THIRD QUARTER 1999
FIRST UNION
CORPORATION
AND SUBSIDIARIES
MANAGEMENT'S ANALYSIS
OF OPERATIONS
QUARTERLY FINANCIAL SUPPLEMENT
NINE MONTHS ENDED SEPTEMBER 30, 1999
DIVIDEND GROWTH
CURRENT DIVIDEND ANNUALIZED
(IN DOLLARS)
(A line chart appears here. See the table for plot points.)
78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95
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
96 97 98 Current
1.10 1.22 1.58 1.88
FIRST UNION CORPORATION AND SUBSIDIARIES
QUARTERLY FINANCIAL SUPPLEMENT
NINE MONTHS ENDED SEPTEMBER 30, 1999
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
Merger-Related and Restructuring Charges T-2
Business Segments T-3
Selected Performance, Dividend Payout and Other Ratios T-11
Loans - On-Balance Sheet and Managed Portfolio T-11
Interest-Only and Residual Certificates T-12
Allowance for Loan Losses and Nonperforming Assets T-13
Intangible Assets T-14
Deposits T-14
Time Deposits in Amounts of $100,000 or More T-14
Long-Term Debt T-15
Changes in Stockholders' Equity T-17
Capital Ratios T-18
Unrealized Gains (Losses) in Certain Financial Instruments T-19
Securities Available for Sale T-20
Investment Securities T-21
Off-Balance Sheet Derivative Financial Instruments T-22
Off-Balance Sheet Derivatives - Expected Maturities T-24
Off-Balance Sheet Derivatives Activity T-24
Net Interest Income Summaries
Five Quarters Ended September 30, 1999 T-25
Nine Months Ended September 30, 1999 and 1998 T-27
Consolidated Balance Sheets T-28
Consolidated Statements of Income
Five Quarters Ended September 30, 1999 T-29
Nine Months Ended September 30, 1999 and 1998 T-30
Consolidated Statements of Cash Flows T-31
FINANCIAL HIGHLIGHTS
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THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
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(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) 1999 1998 1999 1998
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FINANCIAL HIGHLIGHTS
Net income before merger-related and restructuring
charges (Operating earnings) $ 802 1,011 2,640 2,703
After tax merger-related and restructuring charges - 16 259 669
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Net income after merger-related and restructuring charges $ 802 995 2,381 2,034
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PER SHARE DATA
Diluted earnings
Net income before merger-related and restructuring charges $ 0.84 1.02 2.74 2.77
Net income after merger-related and restructuring charges 0.84 1.01 2.47 2.08
Basic earnings
Net income before merger-related and restructuring charges 0.84 1.03 2.76 2.80
Net income after merger-related and restructuring charges 0.84 1.02 2.49 2.11
Cash dividends 0.47 0.42 1.41 1.16
Book value 16.62 17.54 16.62 17.54
Period-end price $ 35.625 51.1875 35.625 51.1875
Dividend payout ratio (Based on operating earnings) 55.95 % 41.18 51.46 41.03
Average shares (In thousands)
Diluted 953,964 993,208 961,165 976,826
Basic 946,802 981,659 953,728 965,506
Actual shares (In thousands) 958,440 990,373 958,440 990,373
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PERFORMANCE HIGHLIGHTS
Before merger-related and restructuring charges
Return on average assets (a) 1.39 % 1.75 1.56 1.64
Return on average stockholders' equity (a) (b) 19.91 22.99 21.74 22.43
Overhead efficiency ratio (c) 57.91 51.48 57.07 54.22
Net charge-offs as a percentage of
average loans, net (a) 0.53 0.55 0.52 0.47
Nonperforming assets to loans, net, and foreclosed properties 0.77 0.61 0.77 0.61
Net interest margin (a) 3.82 % 3.74 3.81 3.86
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CASH EARNINGS (Excluding other
intangible amortization)
Before merger-related and restructuring charges
Net income $ 881 1,074 2,880 2,890
Diluted earnings per share $ 0.92 1.09 2.99 2.96
Return on average tangible assets (a) 1.56 % 1.90 1.74 1.79
Return on average tangible stockholders' equity (a) (b) 31.52 34.58 34.10 31.22
Overhead efficiency ratio (c) 55.07 % 48.79 54.40 51.78
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PERIOD-END BALANCE SHEET DATA
Securities available for sale $ 48,695 38,052
Investment securities 1,760 2,121
Loans, net of unearned income 135,033 135,689
Earning assets 208,502 204,947
Total assets 234,823 234,580
Noninterest-bearing deposits 28,737 30,504
Interest-bearing deposits 105,166 104,024
Long-term debt 31,910 18,776
Stockholders' equity $ 15,928 17,370
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(a) Annualized.
(b) Includes average net unrealized gains or losses on debt and equity
securities. Amounts presented for 1998 have been restated to conform to
amounts presented for 1999.
(c) The overhead efficiency ratio is equal to noninterest expense divided by
the sum of tax-equivalent net interest income and fee and other income.
1
MANAGEMENT'S ANALYSIS OF OPERATIONS
The following discussion and other portions of this Financial Supplement
contain various forward-looking statements. Please refer to our 1999 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
First Union's operating earnings in the first nine months of 1999 were
$2.6 billion, or $2.74 per share, compared with operating earnings of $2.7
billion in the first nine months of 1998, or $2.77 per share. The 1999 results
include nonrecurring gains amounting to 20 cents related to the sale of First
Union's interest in Electronic Payment Services, Inc. in the first quarter and
the sale of net assets associated with our factoring business in the second
quarter. Operating earnings exclude merger-related and restructuring charges.
After merger-related and restructuring charges, net income in the first nine
months of 1999 was $2.4 billion, or $2.47 per share, compared with $2.0 billion,
or $2.08 per share, in the first nine months of 1998.
Third quarter 1999 operating earnings were $802 million, or 84 cents per
share, compared with operating earnings of $1.0 billion, or $1.02 per share in
the third quarter of 1998. The third quarter of 1999 included no merger-related
and restructuring charges. These charges in the third quarter of 1998 were $16
million after-tax.
Operating earnings in the first nine months of 1999 represent a return on
average stockholders' equity of 21.74 percent and a return on average assets of
1.56 percent.
Key factors in the first nine months of 1999 compared with the first nine
months of 1998 include:
o Fee and other income of $5.2 billion, excluding portfolio securities
transactions, compared with $4.4 billion in the first nine months of
1998.
o Tax-equivalent net interest income of $5.6 billion in both periods.
Average loan balances increased modestly.
o An increase in noninterest expense, excluding merger-related and
restructuring charges, to $6.1 billion from $5.6 billion in the first
nine months of 1998. Expense growth for the full year 1999 is
expected to be approximately 3 percent, excluding merger-related and
restructuring charges and the impact of the EVEREN Capital
Corporation acquisition and adjusting for The Money Store.
Noninterest expense in the first nine months of 1999 reflects the
impact of staff reductions that were part of a restructuring plan
announced in March 1999, offset by expenses related to the purchase
accounting acquisition of The Money Store Inc. on June 30, 1998.
o Annualized net charge-offs of 0.52 percent of average net loans,
compared with 0.47 percent a year ago. Nonperforming assets as a
percentage of net loans and foreclosed properties were 0.77 percent
in the first nine months of 1999 compared with 0.61 percent in the
first nine months of 1998.
OUTLOOK
For several years we have stated our goal of creating a new kind of
financial services company - one that operates about 50 percent as a banking
business and 50 percent as a securities business. To that end, since 1994 we
have applied our resources toward building investment banking, brokerage and
asset management capabilities. Since 1996 we also have transformed the
traditional banking side of our business with a multi-channel distribution
strategy, an innovative product array and a focused sales culture. We have
invested in advanced technology to serve our customers more effectively through
our financial centers, brokerage offices, First Union Direct (our centralized
sales and service call centers), and the Internet. In the third quarter of 1999,
we organized our capital markets and capital management businesses under one
name, First Union Securities. Our commercial and consumer products as delivered
through our state delivery channels are organized under our General Bank. The
General Bank's deposit and lending products are sold in our financial centers
along with nontraditional financial products, enabling extensive cross-sell
opportunities for the corporate products and services offered by First Union
Securities and the mortgage loans, home equity loans and other personal finance
products offered by our specialty consumer areas.
2
The transformation to the new business model has resulted in significant
changes to allow our customers many choices in how, when and where they do
business with us. In this significant undertaking, we have simultaneously
transformed our branch delivery system to the new business model while
integrating CoreStates Financial Corp, a pooling of interests merger, which was
consummated in April 1998 and consolidated in November 1998. Through extensive
training, the addition of staff at high volume offices, specific plans to
maintain higher sales and service staffing levels, enhancements to key business
processes, adjustments to our business model and a revitalized focus on service
delivery, we have improved results in our retail branch network. We are seeing
encouraging trends in the performance measurements we use for evaluating service
quality, new product sales volumes and the economic contribution of new product
sales. While the transformation to the new business model poses some short-term
risk to earnings, we believe that the failure to replace the traditional bank
model poses greater long-term risks.
The high-growth securities businesses in which we have invested have
resulted in a growing proportion of our revenue coming from fee-producing
businesses. In the first nine months of 1999, 48 percent of our revenues came
from fee and other income, excluding portfolio securities transactions, compared
with 44 percent in the first nine months of 1998.
At the same time that we are investing to increase revenues over the long
term, we are implementing a more disciplined approach to expense management by
reducing our cost structure and by streamlining operations. We announced a
restructuring plan in March 1999 designed to produce pre-tax cost savings of
approximately $400 million for 1999. Operating expenses for the year (excluding
merger-related and restructuring charges, the anticipated effect of EVEREN, and
adjusting for The Money Store) are estimated to be approximately $8.2 billion,
or 3 percent higher than in 1998.
Following a strategic review and analysis, we announced in May 1999 that
we estimate 1999 earnings will be in the range of $3.3 billion to $3.4 billion,
or $3.40 to $3.50 per share. This outlook excludes nonrecurring gains amounting
to 20 cents related to the sale of First Union's interest in Electronic Payment
Services, Inc., and the sale of net assets associated with our factoring
business. It also excludes merger-related and restructuring charges. The
earnings outlook was revised from an earlier goal of approximately $4.00 per
share largely as a result of the impact of the significant transformation under
way in our business model.
The IMPACT OF YEAR 2000 section provides information about First Union's
initiatives related to Year 2000 readiness and to expenses associated with these
initiatives. The ACCOUNTING AND REGULATORY MATTERS section provides more
information about legislative, accounting and regulatory matters that have
recently been adopted or proposed.
MERGER AND CONSOLIDATION ACTIVITY
On October 1, 1999, we completed the acquisition of EVEREN Capital
Corporation, a full-service brokerage and asset management firm based in
Chicago, Illinois. This transaction provides First Union with a nationwide
brokerage platform and augments our equity research, trading, underwriting and
distribution capabilities. The acquisition, which was accounted for as a
purchase, was an all-stock transaction providing for each share of EVEREN common
stock to be exchanged for $31.00 in First Union common stock, based on the
average price of First Union common stock for a ten-day period prior to
consummation, which values the acquisition for accounting purposes at $1.1
billion. This excludes the present value of an employee retention pool of
approximately $87 million in restricted shares of First Union common stock that
was issued to certain EVEREN employees, primarily brokers, and that vest over a
three-year period. As of September 30, 1999, we had repurchased in the open
market 11 million of the shares of First Union common stock to be issued in this
transaction and we expect to repurchase the remaining 20 million shares. This
repurchase is in addition to our previously announced 50 million share
repurchase programs. The LIQUIDITY AND FUNDING SOURCES-STOCKHOLDERS' EQUITY
section provides further information related to our buyback programs.
We are currently evaluating various strategies for the integration of
EVEREN, and those decisions will affect the amount of goodwill recorded at
consummation as well as the amount of merger and integration charges to be
incurred. We estimate we will incur approximately $60 million in merger and
integration charges in the fourth quarter of 1999 and in 2000, consisting
primarily of expenses related to systems conversions and integration.
3
We continue to evaluate acquisition opportunities that we believe would
provide access to customers and markets that complement our long-term goals.
Acquisition discussions and in some cases negotiations may take place from time
to time, and future acquisitions involving cash, debt or equity securities may
be expected.
The ACCOUNTING AND REGULATORY MATTERS section provides further
information on recent legislative developments and the potential impact of
permissible business activities for us.
BUSINESS SEGMENTS
PRODUCT FOCUS
First Union's operations are divided into five business segments
encompassing more than 60 distinct product and service units. These segments
include Capital Markets Products and Services, Capital Management Products,
Consumer Products, Commercial Products and Treasury/Nonbank. Additional
information can be found in Table 3.
As mentioned in the OUTLOOK section, we have organized our Capital
Markets and Capital Management businesses as one focused business called First
Union Securities, but we continue to report the activities as separate business
segments. This transformation is a key ingredient of our new business model
designed to better serve our existing and future customers.
We have developed an internal performance reporting model to measure the
results of operations of these business segments. Because of the complexity of
the corporation, we have used various estimates and allocation methodologies in
the preparation of the Business Segments financial information. We continually
evaluate our allocation methodologies as we refine our approach to measuring
segment results of operations. In early 1999, we made significant refinements to
certain allocation methodologies and the prior period information has been
restated to reflect these refinements. These refinements include the allocation
of certain nonearning assets and liabilities and the related funding cost from
Treasury/Nonbank to the other business segments; elimination of the
tax-equivalization of net interest income such that the tax effect is now
included in income tax expense; and adjustments to certain capital attribution
formulas. Generally, these methodology refinements increased net income in
Treasury/Nonbank and reduced net income in the other segments.
CAPITAL MARKETS PRODUCTS AND SERVICES
Our Capital Markets Products and Services are designed to provide
corporate and institutional clients with a complete selection of investment
banking products and services. These products and services are a natural
extension of our Commercial Products strategy. Our large General Bank franchise
provides a strong platform for the delivery of Capital Markets products and
services to meet client needs.
Our relationship coverage begins in our East Coast banking markets, and
it extends nationwide through industry expertise in such areas as communications
and technology; health care; insurance; utilities; textiles and home
furnishings; retail and specialty finance; oil and gas; financial institutions;
real estate; and other industries. In addition, our International unit continues
to develop and utilize strong correspondent banking relationships overseas. The
primary focus of the International unit 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.
Capital Markets has five business units: (1) Investment Banking, which
includes merger and acquisition advisory services; Capital Partners (our
merchant banking unit); 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; and asset securitization; (2) Real Estate
Finance, primarily commercial real estate finance, structured product servicing
and affordable housing investments; (3) Traditional Banking, which encompasses
corporate lending activities; (4) Commercial Leasing and Rail, which includes
operating, finance and leveraged leasing, and the nation's second largest
general purpose railcar leasing operation; and (5) International.
4
Capital Markets net income was $738 million in the first nine months of
1999 compared with $481 million in the first nine months of 1998, and $229
million in the third quarter of 1999 compared with $105 million in the third
quarter of 1998. Net interest income increased 26 percent to $977 million in the
first nine months of 1999, with average loans up 13 percent and average deposits
up 6 percent. Fee and other income increased 27 percent to $996 million,
excluding trading account profits, in the first nine months of 1999 compared
with the first nine months of 1998. This increase reflected strength in
investment banking, including gains in merchant banking investments and third
party asset securitizations. Fee and other income increased 40 percent in the
third quarter of 1999 compared with the second quarter of 1999, largely as a
result of merchant banking investment gains.
Trading account profits increased from $31 million in the first nine
months of 1998 to $251 million in the comparable period in 1999, due to strong
results in fixed income and equity derivatives, foreign exchange and commercial
mortgage-backed securities. The 1998 results included the negative impact of
turmoil in the global financial markets that occurred in the third quarter of
1998. Trading account assets were $13.8 billion at September 30, 1999, compared
with $9.8 billion at December 31, 1998. 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. Market making and position taking activities across a
wide array of financial instruments add to our ability to optimally serve our
customers. The revenues from certain Capital Markets businesses, particularly
trading, are typically more volatile than revenues from more traditional banking
businesses and can vary significantly with market conditions and customer
demands for products.
Noninterest expense was $980 million in the first nine months of 1999
compared with $806 million in the first nine months of 1998, and $318 million in
the third quarter of 1999, compared with $237 million in the third quarter of
1998. The increase in expenses from the 1998 period was largely due to higher
personnel expense, including incentive expense related to increased headcount
and increased revenues.
Average net loans were $36 billion in the first nine months of 1999 and
$32 billion in the first nine months of 1998. Loan growth between the two
periods, which was generated primarily in the corporate banking and leveraged
finance units, related to new relationships and to the realignment of certain
corporate customer relationships from the Commercial Products segment.
Capital Markets will continue to expand its relationship banking efforts,
including increased industry segment coverage and an expanded international
presence. Because our international strategy is to support the trade finance
needs of our domestic customers and correspondent financial institutions around
the world rather than to lend to sovereign nations or foreign companies, we have
limited credit exposure to emerging markets.
CAPITAL MANAGEMENT PRODUCTS
We have created a growing asset management and brokerage business within
Capital Management, with products that provide the link between traditional
banking and investing for retail and institutional customers. We had $162
billion in assets under management and $655 billion in assets under care at
September 30, 1999. Assets under management include First Union-advised mutual
funds of $75 billion and $87 billion in assets related to trust and
institutional accounts. These products and services are distributed through
multiple channels, including our retail brokerage division and our full-service
retail financial centers in our 12-state and Washington, D.C., marketplace. With
the acquisition of EVEREN on October 1, 1999, retail brokerage services will be
available nationwide through 2,700 offices in 41 states.
Capital Management produced net income of $394 million in the first nine
months of 1999 compared with $316 million in the first nine months of 1998, and
$152 million in the third quarter of 1999 compared with $117 million in the
third quarter of 1998. Net interest income amounted to $371 million in the first
nine months of 1999 compared with $305 million in the first nine months of 1998.
Capital Management businesses and products primarily generate fee income. Fee
and other income in the first nine months of 1999 increased 16 percent to $1.5
billion from $1.3 billion in the first nine months of 1998, driven by trust,
retail brokerage services, mutual funds and CAP Account sales. Noninterest
expense in the first nine months of 1999 was $1.3 billion compared with $1.1
billion in the first nine months of 1998, and $404 million in the third quarter
of 1999 compared with $367 million in the third quarter of 1998. Increases in
both periods reflected higher personnel costs, primarily incentives associated
with revenue growth.
5
First Union's trust business encompasses personal trust, corporate trust
and benefit services, and institutional trust services. Personal trust fees
contributed more than half of trust fees in the first nine months of 1999 and
the first nine months of 1998, and increased 9 percent year over year.
Assets in the First Union-advised Evergreen/Mentor mutual funds at
September 30, 1999, were $75 billion compared with $63 billion at September 30,
1998. These funds are distributed through third party broker/dealers and through
First Union's financial centers, retail brokerage offices and trust services.
The Private Client Banking Group provides high net worth retail clients
with a single point of access to First Union's investment products, mortgages,
personal loans, trusts, financial planning, brokerage services and other
products and services. In the first nine months of 1999, the Private Client
Banking Group had $3.6 billion in average net loans compared with $3.5 billion
in the first nine months of 1998, and $3.1 billion in average deposits in the
first nine months of 1999 compared with $2.6 billion in the first nine months of
1998.
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 several of Capital Management's lines of business, including Mutual Funds and
Retail Brokerage Services. CAP Account amounts in Table 3 reflect CAP Account
fees and the funding benefit attributed to the on-balance sheet deposits. CAP
Account assets increased to $50 billion at September 30, 1999, compared with $38
billion at year-end 1998, and the number of CAP accounts increased to 562,000
compared with 430,000 at year-end 1998. We are seeing increased investment
activity through this product, and as an example, the number of brokerage trades
increased 98 percent in the first nine months of 1999 compared with the first
nine months of 1998.
In addition, Retail Brokerage Services includes insurance products sold
through the First Union Insurance Group. Insurance annuity sales increased 34
percent from the first nine months of 1998.
We anticipate continued growth in all Capital Management business lines
as we introduce products and services throughout our multistate network and as
we enhance relationships with new and existing customers.
CONSUMER PRODUCTS
The Consumer Products segment includes: (1) First Union Mortgage
Corporation (FUMC), which includes our mortgage origination and servicing
businesses; (2) First Union Home Equity Bank (FUHEB) and The Money Store Inc.;
(3) Credit Cards, which includes the $1.7 billion owned credit card portfolio
and the income from the securitized portfolio; and (4) Retail Branch Products,
which include our portfolio of first mortgage loans, installment loans, direct
and indirect auto loans and leases, and the various consumer deposit products
with the exception of the CAP Account, which is included in Capital Management
Products.
Consumer Products generated $693 million in net income in the first nine
months of 1999 compared with $887 million in the first nine months of 1998, and
$170 million in the third quarter of 1999 compared with $371 million in the
third quarter of 1998. Net interest income was $2.7 billion in the first nine
months of 1999 and in the first nine months of 1998. Fee and other income was
$1.4 billion in the first nine months of 1999 and in the first nine months of
1998. Net interest income was negatively affected by a decline in average
balances in Retail Branch Products primarily as a result of branch divestitures
and movement of deposits to Capital Management investment products. Credit Cards
also contributed to the decline in consumer net income, primarily as a result of
a decline in credit card securitization gains, which amounted to $77 million in
the first nine months of 1999 compared with $119 million in the first nine
months of 1998. Further, the results for our home equity business reflected the
addition of The Money Store on June 30, 1998, and our decision in early 1999 to
retain home equity loans on the balance sheet. Also included in the results of
the home equity businesses is an impairment loss recognized in the third quarter
on residual interests on certain home equity securitizations. Further
information is included in the FEE AND OTHER INCOME, ASSET SECURITIZATION and
SECURITIES AVAILABLE FOR SALE sections.
Noninterest expense was $2.7 billion in the first nine months of 1999
compared with $2.4 billion in the first nine months of 1998, and $835 million in
the third quarter of 1999 compared with $888 million in the third quarter of
1998. The increase in the year over year comparisons was largely related to the
addition of The Money Store.
6
Average consumer loans in the first nine months of 1999 were $52 billion
compared with $59 billion in the first nine months of 1998. In addition to the
impact from loans sold in connection with CoreStates-related branch
divestitures, the decrease in the consumer loan portfolio reflects the
additional sale or securitization of certain loans. In the second and third
quarters of 1999 we also securitized and retained as securities available for
sale a total of $7.3 billion in prime equity lines to facilitate funding
flexibility. The SECURITIES AVAILABLE FOR SALE and the ASSET SECURITIZATIONS
sections provide further information, including a discussion of our business
strategy for funding consumer loans. Information related to our total managed
portfolio of consumer loans is in Table 5.
Average consumer deposits were $72 billion in the first nine months of
1999 and $79 billion in the first nine months of 1998, largely reflecting the
divestiture of $3.4 billion of deposits primarily in late 1998, $2.2 billion of
which related to the CoreStates merger. The decline also reflects the movement
of deposits into Capital Management investment products.
COMMERCIAL PRODUCTS
Our wholesale delivery strategy is to provide a comprehensive array of
financial solutions, including traditional commercial lending and cash
management products, primarily focused on corporate customers (annual sales
greater than $50 million), commercial customers (annual sales of $10 million to
$50 million), and small-business customers (annual sales up to $10 million). We
have an integrated relationship approach that leverages the capabilities of
Capital Markets to provide complex financing solutions, risk management products
and international services, and the capabilities of Capital Management to
provide property and casualty insurance, pension plans and 401(k) plans. The
Commercial Products are divided into four product groups: (1) Small Business
Banking, which consists of lending within our Small Business Bank Division; (2)
Lending, which is all other commercial lending within our state delivery
network; (3) Real Estate Banking, which is lending by our specialized real
estate bankers; and (4) Cash Management and Deposit Services, which consist of
all cash management activity throughout the corporation as well as our
commercial deposits for non-Capital Markets customers.
Commercial Products generated net income of $425 million in the first
nine months of 1999 compared with $463 million in the first nine months of 1998,
and $149 million in the third quarter of 1999 compared with $169 million in the
third quarter of 1998. The decline largely reflected the impact of
merger-related runoff in loans and deposits and a tightening of spreads due to
competitive pricing. Net interest income was $1.2 billion in the first nine
months of 1999 compared with $1.3 billion in the first nine months of 1998. Fee
and other income increased 7 percent to $412 million in the first nine months of
1999, led by cash management activity. Noninterest expense was $902 million in
the first nine months of 1999 and $896 million in the first nine months of 1998,
and $285 million in the third quarter of 1999 compared with $278 million in the
third quarter of 1998.
Average commercial loans in the first nine months of 1999 declined to $34
billion from $37 billion in the first nine months of 1998 due to reduced loan
originations and renewals, as well as to the transfer of corporate customer
relationships to Capital Markets. Average small business loans in the Small
Business Banking Division increased 11 percent to $2.9 billion in the first nine
months of 1999 compared with the first nine months of 1998.
In Table 3, Commercial Products includes the lending activities of our
Small Business Banking Division and excludes insurance, investment and
retirement services, and commercial deposit services for small business
customers.
TREASURY/NONBANK SEGMENT
The Treasury/Nonbank segment includes management of our securities
portfolios, our overall funding requirements and our asset and liability
management functions. The Treasury/Nonbank segment contains the goodwill asset
and the associated funding cost; certain expenses that are not allocated to the
business segments, including goodwill amortization; and corporate charges. The
LIQUIDITY AND FUNDING SOURCES and MARKET RISK MANAGEMENT sections provide
information about our funding sources, asset and liability management functions
and securities portfolios.
7
RESULTS OF OPERATIONS
NET INTEREST MARGIN
Tax-equivalent net interest income was $5.6 billion in the first nine
months of 1999 and in the first nine months of 1998. The net interest margin,
which is the difference between the tax-equivalent yield on earning assets and
the rate paid on funds to support those assets, was 3.81 percent in the first
nine months of 1999 compared with 3.86 percent in the first nine months of 1998.
The margin was negatively affected by changes in the composition of our earning
asset mix, by the securitization of higher yielding credit card balances and by
a lower average interest rate environment over the 1999 nine-month period.
Deposit divestitures in late 1998 related to the CoreStates merger also
contributed to a declining margin as lower cost deposit funding was replaced
with higher cost borrowings. As a result there was a decrease in the average
rate on earning assets from 7.86 percent in the first nine months of 1998 to
7.56 percent in the first nine months of 1999. Our average rate paid on
liabilities decreased from 4.61 percent to 4.32 percent over this same period.
It should be noted that we focus on net income and economic contribution when
evaluating corporate strategies and that we place less importance on the net
interest margin impact of such decisions.
We use securities and off-balance sheet transactions to manage interest
rate sensitivity. More information on these transactions is included in the
MARKET RISK MANAGEMENT section.
FEE AND OTHER INCOME
We are continually developing products to meet the challenges of
increasing competition, changing customer demands and demographic shifts. We
have pursued strategic investments to build high-growth lines of business to
increase fee income. For example, we have significantly broadened our product
lines, particularly in Capital Markets and in Capital Management, to provide
additional sources of fee income that complement our long-standing banking
products and services. These investments were reflected in a 16 percent increase
in fee and other income, excluding portfolio securities transactions, to $5.2
billion in the first nine months of 1999 from $4.4 billion in the first nine
months of 1998.
Fee and other income from our securities businesses of Capital Markets
and Capital Management amounted to more than one-half of fee and other income in
the first nine months of 1999. Led by strong results in investment banking and
trading activities, Capital Markets fee and other income increased 53 percent to
$1.2 billion in the first nine months of 1999 from the first nine months of
1998, which was a period of diminished trading activities due to significant
turmoil in the global financial markets. Investment banking results include $351
million of gains on merchant banking investments in the first nine months of
1999 compared with $229 million in the first nine months of 1998, and $159
million in the third quarter of 1999 compared with $50 million in the third
quarter of 1998. Capital Management fee and other income increased 16 percent to
$1.5 billion in the first nine months of 1999 from the first nine months of
1998, primarily related to strong growth in trust, retail brokerage services,
mutual funds and CAP Account sales. These activities are discussed further in
the BUSINESS SEGMENTS section.
In addition, strong results in securitization activity contributed to the
increase in fee and other income. Securitization income increased by $190
million to $318 million primarily resulting from the securitization and sale of
credit card receivables, SBA loans and student loans in the first nine months of
1999. Residential mortgage income of $353 million in the first nine months of
1999 included $126 million of gains from the securitization and sale of $4.2
billion of residential mortgage loans compared with $88 million of gains in the
first nine months of 1998.
In the first nine months of 1999, portfolio-related net securities losses
were $55 million, which included a $79 million impairment loss on certain
residual interests in securitizations. This write-down was the result of the
impact of revised loss assumptions on the valuation of the residual interests.
More information related to residual interests is included in the ASSET
SECURITIZATION and SECURITIES AVAILABLE FOR SALE sections.
Sundry income declined by $113 million to $576 million in the first nine
months of 1999 compared with the first nine months of 1998. Sundry income in the
first nine months of 1999 included a gain of $109 million on the sale of net
assets associated with our factoring business and a net gain of $177 million
from the acquisition by Concord EFS, Inc. (Concord), of Electronic Payment
Services, Inc., in which First Union held a 20 percent interest, and the
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subsequent sale of the Concord shares. Sundry income also included branch sale
gains amounting to $23 million in the first nine months of 1999. In the first
nine months of 1998, branch sale gains amounted to $189 million, which included
$117 million of CoreStates-related branch sale gains, and we also recognized a
previously deferred gain of $60 million in connection with an equity method
investment. There were no other individually significant items included in the
change in sundry income from the first nine months in 1998 to the comparable
period in 1999.
NONINTEREST EXPENSE
Noninterest expense was $6.5 billion in the first nine months of 1999 and
$6.6 billion in the first nine months of 1998. Noninterest expense in the first
nine months of 1999 included expenses related to The Money Store, which was a
purchase accounting acquisition that closed in June 1998. In addition, the first
nine months of 1999 included $398 million of merger-related and restructuring
charges compared with $1.0 billion in the first nine months of 1998. In 1999
this included net merger-related expenses of $51 million related to CoreStates
and a $347 million restructuring charge related to the restructuring plan we
announced in March 1999. Table 2 summarizes information about the merger-related
and restructuring charges. We expect expense growth for the full year 1999 to be
approximately 3 percent, excluding merger-related and restructuring charges and
the impact of the EVEREN acquisition and adjusting for The Money Store.
In addition to The Money Store and to the merger-related and
restructuring charges, expenses in the first nine months of 1999 reflected
higher personnel costs, primarily incentives associated with revenue growth in
Capital Markets and Capital Management, and continued spending related to our
Future Bank retail model. The operating overhead efficiency ratio before
merger-related and restructuring charges was 57.07 percent in the first nine
months of 1999 and 54.22 percent in the first nine months of 1998.
Amortization of other intangible assets predominantly represents the
amortization of goodwill and deposit base premium related to purchase accounting
acquisitions. The increase in amortization expense in the first nine months of
1999 from the first nine months of 1998 was attributable to goodwill recorded in
connection with the acquisition of The Money Store. We had $4.8 billion in other
intangible assets at September 30, 1999, and $5.0 billion at December 31, 1998.
MERGER-RELATED AND RESTRUCTURING CHARGES
Over the past several years, the corporation has experienced rapid growth
through numerous acquisitions. These acquisitions have enabled us to expand into
both new business markets and new geographic regions. In the first quarter of
1999, it became apparent that we were not realizing the full benefit of
operational efficiencies envisioned in these combinations. As a result, we
evaluated all facets of our operations, including such areas as current and
projected staffing levels, locations of bank and sales branches, and office
space requirements, including the impact that staff reductions would have on
these requirements. A primary objective of the restructuring was to reduce
operating expenses in our non-core businesses and non-revenue producing
functions. Based on this evaluation, in March 1999, we announced a restructuring
plan that included reengineering numerous processes and functions throughout the
corporation, closing or consolidating branches, service centers and corporate
office space, as well as exiting the indirect auto finance business.
As a result of the restructuring plan, we displaced employees and
recorded charges for the resulting employee termination benefits to be paid. In
addition, we recorded occupancy-related charges that included write-downs to
fair value (less cost to sell) of owned premises that were held for disposition
as a result of the plan, and cancellation payments or the present values of the
remaining lease obligations for leased premises, or portions thereof, that were
associated with lease abandonments or restructurings. Other assets, primarily
computer hardware and software, the value of which was considered to be impaired
since they no longer would be used as a result of the branch and operation
center closings or the reduction in workforce, were also written down to fair
value (less cost to sell). Contract cancellation costs were also recorded
representing the cost to buy out the remaining term or the present value of the
remaining payments on contracts that provided no future benefit to the
corporation as a result of the restructuring.
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Employee termination benefits of $196 million included severance
payments, which may be paid in a lump sum or over a defined period, and related
benefits and outplacement services for 5,635 employees terminated in connection
with the restructuring. We notified substantially all of the employees
individually about their termination on or before March 31, 1999. Of the
terminated employees, approximately 40 percent were from corporate staff units,
40 percent were from the Consumer Products segment and 10 percent were from the
branch network. The remaining 10 percent were from non-critical areas within our
Capital Management Products and Capital Markets Products and Services segments.
As of September 30, 1999, substantially all of the terminated employees had left
our employment. Through September 30, 1999, $116 million in employee benefit
costs have been paid, leaving $80 million for future payments.
Occupancy charges of $54 million included $24 million related to the
write-down of owned property as well as leasehold improvements and furniture and
equipment. These write-downs resulted from excess space due to the reduction in
the workforce and from branch closings. The amount of the write-down represents
the difference between the carrying value of the property at the time that it
was expected to be taken out of service and the estimated net proceeds expected
to be received upon disposal. The fair value was estimated using customary
appraisal techniques such as evaluating the real estate market conditions in the
region and comparing market values to comparable properties. The other $30
million in occupancy charges represents the present value of future lease
obligations or lease cancellation penalties in connection with the closure of
approximately 104 branches and sales offices as well as certain other corporate
space.
Asset impairments, which were the direct result of the reduction in the
workforce and certain other restructuring activities, amounted to $69 million.
They consisted primarily of computer hardware write-offs of $64 million.
Depreciation was discontinued at the time the assets were determined to be held
for disposal. At September 30, 1999, the carrying value of the remaining assets
held for disposal was $9 million. Substantially all of these assets were taken
out of service by September 30, 1999.
Also included in the restructuring charge was $25 million related to
contract cancellations, $14 million of which related to the planned exit of our
indirect auto leasing business. The plan called for immediately discontinuing
the origination of indirect auto leases and the disposition of the existing
portfolio by either attrition or sale. Substantially all of the $14 million
charge relates to our obligation pursuant to a pre-existing contract under which
we transferred certain lease receivables to a securitization trust. This
obligation represents the amount we estimate will be required to pay in lieu of
delivering lease receivables into the trust, and it is a direct result of
exiting the indirect auto leasing business. The remaining $11 million charge
represents costs to exit numerous system and service-related contracts.
The restructuring charge of $347 million, as well as the merger-related
expenses of $51 million recorded in 1999, were reflected in noninterest expense
within the Treasury/Nonbank segment. If we were to allocate the restructuring
charge to the various segments affected, using our established segment
allocation methodologies, $197 million and $57 million of the charges would have
been allocated to the Consumer Products and Commercial Products segments,
respectively. The rest of the charges would have been allocated to the
Treasury/Nonbank segment and to our other business segments.
The restructuring plan is expected to produce pre-tax cost savings of
approximately $400 million in 1999, as compared to our original projected
expense levels. These savings are expected to be achieved through reduced
personnel expenses of $198 million as a result of the reduction in the
workforce, a reduction in depreciation expense of $19 million as a result of
asset dispositions, and lower expenses of $7 million related to the cancellation
of leases and contracts. The rest of the cost savings is expected to be achieved
through personnel costs that will not be incurred because planned hirings were
discontinued and through decreases in other operating expenses related to the
reductions in staffing levels (e.g., lower training and travel costs) as well as
through efficiencies gained from the reengineering of associated processes and
functions.
In 1998, in connection with the acquisition of CoreStates, we recorded a
$754 million restructuring charge. From the date of the acquisition through
September 30, 1999, $637 million has been charged against the initial accrual
representing payments of employee termination benefits, costs to close duplicate
or excess facilities, write-offs of computer hardware and software no longer in
use, and contract cancellation costs. Based on revised estimates, $46 million of
the employee termination benefits accrual and $8 million of the investment
banking
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accrual was reversed by a credit to the restructuring charge in the income
statement, $30 million of which was reversed in 1998 and $24 million of which
was reversed in the first quarter of 1999. Employee termination benefits were
less than original estimates as a result of several factors, including voluntary
resignations and the termination of a higher proportion of employees with fewer
years of service. The remaining accrual of $63 million represents employee
termination benefits to be paid over future periods, at the election of the
employees (3,665 employees received or are receiving termination benefits) as
well as the remaining payments due on property leases and service contracts that
no longer provided benefit to the corporation as a result of the restructuring.
These accruals will continue to be assessed on a quarterly basis.
In November 1997 we recorded a $252 million restructuring charge related
to the acquisition of Signet Banking Corporation, of which $62 million remains
in the restructuring accrual. Approximately two-thirds of the remaining accrual
represents amounts due to key executives of Signet who were terminated as a
result of the acquisition and whose employment contracts called for termination
benefits to be paid over a specified period. These accruals will continue to be
assessed on a quarterly basis.
Included in Table 2 is an other restructuring accrual at September 30,
1999, of $8 million. This relates primarily to the January 1998 acquisition of
Wheat First Butcher Singer, and it represents remaining payments due to
terminated employees and contract cancellations.
We will continue to make significant investments in First Union
Securities, the General Bank and our electronic delivery channels. As a result,
we do not expect the restructuring plan to adversely affect revenue growth.
The IMPACT OF YEAR 2000 section provides information about our Year 2000
readiness and associated expenses.
CREDIT RISK MANAGEMENT
LOANS
Net loans were $135 billion at September 30, 1999, and at December 31,
1998. The loan portfolio at September 30, 1999, was composed of 57 percent in
commercial loans and 43 percent in consumer loans. Increases in loan
originations in the first nine months of 1999 were partially offset by the
securitization of certain consumer loans, primarily $7.3 billion in prime equity
lines that were securitized and retained as securities available for sale in the
second and third quarters of 1999.
Average net loans were $134 billion in the first nine months of 1999 and
$133 billion in the first nine months of 1998. The increase was due to growth in
home equity loan and commercial loan balances, which more than offset reductions
in mortgage loans and credit card balances due to sale or securitization. The
average rate earned on loans was 8.12 percent in the first nine months of 1999
compared with 8.55 percent in the first nine months of 1998.
At September 30, 1999, unused loan commitments related to commercial and
consumer loans were $91 billion and $40 billion, respectively. Commercial and
standby letters of credit were $11 billion and loan participations sold to other
lenders amounted to $2 billion at September 30, 1999.
ASSET SECURITIZATIONS
In an asset securitization transaction that meets the applicable criteria
to be accounted for as a sale, loans are securitized and sold, a gain is
recognized at the time of the sale, and for transactions in which First Union
retains an interest in the cash flows of the assets sold, an interest-only or
residual certificate ("residual interest") is recorded. For student loans, SBA
loans, credit card receivables and certain other consumer loans, asset
securitization is our primary funding strategy. Residential mortgage loans may
be either securitized and sold as they are originated or retained on-balance
sheet, based on an analysis of various factors at the time of origination or
purchase. In 1998 asset securitizations were the primary funding strategy for
certain types of home equity loans. In early 1999, we reevaluated our business
strategy for funding subprime home equity loan products and decided to retain
these loans on our balance sheet.
11
In the third quarter of 1999, we transferred $744 million of
mortgage-related residual interests and $8.7 billion of other mortgage-related
securities to a trust in return 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 residual interests was included
in this transfer. The assets were transferred to the trust at their respective
carrying values at the date of transfer, and the transfer did not result in
recognition of any gain or loss. This new security is classified in securities
available for sale. Prior to the transfer, we recognized a $79 million
impairment loss on certain residual interests. This transaction has the effect
of reducing the leverage inherent in the residual interests that were
transferred. Changes in future loss assumptions on the transferred assets will
be reflected in reduced returns on the new security.
Table 6 summarizes the activity in the balance sheet amounts for the
interest-only and residual certificates, the related valuation assumptions and
the related collateral data.
ASSET QUALITY
NONPERFORMING ASSETS
At September 30, 1999, nonperforming assets were $1.0 billion, or 0.77
percent of net loans and foreclosed properties, compared with $844 million, or
0.62 percent, at December 31, 1998, and $825 million, or 0.61 percent, at
September 30, 1998. The increase in commercial nonperforming assets is largely
attributable to a single account in the health care industry. We are seeing
continuing weakness in parts of the health care industry due to changes in
federal reimbursement policies, and there is the potential for further increases
in nonperforming assets related to this industry segment. The increase in
installment loan nonperforming assets reflects our decision to hold The Money
Store home equity loans on our balance sheet rather than securitize them.
Nonperforming loans reduce interest income because the contribution from
these loans is eliminated or sharply reduced. In the first nine months of 1999,
$65 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 1999 was $15 million.
PAST DUE LOANS
Accruing loans 90 days past due were $355 million at September 30, 1999,
compared with $385 million at December 31, 1998. Of the past dues at September
30, 1999, $102 million were commercial loans or commercial real estate loans and
$253 million were consumer loans, largely related to The Money Store.
NET CHARGE-OFFS
Net charge-offs amounted to $519 million in the first nine months of 1999
and $472 million in the first nine months of 1998. Net charge-offs were 0.52
percent of average net loans in the first nine months of 1999 compared with 0.47
percent in the first nine months of 1998.
We carefully monitor trends in both the commercial and consumer loan
portfolios for signs of credit weakness. Additionally, we continually evaluate
our credit policies in light of changing economic trends, and where necessary we
take steps we believe are appropriate.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The loan loss provision was $519 million in the first nine months of 1999
compared with $524 million in the first nine months of 1998. The allowance for
loan losses was $1.8 billion at September 30, 1999, and at December 31, 1998.
The allowance as a percentage of loans was 1.30 percent at September 30, 1999,
compared with 1.35 percent at year-end 1998. We consider the allowance for loan
losses adequate to cover probable credit losses inherent in the loan portfolio.
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 allowance needed for specific loans and specific
portfolios. The allocated portion of the allowance for commercial loans is based
principally on current
12
loan grades, historical loan loss rates, borrowers' creditworthiness, as well as
analyses of other factors that might affect the portfolio. We analyze all loans
in excess of $1 million that are being monitored as potential credit problems to
determine whether supplemental, specific reserves are necessary given borrowers'
collateral values and cash flows. The allocated portion of the allowance for
consumer loans is based principally on delinquencies and historical and
projected loss rates. The unallocated portion of our allowance for loan losses
represents the results of other analyses, which are intended to ensure the
allowance is adequate for other probable losses inherent in our portfolio. These
analyses include consideration of changes in credit risk resulting from the
changing underwriting criteria, including acquired loan portfolios, changes in
the types and mix of loans originated, industry concentrations and evaluations,
allowance levels relative to selected overall credit criteria and other
loss-predictive economic indicators.
Impaired loans, which are included in nonaccrual loans, amounted to $563
million at September 30, 1999, compared with $424 million at December 31, 1998.
Included in the allowance for loan losses at September 30, 1999, was $136
million related to $494 million of impaired loans. The remaining impaired loans
were recorded at or below fair value. In the first nine months of 1999, the
average recorded investment in impaired loans was $488 million, and $15 million
of interest income was recognized on impaired loans. This income was recognized
using the cash-basis method of accounting.
LIQUIDITY AND FUNDING SOURCES
Liquidity planning and management are necessary to ensure we maintain the
ability to fund operations cost-effectively and to meet current and future
obligations such as loan commitments and deposit outflows. In this process we
focus on both assets and liabilities and on the manner in which they combine to
provide adequate liquidity to meet the corporation's needs.
Funding sources primarily include customer-based core deposits but also
include purchased funds and cash flows from operations. First Union is one of
the nation's largest core deposit-funded banking institutions. Our large deposit
base, which is spread across the economically strong South Atlantic region and
high per-capita income Middle Atlantic region, creates considerable funding
diversity and stability.
Asset liquidity is maintained through maturity management and through our
ability to liquidate assets, primarily securities available for sale. Another
significant source of asset liquidity is the ability to securitize assets such
as credit card receivables and auto, student and mortgage loans. Other
off-balance sheet sources of liquidity exist as well.
CORE DEPOSITS
Core deposits were $118 billion at September 30, 1999, compared with $131
billion at December 31, 1998. The decline since year-end 1998 primarily reflects
the movement of time deposits into alternative investment products and the
seasonal increase in deposits at year-end.
In response to growing customer demand for investment products as
alternatives to deposit products, we began offering mutual funds, annuities and
other investment products in 1994. Although this strategy reduces our deposit
base, it also enables us to retain valuable customer relationships that might
otherwise be lost to other financial services companies. We estimate that in the
first nine months of 1999, core deposits of approximately $4.2 billion moved
into those alternative customer investment products.
The portion of core deposits in higher-rate, other consumer time deposits
was 28 percent at September 30, 1999, and 27 percent at December 31, 1998. 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 $123 billion in the first nine months
of 1999 and $125 billion in the first nine months of 1998. In 1998 we divested
$3.7 billion of deposits, including $2.2 billion in the third quarter of 1998.
These were primarily regulatory-required divestitures in connection with
acquisitions.
In the first nine months of 1999 and 1998, average noninterest-bearing
deposits were 26 percent and 24 percent, respectively, of average core deposits.
Average balances in the first nine months of 1999 in savings and NOW and
13
noninterest-bearing deposits were higher when compared with the first nine
months of 1998, while money market and other consumer time deposits were lower.
Deposits can be affected by numerous factors, including branch closings and
consolidations, seasonal factors and the rates being offered compared to other
investment opportunities. The NET INTEREST INCOME SUMMARIES section provides
additional information about average core deposits.
PURCHASED FUNDS
Purchased funds at September 30, 1999, were $58 billion compared with $53
billion at year-end 1998. The increase primarily was used to fund increased
earning assets and a reduced level of core deposits in the third quarter of
1999. Average purchased funds in the first nine months of 1999 declined to $51
billion compared with $57 billion in the first nine months of 1998, primarily
due to our strategy of reducing the balance of low-yielding assets on our
balance sheet. We reduced low-yielding assets by shrinking our short-term
investment portfolio, altering hedging strategies and modifying certain trading
strategies. These actions were taken to maximize our capacity to repurchase our
common stock in the first nine months of 1999.
CASH FLOWS
Cash flows from operations are a significant source of liquidity. Net
cash provided from operations results primarily from net income adjusted for
noncash accounting items, the provision for loan losses and depreciation. This
cash was available in the first nine months of 1999 to increase earning assets,
to make discretionary investments and to reduce borrowings.
LONG-TERM DEBT
Long-term debt amounted to $32 billion at September 30, 1999, and $23
billion at year-end 1998. The level of long-term debt was increased to take
advantage of favorable market conditions and to provide a funding alternative to
purchased funds. Long-term debt includes any wholesale borrowings in excess of
twelve months in original maturity.
At September 30, 1999, and at December 31, 1998, long-term debt included
$1.7 billion of trust capital securities. Subsidiary trusts issued these capital
securities and used the proceeds to purchase junior subordinated debentures from
the corporation. In early November, we issued an additional $300 million of
trust capital securities. These capital securities are considered tier 1 capital
for regulatory purposes.
In the first nine months of 1999, we issued $840 million of senior notes.
In early November, we issued $600 million of senior notes. Under a shelf
registration statement filed with the Securities and Exchange Commission, we
currently have $450 million 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 a global note program for the issuance of up to $20 billion of senior
and subordinated notes. Under the program, $17 billion of the notes had been
issued at September 30, 1999. In June 1999 First Union National Bank established
a new global note program for the issuance of up to $25 billion of senior and
subordinated notes. At September 30, 1999, no notes had been issued under this
program. The sale of any additional notes will depend on future market
conditions, funding needs and other factors.
In the fourth quarter of 1999, long-term debt of $3.0 billion will
mature. Funds for the payment of long-term debt will come from operations or, if
necessary, additional borrowings.
CREDIT LINES
We have $350 million in committed back-up lines of credit, $175 million
of which expires in June 2000 and the remaining $175 million of which expires in
July 2002. 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.
14
STOCKHOLDERS' EQUITY
The management of capital in a regulated banking environment requires a
balance between maximizing leverage and return on equity to stockholders while
maintaining sufficient capital levels and related ratios to satisfy regulatory
requirements. We have historically generated attractive returns on equity to
stockholders while maintaining sufficient regulatory capital ratios.
Stockholders' equity was $16 billion at September 30, 1999, and $17
billion at December 31, 1998. Common shares outstanding amounted to 958 million
at September 30, 1999, compared with 982 million at December 31, 1998. In
connection with a 50 million share buyback program announced in November 1998,
we repurchased 10 million shares of First Union common stock at a cost of $617
million by year-end 1998, and we repurchased an additional 39 million shares at
a cost of $2.1 billion in the first nine months of 1999. In addition, in the
second quarter of 1999, our Board of Directors authorized an additional 50
million share buyback program, which has not been utilized. In the first nine
months of 1998, we repurchased 40 million shares of common stock at a cost of
$2.4 billion.
As of September 30, 1999, we also had repurchased 11 million shares at a
cost of $477 million (a total of approximately 31 million shares is expected to
be repurchased) related to the EVEREN acquisition and which are incremental to
the 50 million repurchase programs.
In February 1999, the Board authorized the use of forward equity sales
transactions ("equity forwards") in connection with our buyback program. The use
of equity forwards is intended to provide us with the ability to purchase shares
under the buyback programs in the market and then issue shares in private
transactions to a counterparty in the amounts necessary to maintain targeted
capital ratios. In the first nine months of 1999, we entered into equity
forwards involving a total of 17 million shares. In addition to the equity
forwards, in the third quarter of 1999 we also entered into a forward contract,
involving 11 million shares, that matures in July 2000.
Under the terms of the equity forwards, we issued shares of common stock
to an investment banking firm (the "counterparty") 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").
From the dates the shares were issued to the counterparty, until such
time as we repurchase the shares, the counterparty has all of the legal rights
attendant to ownership of the underlying shares, including the right to vote the
shares and the right to sell or pledge the shares at their discretion. They will
receive all dividends to which stockholders of record during the time covered by
the term of the equity forwards are entitled. For purposes of First Union's
earnings per share calculation, the shares are considered outstanding until
repurchased.
Under the terms of the equity forwards, we have the sole option of
determining the method of settlement when the equity forwards mature from among
the following options: gross physical settlement, net share settlement and net
cash settlement. Net share settlement and net cash settlement could result in
the sale of all underlying shares (and in certain circumstances additional
shares) to third parties by the counterparty in public or private sales.
The equity forwards mature at various times in 2000. The equity forwards
can be extended by mutual consent of the parties. If the contracts are extended,
the premium continues to accrue until the equity forward is settled. We can
elect to terminate the equity forwards, in whole or in part, before their
maturity by giving adequate notice to the counterparty and by paying a
termination fee. In such circumstances, we retain the ability to select the
settlement method from among the three methods outlined above.
These transactions have been accounted for as equity transactions.
We paid $1.4 billion in dividends to common stockholders in the first
nine months of 1999 compared with $1.1 billion in the first nine months of 1998.
This represented an operating dividend payout ratio of 51.46 percent in the
first nine months of 1999. Our Board of Directors has declared a dividend of
$0.47 per share payable on December 15, 1999, to holders of record on November
30, 1999.
15
At September 30, 1999, stockholders' equity was reduced by $542 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 to maintain all
deposit-taking banks at the well-capitalized level, our subsidiaries had $1.6
billion available for dividends at September 30, 1999, without prior regulatory
approval. Our subsidiaries paid $2.4 billion in dividends to the parent company
in the first nine months of 1999. In addition, the consolidation of our
principal bank in our northern region with our North Carolina-based bank
resulted in a reduction of its capital of $600 million, which was paid to the
parent company in February 1999.
REGULATORY CAPITAL
Federal banking regulations require that bank holding companies and their
subsidiary banks maintain minimum levels of capital. These banking regulations
measure capital using three formulas including tier 1 capital, total capital and
leverage capital. The minimum level for the ratio of total capital to
risk-weighted assets, including certain off-balance sheet financial instruments,
is currently 8 percent. At September 30, 1999, the tier 1 and total capital
ratios were 7.20 percent and 11.35 percent, respectively, compared with 6.94
percent and 11.12 percent at December 31, 1998.
In addition, the minimum leverage ratio of tier 1 capital to adjusted
average quarterly assets is 3 percent for bank holding companies that meet
specified criteria, including having the highest regulatory rating. All other
bank holding companies are generally required to maintain a leverage ratio of 4
percent. Our leverage ratio at September 30, 1999, and at December 31, 1998, was
6.02 percent.
The regulatory agencies also have adopted regulations establishing
capital tiers for banks. Banks in the highest capital tier, or well capitalized,
must have a leverage ratio of 5 percent, a tier 1 capital ratio of 6 percent and
a total capital ratio of 10 percent. At September 30, 1999, our deposit-taking
subsidiary banks met the capital and leverage ratio requirements for well
capitalized banks. First Union Home Equity Bank, N.A., First Union Trust
Company, N.A., and First Union Direct Bank, N.A., are not deposit-taking banks.
16
MARKET RISK MANAGEMENT
INTEREST RATE RISK METHODOLOGY
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 corporation's Board of Directors
reviews overall interest rate risk management activity. The Funds Management
Committee of the corporation 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.
Our methodology for measuring exposure to interest rate risk for policy
measurement is intended to ensure we include a sufficiently broad range of rate
scenarios and patterns of rate movements that we believe to be reasonably
possible. Our methodology measures the impact that 200 basis point rate changes
would have on earnings per share over the subsequent 12 months.
In the third quarter of 1999, we reassessed the use of a "most likely
rate" in measuring interest rate risk. We currently focus only on a "flat rate"
as the base-line when measuring interest rate risk during the policy period. We
use three standard scenarios in analyzing interest rate sensitivity for policy
measurement: The "flat rate" as a base-line, which assumes that the federal
funds rate stays flat at the current level over the next 60 months; and "high
rate" and "low rate" scenarios, which assume gradual 200 basis point increases
or decreases in the federal funds rate over a 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 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 5.25
percent through September 2001. Based on the October 1999 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 that
earnings during the policy measurement period would be negatively affected by
2.5 percent. Our model indicates that earnings would benefit by 3.3 percent in
our "low rate" scenario (i.e., a 200 basis point decline in short-term rates
from our "flat rate" scenario).
We use our assessment of the "most likely rate" scenario for budgeting
and planning purposes. Currently, we believe that a scenario using the market
forward implied rates ("market rate") is the most appropriate. This scenario
assumes that the fed funds rate gradually rises to 6.50 percent by the end of
the year 2000. 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 3.2 percent in a "high rate"
scenario relative to market 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 both higher, lower and more volatile
than those used for policy measurement. We also perform our analysis for time
periods that reach beyond the 12-month policy period. For example, based on our
October 1999 outlook, if interest rates in calendar year 2000 were 200 basis
points higher than the "market rate" scenario in 2000, those earnings would be
negatively affected by 2.6 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, management
will continue to formulate strategies aimed at protecting earnings from the
potential negative effects of changes in interest rates.
17
UNREALIZED GAINS (LOSSES) IN CERTAIN FINANCIAL INSTRUMENTS
Table 14 summarizes unrealized gains and losses in the securities
available for sale, investment securities and off-balance sheet derivative
portfolios. 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. These three portfolios are the primary means
we use to manage overall interest rate risk while enhancing corporate earnings.
Changes in the market value of these portfolios offset changes in market value
and future interest income or expense related to other balance sheet items, such
as loans, deposits and borrowings.
At September 30, 1999, the combined market value in these portfolios as
presented in Table 14 was a net unrealized loss of $603 million.
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. At
September 30, 1999, we had securities available for sale with a market value of
$49 billion compared with $37 billion at year-end 1998.
On January 1, 1999, we adopted Statement of Financial Accounting
Standards No. 134 (see the ACCOUNTING AND REGULATORY MATTERS section). In
adopting this Standard, we classified as securities available for sale all
interest-only and residual interests that resulted from our securitization
transactions accounted for as sales. We also classified purchased residual
interests as securities available for sale. Residual interests are interests
retained in securitization transactions that are accounted for as sales. If at
any time the estimated fair value of an individual residual interest indicates
that the yield is below a risk-free rate of return, a loss is recognized in
earnings for the amount by which the fair value exceeds the carrying value;
otherwise valuation changes are reflected through other comprehensive income.
We use complex modeling techniques to estimate the fair value of residual
interests. These modeling techniques estimate the amount and timing of cash
flows over the estimated life of the residual interests using assumptions for
discount rates, collateral prepayment, delinquency and loss trends, and
servicing effectiveness. The determination of the appropriate assumptions to be
used in the valuation model is subjective, and minor changes in assumptions can
have a significant impact on the fair value of a residual interest and the
timing of recognition in earnings of an impairment loss.
Securities available for sale transactions resulted in net realized
losses of $55 million in the first nine months of 1999 compared with net
realized gains of $255 million in the first nine months of 1998. 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.
The average rate earned on securities available for sale was 6.74 percent
in the first nine months of 1999 and 6.63 percent in the first nine months of
1998. The average maturity of the portfolio was 7.54 years at September 30,
1999.
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 amounted to $1.8 billion at
September 30, 1999, and $2.0 billion at December 31, 1998.
The average rate earned on investment securities was 8.17 percent in the
first nine months of 1999 and 7.92 percent in the first nine months of 1998. The
average maturity of the portfolio was 5.65 years at September 30, 1999.
18
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 derivative transactions 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 products 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 $557 million at September 30, 1999, compared with
$1.1 billion at December 31, 1998. The increase in the notional amount of
derivatives in the third quarter of 1999 primarily resulted from the addition of
interest rate swaps and futures contracts. The aggregate outstanding notional
amount of these positions will reduce substantially by December 31, 2000. From
time to time we re-balance our off-balance sheet positions to reflect current
market conditions, and this can result in significant changes in derivative
notional amounts.
The carrying amount of financial instruments used for interest rate risk
management includes amounts for deferred gains and losses related to terminated
positions, which at September 30, 1999, were not significant.
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. As of September 30, 1999, the total mark-to-market related credit risk
for derivative transactions in excess of counterparty thresholds was $690
million. The fair value of collateral held exceeded the total mark-to-market
related credit risk in excess of counterparty thresholds as of such 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, 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 imposition 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 measures
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
(including loan trading activities), foreign exchange and financial and foreign
currency derivative instruments. The calculation uses historical data from the
most recent 252 business days. The total VAR amount at September 30, 1999, was
$12 million, compared with $19 million at December 31, 1998, substantially all
of which related to interest rate risk.
19
IMPACT OF YEAR 2000
In February 1996, First Union initiated a Year 2000 project to address
the issues associated with its computer systems and business functions through
the turn of the century. The project, which is under the overall direction of
the chief technology officer, consists of a project team representing all areas
within First Union. The progress of the work related to Year 2000 compliance is
reported to a Year 2000 steering committee and to the Audit Committee of the
Board of Directors on a monthly basis. The bank regulatory agencies established
June 30, 1999, as a date by which certain key Year 2000 activities were required
to be completed. We satisfied these requirements at June 30, 1999. This Year
2000 information is designated as Year 2000 Readiness Disclosures related to the
Year 2000 Information and Readiness Disclosure Act.
We have assessed the Year 2000 risk of information technology systems,
non-information technology systems and business relationships as: Mission
Critical - those areas where lack of compliance could cause major operational
risk to First Union; High Risk - those areas where lack of compliance could
affect First Union, but would not cause the failure of core operations; Medium
Risk - those areas where lack of compliance would not have a major impact to our
customers; or Low Risk - those areas that do not affect customers and that could
be delayed or otherwise processed on an exception basis.
The Planning and Assessment phase, which includes the identification of
potential points of failure requiring focused Year 2000 efforts, was
substantially completed in 1998.
INFORMATION TECHNOLOGY SYSTEMS
Information technology systems include proprietary and vendor-supported
business applications. The most significant phases of the Year 2000 project
related to information technology systems are analysis and remediation,
remediation testing, and certification. Analysis and remediation includes the
modification of program code to address date-related issues. Remediation testing
includes limited integration testing and unit testing in various test
environments to validate remediation. In this phase, applications are tested for
Year 2000 compliance to verify that the application executes correctly with Year
2000 changes included. We consider information technology systems to be Year
2000 compliant when the analysis and remediation and remediation testing phases
have been completed.
We have completed the analysis and remediation and remediation testing
phases on all major business applications. The analysis and remediation and
remediation testing phases on EVEREN's major business applications were
completed by the date of consummation of this acquisition, which occurred on
October 1, 1999.
With respect to personal computers, we have identified which versions of
software and which models of hardware the manufacturers have identified as Year
2000 compliant, and we continually reassess manufacturers' representations.
Substantially all of the personal computer hardware and software at all First
Union locations has been certified as Year 2000 compliant.
The certification phase includes integrated processing of future dates
and addresses all frequencies of processing and all major computing platforms.
Every effort has been made to emulate a production environment, including
applications, system software, hardware and critical internal and external
interfaces. Certification also includes user acceptance testing and testing with
customers and other key counterparties.
The certification phase began in late 1998. Testing for all significant
cycles is complete. In addition, during the fourth quarter of 1999, a final
certification test will take place in conjunction with a strict change control
process to ensure that information technology systems remain Year 2000
compliant.
20
NON-INFORMATION TECHNOLOGY SYSTEMS
First Union's Year 2000 project encompasses embedded technology in
non-information technology areas, including facilities and related building
services, such as utilities, security systems, general business equipment and
non-computer office equipment. As of September 30, 1999, there were
approximately 80 facilities and the related building services that had been
identified as Mission Critical or High Risk. Testing of these Mission Critical
and High Risk facilities and the related building services is substantially
complete.
BUSINESS RELATIONSHIPS
We have requested warranties from our vendors certifying that their
products will be Year 2000 compliant. In addition, we have identified and are
separately monitoring on an ongoing basis those vendors who are not compliant,
who have not responded to our requests or who have not adequately demonstrated
that they can make their products Year 2000 compliant.
First Union is evaluating the Year 2000 readiness of its borrowers and
the resulting effect on the credit quality of our loan portfolio. We have
developed a Year 2000 credit risk policy, which requires that a risk assessment
be performed on all new and existing borrowers, subject to certain criteria. All
borrowers covered by the policy have been assigned a Year 2000 risk rating,
which is periodically reevaluated as new information becomes available.
External customer testing will continue throughout 1999. This testing is
designed to verify the Year 2000 readiness of transmissions, file exchanges, and
input and output transaction capabilities between First Union and participating
customers and third party agencies. Testing with third parties is occurring
based on published schedules by each third party, and First Union is
participating in all third party mandatory testing dates. Wire transfer testing
with the Federal Reserve, CHIPS and SWIFT has been successfully completed. All
ATM networks have been tested and certified.
POTENTIAL DISRUPTIONS
While First Union is making every effort to prepare for potential Year
2000 disruptions, there can be no guarantee that unforeseen internal or external
Year 2000 failures or disruptions that could have operational or financial
impact will not occur. We anticipate that the most reasonably likely worst case
scenario that we could face would include third party Year 2000 disruption.
First Union has taken action to anticipate and react to potential Year
2000 disruptions. This includes the development of business continuity plans and
contingency plans. These plans support the process to ensure that First Union
can continue operations in the event that information technology systems,
non-information technology systems or business relationships are not Year 2000
compliant. All business continuity plans are complete and have been tested.
These plans will continue to be updated and tested, as business conditions
warrant.
In support of First Union's transition into Year 2000, a network of
control centers will be utilized to handle problem management and reporting. A
main control center will be established that will serve as the primary contact
point for bank management and outside agencies, and it will include onsite
representation from Year 2000 management, Corporate Crisis Management and
Internal Audit. Contingency plans are being developed for all control centers
and their critical components. A mock test for all control centers will be
performed in November 1999 with a final readiness review taking place in
December 1999. Control centers will be open and operational from late December
1999 through early January 2000.
LIQUIDITY
The Federal Reserve has acknowledged that the flow of funds into and out
of insured depository institutions may be more volatile at year-end 1999 as a
result of Year 2000-related concerns. In response, the Federal Reserve has
established a Century Date Change Special Liquidity vehicle to enable depository
institutions to confidently commit to supplying credit to other financial
institutions and businesses through the end of this year. We have planned our
need for
21
funding based on the assumption that some customers will withdraw funds
from demand accounts in preparation for Year 2000, demand for currency will be
higher than normal, demand for credit may be higher than normal and certain
wholesale funding markets may be less liquid than normal. We have prepared for
the possibility that these could occur by systematically extending the maturity
of term deposits and borrowings beyond the fourth quarter of 1999, by improving
the liquidity of our asset portfolio and by arranging for backup credit
facilities including, where necessary, the Century Date Change Special Liquidity
vehicle.
COST
In the third quarter of 1999, First Union reevaluated the estimated costs
to complete the Year 2000 project and concluded that the total cost will amount
to $70 million to $75 million pre-tax, or $10 million more than originally
reported. This includes only the costs associated with the core Year 2000
project office team, incremental personnel and contractors hired specifically to
participate in the Year 2000 project and direct expenses incurred on the
project. The cost associated with the redeployment of personnel to the Year 2000
project, which is excluded from the costs included herein, is expected to be
significantly less than the incremental cost. In the first nine months of 1999,
$29 million was incurred on the Year 2000 project, and as of September 30, 1999,
$55 million has been incurred since project inception.
ACCOUNTING AND REGULATORY MATTERS
Statement of Financial Accounting Standards No. 134, ACCOUNTING FOR
MORTGAGE-BACKED SECURITIES RETAINED AFTER THE SECURITIZATION OF MORTGAGE LOANS
HELD FOR SALE BY A MORTGAGE BANKING ENTERPRISE, conforms the accounting for
securities retained after the securitization of mortgage loans with the
accounting for securities retained after the securitization of other types of
assets. Under this Standard, residual interests resulting from the
securitization of mortgage loans held for sale are classified either in
securities available for sale or in trading account assets based on intent. The
corporation adopted this Standard on January 1, 1999, and as a result, we
reclassified all interest-only and residual certificates to securities available
for sale.
Statement of Financial Accounting Standards No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, as amended by Standards No. 137,
establishes accounting and reporting standards for derivatives and hedging
activities. This Standard requires that all derivatives be recognized as assets
or liabilities in the balance sheet and that such instruments be measured at
fair value through adjustments to either other comprehensive income or current
earnings or both, depending on the purpose for which the derivative is held.
This Standard significantly changes the accounting for hedge-related
derivatives. For the corporation, the Standard is effective January 1, 2001. The
corporation is in the process of assessing the impact of this Standard.
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 such an institution, including federal funds and letters of
credit, in the liquidation or other resolution of such an institution by any
receiver.
Both houses of the U.S. Congress have passed, and the President indicated
he will sign into law, the Gramm-Leach-Bliley Financial Modernization Act of
1999 (the "Modernization Act.") The Modernization Act will: allow bank holding
companies meeting management, capital and CRA standards to engage in a
substantially broader range of nonbanking activities than currently is
permissible, including insurance underwriting and making merchant banking
investments in commercial and financial companies; allow insurers and other
financial services companies to acquire banks; remove various restrictions that
currently apply to bank holding company ownership of securities firms and mutual
fund advisory companies; and establish the overall regulatory structure
applicable to bank holding companies that also engage in insurance and
securities operations. This part of the Modernization Act will become effective
120 days after enactment. First Union currently believes it meets the
requirements for the broader range of activities that will be permitted by the
Modernization Act.
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 third parties unless customers have
the opportunity to "opt out" of the disclosure.
22
TABLE 1
CONSOLIDATED SUMMARIES OF INCOME, PER SHARE, BALANCE SHEET AND OTHER DATA
- ------------------------------------------------------------------------------------------------------------------------------------
TWELVE 1999 1998
MONTHS --------------------------------- -----------------------
ENDED
SEPT. 30, THIRD SECOND FIRST FOURTH THIRD
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) 1999 QUARTER QUARTER QUARTER QUARTER QUARTER
- ------------------------------------------------------------------------------------------------------------------------------------
SUMMARIES OF INCOME
Interest income $ 14,776 3,812 3,624 3,572 3,768 3,891
- ------------------------------------------------------------------------------------------------------------------------------------
Interest income (a) $ 14,899 3,840 3,657 3,603 3,799 3,922
Interest expense 7,471 1,930 1,779 1,792 1,970 2,048
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income (a) 7,428 1,910 1,878 1,811 1,829 1,874
Provision for loan losses 686 175 180 164 167 239
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for
loan losses (a) 6,742 1,735 1,698 1,647 1,662 1,635
Securities transactions - portfolio 43 (79) (1) 25 98 211
Fee and other income 6,795 1,519 1,707 1,925 1,644 1,602
Merger-related and restructuring charges (b) 603 - - 398 205 24
Other noninterest expense 8,386 1,940 2,053 2,111 2,282 1,898
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes (a) 4,591 1,235 1,351 1,088 917 1,526
Income taxes 1,230 405 445 351 29 500
Tax-equivalent adjustment 123 28 33 31 31 31
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 3,238 802 873 706 857 995
- ------------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
Basic $ 3.36 0.84 0.92 0.73 0.87 1.02
Diluted 3.34 0.84 0.90 0.73 0.87 1.01
Cash dividends $ 1.83 0.47 0.47 0.47 0.42 0.42
Average shares - Basic (In thousands) - 946,802 954,548 959,833 980,006 981,659
Average shares - Diluted (In thousands) - 953,964 961,793 968,626 990,890 993,208
Average stockholders' equity (c)
Quarter-to-date $ - 15,737 16,122 16,305 17,109 16,766
Year-to-date - 16,052 16,213 16,305 16,137 15,810
Book value 16.62 16.62 16.47 16.76 17.48 17.54
Common stock price
High 65 1/16 48 3/8 55 15/16 65 1/16 63 15/16 65 11/16
Low 35 5/16 35 5/16 42 1/16 48 5/8 44 11/16 47 9/16
Period-end $ 35 5/8 35 5/8 47 1/8 53 7/16 60 13/16 51 3/16
To earnings ratio (d) 10.67 X 10.67 13.43 18.62 20.61 19.10
To book value 214 % 214 286 319 348 292
BALANCE SHEET DATA
Assets 234,823 234,823 229,911 222,955 237,363 234,580
Long-term debt $ 31,910 31,910 30,350 24,858 22,949 18,776
OTHER DATA
ATMs 3,954 3,954 3,955 3,849 3,690 3,645
Employees 66,391 66,391 66,491 70,775 71,486 71,307
- ------------------------------------------------------------------------------------------------------------------------------------
(a) Tax-equivalent.
(b) After tax merger-related and restructuring charges amounted to $259
million in the first quarter of 1999; $136 million in the
fourth quarter of 1998; and $16 million in the third quarter of 1998.
(c) Includes average net unrealized gains or losses on debt and equity
securities. Amounts presented in each of the four quarters
ended June 30, 1999, have been restated to conform to amounts presented
in the third quarter of 1999.
(d) Based on diluted earnings per share.
T-1
TABLE 2
MERGER-RELATED AND RESTRUCTURING CHARGES
- -----------------------------------------------------------------------------------------------------------------------------------
NINE
MONTHS
ENDED
SEPT. 30,
(IN MILLIONS) 1999
- -----------------------------------------------------------------------------------------------------------------------------------
MERGER-RELATED CHARGES
CoreStates acquisition $ 75
Reversal of prior CoreStates accruals related primarily to
employee termination benefits, occupancy and other (24)
- -----------------------------------------------------------------------------------------------------------------------------------
Total merger-related charges 51
- -----------------------------------------------------------------------------------------------------------------------------------
RESTRUCTURING CHARGES
Employee termination benefits 196
Occupancy 54
Asset impairments 69
Contract cancellations 25
Other 3
- -----------------------------------------------------------------------------------------------------------------------------------
Total restructuring charges 347
- -----------------------------------------------------------------------------------------------------------------------------------
Total merger-related and restructuring charges $ 398
- -----------------------------------------------------------------------------------------------------------------------------------
After-tax merger-related and restructuring charges $ 259
- -----------------------------------------------------------------------------------------------------------------------------------
MARCH 1999
RESTRUCTURING CORESTATES SIGNET
(IN MILLIONS) CHARGE ACQUISITION ACQUISITION OTHER TOTAL
- -----------------------------------------------------------------------------------------------------------------------------------
ACTIVITY IN THE RESTRUCTURING ACCRUAL
Balance, December 31, 1998 $ - 286 94 18 398
Restructuring charges 347 - - - 347
Cash payments (7) (61) (21) (4) (93)
Reversal of prior accruals related primarily to
employee termination benefits, occupancy and other - (24) - - (24)
Noncash write-downs and other adjustments - (48) - 7 (41)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1999 340 153 73 21 587
Cash payments (66) (53) (8) (3) (130)
Noncash write-downs and other adjustments (47) (9) - - (56)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1999 227 91 65 18 401
Cash payments (87) (28) (3) (10) (128)
Noncash write-downs and other adjustments (2) - - - (2)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1999 $ 138 63 62 8 271
- -----------------------------------------------------------------------------------------------------------------------------------
T-2
TABLE 3
BUSINESS SEGMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
REAL COMMERCIAL
INVESTMENT ESTATE TRADITIONAL LEASING &
(IN MILLIONS) BANKING FINANCE BANKING RAIL INTERNATIONAL TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL MARKETS
Income statement data
Net interest income $ 33 22 169 61 29 314
Provision for loan losses 4 - 58 1 - 63
Trading account profits 36 - - - - 36
Fee and other income 272 (3) - 43 53 365
Noninterest expense 173 28 41 26 50 318
Income tax expense 62 (17) 25 23 12 105
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 102 8 45 54 20 229
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity (a) 42.65 % 13.66 6.36 88.29 13.93 19.21
Average loans, net $ 3,738 2,028 20,881 5,105 4,842 36,594
Average deposits 2,712 825 2,995 21 3,805 10,358
Average attributed stockholders'
equity $ 946 236 2,688 242 571 4,683
- ------------------------------------------------------------------------------------------------------------------------------------
RETAIL
PRIVATE BROKERAGE &
MUTUAL CLIENT CAP INSURANCE
(IN MILLIONS) TRUST FUNDS BANKING ACCOUNT SERVICES OTHER TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL MANAGEMENT
Income statement data
Net interest income $ 13 - 43 53 21 - 130
Provision for loan losses - - 1 - - - 1
Fee and other income 168 118 4 30 229 (25) 524
Noninterest expense 97 53 24 31 199 - 404
Income tax expense 33 26 8 21 19 (10) 97
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 51 39 14 31 32 (15) 152
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity (a) 87.12 % 74.75 22.09 74.50 38.81 - 54.75
Average loans, net $ 104 - 3,661 - 1,516 - 5,281
Average deposits 2,623 - 3,076 14,302 - - 20,001
Average attributed stockholders'
equity $ 233 163 254 168 326 (32) 1,112
- ------------------------------------------------------------------------------------------------------------------------------------
FIRST RETAIL
UNION HOME CREDIT BRANCH
(IN MILLIONS) MORTGAGE EQUITY CARDS PRODUCTS TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER
Income statement data
Net interest income $ 18 145 53 683 899
Provision for loan losses - 20 35 38 93
Fee and other income 32 (30) 98 207 307
Noninterest expense 54 144 53 584 835
Income tax expense (1) (18) 24 103 108
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ (3) (31) 39 165 170
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity (a) (14.92)% (9.67) 34.35 28.64 16.47
Average loans, net $ 1,449 12,683 2,115 30,044 46,291
Average deposits 1,214 295 9 68,446 69,964
Average attributed stockholders'
equity $ 72 1,290 449 2,284 4,095
- ------------------------------------------------------------------------------------------------------------------------------------
(CONTINUED)
T-3
TABLE 3
BUSINESS SEGMENTS
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 $ 22 92 46 239 399
Provision for loan losses - 13 5 - 18
Fee and other income - - - 140 140
Noninterest expense 12 69 15 189 285
Income tax expense 5 (1) 10 73 87
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 5 11 16 117 149
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity (a) 10.74 % 3.68 11.66 64.61 22.06
Average loans, net $ 2,792 21,773 8,629 - 33,194
Average deposits - - - 25,507 25,507
Average attributed stockholders'
equity $ 187 1,246 535 719 2,687
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL CAPITAL TREASURY/
(IN MILLIONS) MARKETS MGT. CONSUMER COMMERCIAL NONBANK TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED
Income statement data
Net interest income $ 314 130 899 399 140 1,882
Provision for loan losses 63 1 93 18 - 175
Trading account profits 36 - - - - 36
Fee and other income 365 524 307 140 68 1,404
Noninterest expense 318 404 835 285 98 1,940
Income tax expense 105 97 108 87 8 405
- ------------------------------------------------------------------------------------------------------------------------------------
Net income after
merger-related and
restructuring charges 229 152 170 149 102 802
After-tax merger-related and
restructuring charges - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net income before
merger-related and
restructuring charges $ 229 152 170 149 102 802
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity (a) 19.21 % 54.75 16.47 22.06 12.81 19.91
Average loans, net $ 36,594 5,281 46,291 33,194 10,074 131,434
Average deposits 10,358 20,001 69,964 25,507 7,594 133,424
Average attributed stockholders'
equity $ 4,683 1,112 4,095 2,687 3,160 15,737
- ------------------------------------------------------------------------------------------------------------------------------------
(CONTINUED)
T-4
TABLE 3
BUSINESS SEGMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
REAL COMMERCIAL
INVESTMENT ESTATE TRADITIONAL LEASING &
(IN MILLIONS) BANKING FINANCE BANKING RAIL INTERNATIONAL TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL MARKETS
Income statement data
Net interest income $ 20 18 152 35 53 278
Provision for loan losses - (1) 62 - - 61
Trading account profits (losses) 74 (147) - - - (73)
Fee and other income 92 1 36 45 51 225
Noninterest expense 113 22 38 24 40 237
Income tax expense 24 (68) 34 13 24 27
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 49 (81) 54 43 40 105
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity (a) 28.67 % (84.08) 10.06 113.62 27.57 10.59
Average loans, net $ 3,005 1,553 19,185 4,647 4,910 33,300
Average deposits 2,899 643 3,827 22 4,901 12,292
Average attributed stockholders'
equity $ 683 382 2,179 150 580 3,974
- ------------------------------------------------------------------------------------------------------------------------------------
RETAIL
PRIVATE BROKERAGE &
MUTUAL CLIENT CAP INSURANCE
(IN MILLIONS) TRUST FUNDS BANKING ACCOUNT SERVICES OTHER TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL MANAGEMENT
Income statement data
Net interest income $ 13 1 42 38 8 - 102
Provision for loan losses - - 1 - - - 1
Fee and other income 152 105 3 19 195 (20) 454
Noninterest expense 93 50 18 27 179 - 367
Income tax expense 27 21 10 12 9 (8) 71
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 45 35 16 18 15 (12) 117
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity (a) 83.66 % 72.40 24.85 72.46 22.36 - 48.22
Average loans, net $ 118 - 3,701 - 1,364 - 5,183
Average deposits 2,334 - 2,800 11,536 - - 16,670
Average attributed stockholders'
equity $ 210 147 254 103 267 (27) 954
- ------------------------------------------------------------------------------------------------------------------------------------
HOME
EQUITY &
FIRST THE RETAIL
UNION MONEY CREDIT BRANCH
(IN MILLIONS) MORTGAGE STORE CARDS PRODUCTS TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER
Income statement data
Net interest income $ 24 112 95 739 970
Provision for loan losses - 3 42 54 99
Fee and other income 70 178 161 209 618
Noninterest expense 79 174 71 564 888
Income tax expense 6 43 54 127 230
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 9 70 89 203 371
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity (a) 25.00 % 18.71 76.76 32.05 31.98
Average loans, net $ 2,173 9,873 3,648 45,062 60,756
Average deposits 1,413 159 11 76,449 78,032
Average attributed stockholders'
equity $ 144 1,472 454 2,529 4,599
- ------------------------------------------------------------------------------------------------------------------------------------
(CONTINUED)
T-5
TABLE 3
BUSINESS SEGMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
SMALL REAL CASH MGT. &
BUSINESS ESTATE DEPOSIT
(IN MILLIONS) BANKING LENDING BANKING SERVICES TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL
Income statement data
Net interest income $ 22 114 54 250 440
Provision for loan losses 1 18 6 - 25
Fee and other income - - - 129 129
Noninterest expense 9 70 13 186 278
Income tax expense 5 4 14 74 97
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 7 22 21 119 169
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity (a) 17.67 % 6.36 13.77 66.44 23.35
Average loans, net $ 2,648 24,470 9,048 - 36,166
Average deposits - - - 26,666 26,666
Average attributed stockholders'
equity $ 171 1,394 634 713 2,912
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL CAPITAL TREASURY/
(IN MILLIONS) MARKETS MGT. CONSUMER COMMERCIAL NONBANK TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED
Income statement data
Net interest income $ 278 102 970 440 53 1,843
Provision for loan losses 61 1 99 25 53 239
Trading account profits (losses) (73) - - - - (73)
Fee and other income 225 454 618 129 460 1,886
Noninterest expense 237 367 888 278 152 1,922
Income tax expense 27 71 230 97 75 500
- ------------------------------------------------------------------------------------------------------------------------------------
Net income after
merger-related and
restructuring charges 105 117 371 169 233 995
After-tax merger-related and
restructuring charges - - - - 16 16
- ------------------------------------------------------------------------------------------------------------------------------------
Net income before
merger-related and
restructuring charges $ 105 117 371 169 249 1,011
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity (a) 10.59 % 48.22 31.98 23.35 22.83 22.99
Average loans, net $ 33,300 5,183 60,756 36,166 (355) 135,050
Average deposits 12,292 16,670 78,032 26,666 2,554 136,214
Average attributed stockholders'
equity $ 3,974 954 4,599 2,912 4,327 16,766
- ------------------------------------------------------------------------------------------------------------------------------------
(CONTINUED)
T-6
TABLE 3
BUSINESS SEGMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
REAL COMMERCIAL
INVESTMENT ESTATE TRADITIONAL LEASING &
(IN MILLIONS) BANKING FINANCE BANKING RAIL INTERNATIONAL TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL MARKETS
Income statement data
Net interest income $ 111 59 497 189 121 977
Provision for loan losses 10 - 153 4 - 167
Trading account profits 195 56 - - - 251
Fee and other income 704 (25) 36 126 155 996
Noninterest expense 513 89 141 80 157 980
Income tax expense 182 (49) 90 71 45 339
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 305 50 149 160 74 738
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity (a) 46.63 % 28.74 7.59 100.23 16.77 21.79
Average loans, net $ 3,294 2,127 20,951 5,060 4,761 36,193
Average deposits 2,710 768 3,366 21 4,609 11,474
Average attributed stockholders'
equity $ 875 234 2,616 213 591 4,529
- ------------------------------------------------------------------------------------------------------------------------------------
RETAIL
PRIVATE BROKERAGE &
MUTUAL CLIENT CAP INSURANCE
(IN MILLIONS) TRUST FUNDS BANKING ACCOUNT SERVICES OTHER TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL MANAGEMENT
Income statement data
Net interest income $ 39 2 129 144 57 - 371
Provision for loan losses - - - - - - -
Fee and other income 496 335 12 84 685 (69) 1,543
Noninterest expense 322 182 69 94 609 - 1,276
Income tax expense 82 60 27 52 50 (27) 244
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 131 95 45 82 83 (42) 394
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity (a) 74.75 % 55.53 24.09 71.50 34.19 - 48.38
Average loans, net $ 147 - 3,601 - 1,517 - 5,265
Average deposits 2,649 - 3,100 14,189 - - 19,938
Average attributed stockholders'
equity $ 234 158 249 154 324 (30) 1,089
- ------------------------------------------------------------------------------------------------------------------------------------
HOME
EQUITY &
FIRST THE RETAIL
UNION MONEY CREDIT BRANCH
(IN MILLIONS) MORTGAGE STORE CARDS PRODUCTS TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER
Income statement data
Net interest income $ 62 413 174 2,037 2,686
Provision for loan losses 1 48 120 115 284
Fee and other income 237 167 264 706 1,374
Noninterest expense 199 451 182 1,822 2,654
Income tax expense 38 31 52 308 429
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 61 50 84 498 693
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity (a) 66.51 % 6.79 25.16 24.96 21.98
Average loans, net $ 1,695 12,379 2,424 35,399 51,897
Average deposits 1,295 122 10 70,467 71,894
Average attributed stockholders'
equity $ 123 978 446 2,665 4,212
- ------------------------------------------------------------------------------------------------------------------------------------
(CONTINUED)
T-7
TABLE 3
BUSINESS SEGMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
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 $ 68 280 140 727 1,215
Provision for loan losses 2 48 19 - 69
Fee and other income - - - 412 412
Noninterest expense 36 230 51 585 902
Income tax expense 12 (20) 27 212 231
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 18 22 43 342 425
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity (a) 12.58 % 2.25 10.42 62.42 20.35
Average loans, net $ 2,879 22,359 8,516 - 33,754
Average deposits - - - 26,017 26,017
Average attributed stockholders'
equity $ 192 1,317 553 733 2,795
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL CAPITAL TREASURY/
(IN MILLIONS) MARKETS MGT. CONSUMER COMMERCIAL NONBANK TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED
Income statement data
Net interest income $ 977 371 2,686 1,215 258 5,507
Provision for loan losses 167 - 284 69 (1) 519
Trading account profits 251 - - - - 251
Fee and other income 996 1,543 1,374 412 520 4,845
Noninterest expense 980 1,276 2,654 902 690 6,502
Income tax expense 339 244 429 231 (42) 1,201
- ------------------------------------------------------------------------------------------------------------------------------------
Net income after
merger-related and
restructuring charges 738 394 693 425 131 2,381
After-tax merger-related and
restructuring charges - - - - 259 259
- ------------------------------------------------------------------------------------------------------------------------------------
Net income before
merger-related and
restructuring charges $ 738 394 693 425 390 2,640
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity (a) 21.79 % 48.38 21.98 20.35 15.22 21.74
Average loans, net $ 36,193 5,265 51,897 33,754 6,437 133,546
Average deposits 11,474 19,938 71,894 26,017 5,160 134,483
Average attributed stockholders'
equity $ 4,529 1,089 4,212 2,795 3,427 16,052
- ------------------------------------------------------------------------------------------------------------------------------------
(CONTINUED)
T-8
TABLE 3
BUSINESS SEGMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
REAL COMMERCIAL
INVESTMENT ESTATE TRADITIONAL LEASING &
(IN MILLIONS) BANKING FINANCE BANKING RAIL INTERNATIONAL TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL MARKETS
Income statement data
Net interest income $ 60 50 462 85 121 778
Provision for loan losses 5 (1) 86 4 2 96
Trading account profits 148 (117) - - - 31
Fee and other income 433 (3) 62 140 151 783
Noninterest expense 381 73 132 80 140 806
Income tax expense 90 (87) 118 38 50 209
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 165 (55) 188 103 80 481
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity (a) 29.68 % (22.93) 12.64 91.58 19.72 17.16
Average loans, net $ 2,554 1,711 18,431 4,496 4,719 31,911
Average deposits 2,124 631 3,651 21 4,378 10,805
Average attributed stockholders'
equity $ 747 322 2,011 151 545 3,776
- ------------------------------------------------------------------------------------------------------------------------------------
RETAIL
PRIVATE BROKERAGE &
MUTUAL CLIENT CAP INSURANCE
(IN MILLIONS) TRUST FUNDS BANKING ACCOUNT SERVICES OTHER TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL MANAGEMENT
Income statement data
Net interest income $ 41 2 120 112 30 - 305
Provision for loan losses - 4 - - - 4
Fee and other income 446 303 8 54 583 (63) 1,331
Noninterest expense 311 160 59 78 516 - 1,124
Income tax expense 66 55 25 34 37 (25) 192
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 110 90 40 54 60 (38) 316
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity (a) 67.54 % 58.02 22.19 71.94 30.02 - 44.51
Average loans, net $ 115 - 3,529 - 1,079 - 4,723
Average deposits 2,285 - 2,647 11,192 - - 16,124
Average attributed stockholders'
equity $ 214 142 242 102 266 (28) 938
- ------------------------------------------------------------------------------------------------------------------------------------
HOME
EQUITY &
FIRST THE RETAIL
UNION MONEY CREDIT BRANCH
(IN MILLIONS) MORTGAGE STORE CARDS PRODUCTS TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER
Income statement data
Net interest income $ 67 191 272 2,201 2,731
Provision for loan losses 1 8 152 138 299
Fee and other income 217 196 304 698 1,415
Noninterest expense 227 227 191 1,767 2,412
Income tax expense 22 58 88 380 548
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 34 94 145 614 887
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity (a) 30.93 % 65.18 42.97 27.05 31.00
Average loans, net $ 2,102 7,022 3,735 45,952 58,811
Average deposits 1,318 88 13 77,586 79,005
Average attributed stockholders'
equity $ 146 194 449 3,033 3,822
- ------------------------------------------------------------------------------------------------------------------------------------
(CONTINUED)
T-9
TABLE 3
BUSINESS SEGMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
SMALL REAL CASH MGT. &
BUSINESS ESTATE DEPOSIT
(IN MILLIONS) BANKING LENDING BANKING SERVICES TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL
Income statement data
Net interest income $ 64 365 161 716 1,306
Provision for loan losses 3 49 13 - 65
Fee and other income - - - 386 386
Noninterest expense 29 230 44 593 896
Income tax expense 12 21 40 195 268
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 20 65 64 314 463
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity (a) 16.59 % 5.99 13.66 61.35 21.16
Average loans, net $ 2,584 25,292 9,141 - 37,017
Average deposits - - - 25,294 25,294
Average attributed stockholders'
equity $ 167 1,448 636 684 2,935
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL CAPITAL TREASURY/
(IN MILLIONS) MARKETS MGT. CONSUMER COMMERCIAL NONBANK TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED
Income statement data
Net interest income $ 778 305 2,731 1,306 359 5,479
Provision for loan losses 96 4 299 65 60 524
Trading account profits 31 - - - - 31
Fee and other income 783 1,331 1,415 386 747 4,662
Noninterest expense 806 1,124 2,412 896 1,331 6,569
Income tax expense 209 192 548 268 (172) 1,045
- ------------------------------------------------------------------------------------------------------------------------------------
Net income after
merger-related and
restructuring charges 481 316 887 463 (113) 2,034
After-tax merger-related and
restructuring charges - - - - 669 669
- ------------------------------------------------------------------------------------------------------------------------------------
Net income before
merger-related and
restructuring charges $ 481 316 887 463 556 2,703
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity (a) 17.16 % 44.51 31.00 21.16 17.13 22.43
Average loans, net $ 31,911 4,723 58,811 37,017 355 132,817
Average deposits 10,805 16,124 79,005 25,294 4,721 135,949
Average attributed stockholders'
equity $ 3,776 938 3,822 2,935 4,339 15,810
- ------------------------------------------------------------------------------------------------------------------------------------
(a) Average attributed stockholders' equity excludes merger-related and
restructuring charges and includes average net unrealized gains or
losses on debt and equity securities. See the "Business Segments"
discussion in Management's Analysis of Operations for further information
about the methodology and assumptions used herein. The return on average
attributed stockholders' equity for the Capital Management Mutual Funds
unit is net of the amount included in Other.
T-10
TABLE 4
SELECTED PERFORMANCE, DIVIDEND PAYOUT AND OTHER RATIOS
- ------------------------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED
SEPTEMBER 30, 1999 1998
------------------------- ------------------------------------- ------------------------
THIRD SECOND FIRST FOURTH THIRD
1999 1998 QUARTER QUARTER QUARTER QUARTER QUARTER
- ------------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE RATIOS (a)
Assets to stockholders' equity 14.09 X 13.90 14.59 13.92 13.78 13.49 13.67
Return on assets 1.41 % 1.24 1.39 1.56 1.27 1.47 1.72
Return on stockholders' equity (b) 19.84 17.20 20.24 21.72 17.56 19.87 23.55
Internal capital growth (b) 8.51 % 7.83 8.91 10.38 6.25 10.28 13.76
- ------------------------------------------------------------------------------------------------------------------------------------
DIVIDEND PAYOUT RATIOS ON
Operating earnings 51.46 % 41.03 55.95 52.22 47.00 42.00 41.18
Net income 57.09 % 54.51 55.95 52.22 64.38 48.28 41.58
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER RATIOS ON
Operating earnings
Return on assets 1.56 % 1.64 1.39 1.56 1.74 1.70 1.75
Return on stockholders' equity (b) 21.74 % 22.43 19.91 21.37 23.93 22.12 22.99
- ------------------------------------------------------------------------------------------------------------------------------------
(a) Based on average balances and net income.
(b) Includes average net unrealized gains or losses on debt and equity
securities. Amounts presented in each of the four quarters ended June 30,
1999, have been restated to conform to amounts presented in the third
quarter of 1999.
TABLE 5
LOANS - ON-BALANCE SHEET AND TOTAL MANAGED PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998
------------------------------------------ -------------------------
THIRD SECOND FIRST FOURTH THIRD
(IN MILLIONS) QUARTER QUARTER QUARTER QUARTER QUARTER
- ---------------------------------------------------------------------------------------------------------------------------------
ON-BALANCE SHEET
COMMERCIAL
Commercial, financial and agricultural $ 52,497 52,727 52,798 53,961 52,179
Real estate - construction and other 2,709 2,636 2,602 2,628 2,884
Real estate - mortgage 8,404 8,441 8,489 8,565 8,977
Lease financing 11,969 10,527 10,525 9,730 9,388
Foreign 4,933 4,609 4,084 4,805 4,289
- ---------------------------------------------------------------------------------------------------------------------------------
Total commercial 80,512 78,940 78,498 79,689 77,717
- ---------------------------------------------------------------------------------------------------------------------------------
RETAIL
Real estate - mortgage 27,840 26,628 20,901 21,729 25,522
Installment loans - Bankcard (a) 1,681 2,133 2,579 2,779 2,700
Installment loans - other 25,002 24,320 29,585 29,050 27,564
Vehicle leasing 5,096 5,753 6,257 6,162 5,955
- ---------------------------------------------------------------------------------------------------------------------------------
Total retail 59,619 58,834 59,322 59,720 61,741
- ---------------------------------------------------------------------------------------------------------------------------------
Total loans 140,131 137,774 137,820 139,409 139,458
Unearned income 5,098 4,195 4,404 4,026 3,769
- ---------------------------------------------------------------------------------------------------------------------------------
Loans, net (on-balance sheet) $ 135,033 133,579 133,416 135,383 135,689
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL MANAGED PORTFOLIO (Including on-
and off-balance sheet portfolios)
- ---------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL $ 108,182 103,960 99,608 97,878 92,157
- ---------------------------------------------------------------------------------------------------------------------------------
RETAIL
Real estate - mortgage 67,833 67,868 67,135 64,213 65,316
Installment loans - Bankcard (a) 6,373 6,241 6,103 6,487 6,292
Installment loans - other 47,444 46,974 45,847 45,813 44,922
Vehicle leasing 5,096 5,753 6,257 6,162 5,955
- ---------------------------------------------------------------------------------------------------------------------------------
Total retail 126,746 126,836 125,342 122,675 122,485
- ---------------------------------------------------------------------------------------------------------------------------------
Total on-balance sheet and managed portfolio $ 234,928 230,796 224,950 220,553 214,642
- ---------------------------------------------------------------------------------------------------------------------------------
(a) Installment loans - Bankcard include credit card, ICR, signature and
First Choice.
T-11
TABLE 6
INTEREST-ONLY AND RESIDUAL CERTIFICATES
- ------------------------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 1999
-----------------------------------------------------------------------------------------------
HOME
EQUITY
HOME CREDIT LINES OF
(IN MILLIONS) EQUITY (A) (B) SBA (B) STUDENT AUTO CARD CREDIT
- ------------------------------------------------------------------------------------------------------------------------------------
ACTIVITY
Balance, December 31, 1998 $ 1,095 118 119 16 159 12
Originated residual interests - 75 21 - 235 3
Servicer and other advances, net 14 - - - - -
Net accretion (amortization) (64) (19) 5 (10) (207) (5)
Impairment loss (124) (5) - (4) - -
Transfer to securitization trust (744) - - - - -
Unrealized gain (loss) (14) 9 8 2 20 -
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1999 $ 163 178 153 4 207 10
- ------------------------------------------------------------------------------------------------------------------------------------
HOME EQUITY HOME
---------------------------- EQUITY
FIXED VARIABLE CREDIT LINES OF
RATE RATE SBA STUDENT AUTO CARD CREDIT
- ------------------------------------------------------------------------------------------------------------------------------------
VALUATION ESTIMATES (c)
Discount rate 11.00 % 11.00 11.00 9.50 11.00 10.00 11.00
Prepayment rate CPR-23.35 % CPR-32.44 CPR-18.38 CPR-3.39 ABS-1.22 9.7 Mths CPR-3.95
Weighted average life (months) 36.4 25.3 52.4 70.8 8.5 9.7 54.0
Weighted average cumulative
net loss 534 bps 396 454 17 283 507 270
Weighted average coupon rate 11.12 % 10.44 9.43 8.03 10.34 17.33 9.47
Excess annual spread (d) 369 bps 521 557 126 186 433 247
- ------------------------------------------------------------------------------------------------------------------------------------
HOME EQUITY HOME
---------------------------- EQUITY
FIXED VARIABLE CREDIT LINES OF
(DOLLARS IN MILLIONS) RATE RATE SBA STUDENT AUTO CARD CREDIT
- ------------------------------------------------------------------------------------------------------------------------------------
COLLATERAL DATA (c)
Securitized principal serviced $ 7,130 2,408 1,257 4,269 423 4,692 160
Contractual delinquency ratios
30 - 59 days 2.65 % 2.62 0.28 2.40 3.27 1.24 0.31
60 - 89 days 0.95 0.78 0.39 1.77 0.77 0.61 0.29
90 - 179 days 0.96 1.16 0.72 1.75 0.64 0.95 0.26
180 - 359 days 0.83 1.77 0.57 1.10 0.02 - 0.36
Defaults
Foreclosures in process (e) 4.87 10.16 1.13 n/a n/a n/a -
Real estate owned 1.31 % 2.60 0.17 n/a n/a n/a 0.04
- ------------------------------------------------------------------------------------------------------------------------------------
(a) The September 30, 1999, Home Equity balance includes servicer advances of
$147 million.
(b) The December 31, 1998, Home Equity and Small Business Administration
(SBA) balances have been restated to reflect the final refinements to
the June 30, 1998, valuations for acquired retained interests.
(c) Valuation Estimates and Collateral Data include the interest-only and
residual interests that were transferred to the securitization trust in
the third quarter of 1999.
(d) Excess annual spread is calculated as the total estimated cash, including
cash released from spread accounts, to be received from the
securitization trust. The excess annual spread for SBA loans includes the
excess spread from the sale of the guaranteed portion of the loans as
well as the excess spread from the securitization of the unguaranteed
portion.
(e) Foreclosures in process includes loans that are delinquent 360 days or
more.
n/a - Data is not applicable.
T-12
TABLE 7
ALLOWANCE FOR LOAN LOSSES AND NONPERFORMING ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998
-------------------------------------- ------------------------
THIRD SECOND FIRST FOURTH THIRD
(IN MILLIONS) QUARTER QUARTER QUARTER QUARTER QUARTER
- -----------------------------------------------------------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES
Balance, beginning of period $ 1,785 1,826 1,826 1,882 1,870
Provision for loan losses 175 180 164 167 239
Allowance relating to loans acquired, transferred to
accelerated disposition or sold (25) (41) - (57) (40)
Loan losses, net (175) (180) (164) (166) (187)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, end of period $ 1,760 1,785 1,826 1,826 1,882
- -----------------------------------------------------------------------------------------------------------------------------------
as a % of loans, net 1.30 % 1.34 1.37 1.35 1.39
- -----------------------------------------------------------------------------------------------------------------------------------
as a % of nonaccrual and restructured loans 187 % 212 217 246 267
- -----------------------------------------------------------------------------------------------------------------------------------
as a % of nonperforming assets 169 % 190 192 217 228
- -----------------------------------------------------------------------------------------------------------------------------------
LOAN LOSSES
Commercial, financial and agricultural $ 95 89 78 83 98
Real estate - commercial construction and mortgage 4 10 1 3 1
Real estate - residential mortgage 5 5 5 2 8
Installment loans - Bankcard 37 43 49 60 58
Installment loans - other and vehicle leasing 67 67 65 63 53
- -----------------------------------------------------------------------------------------------------------------------------------
Total 208 214 198 211 218
- -----------------------------------------------------------------------------------------------------------------------------------
LOAN RECOVERIES
Commercial, financial and agricultural 17 12 13 25 9
Real estate - commercial construction and mortgage 3 2 1 3 3
Real estate - residential mortgage - 2 - - -
Installment loans - Bankcard 2 3 4 2 6
Installment loans - other and vehicle leasing 11 15 16 15 13
- -----------------------------------------------------------------------------------------------------------------------------------
Total 33 34 34 45 31
- -----------------------------------------------------------------------------------------------------------------------------------
Loan losses, net $ 175 180 164 166 187
- -----------------------------------------------------------------------------------------------------------------------------------
as % of average loans, net (a) 0.53 % 0.53 0.49 0.50 0.55
- -----------------------------------------------------------------------------------------------------------------------------------
NONPERFORMING ASSETS
Nonaccrual loans
Commercial loans (b) $ 506 427 434 362 294
Commercial real estate loans 59 69 74 67 121
Consumer real estate loans 156 166 181 184 181
Installment loans 217 181 152 128 108
- -----------------------------------------------------------------------------------------------------------------------------------
Total nonaccrual loans 938 843 841 741 704
Restructured loans and foreclosed properties (c) 103 97 109 103 121
- -----------------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $ 1,041 940 950 844 825
- -----------------------------------------------------------------------------------------------------------------------------------
as % of loans, net, and foreclosed properties 0.77 % 0.70 0.71 0.62 0.61
- -----------------------------------------------------------------------------------------------------------------------------------
Accruing loans past due 90 days $ 355 333 344 385 279
- -----------------------------------------------------------------------------------------------------------------------------------
(a) Annualized.
(b) In the third quarter of 1999 and in the second quarter of 1999,
nonperforming assets exclude a nonaccrual commercial loan which is
classified in other assets as an asset held for sale and carried at a
market value of $14 million and $37 million, respectively.
(c) Restructured loans do not exceed $4 million for any period presented.
T-13
TABLE 8
INTANGIBLE ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998
-------------------------------------- -----------------------
THIRD SECOND FIRST FOURTH THIRD
(IN MILLIONS) QUARTER QUARTER QUARTER QUARTER QUARTER
- ------------------------------------------------------------------------------------------------------------------------------------
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill $ 4,276 4,336 4,354 4,376 4,410
Deposit base premium 283 309 335 360 392
Other 283 289 294 300 303
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ 4,842 4,934 4,983 5,036 5,105
- ------------------------------------------------------------------------------------------------------------------------------------
MORTGAGE AND OTHER SERVICING ASSETS $ 712 744 700 637 554
- ------------------------------------------------------------------------------------------------------------------------------------
CREDIT CARD PREMIUM $ 8 10 12 14 16
- ------------------------------------------------------------------------------------------------------------------------------------
TABLE 9
DEPOSITS
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998
---------------------------------------- ------------------------
THIRD SECOND FIRST FOURTH THIRD
(IN MILLIONS) QUARTER QUARTER QUARTER QUARTER QUARTER
- ------------------------------------------------------------------------------------------------------------------------------------
CORE DEPOSITS
Noninterest-bearing $ 28,737 31,703 31,757 35,614 30,504
Savings and NOW accounts 36,667 37,354 38,131 38,649 33,344
Money market accounts 19,666 20,109 20,006 20,822 23,489
Other consumer time 32,743 33,192 34,339 35,809 36,805
- ------------------------------------------------------------------------------------------------------------------------------------
Total core deposits 117,813 122,358 124,233 130,894 124,142
Foreign 5,590 5,591 4,850 5,427 4,226
Other time 10,500 5,654 5,141 6,146 6,160
- ------------------------------------------------------------------------------------------------------------------------------------
Total deposits $ 133,903 133,603 134,224 142,467 134,528
- ------------------------------------------------------------------------------------------------------------------------------------
TABLE 10
TIME DEPOSITS IN AMOUNTS OF $100,000 OR MORE
- ------------------------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 1999
-------------------
(IN MILLIONS) TIME CERTIFICATES
- ------------------------------------------------------------------------------------------------------------------------------------
MATURITY OF
3 months or less $ 4,286
Over 3 months through 6 months 3,474
Over 6 months through 12 months 5,410
Over 12 months 2,653
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ 15,823
- ------------------------------------------------------------------------------------------------------------------------------------
T-14
TABLE 11
LONG-TERM DEBT
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998
---------------------------------- -------------------------
THIRD SECOND FIRST FOURTH THIRD
(IN MILLIONS) QUARTER QUARTER QUARTER QUARTER QUARTER
- -----------------------------------------------------------------------------------------------------------------------------------
NOTES AND DEBENTURES ISSUED BY THE
PARENT COMPANY
Notes
Floating rate extendible, due June 15, 2005 $ 10 10 10 10 10
7.10%, due August 15, 2004 348 - - - -
6-5/8%, due June 15, 2004 398 398 - - -
6.60%, due June 15, 2000 250 250 250 250 249
Subordinated notes
6.30%, Putable/Callable, due April 15, 2028 200 200 200 200 200
7.18%, due April 15, 2011 59 59 59 59 59
8%, due August 15, 2009 149 149 149 149 149
6-3/8%, due January 15, 2009 148 148 148 148 148
6%, due October 30, 2008 198 198 198 198 198
6.40%, due April 1, 2008 298 298 298 297 297
7-1/2%, due July 15, 2006 298 298 298 298 298
7%, due March 15, 2006 199 199 199 199 199
6-7/8%, due September 15, 2005 249 249 249 249 249
7.05%, due August 1, 2005 249 249 249 249 249
6-5/8%, due July 15, 2005 249 249 249 249 249
8.77%, due November 15, 2004 149 149 149 149 149
Floating rate, due July 22, 2003 150 150 149 149 149
7-1/4%, due February 15, 2003 149 149 149 149 149
8%, due November 15, 2002 224 224 224 224 224
8-1/8%, due June 24, 2002 249 249 249 249 249
9.45%, due August 15, 2001 149 149 149 149 149
Fixed rate medium-term, varying rates and terms 37 37 37 37 37
9.45% - - 250 250 250
Subordinated debentures
6.55%, due October 15, 2035 249 249 249 249 249
7-1/2%, due April 15, 2035 247 247 247 247 247
6.824%/7.574%, due August 1, 2026 298 298 298 298 298
- -----------------------------------------------------------------------------------------------------------------------------------
Total notes and debentures issued by the Parent Company 5,203 4,855 4,706 4,705 4,704
- -----------------------------------------------------------------------------------------------------------------------------------
(CONTINUED)
T-15
TABLE 11
LONG-TERM DEBT
- -----------------------------------------------------------------------------------------------------------------------------------
1999 1998
---------------------------------- -----------------------
THIRD SECOND FIRST FOURTH THIRD
(IN MILLIONS) QUARTER QUARTER QUARTER QUARTER QUARTER
- -----------------------------------------------------------------------------------------------------------------------------------
NOTES ISSUED BY SUBSIDIARIES
Notes
Medium-term, varying rates and terms to September 15, 2006 18,284 17,921 12,721 10,808 7,248
Senior notes from acquired companies, varying
rate and terms to April 15, 2004 569 569 569 569 569
Subordinated notes
Bank, varying rates and terms to December 15, 2036 1,200 1,200 1,200 1,200 650
7.95%, due December 1, 2007 100 100 100 100 100
6-3/4%, due November 15, 2006 200 200 200 200 200
6-5/8%, due March 15, 2005 175 175 175 175 175
5-7/8%, due October 15, 2003 200 200 200 200 200
6.80%, due June 15, 2003 149 149 149 149 149
9-3/8%, due April 15, 2003 100 100 100 100 100
6-5/8%, due March 15, 2003 150 150 150 150 150
7.30%, due December 1, 2002 150 150 150 150 150
7-7/8%, due July 15, 2002 100 100 100 100 100
9-5/8%, due February 15, 2001 150 150 150 150 150
9-5/8%, due August 15, 1999 - 150 150 150 150
9-5/8% - - 100 100 100
Subordinated capital notes
9-5/8% - - 75 75 75
9-7/8% - - 75 75 75
- -----------------------------------------------------------------------------------------------------------------------------------
Total notes issued by subsidiaries 21,527 21,314 16,364 14,451 10,341
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER DEBT
Trust preferred securities 1,730 1,730 1,736 1,736 1,736
Advances from the Federal Home Loan Bank 2,387 1,387 987 986 1,186
4.556% auto securitization financing, due September 30, 2008 1,022 1,022 1,021 1,023 759
Mortgage notes and other debt of subsidiaries,
varying rates and terms 7 7 7 8 9
Capitalized leases 34 35 37 40 41
- -----------------------------------------------------------------------------------------------------------------------------------
Total other debt 5,180 4,181 3,788 3,793 3,731
- -----------------------------------------------------------------------------------------------------------------------------------
Total $ 31,910 30,350 24,858 22,949 18,776
- -----------------------------------------------------------------------------------------------------------------------------------
T-16
TABLE 12
CHANGES IN STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
TWELVE 1999 1998
MONTHS -------------------------------------- ---------------------
ENDED
SEPT. 30, THIRD SECOND FIRST FOURTH THIRD
(IN MILLIONS) 1999 QUARTER QUARTER QUARTER QUARTER QUARTER
- -------------------------------------------------------------------------------------------------------------------------------
Balance, beginning of period $ 17,370 15,747 16,231 17,173 17,370 16,526
- -------------------------------------------------------------------------------------------------------------------------------
Comprehensive income
Net income 3,238 802 873 706 857 995
Net unrealized gain (loss) on debt and
equity securities (1,098) (193) (341) (415) (149) 222
- -------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income 2,140 609 532 291 708 1,217
Purchase of common stock (2,347) (22) (854) (854) (617) -
Common stock issued for
Stock options and restricted stock 450 25 268 49 108 23
Dividend reinvestment plan 83 21 21 22 19 20
Cash dividends paid (1,768) (452) (451) (450) (415) (416)
- -------------------------------------------------------------------------------------------------------------------------------
Balance, end of period $ 15,928 15,928 15,747 16,231 17,173 17,370
- -------------------------------------------------------------------------------------------------------------------------------
T-17
TABLE 13
CAPITAL RATIOS
- ------------------------------------------------------------------------------------------------------------------------------
1999 1998
---------------------------------------- --------------------------
THIRD SECOND FIRST FOURTH THIRD
(IN MILLIONS) QUARTER QUARTER QUARTER QUARTER QUARTER
- ------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED CAPITAL RATIOS (a)
Qualifying capital
Tier 1 capital $ 13,532 13,071 13,186 13,603 13,610
Total capital 21,337 20,999 21,288 21,794 21,401
Adjusted risk-weighted assets 188,050 196,654 187,679 196,033 182,105
Adjusted leverage ratio assets $ 224,935 219,629 219,904 225,830 224,189
Ratios
Tier 1 capital 7.20 % 6.65 7.03 6.94 7.47
Total capital 11.35 10.68 11.34 11.12 11.75
Leverage 6.02 5.95 6.00 6.02 6.07
STOCKHOLDERS' EQUITY TO ASSETS
Quarter-end 6.78 6.85 7.28 7.23 7.40
Average 6.85 % 7.19 7.26 7.42 7.32
- ------------------------------------------------------------------------------------------------------------------------------
BANK CAPITAL RATIOS
Tier 1 capital
First Union National Bank 7.27 % 7.13 7.33 7.48 7.49
First Union Bank of Delaware 11.56 9.41 13.11 11.44 16.11
First Union Home Equity Bank 19.18 12.73 13.41 11.91 13.51
Total capital
First Union National Bank 10.39 10.17 10.28 10.38 10.38
First Union Bank of Delaware 12.73 10.98 14.62 12.82 16.56
First Union Home Equity Bank 22.36 14.88 15.51 13.82 15.78
Leverage
First Union National Bank 6.46 6.72 6.63 6.69 6.35
First Union Bank of Delaware 6.05 6.25 8.18 6.96 18.90
First Union Home Equity Bank 12.88 % 10.29 10.53 10.86 11.22
- ------------------------------------------------------------------------------------------------------------------------------
(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.
T-18
TABLE 14
UNREALIZED GAINS (LOSSES) IN CERTAIN FINANCIAL INSTRUMENTS
- -----------------------------------------------------------------------------------------------------------------------------------
1999 1998
------------------------------------ -----------------------
THIRD SECOND FIRST FOURTH THIRD
(IN MILLIONS) QUARTER QUARTER QUARTER QUARTER QUARTER
- -----------------------------------------------------------------------------------------------------------------------------------
SECURITIES PORTFOLIOS (a)
Securities available for sale (b) $ (833) (528) (2) 636 867
Investment securities 70 83 122 137 144
- -----------------------------------------------------------------------------------------------------------------------------------
Net unrealized gains (losses) - securities portfolios (763) (445) 120 773 1,011
Less unrealized gains (losses) in securities considered
an economic hedge of mortgage servicing rights (56) (45) (9) 14 52
- -----------------------------------------------------------------------------------------------------------------------------------
Net unrealized gains (losses) - securities portfolios (707) (400) 129 759 959
- -----------------------------------------------------------------------------------------------------------------------------------
OFF-BALANCE SHEET DERIVATIVE FINANCIAL
INSTRUMENTS (a)
Asset rate conversions (b) (217) (152) 151 390 618
Liability rate conversions 256 273 386 472 609
Rate sensitivity hedges (7) (6) (22) (23) (24)
- -----------------------------------------------------------------------------------------------------------------------------------
Net unrealized gains - off-balance sheet
derivative financial instruments 32 115 515 839 1,203
Less unrealized gains (losses) in interest rate swaps
designated as offsets to fixed rate liabilities (72) 8 266 472 609
- -----------------------------------------------------------------------------------------------------------------------------------
Net unrealized gains - off-balance sheet
derivative financial instruments 104 107 249 367 594
- -----------------------------------------------------------------------------------------------------------------------------------
Net unrealized gains (losses) $ (603) (293) 378 1,126 1,553
- -----------------------------------------------------------------------------------------------------------------------------------
(a) Additional information related to the securities portfolios can be found in
Tables 15 and 16. Additional information related to off-balance sheet
derivative financial instruments can be found in Tables 17, 18 and 19.
(b) As of September 30, 1999, unrealized gains of $22 million associated with
$7.5 billion 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-19
TABLE 15
SECURITIES AVAILABLE FOR SALE
- -----------------------------------------------------------------------------------------------------------------------------------
September 30, 1999
--------------------------------------------------------------------------------------------------
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 $ 9 1 1,703 540 2,253 - 102 2,355 12.97
U.S. Government agencies 56 835 20,883 1,620 23,394 7 859 24,246 8.51
Asset-backed 258 11,354 5,365 214 17,191 463 296 17,024 5.02
State, county and municipal - 1 38 120 159 1 1 159 19.30
Sundry 148 712 2,981 1,857 5,698 70 116 5,744 8.70
- -----------------------------------------------------------------------------------------------------------------------
Total $ 471 12,903 30,970 4,351 48,695 541 1,374 49,528 7.54
- ----------------------------------------------------------------------------------------------------------------------------------
MARKET VALUE
Debt securities $ 471 12,903 30,970 2,800 47,144 479 1,363 48,028
Equity securities - - - 1,551 1,551 62 11 1,500
- -----------------------------------------------------------------------------------------------------------------------
Total $ 471 12,903 30,970 4,351 48,695 541 1,374 49,528
- -----------------------------------------------------------------------------------------------------------------------
AMORTIZED COST
Debt securities $ 441 12,519 32,107 2,961 48,028
Equity securities - - - 1,500 1,500
- ----------------------------------------------------------------------------------------
Total $ 441 12,519 32,107 4,461 49,528
- ----------------------------------------------------------------------------------------
WEIGHTED AVERAGE
YIELD
U.S. Treasury 6.20 % 4.98 5.76 5.70 5.75
U.S. Government agencies 5.97 6.87 6.46 6.44 6.48
Asset-backed 9.44 8.49 6.86 7.65 7.95
State, county and municipal - 7.63 6.72 7.19 7.08
Sundry 3.57 6.74 7.47 4.24 6.25
Consolidated 6.97 % 8.28 6.59 5.52 6.92
- ----------------------------------------------------------------------------------------
Included in "Asset-backed" are interest-only and residual certificates with a
market value of $715 million; gross unrealized gains and losses of $52 million
and $3 million, respectively; and an amortized cost of $666 million.
Included in "U.S. Government agencies" and "Sundry" are $2.6 billion of
securities denominated in currencies other than the U.S. dollar. These
securities had a weighted average maturity of 9.12 years and a weighted average
yield of 7.36 percent. For comparative purposes, the weighted average U.S.
dollar equivalent yield of these securities was 10.29 percent based on a
weighted average funding cost differential of (2.93) percent.
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, 1999, there were forward commitments to purchase securities
at a cost which approximates market value of $4.6 billion, and commitments to
sell securities at a cost which approximates market value of $2.8 billion.
Gross gains and losses realized on the sale of debt securities for the nine
months ended September 30, 1999, were $67 million and $122 million,
respectively, and gross gains and losses realized on equity securities were $135
million and $5 million, respectively.
T-20
TABLE 16
INVESTMENT SECURITIES
- -----------------------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 1999
------------------------------------------------------------------------------------------------
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 $ 7 - - - 7 - - 7 1.03
U.S. Government agencies 41 201 728 - 970 9 16 963 5.02
CMOs 64 - 1 - 65 1 1 65 0.67
State, county and municipal 103 146 274 165 688 78 1 765 7.18
Sundry 4 22 2 2 30 - - 30 2.94
- ----------------------------------------------------------------------------------------------------------------------
Total $ 219 369 1,005 167 1,760 88 18 1,830 5.65
- -----------------------------------------------------------------------------------------------------------------------------------
MARKET VALUE
Debt securities $ 220 382 1,035 193 1,830
- -------------------------------------------------------------------------------------
WEIGHTED AVERAGE
YIELD
U.S. Treasury 4.70 % - - - 4.70
U.S. Government agencies 6.84 7.19 6.50 - 6.66
CMOs 8.36 - 10.34 - 8.40
State, county and municipal 10.04 10.04 11.90 11.69 11.18
Sundry 7.32 6.99 7.11 6.61 7.02
Consolidated 8.73 % 8.30 7.98 11.63 8.49
- -------------------------------------------------------------------------------------
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, 1999.
There were no gains or losses realized on repurchase agreement
underdeliveries and calls of investment securities for the nine months ended
September 30, 1999.
T-21
TABLE 17
OFF-BALANCE SHEET DERIVATIVE FINANCIAL INSTRUMENTS (a)
- -----------------------------------------------------------------------------------------------------------------------------------
WEIGHTED
AVERAGE RATE (B) ESTIMATED
---------------------- ----------------------
MATURITY
SEPTEMBER 30, 1999 NOTIONAL IN FAIR
(IN MILLIONS) AMOUNT RECEIVE PAY YEARS (C) VALUE (D) COMMENTS
- -----------------------------------------------------------------------------------------------------------------------------------
ASSET RATE
CONVERSIONS
Interest rate swaps $ 50,839 6.86 % 5.86 % 1.44 $43.3 billion converts
Carrying amount $ 115 floating rate loans to
Unrealized gross gain 184 fixed rate. Adds to
Unrealized gross loss (77) liability sensitivity.
$7.5 billion are rate
conversions of securities
---------- available for sale.
Total 222
----------
Interest rate collars 6,000 - - 8.97 Converts floating rate
Carrying amount 114 loans to fixed rate when
Unrealized gross gain - LIBOR is below 6.00
Unrealized gross loss (298) percent (purchased floor)
---------- or above 7.00 percent
Total (184) (sold cap).
----------
Interest rate floors 363 - - 0.66 Converts floating rate
Carrying amount 2 loans to fixed rate when
Unrealized gross gain - LIBOR is below 6.61
Unrealized gross loss (1) percent.
----------
Total 1
----------
Long eurodollar futures 190 - - 0.25 Locks in reset rates on
Carrying amount - floating rate loans. $115
Unrealized gross gain - million effective
Unrealized gross loss - December 2000; $15
million, March, June,
September and December
2001; and $15 million
---------- March 2002.
Total -
----------
Collar on eurodollar futures 1,692 - - 0.21 Purchased call options
Carrying amount - and written put options
Unrealized gross gain - that lock in reset rates
Unrealized gross loss - on floating rate loans.
----------
Total -
----------
Other derivatives 408 - - 5.93 Includes interest rate
Carrying amount 5 caps and purchased
Unrealized gross gain - options on forward swaps
Unrealized gross loss (3) that convert fixed rate
assets to floating rate
with a weighted average
strike rate of 7.71
---------- percent.
Total 2
- --------------------------------------------- ----------
Total asset rate
conversions $ 59,492 - - 2.19 $ 41
- ---------------------------------------------------------------------------------------------
LIABILITY RATE
CONVERSIONS
Interest rate swaps $ 64,811 6.63 % 5.96 % 5.51 Converts $37.8 billion of
Carrying amount $ 39 fixed rate liabilities,
Unrealized gross gain 462 primarily CDs, long-term
Unrealized gross loss (274) debt and bank notes, to
floating rate. Converts
$27.0 billion of floating
rate liabilities,
primarily deposits and
---------- long-term debt, to fixed
Total 227 rate.
----------
Interest rate collars $ 6,000 - - 2.00 Converts floating rate
Carrying amount $ 10 deposits to fixed rate
Unrealized gross gain 53 when LIBOR is between
Unrealized gross loss - 5.50 percent (purchased
cap) and 6.50 percent
(sold cap) or below 4.50
percent (sold floor).
- ------------------------------- ----------
Total 63
- ------------------------------- ----------
(Continued)
T-22
TABLE 17
OFF-BALANCE SHEET DERIVATIVE FINANCIAL INSTRUMENTS (a)
- -----------------------------------------------------------------------------------------------------------------------------------
WEIGHTED
AVERAGE RATE (B) ESTIMATED
--------------------- ----------------------
MATURITY
SEPTEMBER 30, 1999 NOTIONAL IN FAIR
(IN MILLIONS) AMOUNT RECEIVE PAY YEARS (C) VALUE (D) COMMENTS
- -----------------------------------------------------------------------------------------------------------------------------------
LIABILITY RATE
CONVERSIONS
(Continued)
Interest rate caps 5,000 - - 1.00 Converts floating rate
Carrying amount 18 deposits to fixed rate
Unrealized gross gain 16 when LIBOR is above 5.44
Unrealized gross loss - percent.
----------
Total 34
----------
Other derivatives 170 - - 3.82 Includes primarily
Carrying amount 1 interest rate floors that
Unrealized gross gain - offset corresponding
Unrealized gross loss (1) floors in floating rate
---------- long-term debt.
Total -
- ------------------------------------------------- ----------
Total liability rate
conversions $ 75,981 - - 4.93 $ 324
- -------------------------------------------------------------------------------------------------
RATE SENSITIVITY
HEDGES
Basis swaps $ 783 5.38 % 5.40 % 3.36 Converts LIBOR reset
Carrying amount $ - rates on pay variable
Unrealized gross gain - swaps under asset rate
Unrealized gross loss - conversions to commercial
paper rates.
----------
Total -
----------
Purchased call options on
forward swaps 7,500 - - 1.21 Provides the right to
Carrying amount 178 execute interest rate
Unrealized gross gain 1 swaps to convert receive
Unrealized gross loss - floating swaps, under
liability rate
---------- conversions, to fixed
Total 179 rate at a strike of 7.09
---------- percent.
Interest rate caps 12,109 - - 0.58 $9.9 billion locks in
Carrying amount 21 reset rates on pay
Unrealized gross gain - variable swaps under
Unrealized gross loss (13) asset or liability rate
conversions when LIBOR is
above 6.26 percent. $2.2
billion locks in 1-year
CMT rates at 5.70 percent
to cap pay variable swaps
under asset or liability
---------- rate conversions.
Total 8
----------
Short eurodollar futures 19,330 - - 0.25 Locks in LIBOR reset
Carrying amount - rates on pay variable
Unrealized gross gain 7 swaps under asset or
Unrealized gross loss (2) liability rate
conversions. $6.8 billion
effective December 1999;
$4.1 billion March 2000;
---------- $4.5 billion June 2000;
Total 5 and $3.9 billion
---------- September 2000.
Collar on eurodollar futures 8,308 - - 0.39 $6.3 billion purchased
Carrying amount - call options and written
Unrealized gross gain - put/call options that
Unrealized gross loss - offset the December 1999
and September 2000 short
eurodollar futures
contracts. $2.0 billion
---------- locks in reset rates on
Total - pay variable swaps under
- ------------------------------------------------ ---------- asset or liability rate
Total rate sensitivity conversions.
hedges $ 48,030 - - 0.56 $ 192
- -------------------------------------------------------------------------------------------------
(a) Includes only off-balance sheet derivative financial instruments related to
interest rate risk management activities.
(b) Weighted average receive rates are fixed rates set at the time the contract
was transacted. Weighted average pay rates are generally based on
one-to-six month LIBOR, and they are pay rates in effect as of September
30, 1999. Weighted average receive and pay rates do not include the impact
of forward-starting interest rate swaps.
(c) Estimated maturity approximates average life. Interest rate swaps with a
notional amount of $7.5 billion may be extended through 2012.
(d) Carrying amount includes accrued interest receivable or payable and
unamortized premiums paid or received.
T-23
TABLE 18
OFF-BALANCE SHEET DERIVATIVES - EXPECTED MATURITIES (a)
- -----------------------------------------------------------------------------------------------------------------------------
September 30, 1999 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 $ 12,279 34,906 2,357 868 429 50,839
Notional amount - other $ 1,992 160 250 6,251 - 8,653
Weighted average receive rate (b) 6.56 % 7.05 5.97 5.70 6.49 6.86
Estimated fair value $ 96 132 (2) (183) (2) 41
- -----------------------------------------------------------------------------------------------------------------------------
LIABILITY RATE CONVERSIONS
Notional amount - swaps $ 21,591 2,507 2,300 23,258 15,155 64,811
Notional amount - other $ - 5,000 6,170 - - 11,170
Weighted average receive rate (b) 6.63 % 6.73 6.64 6.60 6.23 6.63
Estimated fair value $ 12 46 96 238 (68) 324
- -----------------------------------------------------------------------------------------------------------------------------
RATE SENSITIVITY HEDGES
Notional amount - swaps $ 77 82 442 182 - 783
Notional amount - other $ 37,529 7,500 2,218 - - 47,247
Weighted average receive rate (b) 5.38 % 5.38 5.38 5.38 - 5.38
Estimated fair value $ 5 179 8 - - 192
- -----------------------------------------------------------------------------------------------------------------------------
(a) Includes only off-balance sheet derivative financial instruments related to
interest rate risk management activities.
(b) Weighted average receive rates include the impact of interest rate swaps
only.
TABLE 19
OFF-BALANCE SHEET DERIVATIVES ACTIVITY (a)
- -------------------------------------------------------------------------------------------------------------
ASSET LIABILITY RATE
RATE RATE SENSITIVITY
(IN MILLIONS) CONVERSIONS CONVERSIONS HEDGES TOTAL
- -------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 $ 25,908 9,068 14,454 49,430
Additions 37,541 68,095 52,059 157,695
Maturities/Amortizations (2,528) (1,182) (12,734) (16,444)
Terminations/Redesignations (1,429) - (5,749) (7,178)
- -------------------------------------------------------------------------------------------------------------
Balance, September 30, 1999 $ 59,492 75,981 48,030 183,503
- -------------------------------------------------------------------------------------------------------------
(a) Includes only off-balance sheet derivative financial instruments related to
interest rate risk management activities.
T-24
FIRST UNION CORPORATION
NET INTEREST INCOME SUMMARIES
- --------------------------------------------------------------------------------------------------------------------------------
THIRD QUARTER 1999 SECOND QUARTER 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 $ 593 7 4.43 % $ 574 7 4.27 %
Federal funds sold and securities
purchased under resale agreements 8,545 107 4.97 7,989 93 4.68
Trading account assets (a) 10,182 167 6.52 9,141 139 6.09
Securities available for sale (a) 46,798 813 6.96 38,996 646 6.63
Investment securities (a)
U.S. Government and other 1,100 18 6.62 1,192 19 6.50
State, county and municipal 695 19 10.62 719 19 10.59
- -------------------------------------------------------------------------------- ------------------------
Total investment securities 1,795 37 8.17 1,911 38 8.03
- -------------------------------------------------------------------------------- ------------------------
Loans (a) (b)
Commercial
Commercial, financial and agricultural 51,331 1,036 8.01 52,714 1,013 7.71
Real estate - construction and other 2,654 50 7.59 2,668 50 7.44
Real estate - mortgage 8,421 166 7.80 8,446 159 7.56
Lease financing 4,904 154 12.57 4,956 161 13.03
Foreign 4,695 69 5.82 4,223 65 6.17
- -------------------------------------------------------------------------------- ------------------------
Total commercial 72,005 1,475 8.14 73,007 1,448 7.95
- -------------------------------------------------------------------------------- ------------------------
Retail
Real estate - mortgage 26,959 474 7.03 23,680 414 6.98
Installment loans - Bankcard (c) 2,169 74 13.64 2,620 89 13.73
Installment loans - other and vehicle leasing 30,301 686 9.00 36,017 783 8.71
- -------------------------------------------------------------------------------- ------------------------
Total retail 59,429 1,234 8.28 62,317 1,286 8.26
- -------------------------------------------------------------------------------- ------------------------
Total loans 131,434 2,709 8.20 135,324 2,734 8.10
- -------------------------------------------------------------------------------- ------------------------
Total earning assets 199,347 3,840 7.67 193,935 3,657 7.55
----------- --------------------
Cash and due from banks 8,477 9,544
Other assets 21,776 20,898
- ------------------------------------------------------------------- -----------
Total assets $ 229,600 $ 224,377
- ------------------------------------------------------------------- -----------
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest-bearing deposits
Savings and NOW accounts 37,254 266 2.82 37,839 242 2.57
Money market accounts 20,087 159 3.14 20,131 153 3.06
Other consumer time 32,600 407 4.95 33,500 421 5.04
Foreign 5,345 62 4.60 5,167 58 4.46
Other time 7,545 112 5.91 5,293 80 6.05
- -------------------------------------------------------------------------------- ------------------------
Total interest-bearing deposits 102,831 1,006 3.88 101,930 954 3.75
Federal funds purchased and securities
sold under repurchase agreements 29,940 357 4.73 28,688 332 4.64
Commercial paper 2,287 28 4.83 2,087 23 4.42
Other short-term borrowings 7,973 105 5.26 8,117 101 4.98
Long-term debt 31,112 434 5.59 27,129 369 5.44
- -------------------------------------------------------------------------------- ------------------------
Total interest-bearing liabilities 174,143 1,930 4.41 167,951 1,779 4.24
-------------------- --------------------
Noninterest-bearing deposits 30,593 31,862
Other liabilities 9,127 8,442
Stockholders' equity 15,737 16,122
- ------------------------------------------------------------------- -----------
Total liabilities and stockholders' equity $ 229,600 $ 224,377
- ------------------------------------------------------------------- -----------
Interest income and rate earned $ 3,840 7.67 % $ 3,657 7.55 %
Interest expense and equivalent rate paid 1,930 3.85 1,779 3.67
- ------------------------------------------------------------------------------------------ --------------------
Net interest income and margin $ 1,910 3.82 % $ 1,878 3.88 %
- ------------------------------------------------------------------------------------------ --------------------
(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.
T-25
-------------------------------------------------------------------------------------------------------------------------
FIRST QUARTER 1999 FOURTH QUARTER 1998 THIRD QUARTER 1998
----------------------------------- ------------------------------------ -----------------------------
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
------------------------------------------------------------------------------------------------------------------ -------
$ 1,322 17 5.42 % $ 1,749 25 5.72 % $ 1,752 25 5.76 %
11,332 123 4.40 13,558 157 4.62 14,331 189 5.19
7,984 118 5.97 10,596 189 7.05 10,235 167 6.50
38,074 628 6.60 38,287 625 6.52 36,677 609 6.64
1,240 22 6.97 1,290 24 7.35 1,366 25 7.26
735 19 10.55 765 20 10.40 812 21 10.40
------------------------ ------------------------- --------------------------
1,975 41 8.30 2,055 44 8.48 2,178 46 8.43
------------------------ ------------------------- --------------------------
53,418 996 7.55 52,473 996 7.53 50,049 984 7.80
2,613 49 7.61 2,756 56 8.04 2,921 62 8.50
8,532 167 7.94 8,745 181 8.21 9,523 210 8.75
4,792 150 12.49 4,590 134 11.74 4,563 131 11.48
4,393 64 5.94 4,797 77 6.37 4,257 75 7.02
------------------------ ------------------------- --------------------------
73,748 1,426 7.83 73,361 1,444 7.82 71,313 1,462 8.14
------------------------ ------------------------- --------------------------
21,774 394 7.25 24,561 454 7.38 26,072 488 7.48
2,650 88 13.22 2,708 92 13.52 3,957 156 15.80
35,736 768 8.67 33,844 769 9.04 33,708 780 9.20
------------------------ ------------------------- --------------------------
60,160 1,250 8.36 61,113 1,315 8.57 63,737 1,424 8.91
------------------------ ------------------------- --------------------------
133,908 2,676 8.06 134,474 2,759 8.16 135,050 2,886 8.50
------------------------ ------------------------- --------------------------
194,595 3,603 7.46 200,719 3,799 7.53 200,223 3,922 7.80
----------------------- ------------------------ ---------------
10,134 9,491 8,780
19,958 20,515 20,120
----------- ------------ -------------
$ 224,687 $ 230,725 $ 229,123
----------- ------------ -------------
37,953 244 2.60 36,101 246 2.71 33,874 229 2.68
20,422 157 3.11 21,992 185 3.32 23,594 201 3.38
35,114 448 5.18 36,341 487 5.31 37,501 506 5.36
5,243 60 4.71 5,221 66 5.06 4,797 68 5.57
5,534 83 6.04 6,205 90 5.79 6,068 93 6.05
------------------------ ------------------------- --------------------------
104,266 992 3.86 105,860 1,074 4.03 105,834 1,097 4.11
26,782 309 4.68 31,340 385 4.87 35,902 473 5.23
1,982 23 4.73 2,071 25 4.77 1,742 24 5.44
11,280 135 4.86 13,128 174 5.26 14,642 201 5.47
23,968 333 5.55 20,944 312 5.96 16,070 253 6.24
------------------------ ------------------------- --------------------------
168,278 1,792 4.31 173,343 1,970 4.52 174,190 2,048 4.65
----------------------- ------------------------ ---------------
31,996 31,600 30,380
8,108 8,673 7,787
16,305 17,109 16,766
----------- ------------ -------------
$ 224,687 $ 230,725 $ 229,123
----------- ------------ -------------
$ 3,603 7.46 % $ 3,799 7.53 % $ 3,922 7.80 %
1,792 3.72 1,970 3.90 2,048 4.06
----------------------- ------------------------ ----------------
$ 1,811 3.74 % $ 1,829 3.63 % $ 1,874 3.74 %
----------------------- ------------------------ ----------------
(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) Installment loans - Bankcard include credit card, ICR, signature and First
Choice.
T-26
FIRST UNION CORPORATION
NET INTEREST INCOME SUMMARIES
- -----------------------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED 1999 NINE MONTHS ENDED 1998
---------------------- ----------------------
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 $ 827 31 4.92 % $ 2,527 109 5.76 %
Federal funds sold and securities
purchased under resale agreements 9,279 323 4.66 11,984 469 5.23
Trading account assets (a) 9,110 424 6.21 7,925 366 6.19
Securities available for sale (a) 41,321 2,087 6.74 34,129 1,697 6.63
Investment securities (a)
U.S. Government and other 1,177 59 6.70 1,875 97 6.90
State, county and municipal 716 57 10.59 901 68 10.04
- -------------------------------------------------------------------------------- ----------------------
Total investment securities 1,893 116 8.17 2,776 165 7.92
- -------------------------------------------------------------------------------- ----------------------
Loans (a) (b)
Commercial
Commercial, financial and agricultural 52,480 3,045 7.76 49,274 2,930 7.95
Real estate - construction and other 2,645 149 7.55 2,964 189 8.54
Real estate - mortgage 8,466 492 7.77 9,972 640 8.58
Lease financing 4,884 465 12.70 4,408 368 11.12
Foreign 4,438 198 5.97 4,129 210 6.80
- -------------------------------------------------------------------------------- ----------------------
Total commercial 72,913 4,349 7.97 70,747 4,337 8.19
- -------------------------------------------------------------------------------- ----------------------
Retail
Real estate - mortgage 24,156 1,282 7.07 26,637 1,514 7.58
Installment loans - Bankcard (c) 2,479 251 13.53 3,946 474 16.01
Installment loans - other and vehicle leasing 33,998 2,237 8.79 31,487 2,175 9.23
- -------------------------------------------------------------------------------- ----------------------
Total retail 60,633 3,770 8.30 62,070 4,163 8.95
- -------------------------------------------------------------------------------- ----------------------
Total loans 133,546 8,119 8.12 132,817 8,500 8.55
- -------------------------------------------------------------------------------- ----------------------
Total earning assets 195,976 11,100 7.56 192,158 11,306 7.86
----------------------- ---------------------
Cash and due from banks 9,379 9,012
Other assets 20,884 18,521
- ------------------------------------------------------------------ ----------
Total assets $ 226,239 $ 219,691
- ------------------------------------------------------------------ ----------
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest-bearing deposits
Savings and NOW accounts 37,679 752 2.67 34,518 691 2.68
Money market accounts (d) 20,212 469 3.10 22,994 570 3.31
Other consumer time 33,729 1,276 5.06 37,611 1,500 5.33
Foreign (d) 5,252 180 4.59 4,163 172 5.52
Other time 6,132 275 5.99 6,388 309 6.46
- -------------------------------------------------------------------------------- ----------------------
Total interest-bearing deposits 103,004 2,952 3.83 105,674 3,242 4.10
Federal funds purchased and securities
sold under repurchase agreements 28,481 998 4.68 33,721 1,291 5.12
Commercial paper 2,120 74 4.66 1,915 77 5.40
Other short-term borrowings 9,111 341 5.01 10,428 421 5.40
Long-term debt 27,429 1,136 5.52 14,692 710 6.44
- -------------------------------------------------------------------------------- ----------------------
Total interest-bearing liabilities 170,145 5,501 4.32 166,430 5,741 4.61
----------------------- ---------------------
Noninterest-bearing deposits 31,479 30,275
Other liabilities 8,563 7,176
Stockholders' equity 16,052 15,810
- ------------------------------------------------------------------ ----------
Total liabilities and stockholders' equity $ 226,239 $ 219,691
- ------------------------------------------------------------------ ----------
Interest income and rate earned $ 11,100 7.56 % $ 11,306 7.86 %
Interest expense and equivalent rate paid 5,501 3.75 5,741 4.00
- ------------------------------------------------------------------------------------------- ----------------------
Net interest income and margin $ 5,599 3.81 % $ 5,565 3.86 %
- ------------------------------------------------------------------------------------------- ----------------------
(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) Installment loans - Bankcard include credit card, ICR, signature and
First Choice.
(d) Amounts presented for the nine months ended September 30, 1998, have been
restated to conform to amounts presented for the nine months ended
September 30,1999.
T-27
FIRST UNION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- -----------------------------------------------------------------------------------------------------------------------------
1999 1998
--------------------------------------- ------------------------
THIRD SECOND FIRST FOURTH THIRD
(IN MILLIONS, EXCEPT PER SHARE DATA) QUARTER QUARTER QUARTER QUARTER QUARTER
- -----------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 6,987 8,143 9,968 11,192 9,491
Interest-bearing bank balances 647 335 699 2,916 1,872
Federal funds sold and securities purchased
under resale agreements 8,561 8,373 8,988 14,529 15,090
- -----------------------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 16,195 16,851 19,655 28,637 26,453
- -----------------------------------------------------------------------------------------------------------------------------
Trading account assets 13,806 12,244 10,280 9,759 12,123
Securities available for sale 48,695 45,659 39,417 37,434 38,052
Investment securities 1,760 1,871 2,006 2,025 2,121
Loans, net of unearned income 135,033 133,579 133,416 135,383 135,689
Allowance for loan losses (1,760) (1,785) (1,826) (1,826) (1,882)
- -----------------------------------------------------------------------------------------------------------------------------
Loans, net 133,273 131,794 131,590 133,557 133,807
- -----------------------------------------------------------------------------------------------------------------------------
Premises and equipment 5,024 5,080 5,098 5,067 5,079
Due from customers on acceptances 807 883 769 1,268 1,026
Other intangible assets 4,842 4,934 4,983 5,036 5,105
Other assets 10,421 10,595 9,157 14,580 10,814
- -----------------------------------------------------------------------------------------------------------------------------
Total assets $ 234,823 229,911 222,955 237,363 234,580
- -----------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing deposits 28,737 31,703 31,757 35,614 30,504
Interest-bearing deposits 105,166 101,900 102,467 106,853 104,024
- -----------------------------------------------------------------------------------------------------------------------------
Total deposits 133,903 133,603 134,224 142,467 134,528
Short-term borrowings 41,834 39,262 37,377 41,438 51,807
Bank acceptances outstanding 807 883 769 1,281 1,037
Other liabilities 10,441 10,066 9,496 12,055 11,062
Long-term debt 31,910 30,350 24,858 22,949 18,776
- -----------------------------------------------------------------------------------------------------------------------------
Total liabilities 218,895 214,164 206,724 220,190 217,210
- -----------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred stock - - - - -
Common stock, $3.33-1/3 par value;
authorized 2 billion shares 3,195 3,188 3,227 3,274 3,301
Paid-in capital 5,223 5,103 4,906 4,305 4,226
Retained earnings 8,052 7,805 8,106 9,187 9,287
Accumulated other comprehensive income, net (542) (349) (8) 407 556
- -----------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 15,928 15,747 16,231 17,173 17,370
- -----------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 234,823 229,911 222,955 237,363 234,580
- -----------------------------------------------------------------------------------------------------------------------------
MEMORANDA
Securities available for sale - amortized cost $ 49,528 46,187 39,419 36,798 37,185
Investment securities - market value $ 1,830 1,954 2,128 2,162 2,265
Shares outstanding (In thousands) 958,440 956,286 968,139 982,223 990,373
- -----------------------------------------------------------------------------------------------------------------------------
T-28
FIRST UNION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
- ------------------------------------------------------------------------------------------------------------------------------
1999 1998
-------------------------------------- -----------------------
THIRD SECOND FIRST FOURTH THIRD
(IN MILLIONS, EXCEPT PER SHARE DATA) QUARTER QUARTER QUARTER QUARTER QUARTER
- ------------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Interest and fees on loans $ 2,694 2,714 2,656 2,741 2,869
Interest and dividends on securities available for sale 809 641 624 621 604
Interest and dividends on investment securities 31 32 35 38 39
Trading account interest 164 137 117 186 165
Other interest income 114 100 140 182 214
- ------------------------------------------------------------------------------------------------------------------------------
Total interest income 3,812 3,624 3,572 3,768 3,891
- ------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits 1,006 954 992 1,074 1,097
Interest on short-term borrowings 490 456 467 584 698
Interest on long-term debt 434 369 333 312 253
- ------------------------------------------------------------------------------------------------------------------------------
Total interest expense 1,930 1,779 1,792 1,970 2,048
- ------------------------------------------------------------------------------------------------------------------------------
Net interest income 1,882 1,845 1,780 1,798 1,843
Provision for loan losses 175 180 164 167 239
- ------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 1,707 1,665 1,616 1,631 1,604
- ------------------------------------------------------------------------------------------------------------------------------
FEE AND OTHER INCOME
First Union Securities
Capital markets
Trading account profit (loss) 36 103 112 93 (73)
Securities transactions - equity investments 41 37 52 - 17
Investment banking and other capital markets income 324 223 319 249 208
- ------------------------------------------------------------------------------------------------------------------------------
Total capital markets 401 363 483 342 152
Capital management 524 520 499 474 454
- ------------------------------------------------------------------------------------------------------------------------------
Total First Union Securities 925 883 982 816 606
Residential mortgage 40 118 195 172 183
Service charges on deposit accounts 278 277 287 290 275
Fees for other banking services 95 87 90 86 94
Securities transactions - portfolio (79) (1) 25 98 211
Securitization 98 149 71 120 93
Sundry (a) 83 193 300 160 351
- ------------------------------------------------------------------------------------------------------------------------------
Total fee and other income 1,440 1,706 1,950 1,742 1,813
- ------------------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Salaries and employee benefits 1,092 1,130 1,184 1,180 1,042
Occupancy 126 130 142 135 150
Equipment 193 182 203 194 174
Advertising 61 64 61 68 69
Communications and supplies 106 117 123 136 127
Professional and consulting fees 59 83 66 91 67
Goodwill and other intangible amortization 95 95 96 98 99
Merger-related and restructuring charges - - 398 205 24
Sundry expense 208 252 236 380 170
- ------------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 1,940 2,053 2,509 2,487 1,922
- ------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 1,207 1,318 1,057 886 1,495
Income taxes (b) 405 445 351 29 500
- ------------------------------------------------------------------------------------------------------------------------------
Net income $ 802 873 706 857 995
- ------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
Basic earnings $ 0.84 0.92 0.73 0.87 1.02
Diluted earnings 0.84 0.90 0.73 0.87 1.01
Cash dividends $ 0.47 0.47 0.47 0.42 0.42
AVERAGE SHARES (In thousands)
Basic 946,802 954,548 959,833 980,006 981,659
Diluted 953,964 961,793 968,626 990,890 993,208
- ------------------------------------------------------------------------------------------------------------------------------
(a) The second quarter of 1999 includes a gain of $109 million ($72 million
after tax) on the sale of net assets associated with our factoring
business. The first quarter of 1999 includes a gain of $182 million ($118
million after tax) on the sale of our investment in Electronic Payment
Services, Inc.
(b) Certain corporate and interstate banking entities were reorganized, which
resulted in a reduction in the effective federal income tax rate in the
fourth quarter of 1998.
T-29
FIRST UNION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
(IN MILLIONS, EXCEPT PER SHARE DATA) 1999 1998
- --------------------------------------------------------------------------------
INTEREST INCOME
Interest and fees on loans $ 8,064 8,455
Interest and dividends on securities available for sale 2,074 1,683
Interest and dividends on investment securities 98 144
Trading account interest 418 360
Other interest income 354 578
- --------------------------------------------------------------------------------
Total interest income 11,008 11,220
- --------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits 2,952 3,242
Interest on short-term borrowings 1,413 1,789
Interest on long-term debt 1,136 710
- --------------------------------------------------------------------------------
Total interest expense 5,501 5,741
- --------------------------------------------------------------------------------
Net interest income 5,507 5,479
Provision for loan losses 519 524
- --------------------------------------------------------------------------------
Net interest income after provision for loan losses 4,988 4,955
- --------------------------------------------------------------------------------
FEE AND OTHER INCOME
First Union Securities
Capital markets
Trading account profits 251 31
Securities transactions - equity investments 130 100
Investment banking and other capital markets income 866 683
- --------------------------------------------------------------------------------
Total capital markets 1,247 814
Capital management 1,543 1,331
- --------------------------------------------------------------------------------
Total First Union Securities 2,790 2,145
Residential mortgage 353 361
Service charges on deposit accounts 842 821
Fees for other banking services 272 290
Securities transactions - portfolio (55) 259
Securitization 318 128
Sundry (a) 576 689
- --------------------------------------------------------------------------------
Total fee and other income 5,096 4,693
- --------------------------------------------------------------------------------
NONINTEREST EXPENSE
Salaries and employee benefits 3,406 3,070
Occupancy 398 426
Equipment 578 529
Advertising 186 155
Communications and supplies 346 344
Professional and consulting fees 208 220
Goodwill and other intangible amortization 286 250
Merger-related and restructuring charges 398 1,007
Sundry expense 696 568
- --------------------------------------------------------------------------------
Total noninterest expense 6,502 6,569
- --------------------------------------------------------------------------------
Income before income taxes 3,582 3,079
Income taxes 1,201 1,045
- --------------------------------------------------------------------------------
Net income $ 2,381 2,034
- --------------------------------------------------------------------------------
PER SHARE DATA
Basic earnings $ 2.49 2.11
Diluted earnings 2.47 2.08
Cash dividends $ 1.41 1.16
AVERAGE SHARES (In thousands)
Basic 953,728 965,506
Diluted 961,165 976,826
- --------------------------------------------------------------------------------
(a) The first nine months of 1999 includes a gain of $109 million ($72 million
after tax) on the sale of net assets associated with our factoring
business and a gain of $182 million ($118 million after tax) on the sale
of our investment in Electronic Payment Services, Inc.
T-30
FIRST UNION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ----------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
(IN MILLIONS) 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 2,381 2,034
Adjustments to reconcile net income to net cash provided (used) by operating activities
Accretion and amortization of securities discounts and premiums, net 226 145
Provision for loan losses 519 524
Securitization gains (318) (128)
Gain on sale of mortgage servicing rights (41) (17)
Securities available for sale transactions (75) (355)
Investment securities transactions - (4)
Depreciation and amortization 736 783
Trading account assets, net (5,576) (4,956)
Mortgage loans held for resale 1,766 (511)
Gain on sales of premises and equipment (11) (9)
Other assets, net 4,785 1,875
Other liabilities, net (1,614) 2,721
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 2,778 2,102
- ----------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Increase (decrease) in cash realized from
Sales of securities available for sale 16,061 12,702
Maturities of securities available for sale 3,377 3,602
Purchases of securities available for sale (22,525) (30,165)
Calls and underdeliveries of investment securities - 387
Maturities of investment securities 393 1,275
Purchases of investment securities (134) (255)
Origination of loans, net (9,949) (1,198)
Sales of premises and equipment 245 238
Purchases of premises and equipment (664) (783)
Other intangible assets, net (92) (147)
Purchase of bank-owned separate account life insurance (48) (76)
Cash equivalents acquired, net of purchases of banking organizations - 366
- ----------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (13,336) (14,054)
- ----------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase (decrease) in cash realized from
Sales of deposits, net (8,564) (2,800)
Securities sold under repurchase agreements and other short-term borrowings, net 396 17,894
Issuances of long-term debt 14,276 6,986
Payments of long-term debt (5,315) (2,820)
Sales of common stock 406 805
Purchases of common stock (1,730) (2,439)
Cash dividends paid (1,353) (1,109)
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (1,884) 16,517
- ----------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (12,442) 4,565
Cash and cash equivalents, beginning of year 28,637 21,888
- ----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 16,195 26,453
- ----------------------------------------------------------------------------------------------------------------------
NONCASH ITEMS
Increase in securities available for sale and a decrease in trading accounts $ 1,529 -
Increase in securities available for sale and a decrease in loans 8,259 -
Increase in foreclosed properties and a decrease in loans 7 3
Issuance of common stock for purchase accounting acquisitions $ - 2,540
- ----------------------------------------------------------------------------------------------------------------------
T-31