in the first nine months of 2000 was $19 million.
Impaired loans, which are included in nonperforming loans, amounted to $651
million at September 30, 2000, compared with $603 million at December 31, 1999.
Included in the allowance for loan losses at September 30, 2000, was $62 million
related to $407 million of impaired loans. The remaining impaired loans were
recorded at or below either fair value or the present value of expected future
cash flows. In the first nine months of 2000, the average recorded investment in
impaired loans was $708 million, and $17 million of interest income was
recognized on impaired loans. This income was recognized using the cash-basis
method of accounting.
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PAST DUE LOANS Accruing loans 90 days past due, excluding loans that are
classified as assets held for sale, were $145 million at September 30, 2000,
compared with $144 million at December 31, 1999. Of these past due loans at
September 30, 2000, $16 million were commercial loans or commercial real estate
loans and $129 million were consumer loans.
NET CHARGE-OFFS Net charge-offs amounted to $559 million in the first nine
months of 2000 and $519 million in the first nine months of 1999. Annualized net
charge-offs were 0.58 percent of average net loans in the first nine months of
2000 compared with 0.53 percent in the first nine months of 1999. The increase
in net charge-offs includes charge-offs on loans, including identified problem
loans in the health care industry in the second quarter of 2000, that were
subsequently transferred to assets held for sale in connection with the
strategic repositioning. Third quarter 2000 net charge-offs were not
concentrated in any single industry.
PROVISION AND ALLOWANCE FOR LOAN LOSSES The loan loss provision was
$887 million in the first nine months of 2000 compared with $519 million in the
first nine months of 1999. The increase largely reflected incremental provisions
in the second and third quarters of 2000 amounting to $325 million to reflect
the current risk profile of the loan portfolio.
The allowance for loan losses was $1.7 billion at September 30, 2000, and
$1.8 billion at December 31, 1999. The loans transferred to assets held for sale
were transferred net of $365 million of related allowance, which contributed to
the decrease in the allowance. The allowance as a percentage of net loans was
1.39 percent at September 30, 2000, and 1.32 percent at year-end 1999. We
believe the allowance for loan losses is adequate to cover probable credit
losses in the loan portfolio.
Loans transferred to assets held for sale are carried at the lower of cost
or market value, and accordingly, they are not included in the evaluation of the
adequacy of the allowance subsequent to the transfer. Adjustments to the lower
of cost or market value can relate to either credit-related factors or interest
rates.
Our methodology for determining the allowance for loan losses establishes
both an allocated and an unallocated component. The allocated portion of the
allowance represents the results of analyses of individual commercial loans and
pools of loans within the portfolio. The allocated portion of the allowance for
commercial loans is based principally on current loan grades, historical loan
loss rates adjusted to reflect current conditions, as well as analyses of other
factors that may have affected the collectibility of loans in the portfolio. We
analyze all commercial loans with a principal balance in excess of $1 million
that are being monitored as credit problems to determine whether such loans are
impaired, with impairment measured by reference to the borrowers' collateral
values and cash flows. The allocated portion of the allowance for consumer loans
is based principally on loan payment status and historical loss rates adjusted
to reflect current conditions. The unallocated portion of our allowance for loan
losses represents the results of analyses that measure probable losses in our
portfolio that are not fully captured in the allocated allowance analyses. These
analyses include consideration of unidentified losses inherent in the portfolio
resulting from changing underwriting criteria, changes in the types and mix of
loans originated, industry concentrations and evaluations, allowance levels
relative to selected overall credit criteria and other economic indicators used
to estimate probable incurred losses.
LIQUIDITY AND FUNDING SOURCES
CORE DEPOSITS Core deposits were $118 billion at September 30, 2000, compared
with $122 billion at December 31, 1999. The $4 billion decline since year-end
1999 primarily reflects the movement of noninterest-bearing and time deposits
into alternative investment products. In response to growing
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customer demand for investment products as alternatives to deposit products, we
offer mutual funds, annuities and other investment products in addition to
deposits. Although this reduces our deposit base, it enables us to retain
valuable customer relationships that might otherwise be lost to other financial
services companies.
The portion of core deposits in higher-rate, other consumer time deposits
was 31 percent at September 30, 2000, and 28 percent at December 31, 1999. Other
consumer time and other noncore deposits usually pay higher rates than savings
and transaction accounts, but they generally are not available for immediate
withdrawal. They are also less expensive to process.
Average core deposit balances were $118 billion in the first nine months of
2000 and $119 billion in the fourth quarter of 1999. In the first nine months of
2000 and in the fourth quarter of 1999, average noninterest-bearing deposits
were 24 percent and 25 percent, respectively, of average core deposits.
Deposits can be affected by numerous factors, including branch closings and
consolidations, seasonal factors and the rates being offered compared to other
investment opportunities.
PURCHASED FUNDS Average purchased funds, which include wholesale borrowings
with maturities of 12 months or less, were $70 billion in the first nine months
of 2000 compared with $65 billion in the fourth quarter of 1999. The increase
from 1999 represents funding for the growth in average earning assets early in
2000. Purchased funds at September 30, 2000, were $60 billion and at December
31, 1999, $69 billion, with the decline reflecting the impact of balance sheet
reduction strategies associated with the strategic repositioning.
LONG-TERM DEBT Long-term debt, which includes any wholesale borrowings with an
original maturity in excess of 12 months, amounted to $36 billion at September
30, 2000, and $32 billion at year-end 1999. In the first nine months of 2000,
the parent company issued $3.8 billion of notes with varying rates and
maturities.
Long-term debt included $2.0 billion of trust capital securities at
September 30, 2000, and at December 31, 1999. Subsidiary trusts issued these
capital securities and used the proceeds to purchase junior subordinated
debentures from the corporation. These capital securities are considered tier 1
capital for regulatory purposes.
Under a shelf registration statement filed with the Securities and Exchange
Commission, we have $2.7 billion of senior or subordinated debt securities,
common stock or preferred stock available for issuance. The sale of any
additional debt or equity securities will depend on future market conditions,
funding needs and other factors.
Our principal banking subsidiary, First Union National Bank, has available
global note programs for the issuance of up to $45 billion of senior and
subordinated notes. Under these programs, $19 billion of long-term debt has been
issued and was outstanding at September 30, 2000. The sale of any additional
notes will depend on future market conditions, funding needs and other factors.
In the fourth quarter of 2000, scheduled maturities of long-term debt
amount to $3.7 billion. As a result of balance sheet reduction strategies
associated with the strategic repositioning, only a modest portion of these
maturities will need to be refinanced.
CREDIT LINES We have a $175 million committed back-up line of credit that
expires in July 2002 and an additional $160 million committed back-up line of
credit that expires in August 2001. These credit facilities contain covenants
that require First Union to maintain a minimum level of tangible net worth,
restrict double leverage ratios and require capital levels at subsidiary banks
to meet regulatory standards. First Union has not used these lines of credit.
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STOCKHOLDERS' EQUITY Stockholders' equity was $15 billion at September 30,
2000, and $17 billion at December 31, 1999. Common shares outstanding amounted
to 986 million at September 30, 2000, and 988 million at December 31, 1999.
Twelve million shares at a cost of $397 million were repurchased in the first
nine months of 2000, all of which was pursuant to a Board of Directors
authorization to repurchase a number of shares equal to the number issued in the
EVEREN acquisition. Of the approximately 31 million shares expected to be
repurchased in relation to this acquisition, a total of 25 million shares had
been repurchased as of September 30, 2000. Based on the Board authorizations for
share repurchases in November 1998, May 1999 and June 2000, each for 50 million
shares, at September 30, 2000, we had authority to repurchase up to 101 million
shares of our common stock, which is incremental to share repurchases related to
the EVEREN acquisition and does not include shares subject to the forward
contracts described below. In the first nine months of 1999, we repurchased 50
million shares of common stock at a cost of $2.5 billion.
In early 1999, the Board authorized the use of forward equity sales
transactions (equity forwards) in connection with our buyback programs. The use
of equity forwards is intended to provide us with the ability to purchase shares
under the buyback programs in the open market and then issue shares in private
transactions to counterparties in the amounts necessary to maintain targeted
capital ratios. Under the terms of the equity forwards, we issued shares of
common stock to an investment banking firm at a specified price that
approximated market value. Simultaneously, we entered into a forward contract
with the same counterparty to repurchase the shares at the same price plus a
premium (the forward price).
In addition to equity forwards, we have also entered into forward purchase
contracts with various counterparties. Under the terms of these contracts, we
have agreed to purchase shares on a specific future date, at a specified price
(the forward price). The counterparties to these contracts generally purchase
the shares to which the contract is subject in the open market and hold the
shares for the duration of the contract. The forward price is the price at which
the counterparty purchased the shares plus a premium.
The equity forwards and forward purchase contracts mature at various times
in 2001, and can be extended by mutual consent of the counterparties. At our
election, the contracts can be settled by purchase of the shares at the forward
price or by net settlement in shares or cash. At September 30, 2000, we had
equity forwards involving 17 million shares at a cost of $800 million and
forward purchase contracts involving 30 million shares at a cost of $1.1
billion. This aggregate cost of $1.9 billion does not include the premium
component of the forward price. Premiums accrue over the period that the
contracts are outstanding and will be settled at maturity. In October 2000, we
settled an equity forward contract by purchasing the shares at the forward
price, which reduced shares outstanding by 4 million, and which reduced
stockholders' equity by $211 million.
We paid $1.4 billion in dividends to common stockholders in the first nine
months of 2000 and in the first nine months of 1999. This represented a dividend
payout ratio on operating earnings of 62.87 percent in the first nine months of
2000.
At September 30, 2000, stockholders' equity was reduced by $838 million in
accumulated other comprehensive income, net, substantially all of which was
related to net unrealized losses on debt and equity securities.
SUBSIDIARY DIVIDENDS First Union National Bank is the largest source of parent
company dividends. Capital requirements established by regulators limit
dividends that this subsidiary and certain other of our subsidiaries can pay.
Under these and other limitations, which include an internal requirement
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to maintain all deposit-taking banks at the well capitalized level, at September
30, 2000, our subsidiaries had $2.6 billion available for dividends that could
be paid without prior regulatory approval. Our subsidiaries paid $1.3 billion in
dividends and, in connection with the consolidation of two of our banking
subsidiaries, returned $75 million in capital to the parent company in the first
nine months of 2000.
REGULATORY CAPITAL At September 30, 2000, our tier 1 and total capital ratios
were 7.00 percent and 11.32 percent, respectively, compared with 7.08 percent
and 10.87 percent at December 31, 1999. Our leverage ratio at September 30,
2000, was 5.73 percent and at December 31, 1999, 5.97 percent. At September 30,
2000, our deposit-taking subsidiary banks met the capital and leverage ratio
requirements for well capitalized banks. First Union Trust Company, N.A., and
First Union Direct Bank, N.A., are not deposit-taking banks.
MARKET RISK MANAGEMENT
Managing interest rate risk is fundamental to banking. The inherent
maturity and repricing characteristics of our day-to-day lending and deposit
activities create a naturally asset-sensitive structure. By using a combination
of on- and off-balance sheet financial instruments, we manage the sensitivity of
earnings to changes in interest rates within our established policy guidelines.
The Credit/Market Risk Committee of the Board of Directors reviews overall
interest rate risk management activity. The Funds Management Committee oversees
the interest rate risk management process and approves policy guidelines.
Balance sheet management and finance personnel monitor the day-to-day exposure
to changes in interest rates in response to loan and deposit flows. They make
adjustments within established policy guidelines.
In analyzing interest rate sensitivity for policy measurement, we compare
our forecasted earnings per share in both a "high rate" and "low rate" scenario
to base-line scenarios. One base-line scenario is our estimated most likely path
for future short-term interest rates over the next 24 months. The second
base-line scenario holds short-term rates flat at their current level over our
forecast horizon. The "high rate" and "low rate" scenarios assume gradual 200
basis point increases or decreases in the federal funds rate from the beginning
point of each base-line scenario over the next 12-month period. Our policy limit
for the maximum negative impact on earnings per share resulting from "high rate"
or "low rate" scenarios is 5 percent. The policy limit applies to both the "most
likely rate" and the "flat rate" base-line scenarios. The policy measurement
period is 12 months in length, beginning with the first month of the forecast.
EARNINGS SENSITIVITY Our "flat rate" scenario holds the federal funds rate
constant at 6.50 percent through September 2002. Based on the October 2000
outlook, if interest rates were to follow our "high rate" scenario (i.e., a 200
basis point increase in short-term rates from our "flat rate" scenario), the
model indicates earnings during the policy measurement period would be
negatively affected by 0.5 percent. Our model indicates that earnings would
benefit by 1.1 percent in our "low rate" scenario (i.e., a 200 basis point
decline in short-term rates from our "flat rate" scenario).
For our "most likely rate" scenario, we currently believe the market
forward implied rate ("market rate") is the most appropriate. This scenario
assumes the federal funds rate gradually declines to 6.30 percent by the end of
September 2001. Sensitivity to the "market rate" scenario is measured using a
gradual 200 basis point increase over a 12-month period. Our model indicates
that earnings would be negatively affected by 0.4 percent in a "high rate"
scenario relative to the market rate over the policy period.
In addition to the standard scenarios used to analyze rate sensitivity over
the policy measurement period, we regularly analyze the potential impact of
other remote, more extreme interest rate scenarios. These alternate "what if"
scenarios may include interest rate paths that are higher, lower and more
volatile than those used for policy measurement. We also perform our analysis
for time periods that reach beyond
17
20
the 12-month policy period. For example, based on our October 2000 outlook, if
interest rates remain consistent with our "market rate" scenario until January
1, 2002, and then increase by 200 basis points during 2002, earnings in 2002
would be negatively affected by 0.5 percent.
While our interest rate sensitivity modeling assumes that management takes
no action, we regularly assess the viability of strategies to reduce
unacceptable risks to earnings, and we implement such strategies when we believe
those actions are prudent. As new monthly outlooks become available, we
formulate strategies aimed at protecting earnings from the potential negative
effects of changes in interest rates.
UNREALIZED LOSSES IN CERTAIN FINANCIAL INSTRUMENTS Information related to
unrealized gains and losses in the securities available for sale, investment
securities and off-balance sheet derivatives portfolios is in Table 15. Changes
in the market value of the instruments in these three portfolios, and
corresponding unrealized gains and losses, primarily result from changes in
market interest rates. The securities available for sale and the off-balance
sheet derivatives portfolios are the primary means we use to manage overall
interest rate risk while enhancing corporate earnings. Changes in the market
values of these portfolios offset changes in market values and future interest
income or expense related to other balance sheet items, such as loans, deposits
and borrowings.
SECURITIES AVAILABLE FOR SALE The securities available for sale portfolio
consists primarily of U.S. Treasury, U.S. Government agency, municipal and
asset-backed securities. Activity in this portfolio is undertaken primarily to
manage liquidity and interest rate risk and to take advantage of market
conditions that create more economically attractive returns on these
investments. At September 30, 2000, we had securities available for sale with a
market value of $50 billion compared with $51 billion at year-end 1999.
Included in securities available for sale at September 30, 2000, were
residual interests with a market value of $255 million, which included a net
unrealized loss of $25 million. These residual interests resulted from
securitizations of SBA, credit card, student, auto and home equity loans. At
December 31, 1999, securities available for sale included residual interests
with a market value of $583 million and a net unrealized gain of $84 million.
In the third quarter of 2000, we converted $6.0 billion of first mortgage
loans to agency securities to facilitate funding flexibility. These securities
are classified as securities available for sale.
In connection with the strategic repositioning, net restructuring and other
charges in the first nine months of 2000 included securities losses of $1.0
billion, composed of $578 million of impairment losses on securities available
for sale in the second quarter of 2000 and $449 million of losses on the sale of
$10.5 billion of securities and $18 million of impairment losses on certain
residual interests in the third quarter of 2000. Of the total of $596 million of
impairment losses in net restructuring and other charges, $438 million is
described below and $158 million is impairment losses on other residual
interests.
In October of 2000, we identified $2.2 billion of additional securities to
sell in connection with the strategic repositioning, and these securities were
sold at a net loss of $75 million. We do not anticipate any further sales of
securities in connection with our strategic repositioning.
In 1999, we transferred $744 million of mortgage-related residual interests
and $8.7 billion of other mortgage-related securities to a trust in exchange for
a new security representing substantially all of the interest in the assets
transferred to the trust. Substantially all of the corporation's investment in
mortgage-related retained interests from the securitization of The Money Store
subprime mortgage loans was included in the transfer. The decision as part of
our strategic repositioning to discontinue the subprime mortgage lending
business at The Money Store caused us to revise the assumptions we used to
estimate the amount and timing of the cash flows associated with this security,
particularly the assumptions related
18
21
to credit losses. Based on the revised assumptions, we concluded that the fair
value of the security had declined on an other than temporary basis to an amount
less than its book value at June 30, 2000. Accordingly, in connection with the
strategic repositioning, we recorded a $438 million impairment loss on the
security to reduce the book value to its fair value. There was no further
impairment of this security in the third quarter of 2000.
The average rate earned on securities available for sale was 7.33 percent
in the first nine months of 2000 and 6.74 percent in the first nine months of
1999. The average maturity of the portfolio was 7.85 years at September 30,
2000.
On October 1, 2000, we adopted the consensus under Emerging Issues Task
Force Issue No. 99-20, Recognition of Interest Income and Impairment on Certain
Investments (EITF 99-20). EITF 99-20 is effective on January 1, 2001, with early
adoption permitted. EITF 99-20 conforms the accounting for income recognition on
and impairment of certain residual interests to the accounting for securities
available for sale. EITF 99-20 states that if cash flow estimates indicate that
the holder of a residual interest will not collect all estimated cash flows,
then the security is considered impaired and must be written down to fair value.
We intend to adopt EITF 99-20 effective October 1, 2000, and we are currently
assessing the impact.
INVESTMENT SECURITIES The investment securities portfolio consists primarily of
U.S. Government agency, corporate, municipal and mortgage-backed securities, and
collateralized mortgage obligations. Our investment securities had a carrying
value and a market value of $1.7 billion at September 30, 2000, and a carrying
value and a market value of $1.8 billion at December 31, 1999.
The average rate earned on investment securities was 8.19 percent in the
first nine months of 2000 and 8.17 percent in the first nine months of 1999. The
average maturity of the portfolio was 5.82 years at September 30, 2000.
OFF-BALANCE SHEET DERIVATIVES FOR INTEREST RATE RISK MANAGEMENT As part of our
overall interest rate risk management strategy, we use off-balance sheet
derivatives as a cost- and capital-efficient way to modify the repricing or
maturity characteristics of on-balance sheet assets and liabilities. Our
off-balance sheet derivatives used for interest rate risk management include
various interest rate swap, futures and option structures with indices that
relate to the pricing of specific financial instruments of the corporation. We
believe we have appropriately controlled the risk so that derivatives used for
interest rate risk management will not have any significant unintended effect on
corporate earnings. The impact of derivative instruments on our earnings and
rate sensitivity is fully incorporated in the earnings simulation model in the
same manner as on-balance sheet instruments.
The fair value of off-balance sheet derivatives used to manage our interest
rate sensitivity was $584 million, based on a notional amount of $254 billion,
at September 30, 2000, compared with $213 million, based on a notional amount of
$190 billion, at December 31, 1999. From time to time, we rebalance our
off-balance sheet positions to reflect current market conditions and
management's assessment of desired balance sheet characteristics, and this can
result in significant changes in derivative notional amounts. The increase in
the notional amount of derivatives in 2000, which occurred principally in the
first half of the year, resulted from the rebalancing and resulted in additional
interest rate swaps and futures contracts. Substantially all of the aggregate
outstanding notional amount of these positions will amortize or mature by
December 31, 2000. The balances of deferred gains and losses at September 30,
2000, which are recorded as adjustments to the basis of the related assets or
liabilities, will be amortized over approximately 12 years and the annual
amortization is not significant. In connection with the strategic repositioning,
we terminated certain risk management derivatives that were associated with
assets sold,
19
22
principally securities available for sale, and the gain or loss was included in
the calculation of the gain or loss on the sale of the assets. Also in
connection with the strategic repositioning, certain other risk management
derivatives were redesignated.
Although off-balance sheet derivative financial instruments do not expose
the corporation to credit risk equal to the notional amount, we are exposed to
credit risk equal to the extent of the fair value gain in an off-balance sheet
derivative financial instrument if the counterparty fails to perform. We
minimize the credit risk in these instruments by dealing only with high-quality
counterparties. Each transaction is specifically approved for applicable credit
exposure. At September 30, 2000, the total mark-to-market related credit risk
for derivative transactions in excess of counterparty thresholds was $953
million. The fair value of collateral held exceeded the total mark-to-market
related credit risk in excess of counterparty thresholds as of that date. For
nondealer transactions, the need for collateral is evaluated on an individual
transaction basis, and it is primarily dependent on the financial strength of
the counterparty.
TRADING RISK MANAGEMENT Trading activities are undertaken primarily to satisfy
the investment and risk management needs of our customers and secondarily to
enhance our earnings through profitable trading for the corporation's own
account. We trade a variety of debt securities and foreign exchange instruments,
as well as financial and foreign currency derivatives, in order to provide
customized solutions for the risk management challenges faced by our customers.
We maintain diversified trading positions in both the fixed income and foreign
exchange markets. Risk is controlled through the use of value-at-risk (VAR)
limits and an active, independent monitoring process.
We use the VAR methodology for measuring the market risk of the
corporation's trading positions. This statistical methodology uses recent market
volatility to estimate the maximum daily trading loss that the corporation would
expect to incur, on average, 97.5 percent of the time. The model also estimates
the effect of the interrelationships among the various trading instruments to
determine how much risk is eliminated by offsetting positions. The VAR analysis
is supplemented by stress testing on a daily basis. The analysis captures all
financial assets and liabilities that are considered trading positions. The
calculation uses historical data from the most recent 252 business days. The
total VAR amount at September 30, 2000, was $12 million compared with $6 million
at December 31, 1999, substantially all of which related to interest rate risk.
The high, low and average VARs in the first nine months of 2000 were $16
million, $5 million and $10 million, respectively.
ACCOUNTING AND REGULATORY MATTERS
In September 2000, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,
which revises the criteria for accounting for securitizations and other
transfers of financial assets and collateral, and introduces new disclosures.
SFAS 140 replaces SFAS 125, which was issued in June 1996. The enhanced
disclosure requirements are effective for year-end 2000. The other provisions of
SFAS 140 apply prospectively to transfers of financial assets and
extinguishments of liabilities occurring after March 31, 2001. Earlier or
retroactive application is not permitted. The effect of SFAS 140 on the
corporation is not expected to be material.
In 1998, the FASB issued SFAS 133, Accounting for Derivative Instruments
and Hedging Activities, as amended by SFAS 137 and SFAS 138, which establishes
accounting and reporting standards for derivatives and hedging activities. SFAS
133 requires that all derivatives be recognized as assets or liabilities in the
balance sheet and that these instruments be measured at fair value through
adjustments to either other comprehensive income or to current earnings,
depending on the purpose for which the derivative is held. SFAS 133, which is
effective January 1, 2001, significantly changes the accounting for derivatives.
20
23
We continue to analyze the impact of SFAS 133, and while it will not affect
our ability to manage our interest rate risk within our policy guidelines, it
will impact certain of the risk management strategies we use. In connection with
the adoption of SFAS 133 on January 1, 2001, we have been repositioning our
portfolio of risk management derivatives, including terminating certain
contracts and reclassifying others as trading assets. We will continue to
consider various actions to reposition our risk management derivatives portfolio
in the fourth quarter of 2000.
The transition adjustment to be recorded on January 1, 2001, in connection
with our adoption of SFAS 133 has two components: a transition adjustment in the
statement of income and a transition adjustment in other comprehensive income.
The fair value of certain derivative contracts that are designated as hedges of
fixed rate assets or liabilities will be included in the transition adjustment
in the statement of income along with the fair value of the hedged assets and
liabilities. The fair value of embedded derivatives is also included in this
transition adjustment. The fair value of derivative contracts designated as
hedges of variable rate assets or liabilities will be included in the transition
adjustment in other comprehensive income. Since the majority of our derivative
contracts will qualify as cash flow hedges, we anticipate the transition
adjustment will primarily impact other comprehensive income. The amount of these
transition adjustments under SFAS 133 will depend on the risk management
strategies we choose to execute prior to or concurrent with adoption, as well as
market conditions.
Legislation has been enacted providing that deposits and certain claims for
administrative expenses and employee compensation against an insured depository
institution are afforded a priority over other general unsecured claims against
an institution, including federal funds and letters of credit, in the
liquidation or other resolution of such an institution by any receiver.
In 1999, the President signed into law the Gramm-Leach-Bliley Financial
Modernization Act of 1999 (Modernization Act). The Modernization Act allows bank
holding companies meeting management, capital and Community Reinvestment Act
standards to engage in a substantially broader range of nonbanking activities
than was permissible before enactment, including underwriting insurance and
making merchant banking investments in commercial and financial companies. It
also allows insurers and other financial services companies to acquire banks;
removes various restrictions that currently apply to bank holding company
ownership of securities firms and mutual fund advisory companies; and
establishes the overall regulatory structure applicable to bank holding
companies that also engage in insurance and securities activities. This part of
the Modernization Act became effective in March 2000. In the first quarter of
2000, First Union became a financial holding company pursuant to the
Modernization Act and is thereby permitted to engage in the broader range of
activities that the Modernization Act permits.
The Modernization Act also modifies current law related to financial
privacy and community reinvestment. The new privacy provisions will generally
prohibit financial institutions, including First Union, from disclosing
nonpublic personal financial information to nonaffiliated third parties unless
customers have the opportunity to "opt out" of the disclosure.
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TABLE 1
CONSOLIDATED SUMMARIES OF INCOME, PER SHARE, BALANCE SHEET AND OTHER DATA
- -----------------------------------------------------------------------------------------------------------------------------------
Twelve 2000 1999
Months -------------------------------- ------------------------
Ended
Sept. 30, THIRD Second First Fourth Third
(Dollars in millions, except per share data) 2000 QUARTER Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------------------------------------------------------------------------
SUMMARIES OF INCOME
Interest income $ 17,413 4,465 4,492 4,313 4,143 3,812
===================================================================================================================================
Interest income (a) $ 17,513 4,491 4,517 4,336 4,169 3,840
Interest expense 9,763 2,631 2,587 2,347 2,198 1,930
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income (a) 7,750 1,860 1,930 1,989 1,971 1,910
Provision for loan losses 1,060 202 493 192 173 175
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for
loan losses (a) 6,690 1,658 1,437 1,797 1,798 1,735
Securities transactions - portfolio (1,065) (457) (582) (19) (7) (80)
Fee and other income 7,204 2,520 979 1,861 1,844 1,520
Restructuring charges 2,163 52 2,110 (5) 6 --
Other noninterest expense 9,530 2,396 2,393 2,387 2,354 1,940
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income
taxes (benefits) (a) 1,136 1,273 (2,669) 1,257 1,275 1,235
Income taxes (benefits) 701 395 (495) 394 407 405
Tax-equivalent adjustment 100 26 25 23 26 28
- -----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 335 852 (2,199) 840 842 802
===================================================================================================================================
PER SHARE DATA
Basic $ 0.32 0.87 (2.27) 0.86 0.86 0.84
Diluted 0.30 0.86 (2.27) 0.85 0.86 0.84
Cash dividends $ 1.91 0.48 0.48 0.48 0.47 0.47
Average shares - Basic (In thousands) -- 971,453 969,707 972,174 976,377 946,802
Average shares - Diluted (In thousands) -- 986,763 981,940 984,095 984,537 953,964
Average stockholders' equity
Quarter-to-date $ -- 14,236 16,614 16,583 16,686 15,299
Year-to-date -- 15,805 16,599 16,583 15,932 15,678
Book value 15.00 15.00 14.14 17.16 16.91 16.19
Common stock price
High 43.63 32.63 38.88 37.94 43.63 48.38
Low 25.00 25.00 25.00 28.44 32.44 35.31
Period-end $ 32.19 32.19 25.00 37.25 32.94 35.63
To earnings ratio (b) 107.30 X 107.30 89.29 10.80 9.89 10.67
To book value 215 % 215 177 217 195 220
BALANCE SHEET DATA
Assets $ 246,640 246,640 257,994 253,648 253,024 234,408
Long-term debt $ 36,258 36,258 33,140 33,043 31,975 31,910
OTHER DATA
ATMs 3,831 3,831 3,832 3,786 3,778 3,954
Employees 71,718 71,718 73,988 73,060 71,659 66,391
===================================================================================================================================
(a) Tax-equivalent.
(b) Based on diluted earnings per share.
T-1
25
TABLE 2
RESTRUCTURING CHARGES
- -----------------------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, 2000
--------------------------------------------------------------------------------
STAFF
FIRST THE UNITS
CAPITAL UNION MONEY CREDIT AND
(In millions) MARKETS MORTGAGE STORE CARDS OTHER TOTAL
- -----------------------------------------------------------------------------------------------------------------------------------
RESTRUCTURING CHARGES (Includes
merger-related charges)
Employee termination benefits $ 47 15 46 21 33 162
Occupancy -- 5 102 1 -- 108
Goodwill and other intangible
impairments (noncash) -- -- 1,754 -- -- 1,754
Other asset impairments -- 1 18 -- -- 19
Contract cancellations -- 3 11 70 -- 84
Other -- -- -- -- 2 2
- -----------------------------------------------------------------------------------------------------------------------------------
Total 47 24 1,931 92 35 2,129
Reversal of March 1999
restructuring charge -- -- -- -- (16) (16)
- -----------------------------------------------------------------------------------------------------------------------------------
Total 47 24 1,931 92 19 2,113
EVEREN and other
merger-related charges -- -- -- -- 44 44
- -----------------------------------------------------------------------------------------------------------------------------------
Total $ 47 24 1,931 92 63 2,157
===================================================================================================================================
Signet
June 2000 March 1999 Acquisition
Strategic Restructuring CoreStates and
(In millions) Repositioning Charge Acquisition (a) Other (a) Total
- -----------------------------------------------------------------------------------------------------------------------------------
ACTIVITY IN THE
RESTRUCTURING
ACCRUAL
Balance, December 31, 1999 $ -- 84 38 40 162
Cash payments -- (18) -- (2) (20)
Reversal of prior accruals -- (14) -- -- (14)
Noncash write-downs and
other adjustments -- (4) -- -- (4)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 2000 -- 48 38 38 124
Restructuring charges 2,099 -- -- -- 2,099
Cash payments (5) (5) (1) (3) (14)
Noncash write-downs and
other adjustments (1,754) (4) -- -- (1,758)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 2000 $ 340 39 37 35 451
Restructuring charges 30 -- -- -- 30
Cash payments (40) (3) (2) (2) (47)
Reversal of prior accruals -- (2) -- -- (2)
Noncash write-downs and
other adjustments (17) (1) -- -- (18)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 2000 $ 313 33 35 33 414
===================================================================================================================================
(a) The remaining September 30, 2000, amounts represent employee termination
benefits which will be paid over future periods.
T-2
26
TABLE 3
BUSINESS SEGMENTS (a)
- -----------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, 2000
------------------------------------------------------------------------------------------
INVESTMENT CORPORATE
(In millions) BANKING BANKING INTERNATIONAL OTHER TOTAL
- -----------------------------------------------------------------------------------------------------------------------------------
CAPITAL MARKETS
Income statement data
Net interest income $ 54 297 34 -- 385
Provision for loan losses 3 70 1 -- 74
Fee and other income 226 56 60 (32) 310
Noninterest expense 264 109 39 -- 412
Income tax expense (2) 67 21 (32) 54
- -----------------------------------------------------------------------------------------------------------------------------------
Operating earnings $ 15 107 33 -- 155
- -----------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 3.25 % 12.07 27.40 -- 10.46
Average loans, net $ 6,571 32,638 5,524 -- 44,733
Average deposits 6,093 5,202 6,167 -- 17,462
Average attributed stockholders'
equity (b) $ 1,946 3,560 489 -- 5,995
===================================================================================================================================
RETAIL
BROKERAGE & WEALTH
INSURANCE & TRUST MUTUAL CAP
In millions) SERVICES SERVICES FUNDS ACCOUNT OTHER TOTAL
- -----------------------------------------------------------------------------------------------------------------------------------
CAPITAL MANAGEMENT
Income statement data $
Net interest income 42 58 3 55 -- 158
Provision for loan losses -- 1 -- -- -- 1
Fee and other income 442 181 137 42 (23) 779
Noninterest expense 424 146 63 40 -- 673
Income tax expense 22 35 29 21 (9) 98
- -----------------------------------------------------------------------------------------------------------------------------------
Operating earnings $ 38 57 48 36 (14) 165
- -----------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 26.05 % 44.61 81.83 75.74 -- 45.65
Average loans, net $ -- 4,438 -- 1 -- 4,439
Average deposits -- 5,892 -- 13,269 -- 19,161
Average attributed stockholders'
equity (b) $ 559 507 193 185 (30) 1,414
===================================================================================================================================
HOME
EQUITY &
FIRST THE RETAIL
UNION MONEY CREDIT BRANCH
(In millions) MORTGAGE STORE CARDS PRODUCTS TOTAL
- -----------------------------------------------------------------------------------------------------------------------------------
CONSUMER
Income statement data
Net interest income $ 15 155 54 625 849
Provision for loan losses -- 12 1 26 39
Fee and other income 42 48 91 219 400
Noninterest expense 55 126 63 614 858
Income tax expense -- 26 32 78 136
- -----------------------------------------------------------------------------------------------------------------------------------
Operating earnings $ 2 39 49 126 216
- -----------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 3.81 % 13.95 42.23 26.18 24.01
Average loans, net $ 415 11,133 91 11,011 22,650
Average deposits 973 190 3 68,575 69,741
Average attributed stockholders'
equity (b) $ 58 1,162 479 1,916 3,615
===================================================================================================================================
(Continued)
T-3
27
TABLE 3
BUSINESS SEGMENTS (a)
- -----------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, 2000
------------------------------------------------------------------------------------------
SMALL REAL CASH MGT. &
BUSINESS ESTATE DEPOSIT
(In millions) BANKING LENDING BANKING SERVICES TOTAL
- -----------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL
Income statement data
Net interest income $ 19 69 48 208 344
Provision for loan losses 2 17 5 -- 24
Fee and other income -- -- -- 140 140
Noninterest expense 12 45 16 199 272
Income tax expense 2 1 11 56 70
- -----------------------------------------------------------------------------------------------------------------------------------
Operating earnings $ 3 6 16 93 118
- -----------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 8.34 % 2.54 16.24 54.86 22.06
Average loans, net $ 2,870 14,251 9,608 -- 26,729
Average deposits -- -- -- 22,254 22,254
Average attributed stockholders'
equity (b) $ 161 878 410 662 2,111
===================================================================================================================================
CAPITAL CAPITAL TREASURY/
(In millions) MARKETS MGT. CONSUMER COMMERCIAL NONBANK TOTAL
- -----------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED
Income statement data
Net interest income $ 385 158 849 344 98 1,834
Provision for loan losses 74 1 39 24 4 142
Fee and other income 310 779 400 140 16 1,645
Noninterest expense 412 673 858 272 113 2,328
Income tax expense 54 98 136 70 (51) 307
- -----------------------------------------------------------------------------------------------------------------------------------
Operating earnings 155 165 216 118 48 702
- -----------------------------------------------------------------------------------------------------------------------------------
Adjustments from operating
earnings to net income
Restructuring and other
charges/gains
Provision for loan losses -- -- -- -- (60) (60)
Fee and other income (123) -- (17) -- 558 418
Noninterest expense -- -- -- -- (120) (120)
Income tax benefit 46 -- 6 -- (140) (88)
- -----------------------------------------------------------------------------------------------------------------------------------
After-tax restructuring and
other charges/gains (77) -- (11) -- 238 150
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $ 78 165 205 118 286 852
- -----------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 10.46 % 45.65 24.01 22.06 17.34 15.76
Average loans, net $ 44,733 4,439 22,650 26,729 24,924 123,475
Average deposits 17,462 19,161 69,741 22,254 14,494 143,112
Average attributed stockholders'
equity (b) $ 5,995 1,414 3,615 2,111 1,101 14,236
===================================================================================================================================
(Continued)
T-4
28
TABLE 3
BUSINESS SEGMENTS (a)
- -----------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, 1999
------------------------------------------------------------------------------------------
INVESTMENT CORPORATE
(In millions) BANKING BANKING INTERNATIONAL OTHER TOTAL
- -----------------------------------------------------------------------------------------------------------------------------------
CAPITAL MARKETS
Income statement data
Net interest income $ 59 288 26 -- 373
Provision for loan losses 20 47 -- -- 67
Fee and other income 330 33 54 (22) 395
Noninterest expense 217 90 40 -- 347
Income tax expense 52 69 15 (22) 114
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $ 100 115 25 -- 240
- -----------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 27.60 % 13.52 14.80 -- 17.42
Average loans, net $ 7,049 30,795 4,837 -- 42,681
Average deposits 4,550 5,297 4,838 -- 14,685
Average attributed stockholders'
equity (b) $ 1,454 3,366 640 -- 5,460
===================================================================================================================================
RETAIL
BROKERAGE & WEALTH
INSURANCE & TRUST MUTUAL CAP
(In millions) SERVICES SERVICES FUNDS ACCOUNT OTHER TOTAL
- -----------------------------------------------------------------------------------------------------------------------------------
CAPITAL MANAGEMENT
Income statement data
Net interest income $ 20 54 -- 53 -- 127
Provision for loan losses -- -- -- -- -- --
Fee and other income 229 171 117 30 (25) 522
Noninterest expense 198 120 53 32 -- 403
Income tax expense 20 41 25 20 (10) 96
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $ 31 64 39 31 (15) 150
- -----------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 38.87 % 61.11 74.66 74.77 -- 58.12
Average loans, net $ -- 3,784 -- -- -- 3,784
Average deposits -- 5,699 -- 14,302 -- 20,001
Average attributed stockholders'
equity (b) $ 325 425 163 168 (31) 1,050
===================================================================================================================================
HOME
EQUITY &
FIRST THE RETAIL
UNION MONEY CREDIT BRANCH
(In millions) MORTGAGE STORE CARDS PRODUCTS TOTAL
- -----------------------------------------------------------------------------------------------------------------------------------
CONSUMER
Income statement data
Net interest income $ 18 143 53 620 834
Provision for loan losses 1 21 34 22 78
Fee and other income 42 (29) 99 212 324
Noninterest expense 55 149 52 557 813
Income tax expense 2 (22) 25 96 101
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $ 2 (34) 41 157 166
- -----------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 18.08 % (9.79) 33.62 33.38 17.12
Average loans, net $ 464 11,910 2,115 10,581 25,070
Average deposits 1,214 295 9 68,176 69,694
Average attributed stockholders'
equity (b) $ 65 1,411 475 1,847 3,798
===================================================================================================================================
(Continued)
T-5
29
TABLE 3
BUSINESS SEGMENTS (a)
- -----------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, 1999
------------------------------------------------------------------------------------------
SMALL REAL CASH MGT. &
BUSINESS ESTATE DEPOSIT
(In millions) BANKING LENDING BANKING SERVICES TOTAL
- -----------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL
Income statement data
Net interest income $ 21 58 44 230 353
Provision for loan losses -- 8 6 -- 14
Fee and other income -- -- -- 144 144
Noninterest expense 10 47 14 179 250
Income tax expense 4 (4) 8 74 82
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $ 7 7 16 121 151
- -----------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 14.85 % 2.66 14.77 71.79 26.89
Average loans, net $2,776 15,142 8,629 -- 26,547
Average deposits -- -- -- 22,337 22,337
Average attributed stockholders'
equity (b) $ 161 951 391 662 2,165
===================================================================================================================================
CAPITAL CAPITAL TREASURY/
(In millions) MARKETS MGT. CONSUMER COMMERCIAL NONBANK TOTAL
- -----------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED
Income statement data
Net interest income $ 373 127 834 353 195 1,882
Provision for loan losses 67 -- 78 14 16 175
Fee and other income 395 522 324 144 55 1,440
Noninterest expense 347 403 813 250 127 1,940
Income tax expense 114 96 101 82 12 405
- -----------------------------------------------------------------------------------------------------------------------------------
Net income after
merger-related and
restructuring charges 240 150 166 151 95 802
After-tax merger-related and
restructuring charges -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Net income before
merger-related and
restructuring charges $ 240 150 166 151 95 802
- -----------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 17.42 % 58.12 17.12 26.89 13.34 20.47
Average loans, net $42,681 3,784 25,070 26,547 29,252 127,334
Average deposits 14,685 20,001 69,694 22,337 6,707 133,424
Average attributed stockholders'
equity (b) $ 5,460 1,050 3,798 2,165 2,826 15,299
===================================================================================================================================
(Continued)
T-6
30
TABLE 3
BUSINESS SEGMENTS (a)
- -----------------------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, 2000
------------------------------------------------------------------------------------------
INVESTMENT CORPORATE
(In millions) BANKING BANKING INTERNATIONAL OTHER TOTAL
- -----------------------------------------------------------------------------------------------------------------------------------
CAPITAL MARKETS
Income statement data
Net interest income $ 193 862 102 -- 1,157
Provision for loan losses 49 236 6 -- 291
Fee and other income 1,048 176 169 (95) 1,298
Noninterest expense 825 315 109 -- 1,249
Income tax expense 118 185 60 (95) 268
- -----------------------------------------------------------------------------------------------------------------------------------
Operating earnings $ 249 302 96 -- 647
- -----------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 17.88 % 11.52 22.94 -- 14.61
Average loans, net $6,759 32,538 5,186 -- 44,483
Average deposits 6,591 5,252 5,650 -- 17,493
Average attributed stockholders'
equity (b) $1,866 3,496 564 -- 5,926
===================================================================================================================================
RETAIL
BROKERAGE & WEALTH
INSURANCE & TRUST MUTUAL CAP
(In millions) SERVICES SERVICES FUNDS ACCOUNT OTHER TOTAL
- -----------------------------------------------------------------------------------------------------------------------------------
CAPITAL MANAGEMENT
Income statement data $
Net interest income 127 173 7 172 -- 479
Provision for loan losses -- 1 -- -- -- 1
Fee and other income 1,436 541 397 121 (71) 2,424
Noninterest expense 1,311 430 194 115 -- 2,050
Income tax expense 96 108 80 68 (27) 325
- -----------------------------------------------------------------------------------------------------------------------------------
Operating earnings $ 156 175 130 110 (44) 527
- -----------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 34.52 % 48.82 72.95 77.51 -- 49.24
Average loans, net $ -- 4,338 -- 1 -- 4,339
Average deposits -- 5,899 -- 13,846 -- 19,745
Average attributed stockholders'
equity (b) $ 602 478 187 190 (30) 1,427
===================================================================================================================================
HOME
EQUITY &
FIRST THE RETAIL
UNION MONEY CREDIT BRANCH
(In millions) MORTGAGE STORE CARDS PRODUCTS TOTAL
- -----------------------------------------------------------------------------------------------------------------------------------
CONSUMER
Income statement data
Net interest income $ 37 424 160 1,895 2,516
Provision for loan losses 2 64 52 75 193
Fee and other income 135 79 217 646 1,077
Noninterest expense 167 455 187 1,814 2,623
Income tax expense 1 (6) 53 249 297
- -----------------------------------------------------------------------------------------------------------------------------------
Operating earnings $ 2 (10) 85 403 480
- -----------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 4.61 % (1.10) 23.56 28.25 17.48
Average loans, net $ 428 13,252 1,211 10,896 25,787
Average deposits 894 205 10 68,007 69,116
Average attributed stockholders'
equity (b) $ 63 1,217 485 1,902 3,667
===================================================================================================================================
(Continued)
T-7
31
TABLE 3
BUSINESS SEGMENTS (a)
- -----------------------------------------------------------------------------------------------------------------------------------
Nine Months Ended September 30, 2000
-------------------------------------------------------------------------------------------
Small Real Cash Mgt. &
Business Estate Deposit
(In millions) Banking Lending Banking Services Total
- -----------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL
Income statement data
Net interest income $ 58 206 136 616 1,016
Provision for loan losses 4 27 15 -- 46
Fee and other income -- -- -- 424 424
Noninterest expense 35 140 48 586 809
Income tax expense 7 11 28 173 219
- -----------------------------------------------------------------------------------------------------------------------------------
Operating earnings $ 12 28 45 281 366
- -----------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 9.74 % 4.44 15.27 56.50 23.76
Average loans, net $ 2,828 14,444 9,297 -- 26,569
Average deposits -- -- -- 21,897 21,897
Average attributed stockholders'
equity(b) $ 160 832 395 662 2,049
===================================================================================================================================
Capital Capital Treasury/
(In millions) Markets Mgt. Consumer Commercial Nonbank Total
- -----------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED
Income statement data
Net interest income $ 1,157 479 2,516 1,016 537 5,705
Provision for loan losses 291 1 193 46 31 562
Fee and other income 1,298 2,424 1,077 424 10 5,233
Noninterest expense 1,249 2,050 2,623 809 350 7,081
Income tax expense 268 325 297 219 (68) 1,041
- -----------------------------------------------------------------------------------------------------------------------------------
Operating earnings 647 527 480 366 234 2,254
- -----------------------------------------------------------------------------------------------------------------------------------
Adjustments from operating
earnings to net income (loss)
Restructuring and other
charges/gains
Provision for loan losses -- -- -- -- (325) (325)
Fee and other income (272) -- (1,025) -- 366 (931)
Noninterest expense -- -- (27) -- (2,225) (2,252)
Income tax benefit 101 -- 389 -- 257 747
- -----------------------------------------------------------------------------------------------------------------------------------
After-tax restructuring and
other charges/gains (171) -- (663) -- (1,927) (2,761)
- -----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 476 527 (183) 366 (1,693) (507)
- -----------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 14.61 % 49.24 17.48 23.76 11.42 17.88
Average loans, net $ 44,483 4,339 25,787 26,569 27,991 129,169
Average deposits 17,493 19,745 69,116 21,897 13,334 141,585
Average attributed stockholders'
equity(b) $ 5,926 1,427 3,667 2,049 2,736 15,805
===================================================================================================================================
(Continued)
T-8
32
TABLE 3
BUSINESS SEGMENTS (a)
- --------------------------------------------------------------------------------------------------------------------------------
Nine Months Ended September 30, 1999
----------------------------------------------------------------------------------------
Investment Corporate Inter-
(In millions) Banking Banking national Other Total
- --------------------------------------------------------------------------------------------------------------------------------
CAPITAL MARKETS
Income statement data
Net interest income $ 193 852 117 -- 1,162
Provision for loan losses 58 125 -- -- 183
Fee and other income 1,021 133 153 (77) 1,230
Noninterest expense 640 298 131 -- 1,069
Income tax expense 173 211 53 (77) 360
- --------------------------------------------------------------------------------------------------------------------------------
Net income $ 343 351 86 -- 780
- --------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 32.81 % 13.79 17.98 -- 19.16
Average loans, net $ 7,091 31,377 4,761 -- 43,229
Average deposits 4,809 5,368 5,331 -- 15,508
Average attributed stockholders'
equity (b) $ 1,400 3,416 638 -- 5,454
================================================================================================================================
Retail
Brokerage & Wealth
Insurance & Trust Mutual CAP
(In millions) Services Services Funds Account Other Total
- --------------------------------------------------------------------------------------------------------------------------------
CAPITAL MANAGEMENT
Income statement data
Net interest income $ 57 166 2 144 -- 369
Provision for loan losses -- -- -- -- -- --
Fee and other income 685 507 335 85 (69) 1,543
Noninterest expense 605 386 180 94 -- 1,265
Income tax expense 53 110 60 52 (26) 249
- --------------------------------------------------------------------------------------------------------------------------------
Net income $ 84 177 97 83 (43) 398
- --------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 35.19 % 56.31 56.81 72.50 -- 52.15
Average loans, net $ -- 3,767 -- -- -- 3,767
Average deposits -- 5,749 -- 14,187 -- 19,936
Average attributed stockholders'
equity (b) $ 324 423 158 154 (29) 1,030
================================================================================================================================
Home
Equity &
First The Retail
Union Money Credit Branch
(In millions) Mortgage Store Cards Products Total
- --------------------------------------------------------------------------------------------------------------------------------
CONSUMER
Income statement data
Net interest income $ 63 398 175 1,829 2,465
Provision for loan losses 1 48 120 65 234
Fee and other income 266 172 264 628 1,330
Noninterest expense 199 464 177 1,722 2,562
Income tax expense 49 22 55 256 382
- --------------------------------------------------------------------------------------------------------------------------------
Net income $ 80 36 87 414 617
- --------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 103.60 % 3.43 25.10 30.21 21.80
Average loans, net $ 477 11,707 2,423 14,424 29,031
Average deposits 1,295 122 10 70,135 71,562
Average attributed stockholders'
equity (b) $ 103 1,383 470 1,835 3,791
================================================================================================================================
(Continued)
T-9
33
TABLE 3
BUSINESS SEGMENTS (a)
- -----------------------------------------------------------------------------------------------------------------------------------
Nine Months Ended September 30, 1999
-------------------------------------------------------------------------------------------
Small Real Cash Mgt. &
Business Estate Deposit
(In millions) Banking Lending Banking Services Total
- -----------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL
Income statement data
Net interest income $ 63 180 133 658 1,034
Provision for loan losses 2 28 19 -- 49
Fee and other income -- -- -- 414 414
Noninterest expense 31 156 50 552 789
Income tax expense 12 (19) 24 199 216
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $ 18 15 40 321 394
- -----------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 15.43 % 2.22 13.11 65.48 24.75
Average loans, net $ 2,729 14,699 8,516 -- 25,944
Average deposits -- -- -- 22,742 22,742
Average attributed stockholders'
equity (b) $ 163 913 404 657 2,137
===================================================================================================================================
Capital Capital Treasury/
(In millions) Markets Mgt. Consumer Commercial Nonbank Total
- -----------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED
Income statement data
Net interest income $ 1,162 369 2,465 1,034 477 5,507
Provision for loan losses 183 -- 234 49 53 519
Fee and other income 1,230 1,543 1,330 414 579 5,096
Noninterest expense 1,069 1,265 2,562 789 817 6,502
Income tax expense 360 249 382 216 (6) 1,201
- -----------------------------------------------------------------------------------------------------------------------------------
Net income after
merger-related and
restructuring charges 780 398 617 394 192 2,381
After-tax merger-related and
restructuring charges -- -- -- -- 259 259
- -----------------------------------------------------------------------------------------------------------------------------------
Net income before
merger-related and
restructuring charges $ 780 398 617 394 451 2,640
- -----------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 19.16 % 52.15 21.80 24.75 18.47 22.25
Average loans, net $ 43,229 3,767 29,031 25,944 27,339 129,310
Average deposits 15,508 19,936 71,562 22,742 4,735 134,483
Average attributed stockholders'
equity (b) $ 5,454 1,030 3,791 2,137 3,265 15,677
===================================================================================================================================
(a) Business Segment information reflects the purchase accounting acquisition
of EVEREN for the three and nine months ended September 30, 2000. This
acquisition occurred on October 1, 1999. See the "Business Segments" discussion
in Management's Analysis of Operations for further information about the
methodology and assumptions used in presenting this information.
(b) Average attributed stockholders' equity excludes merger-related,
restructuring and other charges and gains. The return on average attributed
stockholders' equity for the Capital Management Mutual Funds unit is net of the
amount included in Other.
T-10
34
TABLE 4
FEE AND OTHER INCOME - CAPITAL MARKETS
- --------------------------------------------------------------------------------------------------------------------------------
2000 1999
--------------------------------------- ----------------------
THIRD Second First Fourth Third
(In millions) QUARTER Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------------------------------------------------------
Principal investing $ 37 185 203 210 176
Risk management (a) 61 79 63 41 46
Investment banking (a) 92 123 120 157 103
Corporate banking 56 67 53 51 33
International 60 56 53 52 54
Fixed income and other (a) 36 10 39 39 5
- --------------------------------------------------------------------------------------------------------------------------------
Total 342 520 531 550 417
Eliminations (32) (32) (31) (72) (22)
- --------------------------------------------------------------------------------------------------------------------------------
Total fee and other income - Capital Markets $ 310 488 500 478 395
================================================================================================================================
(a) The aggregate amounts of trading account profits included in this table in
the third, second and first quarters of 2000 and in the fourth and third
quarters of 1999 were $70 million, $73 million, $99 million, $72 million and $20
million, respectively. This includes risk management and proprietary trading as
well as amounts included in investment banking and fixed income and other
trading.
T-11
35
TABLE 5
SELECTED PERFORMANCE, DIVIDEND PAYOUT AND OTHER RATIOS
- ---------------------------------------------------------------------------------------------------------------------------
Nine Months Ended
September 30, 2000 1999
------------------------ -------------------------------- -------------------
THIRD Second First Fourth Third
2000 1999 QUARTER Quarter Quarter Quarter Quarter
- ---------------------------------------------------------------------------------------------------------------------------
PERFORMANCE RATIOS (a)
Assets to stockholders' equity 15.83 X 14.41 17.34 15.38 14.97 14.60 14.98
Return on assets (0.27)% 1.41 1.37 (3.46) 1.36 1.37 1.39
Return on stockholders' equity (4.28)% 20.31 23.81 (53.24) 20.38 20.00 20.82
- ---------------------------------------------------------------------------------------------------------------------------
DIVIDEND PAYOUT RATIOS ON
Operating earnings 62.87 % 51.46 67.42 65.75 56.47 54.65 55.95
Net income (b) -- % 57.09 55.59 -- 56.47 54.65 55.95
- ---------------------------------------------------------------------------------------------------------------------------
OTHER RATIOS
Operating earnings
Return on assets 1.20 % 1.56 1.12 1.13 1.36 1.38 1.39
Return on stockholders' equity 17.88 % 22.25 15.76 17.74 20.31 19.78 20.47
- ---------------------------------------------------------------------------------------------------------------------------
(a) Based on average balances and net income.
(b) Dividend payout ratios are not presented for periods in which there is a
net loss.
T-12
36
TABLE 6
LOANS - ON-BALANCE SHEET, AND MANAGED AND SERVICING PORTFOLIOS
- -----------------------------------------------------------------------------------------------------------------------------
2000 1999
------------------------------------- -----------------------
THIRD Second First Fourth Third
(In millions) QUARTER Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------------------------------------------------------------------
ON-BALANCE SHEET LOAN PORTFOLIO
COMMERCIAL
Commercial, financial and agricultural $ 53,325 53,870 54,082 51,683 52,497
Real estate - construction and other 2,751 2,600 2,344 2,435 2,709
Real estate - mortgage 9,286 9,239 9,275 8,768 8,404
Lease financing 13,997 13,181 12,511 12,742 11,969
Foreign 5,548 4,956 4,587 4,991 4,933
- -----------------------------------------------------------------------------------------------------------------------------
Total commercial 84,907 83,846 82,799 80,619 80,512
- -----------------------------------------------------------------------------------------------------------------------------
RETAIL
Real estate - mortgage 19,108 25,204 27,528 27,793 26,427
Installment loans - Bankcard (a) 119 141 1,752 1,879 1,681
Installment loans - other 22,515 21,656 25,145 23,916 22,853
Vehicle leasing 2,600 3,112 3,822 4,483 5,096
- -----------------------------------------------------------------------------------------------------------------------------
Total retail 44,342 50,113 58,247 58,071 56,057
- -----------------------------------------------------------------------------------------------------------------------------
Total loans 129,249 133,959 141,046 138,690 136,569
Unearned income 5,830 5,600 5,243 5,513 5,087
- -----------------------------------------------------------------------------------------------------------------------------
Loans, net (on-balance sheet) $123,419 128,359 135,803 133,177 131,482
=============================================================================================================================
MANAGED PORTFOLIO (b)
- -----------------------------------------------------------------------------------------------------------------------------
COMMERCIAL
On-balance sheet loan portfolio $ 84,907 83,846 82,799 80,619 80,512
Securitized loans 1,117 1,139 1,173 1,223 1,257
Loans held for sale included in other assets 1,994 2,378 2,195 2,465 158
- -----------------------------------------------------------------------------------------------------------------------------
Total commercial 88,018 87,363 86,167 84,307 81,927
- -----------------------------------------------------------------------------------------------------------------------------
RETAIL
Real estate - mortgage
On-balance sheet loan portfolio 19,108 25,204 27,528 27,793 26,427
Securitized loans included in
securities available for sale 2,778 -- -- -- --
Loans held for sale included in other assets 802 782 1,341 1,503 1,413
- -----------------------------------------------------------------------------------------------------------------------------
Total real estate - mortgage 22,688 25,986 28,869 29,296 27,840
- -----------------------------------------------------------------------------------------------------------------------------
Installment loans - Bankcard (a)
On-balance sheet loan portfolio 119 141 1,752 1,879 1,681
Securitized loans -- 3,941 3,941 3,941 3,941
Loans held for sale included in other assets 22 1,594 -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Total installment loans - Bankcard 141 5,676 5,693 5,820 5,622
- -----------------------------------------------------------------------------------------------------------------------------
Installment loans - other
On-balance sheet loan portfolio 22,515 21,656 25,145 23,916 22,853
Securitized loans 11,290 11,726 12,533 13,259 14,390
Securitized loans included in
securities available for sale 10,328 9,875 9,369 9,058 8,660
Loans held for sale included in other assets 6,273 5,882 1,339 898 591
- -----------------------------------------------------------------------------------------------------------------------------
Total installment loans - other 50,406 49,139 48,386 47,131 46,494
- -----------------------------------------------------------------------------------------------------------------------------
Vehicle leasing - on-balance sheet loan portfolio 2,600 3,112 3,822 4,483 5,096
- -----------------------------------------------------------------------------------------------------------------------------
Total retail 75,835 83,913 86,770 86,730 85,052
- -----------------------------------------------------------------------------------------------------------------------------
Total managed portfolio $163,853 171,276 172,937 171,037 166,979
=============================================================================================================================
SERVICING PORTFOLIO
Commercial $ 29,739 29,000 28,985 29,193 28,433
Retail $ 9,844 37,722 37,108 38,200 39,385
=============================================================================================================================
(a) Installment loans - Bankcard include credit cards, instant cash reserve,
signature and First Choice.
(b) The managed portfolio includes the on-balance sheet loan portfolio, loans
held for sale that are classified in other assets, loans securitized for which
the securities are classified in securities available for sale and the
off-balance sheet portfolio of securitized loans.
T-13
37
TABLE 7
LOANS HELD FOR SALE
- -----------------------------------------------------------------------------------------------------------------------------
2000
-------------------------
THIRD Second
(In millions) QUARTER Quarter
- -----------------------------------------------------------------------------------------------------------------------------
Balance, beginning of period $ 10,636 4,875
Loans transferred to assets held for sale (a) 719 7,182
Allowance for loan losses related to loans transferred to assets held for sale (a) (46) (319)
Lower of cost or market valuation allowance related to loans transferred
to assets held for sale (a) (120) (537)
Loans sold (a) (1,756) --
Other increases (decreases), net (b) (342) (565)
- -----------------------------------------------------------------------------------------------------------------------------
Balance, end of period $ 9,091 10,636
=============================================================================================================================
(a) These amounts relate to the June 26, 2000, strategic repositioning.
(b) Other, net includes the net amount of origination, payment and sales
transactions related primarily to syndication and mortgage warehouse loans
which represent most of the remainder of loans held for sale.
T-14
38
TABLE 8
ALLOWANCE FOR LOAN LOSSES AND NONPERFORMING ASSETS
- -------------------------------------------------------------------------------------------------------------------------------
2000 1999
---------------------------------- -------------------
THIRD Second First Fourth Third
(In millions) QUARTER Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES
Balance, beginning of period $ 1,706 1,760 1,757 1,759 1,785
Provision for loan losses 202 493 192 173 175
Allowance relating to loans acquired, transferred to
other assets or sold (46) (319) -- (6) (26)
Loan losses, net (142) (228) (189) (169) (175)
- -------------------------------------------------------------------------------------------------------------------------------
Balance, end of period $ 1,720 1,706 1,760 1,757 1,759
===============================================================================================================================
as a % of loans, net 1.39 % 1.33 1.30 1.32 1.34
===============================================================================================================================
as a % of nonaccrual and restructured loans (a) 202 % 215 150 181 187
===============================================================================================================================
as a % of nonperforming assets (a) 181 % 193 139 165 169
===============================================================================================================================
LOAN LOSSES
Commercial, financial and agricultural $ 108 157 107 93 95
Real estate - commercial construction and mortgage 3 1 2 9 4
Real estate - residential mortgage 1 5 4 5 5
Installment loans - Bankcard 1 25 31 37 37
Installment loans - other and vehicle leasing 52 76 73 64 67
- -------------------------------------------------------------------------------------------------------------------------------
Total 165 264 217 208 208
- -------------------------------------------------------------------------------------------------------------------------------
LOAN RECOVERIES
Commercial, financial and agricultural 10 21 10 21 17
Real estate - commercial construction and mortgage 1 -- 1 3 3
Real estate - residential mortgage 1 1 -- 1 --
Installment loans - Bankcard -- 2 3 1 2
Installment loans - other and vehicle leasing 11 12 14 13 11
- -------------------------------------------------------------------------------------------------------------------------------
Total 23 36 28 39 33
- -------------------------------------------------------------------------------------------------------------------------------
Loan losses, net $ 142 228 189 169 175
===============================================================================================================================
as % of average loans, net (b) 0.46 % 0.69 0.57 0.52 0.55
===============================================================================================================================
NONPERFORMING ASSETS
Nonaccrual loans
Commercial, financial and agricultural $ 596 562 729 551 506
Real estate - commercial construction and mortgage 58 59 62 55 59
Real estate - residential mortgage 52 28 148 150 156
Installment loans - Bankcard -- -- -- -- 5
Installment loans - other and vehicle leasing 148 142 236 212 212
- -------------------------------------------------------------------------------------------------------------------------------
Total nonaccrual loans 854 791 1,175 968 938
Foreclosed properties (c) 97 93 95 98 103
- -------------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $ 951 884 1,270 1,066 1,041
===============================================================================================================================
Nonperforming loans included in other assets as held for sale (d) $ 349 331 30 14 14
Nonperforming assets included in loans and in other assets as
held for sale $ 1,300 1,215 1,300 1,080 1,055
===============================================================================================================================
as % of loans, net, and foreclosed properties (a) 0.77 % 0.69 0.93 0.80 0.79
===============================================================================================================================
as % of loans, net, foreclosed properties and assets as held
for sale (d) 0.98 0.87 0.92 0.78 0.79
===============================================================================================================================
Accruing loans past due 90 days $ 145 84 134 144 194
===============================================================================================================================
(a) These ratios do not include nonperforming loans included in other assets as
held for sale.
(b) Annualized.
(c) Restructured loans are insignificant.
(d) These ratios reflect nonperforming loans included in other assets as held
for sale. Assets held for sale are recorded at the lower of cost or market
value, and accordingly, the amount shown and included in the ratios is net of
the transferred allowance for loan losses and the lower of cost or market
valuation.
T-15
39
TABLE 9
INTANGIBLE ASSETS
- -------------------------------------------------------------------------------------------------------------------------------
2000 1999
---------------------------------- --------------------
THIRD Second First Fourth Third
(In millions) QUARTER Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------------------------------------------------------
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill $ 3,551 3,510 5,065 5,091 4,276
Deposit base premium 195 215 236 257 283
Origination network -- -- 269 274 279
Other 10 11 11 4 4
- -------------------------------------------------------------------------------------------------------------------------------
Total $ 3,756 3,736 5,581 5,626 4,842
===============================================================================================================================
MORTGAGE AND OTHER SERVICING ASSETS $ 265 662 681 703 712
===============================================================================================================================
CREDIT CARD PREMIUM $ -- 4 5 6 8
===============================================================================================================================
40
TABLE 10
DEPOSITS
- -------------------------------------------------------------------------------------------------------------------------------
2000 1999
------------------------------------ --------------------
THIRD Second First Fourth Third
(In millions) QUARTER Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------------------------------------------------------
CORE DEPOSITS
Noninterest-bearing $ 28,501 30,229 29,885 31,375 28,737
Savings and NOW accounts 34,620 35,346 36,955 37,748 36,667
Money market accounts 18,382 17,988 18,207 19,405 19,666
Other consumer time 36,814 35,789 34,881 33,812 32,743
- -------------------------------------------------------------------------------------------------------------------------------
Total core deposits 118,317 119,352 119,928 122,340 117,813
OTHER DEPOSITS
Foreign 8,596 9,178 7,062 6,729 5,590
Other time 11,957 16,334 12,900 11,978 10,500
- -------------------------------------------------------------------------------------------------------------------------------
Total deposits $138,870 144,864 139,890 141,047 133,903
===============================================================================================================================
T-16
41
TABLE 11
TIME DEPOSITS IN AMOUNTS OF $100,000 OR MORE
- --------------------------------------------------------------------------------
SEPTEMBER 30, 2000
------------------------
(In millions)
- --------------------------------------------------------------------------------
MATURITY OF
3 months or less $ 7,159
Over 3 months through 6 months 3,389
Over 6 months through 12 months 4,413
Over 12 months 3,758
- --------------------------------------------------------------------------------
Total $ 18,719
================================================================================
T-17
42
TABLE 12
LONG-TERM DEBT
- ------------------------------------------------------------------------------------------------------------------------
2000 1999
------------------------------------ -----------------------
THIRD Second First Fourth Third
(In millions) QUARTER Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------------------------------
NOTES AND DEBENTURES ISSUED BY
THE PARENT COMPANY
Notes
6.625% to 7.70%, due 2004 to 2005 $ 3,082 1,790 2,039 1,592 996
Floating rate, due 2001 to 2005 2,118 1,770 1,087 90 --
Floating rate extendible, due 2005 10 10 10 10 10
Subordinated notes
6.00% to 9.45%, due 2001 to 2009 2,662 2,662 2,662 2,661 2,659
7.18% to 8.00%, due 2009 to 2011 208 208 208 208 208
6.30%, Putable/Callable, due 2028 200 200 200 200 200
8.77% -- -- -- -- 149
Floating rate, due 2003 150 150 150 150 150
Subordinated debentures
6.55% to 7.574%, due 2026 to 2035 794 794 794 794 794
- ------------------------------------------------------------------------------------------------------------------------
Total notes and debentures issued by the
Parent Company 9,224 7,584 7,150 5,705 5,166
- ------------------------------------------------------------------------------------------------------------------------
NOTES ISSUED BY SUBSIDIARIES
Notes, primarily notes issued under global
note programs, varying rates and terms to 2005 17,583 16,988 17,339 18,026 18,890
Subordinated notes
5.875% to 9.625%, due 2001 to 2006 1,075 1,075 1,074 1,074 1,074
Bank, 5.80% to 7.875%, due 2006 to 2036 2,548 1,549 1,549 1,200 1,200
6.625% to 8.375%, due 2002 to 2007 570 570 570 570 400
- ------------------------------------------------------------------------------------------------------------------------
Total notes issued by subsidiaries 21,776 20,182 20,532 20,870 21,564
- ------------------------------------------------------------------------------------------------------------------------
OTHER DEBT
Trust preferred securities 2,020 2,010 1,992 2,027 1,730
4.556% auto securitization financing, due 2008 944 944 945 945 1,022
Advances from the Federal Home Loan Bank 2,262 2,387 2,387 2,387 2,387
Capitalized leases 26 26 30 34 34
Mortgage notes and other debt 6 7 7 7 7
- ------------------------------------------------------------------------------------------------------------------------
Total other debt 5,258 5,374 5,361 5,400 5,180
- ------------------------------------------------------------------------------------------------------------------------
Total $ 36,258 33,140 33,043 31,975 31,910
========================================================================================================================
T-18
43
TABLE 13
CHANGES IN STOCKHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------------------------------------
Twelve 2000 1999
Months ----------------------------------- ------------------------
Ended
Sept. 30, THIRD Second First Fourth Third
(In millions) 2000 QUARTER Quarter Quarter Quarter Quarter
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, beginning of period $ 15,513 13,951 16,884 16,709 15,513 15,288
- ---------------------------------------------------------------------------------------------------------------------------------
Comprehensive income
Net income (loss) 335 852 (2,199) 840 842 802
Net unrealized gain (loss) on debt and
equity securities (296) 348 (212) (44) (388) (193)
- ---------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income 39 1,200 (2,411) 796 454 609
Purchases of common stock (479) (43) (132) (221) (83) (22)
Common stock issued for
Stock options and restricted stock 222 33 76 47 66 25
Dividend reinvestment plan 78 19 19 20 20 21
Acquisitions 1,285 34 -- -- 1,251 --
Deferred compensation, net 19 70 (14) 11 (48) 44
Cash dividends paid (1,882) (469) (471) (478) (464) (452)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, end of period $ 14,795 14,795 13,951 16,884 16,709 15,513
=================================================================================================================================
T-19
44
TABLE 14
CAPITAL RATIOS
- -----------------------------------------------------------------------------------------------------------------------
2000 1999
-------------------------------------- --------------------------
THIRD Second First Fourth Third
(In millions) QUARTER Quarter Quarter Quarter Quarter
- ----------------------------------------------------------------------------------------------------------------------
CONSOLIDATED CAPITAL RATIOS (a)
Qualifying capital
Tier 1 capital $ 13,933 13,452 14,422 14,204 13,117
Total capital 22,528 21,385 22,191 21,810 20,922
Adjusted risk-weighted assets 199,078 202,391 207,955 200,704 187,635
Adjusted leverage ratio assets $ 243,106 251,895 242,869 238,082 224,497
Ratios
Tier 1 capital 7.00 % 6.65 6.94 7.08 6.99
Total capital 11.32 10.57 10.67 10.87 11.15
Leverage 5.73 5.34 5.94 5.97 5.84
STOCKHOLDERS' EQUITY TO ASSETS
Quarter-end 6.00 5.41 6.66 6.60 6.62
Average 5.77 % 6.50 6.68 6.85 6.68
======================================================================================================================
BANK CAPITAL RATIOS
Tier 1 capital
First Union National Bank 7.35 % 7.16 7.38 7.26 7.27
First Union National Bank of Delaware (b) 12.07 12.02 11.43 10.83 11.56
Total capital
First Union National Bank 11.28 10.58 10.54 10.22 10.39
First Union National Bank of Delaware (b) 14.01 14.05 12.45 11.89 12.73
Leverage
First Union National Bank 6.30 6.09 6.74 6.48 6.46
First Union National Bank of Delaware (b) 8.74 % 8.20 7.33 7.08 6.05
======================================================================================================================
(a) Risk-based capital ratio guidelines require a minimum ratio of tier 1
capital to risk-weighted assets of 4.00 percent and a minimum ratio of total
capital to risk-weighted assets of 8.00 percent. The minimum leverage ratio of
tier 1 capital to adjusted average quarterly assets is from 3.00 percent to 4.00
percent.
(b) On June 26, 2000, First Union National Bank of Delaware was formed through
the merger of First Union Bank of Delaware and First Union Home Equity Bank.
T-20
45
TABLE 15
UNREALIZED LOSSES IN CERTAIN FINANCIAL INSTRUMENTS
- ----------------------------------------------------------------------------------------------------------------------------
2000 1999
---------------------------------- -----------------------
THIRD Second First Fourth Third
(In millions) QUARTER Quarter Quarter Quarter Quarter
- ----------------------------------------------------------------------------------------------------------------------------
SECURITIES PORTFOLIOS (a)
Securities available for sale (b) $ (1,339) (1,901) (1,559) (1,431) (833)
Investment securities 61 48 46 51 70
- ----------------------------------------------------------------------------------------------------------------------------
Net unrealized losses - securities portfolios (1,278) (1,853) (1,513) (1,380) (763)
Less unrealized losses in securities considered
an economic hedge of mortgage servicing rights (34) (39) (34) (79) (56)
- ----------------------------------------------------------------------------------------------------------------------------
Net unrealized losses, net - securities portfolios (1,244) (1,814) (1,479) (1,301) (707)
- ----------------------------------------------------------------------------------------------------------------------------
OFF-BALANCE SHEET DERIVATIVE FINANCIAL
INSTRUMENTS (a)
Asset rate conversions (b) 311 (369) (374) (504) (217)
Liability rate conversions (4) 161 23 338 256
Rate sensitivity hedges 56 55 45 4 (7)
- ----------------------------------------------------------------------------------------------------------------------------
Net unrealized gains (losses) - off-balance sheet
derivative financial instruments 363 (153) (306) (162) 32
Less unrealized losses in interest rate swaps
designated as offsets to long-term fixed rate debt (72) (274) (287) (262) (72)
- ----------------------------------------------------------------------------------------------------------------------------
Net unrealized gains (losses) - off-balance sheet
derivative financial instruments 435 121 (19) 100 104
- ----------------------------------------------------------------------------------------------------------------------------
Net unrealized losses $ (809) (1,693) (1,498) (1,201) (603)
============================================================================================================================
(a) Additional information related to the securities portfolios can be found in
Tables 16 and 17. Additional information related to off-balance sheet derivative
financial instruments can be found in Tables 18, 19 and 20.
(b) As of September 30, 2000, June 30, 2000, March 31, 2000, December 31, 1999,
and September 30, 1999, unrealized gains (losses) of $(246) million, $(45)
million, $13 million, $14 million and $22 million, respectively, associated with
$19.0 billion, $25.6 billion, $8.8 billion, $8.3 billion and $7.5 billion,
respectively, of interest rate swaps that qualify as asset rate conversions of
securities available for sale are included with the results of the securities
available for sale portfolio.
T-21
46
TABLE 16
SECURITIES AVAILABLE FOR SALE
- -----------------------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 2000
---------------------------------------------------------------------------------------------------
GROSS UNREALIZED AVERAGE
1 YEAR 1-5 5-10 AFTER 10 ---------------- AMORTIZED MATURITY
(In millions) OR LESS YEARS YEARS YEARS TOTAL GAINS LOSSES COST IN YEARS
- -----------------------------------------------------------------------------------------------------------------------------------
MARKET VALUE
U.S. Treasury $ 1 1 1,568 444 2,014 1 59 2,072 11.56
U.S. Government agencies 3 205 24,100 259 24,567 47 1,056 25,576 8.23
Asset-backed 325 10,785 4,794 364 16,268 203 429 16,494 4.58
State, county and municipal -- 2 40 1,573 1,615 40 4 1,579 28.19
Sundry 144 517 2,612 2,655 5,928 69 151 6,010 8.77
- ----------------------------------------------------------------------------------------------------------------------
Total $ 473 11,510 33,114 5,295 50,392 360 1,699 51,731 7.85
===================================================================================================================================
MARKET VALUE
Debt securities $ 473 11,510 33,114 4,155 49,252 311 1,688 50,629
Equity securities -- -- -- 1,140 1,140 49 11 1,102
- ----------------------------------------------------------------------------------------------------------------------
Total $ 473 11,510 33,114 5,295 50,392 360 1,699 51,731
======================================================================================================================
AMORTIZED COST
Debt securities $ 474 11,539 34,403 4,213 50,629
Equity securities -- -- -- 1,102 1,102
- --------------------------------------------------------------------------------------
Total $ 474 11,539 34,403 5,315 51,731
======================================================================================
WEIGHTED AVERAGE
YIELD
U.S. Treasury 5.58 % 4.90 5.74 5.59 5.70
U.S. Government agencies 6.11 7.82 6.46 5.92 6.47
Asset-backed 7.01 8.93 7.15 7.36 8.32
State, county and municipal -- 8.54 7.43 9.17 9.13
Sundry 7.58 7.41 7.52 6.43 7.03
Consolidated 7.17 % 8.84 6.61 7.18 7.17
======================================================================================
Included in "Sundry" are $3.1 billion of securities denominated in
currencies other than the U.S. dollar. These securities had a weighted average
maturity of 9.33 years and a weighted average yield of 6.86 percent. For
comparative purposes, the weighted average U.S. dollar equivalent yield of these
securities was 7.78 percent based on a weighted average funding cost
differential of (.92) percent.
Included in "Asset-backed" are interest-only and residual certificates
with a market value of $255 million; gross unrealized gains and losses of $18
million and $43 million, respectively; and an amortized cost of $280 million.
Expected maturities may differ from contractual maturities because
issuers may have the right to call or prepay obligations with or without call or
prepayment penalties. Average maturity excludes equity securities and money
market funds.
Yields related to securities exempt from federal and state income taxes
are stated on a fully tax-equivalent basis. They are reduced by the
nondeductible portion of interest expense, assuming a federal tax rate of 35
percent and applicable state tax rates.
At September 30, 2000, there were forward commitments to purchase
securities at a cost which approximates a market value of $330 million, and
commitments to sell securities at a cost which approximates a market value of
$1.2 billion.
Gross gains and losses realized on the sale of debt securities for the
nine months ended September 30, 2000, were $102 million and $1.2 billion,
respectively, and gross gains and losses realized on equity securities were $18
million and $1 million, respectively.
T-22
47
TABLE 17
INVESTMENT SECURITIES
- -----------------------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 2000
---------------------------------------------------------------------------------------------------
GROSS UNREALIZED AVERAGE
1 YEAR 1-5 5-10 AFTER 10 ---------------- MARKET MATURITY
(In millions) OR LESS YEARS YEARS YEARS TOTAL GAINS LOSSES VALUE IN YEARS
- -----------------------------------------------------------------------------------------------------------------------------------
CARRYING VALUE
U.S. Treasury $ 12 1 -- -- 13 -- -- 13 0.40
U.S. Government agencies -- 186 850 -- 1,036 5 15 1,026 5.31
CMOs 24 9 -- -- 33 -- -- 33 1.33
State, county and municipal 34 149 268 115 566 71 -- 637 7.28
Sundry 4 19 2 -- 25 -- -- 25 2.32
- ----------------------------------------------------------------------------------------------------------------------
Total $ 74 364 1,120 115 1,673 76 15 1,734 5.82
===================================================================================================================================
MARKET VALUE
Debt securities $ 75 374 1,152 133 1,734
======================================================================================
WEIGHTED AVERAGE
YIELD
U.S. Treasury 6.36 % 4.70 -- -- 6.27
U.S. Government agencies -- 7.71 6.81 -- 6.97
CMOs 8.50 6.83 -- -- 8.06
State, county and municipal 9.46 10.62 12.08 11.24 11.37
Sundry 7.56 6.87 6.57 -- 6.96
Consolidated 8.52 % 8.84 8.07 11.24 8.47
======================================================================================
Expected maturities may differ from contractual maturities because
issuers may have the right to call or prepay obligations with or without call or
prepayment penalties.
Yields related to securities exempt from federal and state income taxes
are stated on a fully tax-equivalent basis. They are reduced by the
nondeductible portion of interest expense, assuming a federal tax rate of 35
percent and applicable state tax rates.
There were no commitments to purchase or sell investment securities at
September 30, 2000.
There were no gains or losses realized on repurchase agreement
underdeliveries and calls of investment securities for the nine months ended
September 30, 2000.
T-23
48
TABLE 18
OFF-BALANCE SHEET DERIVATIVE FINANCIAL INSTRUMENTS (a)
- -----------------------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 2000
--------------------------------------------------------------------------
GROSS UNREALIZED AVERAGE
NOTIONAL CARRYING ----------------- MARKET MATURITY IN
(In millions) AMOUNT AMOUNT(f) GAINS LOSSES VALUE YEARS(g)
- -----------------------------------------------------------------------------------------------------------------------------------
ASSET RATE CONVERSIONS(b)
Interest rate swaps $ 69,073 171 595 307 459 5.63
Options(c) 7,537 118 6 228 (104) 6.69
Futures 62 -- -- 1 (1) 0.25
- -------------------------------------------------------------------------------------------------------------------
Total asset rate conversions $ 76,672 289 601 536 354 5.73
===================================================================================================================================
LIABILITY RATE CONVERSIONS(d)
Interest rate swaps $ 38,741 38 374 303 109 6.49
Options(c) 17,320 102 65 -- 167 1.03
Futures 111,926 -- -- 140 (140) 0.25
- -------------------------------------------------------------------------------------------------------------------
Total liability rate conversions $ 167,987 140 439 443 136 1.78
===================================================================================================================================
RATE SENSITIVITY HEDGES(e)
Basis swaps $ 706 -- -- -- -- 2.45
Options(c) 8,743 38 56 -- 94 0.46
- -------------------------------------------------------------------------------------------------------------------
Total rate sensitivity hedges $ 9,449 38 56 -- 94 0.61
===================================================================================================================================
(a) Includes only off-balance sheet derivative financial instruments related to
interest rate risk management activities.
(b) Off-balance sheet derivative financial instruments with a notional amount of
$57.7 billion at September 30, 2000, primarily convert floating rate loans to
fixed rate. The notional amount includes $29.2 billion of interest rate swaps
maturing in December 2000 that are extendible at the option of the counterparty
as a $7.5 billion forward-starting swap that is an asset rate conversion and
which matures in 2012. In addition, at September 30, 2000, interest rate swaps
with a notional amount of $19.0 billion, including $10.6 billion of
forward-starting swaps, are rate conversions of securities available for sale.
(c) Includes purchased interest rate floors, caps and collars and purchased
options on swaps.
(d) Off-balance sheet derivative financial instruments with a notional amount of
$21.4 billion at September 30, 2000, convert fixed rate liabilities, primarily
CD's, long-term debt and bank notes, to floating rate. The 2000 notional amount
of $21.4 billion includes $7.9 billion of interest rate swaps that decline on a
quarterly basis through December 2000, based on the estimated decline in the
balance of the designated fixed rate liabilities, to $6.0 billion which matures
in 2009. Off-balance sheet derivative financial instruments with a notional
amount of $146.6 billion convert or hedge floating rate liabilities. Of this
amount, $17.5 billion are forward-starting swaps that convert floating rate
liabilities, primarily deposits and long-term debt, to fixed rate, and $111.9
billion are futures that hedge floating rate liabilities, primarily short-term
and long-term debt.
(e) Off-balance sheet derivative financial instruments designated as rate
sensitivity hedges are primarily used to modify the interest rate
characteristics of pay-variable interest rate swaps under asset rate conversions
or liability rate conversions.
(f) Carrying amount includes accrued interest receivable or payable and
unamortized premiums.
(g) Estimated maturity approximates average life.
T-24
49
TABLE 19
OFF-BALANCE SHEET DERIVATIVES - EXPECTED MATURITIES (a)
- ----------------------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 2000
---------------------------------------------------------------------------------
1 YEAR 1 -2 2 -5 5 -10 AFTER 10
(In millions) OR LESS YEARS YEARS YEARS YEARS TOTAL
- ----------------------------------------------------------------------------------------------------------------------------------
ASSET RATE CONVERSIONS
Notional amount - swaps $ 27,457 1,555 3,405 14,890 21,766 69,073
Notional amount - other 1,015 48 280 6,256 -- 7,599
Weighted average receive rate(b) 7.04 % 6.39 6.86 6.96 7.15 7.03
Weighted average pay rate(b) 6.26 % 6.33 6.61 6.54 6.39 6.37
Estimated fair value $ 71 (5) 46 (36) 278 354
- ----------------------------------------------------------------------------------------------------------------------------------
LIABILITY RATE CONVERSIONS
Notional amount - swaps $ 3,633 350 4,019 21,464 9,275 38,741
Notional amount - other 104,956 23,970 320 -- -- 129,246
Weighted average receive rate(b) 6.83 % 7.16 6.92 6.63 7.79 6.88
Weighted average pay rate(b) 6.40 % 6.86 6.75 6.34 6.74 6.49
Estimated fair value $ (54) 99 19 87 (15) 136
- ----------------------------------------------------------------------------------------------------------------------------------
RATE SENSITIVITY HEDGES
Notional amount - swaps $ 82 211 245 168 -- 706
Notional amount - other 6,508 2,235 -- -- -- 8,743
Weighted average receive rate(b) 6.65 % 6.65 6.07 6.07 -- 6.31
Weighted average pay rate(b) 6.34 % 6.34 6.14 6.14 -- 6.22
Estimated fair value $ 83 11 -- -- -- 94
==================================================================================================================================
(a) Includes only off-balance sheet derivative financial instruments related to
interest rate risk management activities.
(b) Weighted average receive and pay rates include the impact of currently
effective interest rate swaps and basis swaps only, and therefore, they exclude
the impact of forward-starting interest rate swaps. Substantially all of the
currently effective interest rate swaps are receive-fixed/pay-variable with pay
rates generally based on one-to-six month LIBOR, and they are the pay rates in
effect at September 30, 2000.
T-25
50
TABLE 20
OFF-BALANCE SHEET DERIVATIVES ACTIVITY(a)
- ------------------------------------------------------------------------------------------------------------------------------
Asset Liability Rate
Rate Rate Sensitivity
(In millions) Conversions Conversions Hedges Total
- ------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 $ 57,551 74,158 58,571 190,280
Additions 17,393 138,779 64,940 221,112
Maturities and amortizations (2,175) (25,220) (102,856) (130,251)
Terminations (15,097) (1,730) (10,206) (27,033)
Redesignations 19,000 (18,000) (1,000) --
- ------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 2000 $ 76,672 167,987 9,449 254,108
==============================================================================================================================
(a) Includes only off-balance sheet derivative financial instruments related to
interest rate risk management activities.
T-26
51
FIRST UNION CORPORATION
NET INTEREST INCOME SUMMARIES
- -----------------------------------------------------------------------------------------------------------------------------------
THIRD QUARTER 2000 SECOND QUARTER 2000
----------------------------------- -----------------------------------
AVERAGE Average
INTEREST RATES Interest Rates
AVERAGE INCOME/ EARNED/ Average Income/ Earned/
(In millions) BALANCES EXPENSE PAID Balances Expense Paid
- -----------------------------------------------------------------------------------------------------------------------------------
ASSETS
Interest-bearing bank balances $ 1,465 20 5.28 % $ 977 13 5.52 %
Federal funds sold and securities
purchased under resale agreements 6,367 97 6.11 9,318 132 5.72
Trading account assets (a) 12,204 214 6.99 12,950 220 6.83
Securities available for sale (a) 51,109 954 7.46 54,340 1,000 7.37
Investment securities (a)
U.S. Government and other 1,100 19 6.92 1,095 19 6.90
State, county and municipal 571 15 10.59 592 16 10.56
- ----------------------------------------------------------------------------- ----------------------
Total investment securities 1,671 34 8.17 1,687 35 8.18
- ----------------------------------------------------------------------------- ----------------------
Loans (a) (b)
Commercial
Commercial, financial and agricultural 53,226 1,250 9.34 54,486 1,251 9.22
Real estate - construction and other 2,676 59 8.65 2,458 52 8.49
Real estate - mortgage 9,294 203 8.70 9,302 195 8.44
Lease financing 5,168 148 11.45 5,123 153 11.90
Foreign 5,016 91 7.17 4,582 80 7.08
- ----------------------------------------------------------------------------- ----------------------
Total commercial 75,380 1,751 9.24 75,951 1,731 9.15
- ----------------------------------------------------------------------------- ----------------------
Retail
Real estate - mortgage 23,163 432 7.47 25,760 469 7.28
Installment loans - Bankcard 187 6 13.52 1,839 55 12.05
Installment loans - other and vehicle leasing 24,745 590 9.48 29,064 685 9.46
- ----------------------------------------------------------------------------- ----------------------
Total retail 48,095 1,028 8.53 56,663 1,209 8.55
- ----------------------------------------------------------------------------- ----------------------
Total loans 123,475 2,779 8.96 132,614 2,940 8.90
- ----------------------------------------------------------------------------- ----------------------
Other earning assets 14,798 393 10.63 8,175 177 8.66
- ----------------------------------------------------------------------------- ----------------------
Total earning assets 211,089 4,491 8.48 220,061 4,517 8.24
===================== =====================
Cash and due from banks 7,446 7,830
Other assets 28,283 27,692
- ---------------------------------------------------------------- ---------
Total assets $ 246,818 $ 255,583
================================================================= =========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest-bearing deposits
Savings and NOW accounts 37,680 296 3.13 38,940 283 2.92
Money market accounts 15,629 175 4.46 14,959 154 4.13
Other consumer time 36,328 524 5.74 35,386 478 5.43
Foreign 9,721 151 6.18 8,795 130 5.92
Other time 15,317 276 7.16 14,153 240 6.82
- ----------------------------------------------------------------------------- ----------------------
Total interest-bearing deposits 114,675 1,422 4.93 112,233 1,285 4.60
Federal funds purchased and securities
sold under repurchase agreements 28,363 459 6.43 36,762 552 6.04
Commercial paper 2,588 40 6.25 3,308 49 6.03
Other short-term borrowings 9,257 110 4.74 11,096 149 5.37
Long-term debt 35,263 600 6.80 33,555 552 6.58
- ----------------------------------------------------------------------------- ----------------------
Total interest-bearing liabilities 190,146 2,631 5.51 196,954 2,587 5.28
===================== =====================
Noninterest-bearing deposits 28,437 28,971
Other liabilities 13,999 13,044
Stockholders' equity 14,236 16,614
- ---------------------------------------------------------------- ---------
Total liabilities and stockholders' equity $ 246,818 $ 255,583
================================================================= =========
Interest income and rate earned $ 4,491 8.48 % $ 4,517 8.24 %
Interest expense and equivalent rate paid 2,631 4.96 2,587 4.73
- ------------------------------------------------------------------------------------------ ----------------------
Net interest income and margin (c) $ 1,860 3.52 % $ 1,930 3.51 %
========================================================================================== ======================
(a) Yields related to securities and loans exempt from federal and state income
taxes are stated on a fully tax-equivalent basis. They are reduced by the
nondeductible portion of interest expense, assuming a federal tax rate of 35
percent and applicable state tax rates. Lease financing amounts include related
deferred income taxes.
(b) The loan averages are stated net of unearned income, and the averages
include loans on which the accrual of interest has been discontinued.
T-27
52
FIRST QUARTER 2000 FOURTH QUARTER 1999 THIRD QUARTER 1999
--------------------------------------------------------------------------------------------------------------
Average Average Average
Interest Rates Interest Rates Interest Rates
Average Income/ Earned/ Average Income/ Earned/ Average Income/ Earned/
Balances Expense Paid Balances Expense Paid Balances Expense Paid
--------------------------------------------------------------------------------------------------------------
$ 666 7 4.40 % $ 859 8 3.62 % $ 593 7 4.43 %
9,555 129 5.40 10,260 136 5.24 8,545 107 4.97
11,326 193 6.84 11,201 185 6.58 10,182 167 6.52
52,682 943 7.16 51,024 902 7.07 46,798 813 6.96
1,100 19 6.92 1,121 19 6.82 1,100 18 6.62
607 16 10.57 654 18 10.72 695 19 10.62
-------------------- -------------------- --------------------
1,707 35 8.22 1,775 37 8.26 1,795 37 8.17
-------------------- -------------------- --------------------
52,809 1,174 8.95 53,395 1,152 8.57 51,331 1,036 8.01
2,406 48 8.08 2,655 53 7.88 2,654 50 7.59
8,979 183 8.19 8,472 171 8.00 8,421 166 7.80
5,213 160 12.29 5,214 164 12.53 4,904 154 12.57
4,532 74 6.56 4,684 75 6.37 4,695 69 5.82
-------------------- -------------------- --------------------
73,939 1,639 8.92 74,420 1,615 8.62 72,005 1,475 8.14
-------------------- -------------------- --------------------
27,551 499 7.24 27,253 483 7.09 25,002 439 7.03
1,822 67 14.62 1,743 54 12.26 2,169 74 13.64
28,169 652 9.31 27,803 650 9.30 28,158 642 9.08
-------------------- -------------------- --------------------
57,542 1,218 8.49 56,799 1,187 8.33 55,329 1,155 8.33
-------------------- -------------------- --------------------
131,481 2,857 8.73 131,219 2,802 8.49 127,334 2,630 8.22
-------------------- -------------------- --------------------
8,337 172 8.29 5,346 99 7.43 4,100 79 7.60
-------------------- -------------------- --------------------
215,754 4,336 8.06 211,684 4,169 7.84 199,347 3,840 7.67
==================== ==================== ====================
8,078 8,584 8,477
24,458 23,272 21,338
-------- -------- --------
$248,290 $243,540 $229,162
======== ======== ========
39,830 289 2.92 36,761 283 3.07 37,254 266 2.82
15,564 151 3.89 19,493 162 3.29 20,087 159 3.14
33,991 423 5.00 33,047 399 4.79 32,600 407 4.95
9,125 123 5.44 6,446 79 4.83 5,345 62 4.60
13,224 209 6.37 11,674 179 6.10 7,545 112 5.91
-------------------- -------------------- --------------------
111,734 1,195 4.30 107,421 1,102 4.07 102,831 1,006 3.88
35,286 482 5.50 34,689 454 5.19 29,940 357 4.73
2,996 42 5.56 2,532 33 5.19 2,287 28 4.83
9,100 115 5.09 9,414 119 5.00 7,973 105 5.26
32,564 513 6.30 32,623 490 6.00 31,112 434 5.59
-------------------- -------------------- --------------------
191,680 2,347 4.92 186,679 2,198 4.68 174,143 1,930 4.41
==================== ==================== ====================
28,687 29,559 30,593
11,340 10,616 9,127
16,583 16,686 15,299
-------- -------- --------
$248,290 $243,540 $229,162
======== ======== ========
$4,336 8.06 % $4,169 7.84 % $3,840 7.67 %
2,347 4.37 2,198 4.12 1,930 3.85
-------------------- -------------------- --------------------
$1,989 3.69 % $1,971 3.72 % $1,910 3.82 %
==================== ==================== ====================
(c) The net interest margin includes (in basis points): 22, 27, 27, 23 and 24
for the quarters ended September 30, 2000, June 30, 2000, March 31, 2000,
December 31, 1999, and September 30, 1999, respectively, related to net
interest income from off-balance sheet derivative transactions.
T-28
53
FIRST UNION CORPORATION
NET INTEREST INCOME SUMMARIES
- ------------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED 2000 NINE MONTH ENDED 1999
-----------------------------------------------------------------
AVERAGE Average
INTEREST RATES Interest Rates
AVERAGE INCOME/ EARNED/ Average Income/ Earned/
(In millions) BALANCES EXPENSE PAID Balances Expense Paid
- ------------------------------------------------------------------------------------------------------------------------
ASSETS
Interest-bearing bank balances $ 1,038 40 5.17 % $ 827 31 4.92 %
Federal funds sold and securities
purchased under resale agreements 8,406 358 5.70 9,279 323 4.66
Trading account assets (a) 12,160 627 6.89 9,110 424 6.21
Securities available for sale (a) 52,704 2,897 7.33 41,321 2,087 6.74
Investment securities (a)
U.S. Government and other 1,098 57 6.91 1,177 59 6.70
State, county and municipal 590 47 10.58 716 57 10.59
- --------------------------------------------------------------------------- --------------------
Total investment securities 1,688 104 8.19 1,893 116 8.17
- --------------------------------------------------------------------------- --------------------
Loans (a) (b)
Commercial
Commercial, financial and agricultural 53,506 3,675 9.17 52,480 3,045 7.76
Real estate - construction and other 2,514 159 8.42 2,645 149 7.55
Real estate - mortgage 9,192 581 8.45 8,466 492 7.77
Lease financing 5,168 461 11.88 4,884 465 12.70
Foreign 4,711 245 6.94 4,438 198 5.97
- --------------------------------------------------------------------------- --------------------
Total commercial 75,091 5,121 9.11 72,913 4,349 7.97
- --------------------------------------------------------------------------- --------------------
Retail
Real estate - mortgage 25,483 1,400 7.33 22,147 1,178 7.09
Installment loans - Bankcard 1,279 128 13.38 2,479 251 13.53
Installment loans - other and vehicle leasing 27,316 1,927 9.42 31,771 2,114 8.89
- --------------------------------------------------------------------------- --------------------
Total retail 54,078 3,455 8.52 56,397 3,543 8.39
- --------------------------------------------------------------------------- --------------------
Total loans 129,169 8,576 8.86 129,310 7,892 8.15
- --------------------------------------------------------------------------- --------------------
Other earning assets 10,453 742 9.48 4,236 227 7.14
- --------------------------------------------------------------------------- --------------------
Total earning assets 215,618 13,344 8.26 195,976 11,100 7.56
================== ==================
Cash and due from banks 7,783 9,379
Other assets 26,817 20,509
- --------------------------------------------------------------- --------
Total assets $250,218 $225,864
=============================================================== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest-bearing deposits
Savings and NOW accounts 38,813 868 2.99 37,679 752 2.67
Money market accounts 15,385 480 4.17 20,212 469 3.10
Other consumer time 35,239 1,425 5.40 33,729 1,276 5.06
Foreign 9,215 404 5.86 5,252 180 4.59
Other time 14,235 725 6.80 6,132 275 5.99
- --------------------------------------------------------------------------- --------------------
Total interest-bearing deposits 112,887 3,902 4.62 103,004 2,952 3.83
Federal funds purchased and securities
sold under repurchase agreements 33,451 1,493 5.96 28,481 998 4.68
Commercial paper 2,963 131 5.94 2,120 74 4.66
Other short-term borrowings 9,815 374 5.09 9,111 341 5.01
Long-term debt 33,800 1,665 6.57 27,429 1,136 5.52
- --------------------------------------------------------------------------- --------------------
Total interest-bearing liabilities 192,916 7,565 5.24 170,145 5,501 4.32
================== ==================
Noninterest-bearing deposits 28,698 31,479
Other liabilities 12,799 8,563
Stockholders' equity 15,805 15,677
- --------------------------------------------------------------- --------
Total liabilities and stockholders' equity $250,218 $225,864
=============================================================== ========
Interest income and rate earned $ 13,344 8.26 % $ 11,100 7.56 %
Interest expense and equivalent rate paid 7,565 4.68 5,501 3.75
- ------------------------------------------------------------------------------------- ------------------
Net interest income and margin (c) $ 5,779 3.58 % $ 5,599 3.81 %
===================================================================================== ==================
(a) Yields related to securities and loans exempt from federal and state income
taxes are stated on a fully tax-equivalent basis. They are reduced by the
nondeductible portion of interest expense, assuming a federal tax rate of 35
percent and applicable state tax rates. Lease financing amounts include related
deferred income taxes.
(b) The loan averages are stated net of unearned income, and the averages
include loans on which the accrual of interest has been discontinued.
(c) The net interest margin includes (in basis points): 26 and 20 for the nine
months ended September 30, 2000, and September 30, 1999, respectively, related
to net interest income from off-balance sheet derivative transactions.
T-29
54
FIRST UNION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- -----------------------------------------------------------------------------------------------------------------------------------
2000 1999
------------------------------------------ -----------------------
THIRD Second First Fourth Third
(In millions, except per share data) QUARTER Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 7,063 8,028 7,854 10,081 6,987
Interest-bearing bank balances 4,585 1,913 1,037 1,073 647
Federal funds sold and securities purchased
under resale agreements 5,395 9,054 8,206 11,523 8,561
- -----------------------------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 17,043 18,995 17,097 22,677 16,195
- -----------------------------------------------------------------------------------------------------------------------------------
Trading account assets 17,417 18,237 17,076 14,946 13,806
Securities available for sale 50,392 53,491 50,421 51,277 48,695
Investment securities 1,673 1,712 1,668 1,758 1,760
Loans, net of unearned income 123,419 128,359 135,803 133,177 131,482
Allowance for loan losses (1,720) (1,706) (1,760) (1,757) (1,759)
- -----------------------------------------------------------------------------------------------------------------------------------
Loans, net 121,699 126,653 134,043 131,420 129,723
- -----------------------------------------------------------------------------------------------------------------------------------
Premises and equipment 5,090 5,211 5,171 5,180 5,024
Due from customers on acceptances 968 839 842 995 807
Goodwill and other intangible assets 3,756 3,736 5,581 5,626 4,842
Other assets 28,602 29,120 21,749 19,145 13,556
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets $ 246,640 257,994 253,648 253,024 234,408
===================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing deposits 28,501 30,229 29,885 31,375 28,737
Interest-bearing deposits 110,369 114,635 110,005 109,672 105,166
- -----------------------------------------------------------------------------------------------------------------------------------
Total deposits 138,870 144,864 139,890 141,047 133,903
Short-term borrowings 39,388 50,883 49,389 50,107 41,834
Bank acceptances outstanding 976 847 847 995 807
Other liabilities 16,353 14,309 13,595 12,191 10,441
Long-term debt 36,258 33,140 33,043 31,975 31,910
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 231,845 244,043 236,764 236,315 218,895
- -----------------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred stock -- -- -- -- --
Common stock, $3.33-1/3 par value;
authorized 2 billion shares 3,287 3,288 3,280 3,294 3,195
Paid-in capital 6,211 6,066 6,021 5,980 4,808
Retained earnings 6,135 5,783 8,557 8,365 8,052
Accumulated other comprehensive income, net (838) (1,186) (974) (930) (542)
- -----------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 14,795 13,951 16,884 16,709 15,513
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 246,640 257,994 253,648 253,024 234,408
===================================================================================================================================
MEMORANDA
Securities available for sale - amortized cost $ 51,731 55,392 51,980 52,708 49,528
Investment securities - market value $ 1,734 1,760 1,714 1,809 1,830
Shares outstanding (In thousands) 986,004 986,394 984,148 988,315 958,440
===================================================================================================================================
T-30
55
FIRST UNION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
- ------------------------------------------------------------------------------------------------------------------------------------
2000 1999
-------------------------------------- -------------------------
THIRD Second First Fourth Third
(In millions, except per share data) QUARTER Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Interest and fees on loans $ 2,768 2,929 2,848 2,792 2,615
Interest and dividends on securities available for sale 945 993 936 895 809
Interest and dividends on investment securities 30 30 30 31 31
Trading account interest 212 218 191 182 164
Other interest income 510 322 308 243 193
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest income 4,465 4,492 4,313 4,143 3,812
- -----------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits 1,422 1,285 1,195 1,102 1,006
Interest on short-term borrowings 609 750 639 606 490
Interest on long-term debt 600 552 513 490 434
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest expense 2,631 2,587 2,347 2,198 1,930
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income 1,834 1,905 1,966 1,945 1,882
Provision for loan losses 202 493 192 173 175
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 1,632 1,412 1,774 1,772 1,707
- -----------------------------------------------------------------------------------------------------------------------------------
FEE AND OTHER INCOME
Service charges and fees 506 447 486 513 487
Commissions 365 375 468 398 207
Fiduciary and asset management fees 384 374 366 353 307
Advisory, underwriting and other Capital Markets fees 143 182 209 205 130
Principal investing 37 185 203 210 176
Other income 628 (1,166) 110 158 133
- -----------------------------------------------------------------------------------------------------------------------------------
Total fee and other income 2,063 397 1,842 1,837 1,440
- -----------------------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Salaries and employee benefits 1,427 1,396 1,429 1,310 1,092
Occupancy 160 155 157 148 126
Equipment 213 210 214 215 193
Advertising 18 31 30 48 61
Communications and supplies 125 123 125 135 106
Professional and consulting fees 91 82 71 79 59
Goodwill and other intangible amortization 79 100 102 105 95
Restructuring charges 52 2,110 (5) 6 --
Sundry expense 283 296 259 314 208
- -----------------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 2,448 4,503 2,382 2,360 1,940
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (benefits) 1,247 (2,694) 1,234 1,249 1,207
Income taxes (benefits) 395 (495) 394 407 405
- -----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 852 (2,199) 840 842 802
===================================================================================================================================
PER SHARE DATA
Basic earnings $ 0.87 (2.27) 0.86 0.86 0.84
Diluted earnings 0.86 (2.27) 0.85 0.86 0.84
Cash dividends $ 0.48 0.48 0.48 0.47 0.47
AVERAGE SHARES (IN THOUSANDS)
Basic 971,453 969,707 972,174 976,377 946,802
Diluted 986,763 981,940 984,095 984,537 953,964
===================================================================================================================================
T-31
56
FIRST UNION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Nine Months Ended
September 30,
-------------------------
(In millions, except per share data) 2000 1999
- -----------------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Interest and fees on loans $ 8,545 7,837
Interest and dividends on securities available for sale 2,874 2,074
Interest and dividends on investment securities 90 98
Trading account interest 621 418
Other interest income 1,140 581
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest income 13,270 11,008
- -----------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits 3,902 2,952
Interest on short-term borrowings 1,998 1,413
Interest on long-term debt 1,665 1,136
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest expense 7,565 5,501
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income 5,705 5,507
Provision for loan losses 887 519
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 4,818 4,988
- -----------------------------------------------------------------------------------------------------------------------------------
FEE AND OTHER INCOME
Service charges and fees 1,439 1,474
Commissions 1,208 616
Fiduciary and asset management fees 1,124 885
Advisory, underwriting and other Capital Markets fees 534 497
Principal investing 425 382
Other income (428) 1,242
- -----------------------------------------------------------------------------------------------------------------------------------
Total fee and other income 4,302 5,096
- -----------------------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Salaries and employee benefits 4,252 3,406
Occupancy 472 398
Equipment 637 578
Advertising 79 186
Communications and supplies 373 346
Professional and consulting fees 244 208
Goodwill and other intangible amortization 281 286
Restructuring charges 2,157 398
Sundry expense 838 696
- -----------------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 9,333 6,502
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (213) 3,582
Income taxes 294 1,201
- -----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (507) 2,381
===================================================================================================================================
PER SHARE DATA
Basic earnings $ (0.54) 2.49
Diluted earnings (0.54) 2.47
Cash dividends $ 1.44 1.41
AVERAGE SHARES (IN THOUSANDS)
Basic 971,111 953,728
Diluted 984,340 961,165
===================================================================================================================================
T-32
57
FIRST UNION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -----------------------------------------------------------------------------------------------------------------------------------
Nine Months Ended
September 30,
-------------------------
(In millions) 2000 1999
- -----------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income (loss) $ (507) 2,381
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities
Accretion and amortization of securities discounts and premiums, net 206 226
Provision for loan losses 887 519
Securitization (gains) losses 194 (552)
Gain on sale of mortgage servicing rights (3) (41)
Securities available for sale transactions 1,058 (56)
Depreciation, goodwill and other amortization 934 856
Goodwill impairments 1,754 --
Trading account assets, net (2,471) (5,576)
Mortgage loans held for resale 689 1,766
Gain on sales of premises and equipment (8) (11)
Gain on sales of credit card and mortgage servicing portfolios (1,008) --
Other assets, net 150 4,871
Other liabilities, net 4,143 (1,614)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 6,018 2,769
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Increase (decrease) in cash realized from
Sales of securities available for sale 11,264 16,042
Maturities of securities available for sale 2,773 3,377
Purchases of securities available for sale (6,411) (22,525)
Calls and underdeliveries of investment securities 23 --
Maturities of investment securities 243 393
Purchases of investment securities (183) (134)
Origination of loans, net (8,509) (9,662)
Sales of premises and equipment 248 245
Purchases of premises and equipment (650) (664)
Goodwill and other intangible assets, net (52) (92)
Purchase of bank-owned separate account life insurance (97) (48)
Cash equivalents acquired, net of purchases of banking organizations 3 --
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (1,348) (13,068)
- -----------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase (decrease) in cash realized from
Sales of deposits, net (2,177) (8,564)
Securities sold under repurchase agreements and other short-term borrowings, net (10,719) 396
Issuances of long-term debt 14,066 14,276
Payments of long-term debt (9,788) (5,315)
Sales of common stock 128 147
Purchases of common stock (396) (1,730)
Cash dividends paid (1,418) (1,353)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash used by financing activities (10,304) (2,143)
- -----------------------------------------------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents (5,634) (12,442)
Cash and cash equivalents, beginning of year 22,677 28,637
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 17,043 16,195
===================================================================================================================================
NONCASH ITEMS
Transfer to securities available for sale from trading account assets $ -- 1,529
Transfer to securities available for sale from loans 9,246 8,259
Transfer to other assets from securities available for sale 1,335 --
Transfer to other assets from loans 7,901 --
Transfer to foreclosed properties from loans 2 7
Issuance of common stock for purchase accounting acquisitions $ 34 --
===================================================================================================================================
T-33
58
FIRST UNION
CORPORATION
AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL INFORMATION
OPERATING EARNINGS
NINE MONTHS ENDED SEPTEMBER 30, 2000
THIRD QUARTER 2000
S-1
59
FIRST UNION CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Three Months Ended September 30, 2000 Nine Months Ended September 30, 2000
-----------------------------------------------------------------------------
Restructuring Restructuring
Operating and Other As Operating and Other As
(In millions) Earnings Charges/Gains Reported Earnings Charges/Gains Reported
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income $ 1,834 -- 1,834 5,705 -- 5,705
Provision for loan losses 142 60 202 562 325 887
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 1,692 (60) 1,632 5,143 (325) 4,818
- -----------------------------------------------------------------------------------------------------------------------------------
Fee and other income
Service charges and fees 508 (2) 506 1,485 (46) 1,439
Advisory, underwriting and other
Capital Markets fees 146 (3) 143 537 (3) 534
Other income
Security transactions - portfolio 10 (467) (457) (13) (1,045) (1,058)
Asset sales and securitization 82 1 83 194 (388) (194)
Gain on sale of credit card portfolio -- 937 937 -- 937 937
Gain on sale of mortgage servicing portfolio -- 71 71 -- 71 71
Other 899 (119) 780 3,030 (457) 2,573
- -----------------------------------------------------------------------------------------------------------------------------------
Total fee and other income 1,645 418 2,063 5,233 (931) 4,302
- -----------------------------------------------------------------------------------------------------------------------------------
Noninterest expense
Restructuring charges -- 52 52 -- 2,157 2,157
Other noninterest expense 2,328 68 2,396 7,081 95 7,176
- -----------------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 2,328 120 2,448 7,081 2,252 9,333
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (benefits) 1,009 238 1,247 3,295 (3,508) (213)
Income taxes (benefits) 307 88 395 1,041 (747) 294
- -----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 702 150 852 2,254 (2,761) (507)
===================================================================================================================================
Diluted earnings per share $ 0.71 0.15 0.86 2.29 (2.83) (0.54)
===================================================================================================================================
FIRST UNION CORPORATION AND SUBSIDIARIES
RESTRUCTURING AND OTHER CHARGES/GAINS
- -----------------------------------------------------------------------------------------------------------------------------------
Three Nine
Months Months
Ended Ended
September 30, September 30,
(In millions) 2000 2000
- ----------------------------------------------------------------------------------------------------------------------------------
RESTRUCTURING CHARGES (Includes merger-related charges)
Employee termination benefits $ 27 162
Occupancy 15 108
Goodwill and other intangible impairments (noncash) -- 1,754
Other asset impairments (16) 19
Contract cancellations 5 84
Other (3) (14)
- ----------------------------------------------------------------------------------------------------------------------------------
Total 28 2,113
EVEREN and other merger-related charges 24 44
- ----------------------------------------------------------------------------------------------------------------------------------
Total 52 2,157
- ----------------------------------------------------------------------------------------------------------------------------------
OTHER CHARGES/GAINS
Provision for loan losses 60 325
Service charges and fees 2 46
Advisory, underwriting and other Capital Markets fees 3 3
Other income (423) 882
Other noninterest expense 68 95
- ----------------------------------------------------------------------------------------------------------------------------------
Total other charges/gains (290) 1,351
- ----------------------------------------------------------------------------------------------------------------------------------
Total restructuring and other charges/gains 238 (3,508)
Income taxes (benefits) 88 (747)
- ----------------------------------------------------------------------------------------------------------------------------------
After-tax restructuring and other charges/gains $ 150 (2,761)
==================================================================================================================================
S-2
60
FIRST UNION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATING EARNINGS (a)
- ------------------------------------------------------------------------------------------------------------------------
2000 1999
------------------------------ ------------------
THIRD Second First Fourth Third
(In millions, except per share data) QUARTER Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Interest and fees on loans $ 2,768 2,929 2,848 2,792 2,615
Interest and dividends on securities available for sale 945 993 936 895 809
Interest and dividends on investment securities 30 30 30 31 31
Trading account interest 212 218 191 182 164
Other interest income 510 322 308 243 193
- ------------------------------------------------------------------------------------------------------------------------
Total interest income 4,465 4,492 4,313 4,143 3,812
- ------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits 1,422 1,285 1,195 1,102 1,006
Interest on short-term borrowings 609 750 639 606 490
Interest on long-term debt 600 552 513 490 434
- ------------------------------------------------------------------------------------------------------------------------
Total interest expense 2,631 2,587 2,347 2,198 1,930
- ------------------------------------------------------------------------------------------------------------------------
Net interest income 1,834 1,905 1,966 1,945 1,882
Provision for loan losses 142 228 192 173 175
- ------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 1,692 1,677 1,774 1,772 1,707
- ------------------------------------------------------------------------------------------------------------------------
FEE AND OTHER INCOME
Service charges and fees 508 491 486 513 487
Commissions 365 375 468 398 207
Fiduciary and asset management fees 384 374 366 353 307
Advisory, underwriting and other Capital Markets fees 146 182 209 205 130
Principal investing 37 185 203 210 176
Other income 205 139 110 158 133
- ------------------------------------------------------------------------------------------------------------------------
Total fee and other income 1,645 1,746 1,842 1,837 1,440
- ------------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Salaries and employee benefits 1,381 1,396 1,429 1,310 1,092
Occupancy 157 155 157 148 126
Equipment 213 210 214 215 193
Advertising 14 31 30 48 61
Communications and supplies 117 122 125 135 106
Professional and consulting fees 87 82 71 79 59
Goodwill and other intangible amortization 79 100 102 105 95
Sundry expense 280 270 259 314 208
- ------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 2,328 2,366 2,387 2,354 1,940
- ------------------------------------------------------------------------------------------------------------------------
Income before income taxes 1,009 1,057 1,229 1,255 1,207
Income taxes 307 343 391 409 405
- ------------------------------------------------------------------------------------------------------------------------
Net operating earnings $ 702 714 838 846 802
========================================================================================================================
Diluted earnings per share $ 0.71 0.73 0.85 0.86 0.84
========================================================================================================================
(a) Operating earnings exclude restructuring and other charges/gains.
S-3
61
FIRST UNION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATING EARNINGS (a)
- -------------------------------------------------------------------------------------------------------------------
Nine Months Ended
September 30,
-------------------
(In millions, except per share data) 2000 1999
- -------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Interest and fees on loans $ 8,545 7,837
Interest and dividends on securities available for sale 2,874 2,074
Interest and dividends on investment securities 90 98
Trading account interest 621 418
Other interest income 1,140 581
- -------------------------------------------------------------------------------------------------------------------
Total interest income 13,270 11,008
- -------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits 3,902 2,952
Interest on short-term borrowings 1,998 1,413
Interest on long-term debt 1,665 1,136
- -------------------------------------------------------------------------------------------------------------------
Total interest expense 7,565 5,501
- -------------------------------------------------------------------------------------------------------------------
Net interest income 5,705 5,507
Provision for loan losses 562 519
- -------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 5,143 4,988
- -------------------------------------------------------------------------------------------------------------------
FEE AND OTHER INCOME
Service charges and fees 1,485 1,474
Commissions 1,208 616
Fiduciary and asset management fees 1,124 885
Advisory, underwriting and other Capital Markets fees 537 497
Principal investing 425 382
Other income 454 1,242
- -------------------------------------------------------------------------------------------------------------------
Total fee and other income 5,233 5,096
- -------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Salaries and employee benefits 4,206 3,406
Occupancy 469 398
Equipment 637 578
Advertising 75 186
Communications and supplies 364 346
Professional and consulting fees 240 208
Goodwill and other intangible amortization 281 286
Sundry expense 809 696
- -------------------------------------------------------------------------------------------------------------------
Total noninterest expense 7,081 6,104
- -------------------------------------------------------------------------------------------------------------------
Income before income taxes 3,295 3,980
Income taxes 1,041 1,340
- -------------------------------------------------------------------------------------------------------------------
Net operating earnings $ 2,254 2,640
===================================================================================================================
Diluted earnings per share $ 2.29 2.74
===================================================================================================================
(a) Operating earnings exclude restructuring and other charges/gains.
S-4