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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Amendment No. 1
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-10000
First Union Corporation
(Exact name of registrant as specified in its charter)
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North Carolina 56-0898180
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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First Union Corporation
One First Union Center
Charlotte, North Carolina 28288-0013
(Address of principal executive offices)
(Zip Code)
(704) 374-6565
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
956,642,299 shares of Common Stock, par value $3.33 1/3 per share, were
outstanding as of July 31, 1999.
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First Union Corporation (the "Corporation" or "FUNC") may from time to
time make written or oral "forward-looking statements", including statements
contained in the Corporation's filings with the Securities and Exchange
Commission (including this Quarterly Report on Form 10-Q and the Exhibits
hereto and thereto), in its reports to stockholders and in other communications
by the Corporation, which are made in good faith by the Corporation pursuant to
the "safe harbor" provisions of the Private Securities Litigation Reform Act of
1995.
These forward-looking statements include, among others, statements with
respect to the Corporation's beliefs, plans, objectives, goals, guidelines,
expectations, anticipations, estimates and intentions that are subject to
significant risks and uncertainties and are subject to change based on various
factors (many of which are beyond the Corporation's control). The words "may",
"could", "should", "would", "believe", "anticipate", "estimate", "expect",
"intend", "plan" and similar expressions are intended to identify
forward-looking statements. The following factors, among others, could cause
the Corporation's financial performance to differ materially from that
expressed in such forward-looking statements: the strength of the United States
economy in general and the strength of the local economies in which the
Corporation conducts operations; the effects of, and changes in, trade,
monetary and fiscal policies and laws, including interest rate policies of the
Board of Governors of the Federal Reserve System; inflation, interest rate,
market and monetary fluctuations; the timely development of competitive new
products and services of the Corporation and the acceptance of these products
and services by new and existing customers; the willingness of customers to
substitute competitors' products and services for the Corporation's products
and services and vice versa; the impact of changes in financial services' laws
and regulations (including laws concerning taxes, banking, securities and
insurance); technological changes; the effect of acquisitions, including,
without limitation, the failure to achieve the expected revenue growth and/or
expense savings from such acquisitions; the growth and profitability of the
Corporation's noninterest or fee income being less than expected; unanticipated
regulatory or judicial proceedings; changes in consumer spending and saving
habits; and the success of the Corporation at managing the risks involved in
the foregoing.
The Corporation cautions that the foregoing list of important factors is
not exclusive. The Corporation does not undertake to update any forward-looking
statement, whether written or oral, that may be made from time to time by or on
behalf of the Corporation.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
The following unaudited consolidated financial statements of the
Corporation within Item 1 include, in the opinion of management, all
adjustments (consisting only of normal recurring adjustments) necessary for
fair presentation of such consolidated financial statements for the periods
indicated.
1
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FIRST UNION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF INCOME
CONSOLIDATED STATEMENTS OF CASH FLOWS
The Consolidated Balance Sheets of the Corporation and subsidiaries at
June 30, 1999, June 30, 1998, and December 31, 1998, respectively, set forth on
page T-29 of the Corporation's Second Quarter Financial Supplement for the six
months ended June 30, 1999 (the "Financial Supplement"), are incorporated
herein by reference.
The Consolidated Statements of Income of the Corporation and subsidiaries
for the three and six months ended June 30, 1999 and 1998, set forth on pages
T-30 and T-31 of the Financial Supplement, are incorporated herein by
reference.
The Consolidated Statements of Cash Flows of the Corporation and
subsidiaries for the six months ended June 30, 1999 and 1998, set forth on page
T-32 of the Financial Supplement, are incorporated herein by reference.
A copy of the Financial Supplement is being filed as Exhibit (19) to this
Report.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Management's Discussion and Analysis of Financial Condition and Results of
Operations appears on pages 2 through 22 and T-1 through T-32 of the Financial
Supplement and is incorporated herein by reference.
A copy of the Financial Supplement is being filed as Exhibit (19) to this
Report.
2
<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
The Corporation and certain subsidiaries have been named as defendants in
various legal actions arising from their normal business activities and as
specifically described below, in which damages in various amounts are claimed.
Although the amount of any ultimate liability with respect to such matter
cannot be determined, in the opinion of management, any such liability will not
have a material impact on the Corporation's consolidated financial condition.
A number of purported class actions were filed in June through August 1999
against the Corporation in the United States District Courts for the Western
District of North Carolina and for the Eastern District of Pennsylvania. These
actions name the Corporation and certain of its executive officers as
defendants and are purported to be on behalf of persons who purchased shares of
the Corporation's common stock from August 14, 1998 through May 24, 1999. These
complaints allege various violations of federal securities law, including
violations of Section 10(b) of the Securities Exchange Act of 1934, and that
the defendants made materially misleading statements and/or material
omissions which artificially inflated prices for the Corporation's common
stock. Plaintiffs seek a judgment awarding damages and other relief. The
Corporation believes the allegations contained in these actions are without
merit and will vigorously defend them.
Item 2. Changes in Securities and Use of Proceeds.
In the first quarter of 1999, in connection with its stock repurchase
program, the Corporation sold 14 million shares of its common stock at a price
of $50.00 per share to an investment banking firm. In connection therewith, the
Corporation agreed to repurchase the 14 million shares or otherwise settle the
contract, at the Corporation's option, at $50.00 per share subject to
adjustment for interest costs, later in 1999. The offer and sale of the shares
of common stock by the Corporation were exempt from registration under the
Securities Act of 1933, as amended, pursuant to Section 4(2) thereof because
such offer and sale did not involve a public offering.
Item 4. Submission of Matters to a Vote of Security Holders.
Information relating to certain proposals voted on at the annual meeting
of the stockholders of the Corporation held on April 20, 1999, is set forth
under Item 4 of the Corporation's 1999 First Quarter Report on Form 10-Q and
incorporated herein by reference.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
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Exhibit No. Description
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(4) Instruments defining the rights of security holders, including indentures.*
(12) Computations of Consolidated Ratios of Earnings to Fixed Charges.
(19) The Corporation's Second Quarter 1999 Financial Supplement.
(27) The Corporation's Financial Data Schedule.**
(99) Business segments for the quarters ended March 31, 1999, December 31, 1998, September 30,
1998, and March 31, 1998.
</TABLE>
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* The Corporation agrees to furnish to the Commission upon request, copies of
the instruments, including indentures, defining the rights of the holders
of the long-term debt of the Corporation and its consolidated subsidiaries.
** Filing by Electronic Data Gathering, Analysis and Retrieval System only.
(b) Reports on Form 8-K.
During the quarter ended June 30, 1999, a Current Report on Form 8-K,
dated May 25, 1999, was filed with the Commission by the Corporation.
3
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FIRST UNION CORPORATION
Date: September 30, 1999
By /s/ James H. Hatch
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James H. Hatch
Senior Vice President and Corporate
Controller
(Principal Accounting Officer)
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EXHIBIT INDEX
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Exhibit No. Description
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(4) Instruments defining the rights of security holders, including indentures.*
(12) Computations of Consolidated Ratios of Earnings to Fixed Charges.
(19) The Corporation's Second Quarter 1999 Financial Supplement.
(27) The Corporation's Financial Data Schedule.**
Business segments for the quarters ended March 31, 1999, December 31, 1998, September 30,
(99) 1998, and March 31, 1998.
</TABLE>
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* The Corporation agrees to furnish to the Commission upon request, copies of
the instruments, including indentures, defining the rights of the holders
of the long-term debt of the Corporation and its consolidated subsidiaries.
** Filing by Electronic Data Gathering, Analysis and Retrieval System only.
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FIRST UNION CORPORATION AND SUBSIDIARIES
COMPUTATIONS OF CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
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SIX
MONTHS
ENDED YEARS ENDED DECEMBER 31,
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JUNE 30,
1999 1998 1997 1996 1995 1994
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<S> <C> <C> <C> <C> <C> <C>
EXCLUDING INTEREST
ON DEPOSITS
Pretax income from continuing
operations $ 2,375 3,965 3,793 3,534 3,409 2,747
Fixed charges, excluding capitalized
interest 1,677 3,504 2,526 2,224 1,821 1,110
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Earnings (A) $ 4,052 7,469 6,319 5,758 5,230 3,857
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Interest, excluding interest on deposits $ 1,625 3,395 2,420 2,120 1,716 1,013
One-third of rents 52 109 106 104 105 97
Capitalized interest - - - 5 4 1
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Fixed charges (B) $ 1,677 3,504 2,526 2,229 1,825 1,111
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Consolidated ratios of earnings to
fixed charges, excluding interest
on deposits (A)/(B) 2.42 X 2.13 2.50 2.58 2.87 3.47
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INCLUDING INTEREST
ON DEPOSITS
Pretax income from continuing
operations $ 2,375 3,965 3,793 3,534 3,409 2,747
Fixed charges, excluding capitalized
interest 3,623 7,820 6,674 6,255 5,837 3,836
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Earnings (C) $ 5,998 11,785 10,467 9,789 9,246 6,583
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Interest, including interest on deposits $ 3,571 7,711 6,568 6,151 5,732 3,739
One-third of rents 52 109 106 104 105 97
Capitalized interest - - - 5 4 1
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Fixed charges (D) $ 3,623 7,820 6,674 6,260 5,841 3,837
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Consolidated ratios of earnings to
fixed charges, including interest
on deposits (C)/(D) 1.66 X 1.51 1.57 1.56 1.58 1.72
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</TABLE>
SECOND QUARTER 1999
FIRST UNION
CORPORATION
AND SUBSIDIARIES
MANAGEMENT'S ANALYSIS
OF OPERATIONS
QUARTERLY FINANCIAL SUPPLEMENT
SIX MONTHS ENDED JUNE 30, 1999
DIVIDEND GROWTH
CURRENT DIVIDEND ANNUALIZED
(IN DOLLARS)
(A line chart appears here. See the table for plot points.)
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78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
<CAPTION>
96 97 98 Current
<C> <C> <C> <C>
1.10 1.22 1.58 1.88
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FIRST UNION CORPORATION AND SUBSIDIARIES
QUARTERLY FINANCIAL SUPPLEMENT
SIX MONTHS ENDED JUNE 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 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 June 30, 1999 T-25
Year-to-Date June 30, 1999; June 30, September 30, and December 31, 1998 T-27
Consolidated Balance Sheets T-29
Consolidated Statements of Income
Five Quarters Ended June 30, 1999 T-30
Year-to-Date June 30, 1999 and 1998 T-31
Consolidated Statements of Cash Flows T-32
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FINANCIAL HIGHLIGHTS
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THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 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) $ 873 883 1,838 1,692
After tax merger-related and restructuring charges - 634 259 653
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Net income after merger-related and restructuring charges $ 873 249 1,579 1,039
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PER SHARE DATA
Diluted earnings
Net income before merger-related and restructuring charges $ 0.90 0.92 1.90 1.75
Net income after merger-related and restructuring charges 0.90 0.26 1.63 1.07
Basic earnings
Net income before merger-related and restructuring charges 0.92 0.93 1.92 1.77
Net income after merger-related and restructuring charges 0.92 0.27 1.65 1.09
Cash dividends 0.47 0.37 0.94 0.74
Book value 16.47 16.72 16.47 16.72
Period-end price $ 47.125 58.250 47.125 58.250
Dividend payout ratio (Based on operating earnings) 52.22 % 40.22 49.47 40.97
Average shares (In thousands)
Diluted 961,793 962,160 964,963 969,180
Basic 954,548 949,750 957,191 957,430
Actual shares (In thousands) 956,286 988,150 956,286 988,150
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PERFORMANCE HIGHLIGHTS
Before merger-related and restructuring charges
Return on average assets (a) 1.56 % 1.62 1.65 1.59
Return on average stockholders' equity (a) (b) 21.25 23.91 22.75 22.55
Overhead efficiency ratio (c) 57.28 55.16 56.69 55.76
Net charge-offs as a percentage of
Average loans, net (a) 0.53 0.47 0.51 0.43
Average loans, net, excluding Bankcard (a) 0.43 0.29 0.39 0.27
Nonperforming assets to loans, net, and foreclosed properties 0.70 0.66 0.70 0.66
Net interest margin (a) 3.88 % 3.80 3.81 3.94
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CASH EARNINGS (EXCLUDING OTHER
INTANGIBLE AMORTIZATION)
Before merger-related and restructuring charges
Net income $ 953 951 1,999 1,816
Diluted earnings per share $ 0.99 0.98 2.07 1.87
Return on average tangible assets (a) 1.74 % 1.77 1.83 1.73
Return on average tangible stockholders' equity (a) (b) 33.16 32.59 35.62 30.25
Overhead efficiency ratio (c) 54.63 % 52.90 54.09 53.46
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PERIOD-END BALANCE SHEET DATA
Securities available for sale $ 45,659 36,798
Investment securities 1,871 2,229
Loans, net of unearned income 133,579 137,390
Earning assets 202,061 200,083
Total assets 229,911 228,996
Noninterest-bearing deposits 31,703 33,169
Interest-bearing deposits 101,900 105,429
Long-term debt 30,350 14,985
Stockholders' equity $ 15,747 16,526
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(a) Annualized.
(b) Excludes average net unrealized gains or losses on debt and equity
securities.
(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
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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 Second
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 six months of 1999 were
$1.8 billion, or $1.90 per share, compared with $1.7 billion in the first six
months of 1998, or $1.75 per share. Operating earnings exclude merger-related
and restructuring charges. Excluding previously announced nonrecurring gains of
20 cents per share 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, operating earnings in the first six months of 1999 were $1.70 per
share. After merger-related and restructuring charges, net income in the first
six months of 1999 was $1.6 billion, or $1.63 per share, compared with $1.0
billion, or $1.07 per share, in the first six months of 1998.
Second quarter 1999 operating earnings were $873 million compared with
operating earnings of $883 million in the second quarter of 1998. Operating
earnings per share were 90 cents in the second quarter of 1999, including an 8
cents per share after-tax gain on the sale of our factoring business. Operating
earnings per share of 90 cents compare with 92 cents in the second quarter of
1998. The second quarter of 1999 included no merger-related and restructuring
charges. These charges in the second quarter of 1998 amounted to $634 million
after-tax.
Operating earnings in the first half of 1999 represent a return on
average stockholders' equity of 22.75 percent and a return on average assets of
1.65 percent.
Key factors in the first half of 1999 compared with the first half of
1998 include:
o A 28 percent increase in fee and other income to $3.6 billion,
excluding portfolio securities transactions. Growth was led by strong
results in Capital Markets and Capital Management businesses. Capital
Markets fee and other income was $846 million in the first half of 1999
compared with $662 million in the first half of 1998. The increase was
led primarily by strong results in investment banking and trading.
Capital Management fee and other income increased to $1.0 billion in
the first half of 1999 from $877 million in the first half of 1998, led
by retail brokerage services, trust and CAP account sales. The Capital
Management Group had $164 billion in assets under management, including
$75 billion in First Union-advised mutual funds, at June 30, 1999.
Total assets under management at June 30, 1998, were $139 billion,
including $64 billion in mutual funds.
o A modest increase in average loan balances and in noninterest bearing
deposit balances. Period-end loan balances declined modestly, largely
reflecting sales and securitization activity. In the second quarter of
1999, we securitized and retained as securities available for sale $6.7
billion in prime equity lines to facilitate funding flexibility.
o Expenses remained on target to limit full year 1999 expense growth to
our goal of approximately 3 percent excluding merger-related and
restructuring charges and the impact of the EVEREN Capital Corporation
acquisition. First half 1999 noninterest expense was $4.56 billion
compared with $4.65 billion in the first half of 1998, reflecting the
impact of staff reductions that were part of a restructuring plan
announced in March 1999. Excluding merger-related and restructuring
charges, first half 1999 noninterest expense was $4.2 billion, up 14
percent from $3.7 billion in the first half of 1998. The first half of
1999 included expenses related to The Money Store Inc., which we
acquired on June 30, 1998, in a purchase accounting acquisition.
Accordingly, noninterest expense related to The Money Store is
reflected in our results beginning June 30, 1998. Adjusting for this
acquisition, expense growth in the first half of 1999 was 5 percent.
o Continued strength in credit quality. Nonperforming assets as a
percentage of net loans and foreclosed properties were 0.70 percent at
June 30, 1999, compared with 0.66 percent at June 30, 1998. Annualized
net charge-offs were 0.51 percent of average net loans, compared with
0.43 percent in the first six months of 1998.
In addition to The Money Store, the first six months of 1999 also
reflected the full impact of the purchase accounting acquisition of Bowles
Hollowell Conner & Co., also completed in the second quarter of 1998.
2
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OUTLOOK
For several years we have stated our goal of creating a new kind of
financial services company - one that operates about 50 percent like a
traditional bank and 50 percent like a securities business. Since 1994 we have
focused our efforts on building the knowledge-based businesses of capital
markets and capital management, which we will begin to view as one focused
business called First Union Securities in the fourth quarter of 1999. Since 1996
we have been transforming the processes and delivery channels in our General
Bank (consisting primarily of consumer and commercial products) through
commercial reengineering, implementation of our Future Bank initiative and the
expansion of e-commerce offerings. We believe a new and flexible business model
of this type is required to meet the changing demands of both individual and
corporate customers. Our General Bank currently provides more than half of our
profitability, although it is a slower-growth business than our securities
business.
While we are in the transition phase to this new business model, we
expect to make substantial continued investments in our securities business, in
our electronic delivery platform of the Future Bank, in the Internet and in
First Union Direct call centers, and in other areas. We believe these
investments are essential to our long-term growth and to our ability to attract,
serve and retain our customers.
The transformation to the new business model has resulted in significant
changes to allow our customers many choices in how and where they do business
with us. In some cases, this aggressive effort has resulted in lapses in
customer service as we have simultaneously transformed our branch delivery
system to the new business model while undertaking the integration of
CoreStates Financial Corp, a pooling of interests merger, which was consummated
in April 1998. We believe that through extensive employee training efforts, the
addition of staff at high volume locations and specific plans to maintain higher
sales and service staffing levels, we have taken the appropriate actions to
achieve improved financial performance in our retail branch network. This
outlook is based on 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 six months of 1999, 50 percent of our net
tax-equivalent revenue came from fee and other income, excluding portfolio
securities transactions, compared with 43 percent in the first six 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 (excluding
merger-related and restructuring charges, the anticipated effect of EVEREN and
adjusting for The Money Store) for the year 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 and
merger-related and restructuring charges. The earnings outlook was revised from
an earlier goal of approximately $4.00 per share largely because of the impact
of the significant transformation under way in our business model. In addition,
in 1998, we had several substantial noncore earnings items that amounted to
approximately 50 cents more per share than is anticipated for 1999.
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
In April 1999, we signed a definitive agreement to acquire EVEREN Capital
Corporation, a full-service brokerage and asset management firm based in
Chicago, Illinois. This transaction will provide First Union with a nationwide
brokerage platform and augment our equity research, trading, underwriting and
distribution capabilities. The acquisition, which will be accounted for as a
purchase, is an all-stock transaction providing for each share of EVEREN common
stock to be exchanged for approximately $31.00 in First Union common stock,
based on the
3
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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,
which will be issued over a three-year period to certain EVEREN employees,
primarily brokers. 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 that we will incur approximately $60 million in
merger and integration charges, principally in the last two quarters of 1999,
consisting primarily of expenses related to systems conversions and integration.
As of June 30, 1999, we had repurchased in the open market 11 million of the
shares to be issued in this transaction and expect to repurchase the remaining
13 million. 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. The transaction is expected to close at the end of the third
quarter or at the beginning of the fourth quarter of 1999, subject to EVEREN
stockholder and regulatory approvals and other conditions of closing.
We continue to evaluate acquisition opportunities that we believe would
provide access to customers and markets that complement our long-term goals.
Acquisition opportunities are evaluated as a part of our ongoing capital
allocation decision-making process. Decisions to pursue acquisitions will be
measured in conjunction with financial performance guidelines adopted in 1997
and other financial and strategic objectives. 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.
BUSINESS SEGMENTS
BUSINESS FOCUS
First Union's operations are divided into five business segments
encompassing more than 50 distinct product and service units. These segments
include Capital Markets Products, Capital Management Products, Consumer
Products, Commercial Products and Treasury/Nonbank. Additional information can
be found in Table 3.
We have developed an internal performance reporting model to measure the
results of operations of these five 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 the first six months of 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 reduced
net income in Capital Markets Products, Capital Management Products, Consumer
Products and Commercial Products.
As mentioned in the OUTLOOK section, we will begin to view the activities
of our Capital Markets and Capital Management businesses as one focused business
called First Union Securities, but we will also continue to report the
activities as separate business segments. This transformation is a key
ingredient of our new business model that we are in the process of developing as
the future design of our business in order to better serve our existing and
future customers.
CAPITAL MARKETS PRODUCTS
Our Capital Markets Group provides corporate and institutional clients
with a complete selection of investment banking products and services. These
products and services are fully integrated with our wholesale delivery strategy,
and they are a natural extension of our Commercial Products strategy. Our large
banking 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 specialized 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 specializations. In addition, our
International unit continues to develop and utilize strong correspondent banking
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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 and capital markets products to financial institutions and corporate
clients overseas.
Capital Markets has five business units: (1) Investment Banking, which
includes loan syndication, investment grade and high yield debt, equity sales,
research and underwriting, fixed income sales and trading, municipal sales
and trading and underwriting, fixed income and equity derivatives, foreign
exchange, merger and acquisition advisory services and Capital Partners (our
merchant banking unit); (2) Real Estate Finance, primarily commercial real
estate finance, structured product servicing and affordable housing;
(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.
Capital Markets' net income was $510 million in the first six months of
1999 compared with $379 million in the first six months of 1998, and $240
million in the second quarter of 1999 compared with $197 million in the second
quarter of 1998. Net interest income increased 33 percent to $663 million in the
first six months of 1999, with average loans up 15 percent. Fee and other income
increased 13 percent to $631 million, excluding trading account profits, in the
first six months of 1999 compared with the first six months of 1998. This
increase reflected strength in investment banking, which includes M&A advisory
fees, venture capital, and third party asset securitizations. Fee and other
income declined in the second quarter of 1999 compared with the first quarter of
1999 as a result of lower venture capital gains and trading account profits. For
the six-month comparison, trading account profits increased from $104 million in
1998 to $215 million in 1999, due to strong results in fixed income and equity
derivatives, foreign exchange and commercial mortgage-backed securities. 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. Trading account assets were $12.2
billion at June 30, 1999, compared with $9.8 billion at December 31, 1998.
Noninterest expense was $661 million in the first six months of 1999 compared
with $566 million in the first six months of 1998 and $311 million in the second
quarter of 1999, essentially unchanged compared with the second quarter of 1998.
The increase was attributable to higher levels of incentives in the first
quarter of 1999.
Average net loans were $36 billion in the first six months of 1999 and
$31 billion in the first six months of 1998. Loan growth between the two periods
was generated primarily in the Specialized Industries unit, and it was 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. Our exposure to emerging markets at
June 30, 1999, had an average maturity of approximately 100 days and amounted to
1.2 percent of total assets.
CAPITAL MANAGEMENT PRODUCTS
We have created a growing asset management business within our Capital
Management Group, with products that provide the link between traditional
banking and investing for retail and institutional customers. We had $164
billion in assets under management and $661 billion in assets under care at June
30, 1999. Assets under management include First Union-advised mutual funds of
$75 billion, with the remaining $89 billion in assets related to trust and
institutional accounts. These products and services are distributed through
three key channels: First Union Brokerage Services, the Wheat First Union retail
brokerage division of First Union Capital Markets Corp. and our retail
full-service financial centers throughout our 12-state and Washington, D.C.,
marketplace.
The Capital Management Group produced net income of $242 million in the
first six months of 1999 compared with $196 million in the first six months of
1998, and $125 million in the second quarter of 1999 compared with $104 million
in the second quarter of 1998. Net interest income amounted to $241 million in
the first six months of 1999 compared with $203 million in the first six months
of 1998. Capital Management businesses and products primarily generate fee
income. Fee and other income in the first six months of 1999 increased 16
percent to $1.0 billion from $877 million in the first six months of 1998,
driven by retail brokerage services, trust
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and CAP account sales. Noninterest expense in the first six months of 1999 was
$872 million compared with $759 million in the first six months of 1998, and
$439 million in the second quarter of 1999 compared with $380 million in the
second quarter of 1998. Increases in both periods reflected higher personnel
costs, primarily incentives associated with revenue growth.
First Union's trust business encompasses personal trust, corporate trust
and benefit services/institutional trust services. Personal trust fees
contributed more than half of trust fees in the first half of 1999 and the first
half of 1998, and increased 10 percent year over year. New business sales set a
quarterly record of $21 million in the second quarter of 1999, up 59 percent
from the second quarter of 1998.
Assets in the First Union-advised Evergreen/Mentor mutual funds reached a
record at June 30, 1999, of $75 billion compared with $64 billion at June 30,
1998. These funds are distributed through third party broker/dealers and through
internal bank 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 six months of 1999, the Private Client
Banking Group had $3.6 billion of average net loans compared with $3.4 billion
in the first six months of 1998, and $3.1 billion of average deposits in the
first six months of 1999 compared with $2.6 billion in the first six 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 the Capital Management Group's lines of business, including Mutual
Funds and Retail Brokerage Services. CAP Account amounts in Table 3 reflect CAP
Account fees and the spread attributed to the on-balance sheet deposits. CAP
Account assets increased to $48 billion by June 30, 1999, compared with $38
billion at year-end 1998, and the number of CAP accounts hit a milestone with
more than 500,000. We are seeing increased investment activity through this
product, and as an example, the number of brokerage trades increased 87 percent
in the first six months of 1999 compared with the first six months of 1998.
In addition, Retail Brokerage Services includes insurance products sold
through the First Union Insurance Group. Insurance annuity sales increased 56
percent from the first six months of 1998.
We anticipate increased growth in all of the 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 encompasses our primary deposit-taking
operation, providing an attractive source of funding for secured and unsecured
consumer loans, first and second residential mortgages, installment loans,
credit cards, direct auto loans and leases, and student loans. First Union's
mortgage origination and servicing and home equity offices across the nation are
included in Consumer Products through our operating subsidiaries, First Union
Mortgage Corporation (FUMC), First Union Home Equity Bank (FUHEB) and The Money
Store, Inc. Retail Branch Products encompasses residential first mortgage
lending, auto finance, the ATM group, electronic and traditional consumer loan
and deposit products. Card Products reflects the $2.1 billion owned credit card
portfolio; the credit card fee and other income also reflects fee income
generated from securitized credit card receivables. In addition, our traditional
deposit and lending products are sold alongside nontraditional financial
products, making our retail banking branches major distribution points for
mutual funds, insurance and small business loans. The sales results pertaining
to nontraditional products are found in either our Capital Management Products
segment or our Commercial Products segment data. State-of-the-art technology,
including centralized customer information centers, electronic and Internet
banking capabilities, supports this approach.
Consumer Products generated $523 million in net income in the first six
months of 1999 compared with $516 million in the first six months of 1998, and
$270 million in the second quarter of 1999, down from $286 million in the second
quarter of 1998. Net income was positively affected by the contribution from The
Money Store and gains from loan sales and securitizations, principally in the
first quarter of 1999, while it was negatively affected by a lower level of
deposits resulting from branch divestitures, primarily late in the third quarter
of 1998. Net interest income was $1.8 billion in the first six months of 1999
and in the first six months of 1998. Fee and other income was $1.1 billion in
the first six months of 1999 compared with $799 million in the first six months
of 1998, with the increase primarily
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attributable to gains from the securitization of credit card, Small Business
Administration (SBA) and student loans, and the sale of first mortgages.
Residential mortgage income declined compared with the second quarter of 1998,
largely reflecting a lower level of mortgage securitizations and a significant
decline in refinancing activity. Noninterest expense was $1.8 billion in the
first six months of 1999 compared with $1.5 billion in the first six months of
1998, and $900 million in the second quarter of 1999 compared with $772 million
in the second quarter of 1998, with the increase largely related to the addition
of The Money Store.
Average consumer loans in the first six months of 1999 were $55 billion
compared with $58 billion in the first six 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 sale or
securitization of certain loans. In the second quarter of 1999 we also
securitized and retained as securities available for sale $6.7 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.
In connection with the first quarter 1999 restructuring plan, we have
ceased indirect auto lending and auto leasing activity. We are currently
evaluating alternative strategies for the existing indirect lease portfolio. The
net book value of the portfolio at June 30, 1999, was $5.1 billion. The value of
this portfolio is subject to a combination of market and economic factors over
the life of the portfolio including consumers' appetite for new cars, new car
pricing and incentives, and the supply of used cards. These and other factors
can significantly affect the realization of the portfolio over its life. Exiting
this business will not affect our direct auto lending business. We will continue
to originate direct auto loans through various delivery channels. The
corporation's restructuring charge in the first six months of 1999 included $17
million related to exiting this business.
Average consumer deposits were $73 billion in the first six months of
1999 and $80 billion in the first six 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, and 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 traditioanl 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.
Commercial Products generated net income of $276 million in the first six
months of 1999 compared with $293 million in the first six months of 1998, and
$132 million in the second quarter of 1999 compared with $150 million in the
second quarter of 1998. Net interest income was $816 million in the first six
months of 1999 compared with $864 million in the first six months of 1998. Fee
and other income increased 6 percent to $272 million in the first six months of
1999, led by cash management activity. Noninterest expense was $617 million in
the first six months of 1999 and $616 million in the first six months of 1998,
and $308 million in the second quarters of both 1999 and 1998.
Average commercial loans in the first six months of 1999 declined to $34
billion from $37 billion in the first six 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 15 percent to $2.9 billion in the
first six months of 1999 compared with the first six 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
SECURITIES AVAILABLE FOR SALE, INVESTMENT SECURITIES, LIQUIDITY AND FUNDING
SOURCES and MARKET RISK MANAGEMENT sections provide information about our
securities portfolios, funding sources and asset and liability management
functions.
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RESULTS OF OPERATIONS
NET INTEREST MARGIN
Tax-equivalent net interest income of $3.7 billion in the first six
months of 1999 was virtually unchanged when compared with the first six 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 six months of 1999 compared with
3.94 percent in the first six months of 1998. The net interest margin narrowed
from the first six months of 1998 because of a narrowing of loan and deposit
spreads as a result of competitive factors and the interest rate environment.
The margin also was negatively affected by the securitization of higher yielding
credit card balances. 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. Changes in the composition of
our earning asset mix and a lower interest rate environment resulted in a
decrease in the average rate on earning assets from 7.89 percent in the first
six months of 1998 to 7.51 percent in the first six months of 1999. Our average
rate paid on liabilities decreased from 4.58 percent to 4.28 percent over this
same period due to the lower interest rate environment offset somewhat by the
change in funding mix. 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 28 percent increase
in fee and other income, excluding portfolio securities transactions, to $3.6
billion in the first six months of 1999 from $2.8 billion in the first six
months of 1998.
Fee and other income from Capital Markets and Capital Management
activities amounted to more than one-half of fee and other income in the first
six months of 1999. Capital Markets fee and other income increased 28 percent to
$846 million in the first six months of 1999 from the first six months of 1998,
led by strong results in investment banking and trading activities. Capital
Management fee and other income increased 16 percent to $1.0 billion in the
first six months of 1999 from the first six months of 1998, primarily related to
strong growth in retail brokerage services, trust and CAP account sales. These
activities are discussed further in the BUSINESS SEGMENTS section.
7
In addition, strong results in residential mortgage, securitization
activity and an increase in sundry income contributed to the increase in fee and
other income. Residential mortgage income in the first six months of 1999
included $126 million of gains from the securitization and sale of $4.2 billion
of residential mortgage loans. Securitization income increased by $185 million
primarily resulting from the securitization and sale of credit card receivables,
SBA loans and student loans in the first six months of 1999.
Sundry income increased by $155 million in the first six months of 1999
compared with the first six months of 1998. Sundry income in the first six
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 subsequent sale of
the Concord shares. In the first six months of 1998, sundry income included
branch sales gains of $84 million. There were no branch sales in the first six
months of 1999.
In the first quarter of 1999, portfolio-related net securities gains
included a $19 million impairment loss on retained interests in certain home
equity securitizations, particularly home improvement loans. This write-down was
the result of the impact of revised loss assumptions on the valuation of the
retained interests. More information related to interest-only and residual
certificates is included in the SECURITIES AVAILABLE FOR SALE section.
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NONINTEREST EXPENSE
Noninterest expense was $4.56 billion in the first six months of 1999 and
$4.65 billion in the first six months of 1998. Noninterest expense in the first
six months of 1999 included expenses related to The Money Store, which was a
purchase accounting acquisition. In addition, the first six months of 1999
included $398 million of merger-related and restructuring charges compared with
$983 million in the first six 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. Over the past several years, the corporation has experienced rapid growth
through numerous acquisitions. These acquisitions have enabled the corporation
to expand into both new business markets and new geographic regions. In the
first quarter of 1999, it became apparent that the corporation was not realizing
the full benefit of operational efficiencies envisioned in these combinations.
As a result, management evaluated all facets of its 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, the corporation displaced
employees and recorded charges for the resulting employee termination benefits
to be paid. In addition, the corporation 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 that represented 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 were also recorded.
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. Substantially all of the employees were individually
notified of 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 segments. By June 30,
1999, approximately 4,800, or 85 percent, of the terminated employees had left
the employment of the corporation. We anticipate that the remaining terminated
employees will leave by September 30, 1999. Through June 30, 1999, $66 million
in employee benefit costs have been paid, leaving $130 million for future
payments.
Included in occupancy charges of $54 million, was $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 the closing of branches. 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 the comparing of market values to comparable
properties. The remaining $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. Since
these assets could not be used elsewhere in the corporation, management intends
to dispose of the assets in a manner that will produce the highest economic
value to the corporation. Depreciation was discontinued at the time the asset
was determined to be held for disposal. At June 30, 1999, the carrying value of
the remaining assets held for disposal was $9 million. Substantially all such
assets will be taken out of service by September 30, 1999.
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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 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 write-down impaired assets to fair value less costs of
disposal and obligations to cancel other 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 impacted, 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 remainder 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, lower 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 remainder of the cost savings is expected to be
achieved through personnel costs that will not be incurred because planned
hirings were discontinued and through other operating expenses related to the
reductions in staffing levels (e.g., lower training and travel costs) as well as
through efficiencies gained from reengineering of associated processes and
functions.
In connection with the acquisition of CoreStates, the corporation
recorded a $754 million restructuring charge. From the date of the acquisition
through June 30, 1999, $609 million has been charged against the initial accrual
representing payment of employee termination benefits, costs to close duplicate
or excess facilities, write-off 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 accrual has been 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 less years of service. The remaining accrual of $91 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
cancelled in connection with the restructuring. These accruals will continue to
be assessed on a quarterly basis.
In November 1997 the corporation recorded a $252 million restructuring
charge related to the acquisition of Signet Banking Corporation, of which $65
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 June 30, 1999,
of $18 million. This relates primarily to the acquisition of Wheat First Butcher
Singer, and it represents remaining payments due to terminated employees and
contract cancellations.
Table 2 summarizes information about the merger-related and restructuring
charges.
We will continue to make significant investments in high-growth
businesses such as Capital Markets, Capital Management, the retail delivery
network and the Internet delivery channel. As a result, we do not expect the
restructuring plan to adversely affect revenue growth. In addition to The Money
Store and to the merger-related and restructuring charges, expenses in the first
six months of 1999 reflected higher personnel costs, primarily incentives
associated with revenue growth in Capital Markets and in Capital Management
Group, and continued spending related to our Future Bank retail model. The
operating overhead efficiency ratio before merger-related and restructuring
charges was 56.69 percent in the first six months of 1999 and 55.76 percent in
the first six months of 1998.
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Amortization of other intangible assets predominantly represents the
amortization of goodwill and deposit base premium related to purchase accounting
acquisitions. These intangibles are amortized over periods ranging from six to
25 years. The increase in amortization expense in the first six months of 1999
from the first six months of 1998 was attributable to goodwill recorded in
connection with the June 30, 1998, purchase accounting acquisition of The Money
Store. We had $4.9 billion in other intangible assets at June 30, 1999, and $5.0
billion at December 31, 1998.
The IMPACT OF YEAR 2000 section provides information about our Year 2000
readiness and associated expenses.
CREDIT RISK MANAGEMENT
LOANS
The loan portfolio, which represents our largest asset class, is a
significant source of interest income and fee income. Elements of the loan
portfolio are subject to differing levels of credit and interest rate risk. Our
lending strategy stresses quality growth and portfolio diversification by
product, geography and industry. A common credit underwriting structure is in
place throughout the corporation.
The commercial loan portfolio includes general commercial loans, both
secured and unsecured, and commercial real estate loans. Commercial loans are
typically either working capital loans, which are used to finance the inventory,
receivables and other working capital needs of commercial borrowers, or term
loans, which are generally used to finance fixed assets or acquisitions.
Commercial real estate loans are typically used to finance the construction or
purchase of commercial real estate.
Our commercial lenders focus principally on middle-market companies.
Consistent with our longtime standard, we generally look for two repayment
sources for commercial real estate loans: cash flows from the project and other
resources of the borrower.
Consumer lending through our full-service bank branches is managed using
an automated underwriting system that combines statistical predictors of risk
and industry standards for acceptable levels of customer debt capacity and
collateral valuation. These guidelines are continually monitored for overall
effectiveness and for compliance with fair lending practices.
Net loans at June 30, 1999, were $134 billion compared with $135 billion
at December 31, 1998. The loan portfolio at June 30, 1999, was composed of 57
percent in commercial loans and 43 percent in consumer loans. In 1998 turmoil in
the global financial markets effectively closed down several capital markets
financing alternatives and customers turned to more traditional lending
products. As the global financial markets stabilized, our customers again sought
alternative financing, and as a result, in the first quarter of 1999, loans
declined from year-end 1998. In the second quarter of 1999, there was an
increase in loan originations, which was partially offset by the securitization
of certain consumer loans.
At June 30, 1999, unused loan commitments related to commercial and
consumer loans were $92 billion and $34 billion, respectively. Commercial and
standby letters of credit were $12 billion at June 30, 1999. At June 30, 1999,
loan participations sold to other lenders amounted to $2 billion.
Average net loans were $135 billion in the first six months of 1999 and
$132 billion in the first six 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. The average rate earned on loans was
8.08 percent in the first six months of 1999 compared with 8.57 percent in the
first six months of 1998.
The ASSET QUALITY section provides information about geographic exposure
in the loan portfolio.
COMMERCIAL REAL ESTATE LOANS
Commercial real estate loans amounted to 8 percent of the total portfolio
at June 30, 1999, and at December 31, 1998. This portfolio included commercial
real estate mortgage loans of $8 billion at June 30, 1999, and $9 billion at
December 31, 1998. The decline reflects amortization and payoffs resulting from
customers obtaining term financing.
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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 the first six months of 1999, we
reevaluated our business strategy for funding subprime home equity loan products
and decided to pursue other strategies that are not accounted for as sales, and
accordingly, do not result in gain recognition or a residual interest.
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 June 30, 1999, nonperforming assets were $940 million, or 0.70 percent
of net loans and foreclosed properties, compared with $950 million, or 0.71
percent, at March 31, 1999, and $844 million, or 0.62 percent, at December 31,
1998.
Loans or properties of less than $5 million each made up 76 percent, or
$716 million, of nonperforming assets at June 30, 1999. Of the rest, nine loans
or properties each between $5 million and $10 million accounted for $64 million;
and eight loans or properties each over $10 million accounted for $160 million.
Thirty-five percent of nonperforming assets were collateralized primarily by
real estate at June 30, 1999, and 42 percent at December 31, 1998.
Nonperforming loans reduce interest income because the contribution from
these loans is eliminated or sharply reduced. In the first six months of 1999,
$59 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 six months of 1999 was $14 million.
PAST DUE LOANS
Accruing loans 90 days past due were $333 million at June 30, 1999,
compared with $344 million at March 31, 1999, and $385 million at December 31,
1998. Of the past dues at June 30, 1999, $99 million were commercial loans or
commercial real estate loans and $234 million were consumer loans.
NET CHARGE-OFFS
Net charge-offs amounted to $344 million in the first six months of 1999
and $285 million in the first six months of 1998. Net charge-offs were 0.51
percent of average net loans in the first six months of 1999 compared with 0.43
percent in the first six months of 1998. The increase in part largely reflected
charge-offs of a portion of two corporate credits. These borrowers experienced
credit quality deterioration attributed to the third quarter 1998 financial
markets disruption.
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 $344 million in the first six months of 1999
compared with $285 million in the first six months of 1998. The allowance for
loan losses was $1.8 billion at June 30, 1999, and at December 31, 1998. The
allowance as a percentage of loans was essentially unchanged at June 30, 1999,
compared with year-end 1998. At
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June 30, 1999, the overall portfolio credit quality remained stable compared
with December 31, 1998, and 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 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 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 $486
million at June 30, 1999, compared with $424 million at December 31, 1998.
Included in the allowance for loan losses at June 30, 1999, was $92 million
related to $442 million of impaired loans. The remaining impaired loans were
recorded at or below fair value. In the first six months of 1999, the average
recorded investment in impaired loans was $476 million, and $11 million of
interest income was recognized on impaired loans. This income was recognized
using the cash-basis method of accounting.
GEOGRAPHIC EXPOSURE
The loan portfolio in the East Coast region of the United States is
spread primarily across 106 metropolitan areas with diverse economies. Our
largest markets are: Atlanta, Georgia; Charlotte, North Carolina; Miami and
Jacksonville, Florida; Newark, New Jersey; New York, New York; Philadelphia,
Pennsylvania; and Washington, D.C. Substantially all of the collateral related
to our $11 billion commercial real estate portfolio at June 30, 1999, was
located in our East Coast banking region.
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 include savings, negotiable order of withdrawal (NOW),
money market, noninterest-bearing and other consumer time deposits. Core
deposits were $122 billion at June 30, 1999, compared with $131 billion at
December 31, 1998. The decline since year-end 1998 primarily reflects a seasonal
dip in demand deposit accounts as well as the movement of time deposits into
alternative investment products.
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 reduces our deposit base,
we do retain valuable customer relationships that might otherwise be lost
to other financial services companies. We estimate that in the past 12 months,
core deposits of approximately $4.5 billion have moved into those alternative
customer investment products.
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The portion of core deposits in higher-rate, other consumer time deposits
was 27 percent at June 30, 1999, and 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 $124 billion in the first six months
of 1999 and $125 billion in the first six 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 six months of 1999 and 1998, average noninterest-bearing
deposits were 26 percent and 24 percent, respectively, of average core deposits.
The first six months of 1999 average balances in savings and NOW and
noninterest-bearing deposits were higher when compared with the first six 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 June 30, 1999, were $51 billion compared with $53
billion at year-end 1998. The decrease occurred primarily because of our
strategy to reduce 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 six months of 1999. Average purchased funds in the first six months of
1999 were $50 billion compared with $53 billion in the first six months of 1998.
Purchased funds are acquired through national market sources, and they include
relatively short-term funding sources such as federal funds, securities sold
under repurchase agreements, eurodollar time deposits, short-term bank notes and
commercial paper, and longer-term funding sources such as term bank notes,
Federal Home Loan Bank borrowings and corporate notes. Purchased funds are also
acquired through our large branch network by issuing $100,000 and over
certificates of deposit and receipt of public funds and treasury deposits.
CASH FLOWS
Cash flows from operations are a significant source of liquidity. Net
cash provided from operations results from net income adjusted for noncash
accounting items, primarily the provision for loan losses and depreciation. This
cash was available in the first six months of 1999 to increase earning assets,
to make discretionary investments and to reduce borrowings.
LONG-TERM DEBT
Long-term debt amounted to $30 billion at June 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.
At June 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. These capital securities are considered tier 1 capital for
regulatory purposes.
Under a shelf registration statement filed with the Securities and
Exchange Commission, we currently have $1.5 billion of senior or subordinated
debt securities, common stock or preferred stock available for issuance. The
sale of any additional debt or equity securities will depend on future market
conditions, funding needs and other factors. In June 1999 we issued $400 million
of 6 5/8 percent senior notes due in 2004.
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, $13 billion of the notes had been
issued at June 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 June 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.
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In the last six months of 1999, long-term debt of $6.5 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.
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 June 30, 1999, and $17 billion at
December 31, 1998. Common shares outstanding amounted to 956 million at June 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 at a cost of $617 million by year-end 1998, and we repurchased an
additional 37 million shares at a cost of $1.9 billion in the first six 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 six months of 1998, we repurchased 40 million shares of
common stock at a cost of $2.4 billion.
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 the
shares under the buyback programs in the market and then issue shares in private
transactions to the counterparty in the amounts necessary to maintain targeted
capital ratios. In March 1999, we entered into two equity forwards involving 10
million shares and 4 million shares each.
Under the terms of the equity forwards, First Union issued shares of
common stock to an investment banking firm (the "counterparty") at a specified
price which 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 in March 1999,
until such time as First Union repurchases the shares under the forward
contract, 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. The equity
forwards have been accounted for as equity transactions.
Under the terms of the equity forwards, First Union has 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 10-million share and 4-million share equity forwards mature in
October 1999 and January 2000, respectively. The equity forwards can be extended
by mutual consent of the parties. If the contracts are extended, the premium
continues until the equity forward is settled. First Union 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, First Union retains the ability to select the settlement
method from among the three methods outlined above.
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We also have repurchased 11 million shares at a cost of $471 million (a
total of approximately 24 million shares are expected to be repurchased) related
to the EVEREN acquisition and which are incremental to the 50 million repurchase
programs.
We paid $901 million in dividends to common stockholders in the first six
months of 1999 compared with $693 million in the first six months of 1998. This
represented an operating dividend payout ratio of 49.47 percent in the first six
months of 1999.
At June 30, 1999, stockholders' equity was reduced by $349 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. Banking
regulators generally limit a bank's dividends in two principal ways: first,
dividends cannot exceed the bank's undivided profits, less statutory bad debt in
excess of a bank's allowance for loan losses; and second, in any year dividends
cannot exceed a bank's net profits for that year, plus its retained earnings
from the preceding two years, less any required transfers to surplus. Under
these and other limitations, which include an internal requirement to maintain
all deposit-taking banks at the well-capitalized level, our subsidiaries had
$1.1 billion available for dividends at June 30, 1999, without prior regulatory
approval. Our subsidiaries paid $1.4 billion in dividends to the parent company
in the first six 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.
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 June 30, 1999, the tier 1 and total capital ratios
were 6.65 percent and 10.68 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 June 30, 1999, was 5.95 percent, and at December
31, 1998, it 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 June 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.
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.
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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 a pattern 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.
We use two separate measures that each include three standard scenarios
in analyzing interest rate sensitivity for policy measurement. Each of these
measures compares our forecasted earnings per share in both a "high rate" and
"low rate" scenario to a base-line scenario. One base-line scenario is our
estimated most likely path for future short-term interest rates over the next 24
months. Another base-line scenario holds short-term rates flat at their current
level over our forecast horizon. The "high rate" and "low rate" scenarios assume
gradual 200 basis point increases or decreases in the federal funds rate from
the beginning point of each base-line scenario over the following 12-month
period. Our policy limit for the maximum negative impact on earnings per share
resulting from "high rate" or "low rate" scenarios is 5 percent. The policy
limit applies to both the "most likely rate" scenario and the "flat rate"
scenario. The policy measurement period is 12 months in length, beginning with
the first month of the forecast.
EARNINGS SENSITIVITY
Our July 1999 estimate for future short-term interest rates (our "most
likely rate" scenario) projects the federal funds rate will increase from the
current rate of 5.00 percent to 5.25 percent by September 1999, remain constant
through August 2000 and then decrease to 5.00 percent and stay at that level
through June 2001. Our "flat rate" scenario holds the federal funds rate
constant at 5.00 percent through June 2001.
Based on the July 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 3.4 percent. Our model
indicates that earnings would benefit by 2.8 percent in our "low rate" scenario
(i.e., a 200 basis point decline in short-term rates from our "flat rate"
scenario). Compared to our "most likely rate" scenario, earnings would decrease
3.7 percent over the policy measurement period if rates rise gradually by 200
basis points, and earnings would increase by 2.8 percent if rates fall gradually
by 200 basis points.
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
July 1999 outlook, if interest rates in calendar year 2000 were 200 basis points
lower than our "most likely rate" scenario, earnings would increase by 7.1
percent. If rates were 200 basis points higher than our "most likely rate"
scenario in 2000, those earnings would be negatively affected by 7.2 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.
UNREALIZED GAINS (LOSSES) IN CERTAIN FINANCIAL INSTRUMENTS
Beginning this quarter, we have included Table 14, which is designed to
summarize 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, are primarily the result of 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 June 30, 1999, the combined market value in these portfolios as
described in Table 14 was a net unrealized loss of $293 million. The increase or
decrease in the value of these portfolios has very little impact on current
earnings.
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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, which
includes interest-only and residual certificates. At June 30, 1999, we had
securities available for sale with a market value of $46 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 all interest-only and residual
certificates ("residual interests"), which resulted from our securitization
transactions accounted for as sales, as securities available for sale.
Purchased residual interests are also classified as securities available for
sale. The fair value of the residual interests at June 30, 1999, was $1.5
billion. 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 gains
of $24 million in the first six months of 1999 compared with $48 million in the
first six 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 6.61 percent
in the first six months of 1999 and 6.64 percent in the first six months of
1998. The average maturity of the portfolio was 7.41 years at June 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 $1.9 billion at June
30, 1999, and $2.0 billion at December 31, 1998.
The average rate earned on investment securities was 8.17 percent in the
first six months of 1999 and 7.73 percent in the first six months of 1998. The
average maturity of the portfolio was 5.46 years at June 30, 1999.
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. As a matter of practice
we do not use highly leveraged derivative instruments for interest rate risk
management. 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 derivative financial instruments
used to manage our interest rate sensitivity was $379 million at June 30, 1999,
compared with $1.1 billion at December 31, 1998.
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 June 30, 1999, were not significant.
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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 June 30 , 1999, the total mark-to-market related credit risk for
derivative transactions in excess of counterparty thresholds was $573 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 June 30, 1999, was $12
million, compared to $19 million at December 31, 1998, substantially all of
which related to interest rate risk.
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 on a monthly basis 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
of the Year 2000 project have been completed.
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As of June 30, 1999, we had completed the analysis and remediation and
remediation testing phases on all major business applications that are rated
Mission Critical and High Risk, with the exception of one vendor-supported
application where the Year 2000-related effort is being completed in conjunction
with our conversion to this application, both of which are expected to be
completed by August 31, 1999. The analysis and remediation and remediation
testing phases on all major business applications that are rated Medium Risk or
Low Risk are substantially complete.
The analysis and remediation and remediation testing phases on EVEREN's
major business applications are expected to be completed by the date of
consummation of this acquisition, which is currently expected to occur at the
end of the third quarter or at the beginning of the fourth quarter of 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. As
of June 30, 1999, substantially all of the personal computer hardware and
software at all First Union locations had 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 will be completed by September 30, 1999. 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.
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 June 30, 1999, there were approximately 70
facilities and the related building services that have been identified as
Mission Critical or High Risk. At June 30, 1999, testing of these Mission
Critical and High Risk facilities and the related building services was 70
percent complete. Other Year 2000 priorities have delayed completion of all the
facilities; however, substantially all of them will be completed by August 31,
1999.
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 began in January 1999, and it will continue
throughout 1999. This testing will 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.
20
<PAGE>
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. As of June 30, 1999, all business continuity plans were complete and
tested. In addition, these plans will continue to evolve with changes in the
business.
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. Tools and procedures are being developed to support these
efforts, and they are planned to be in place by September 30, 1999. Contingency
plans are being developed for all control centers and their critical components.
A mock test for all control centers, tools and procedures 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 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 where necessary.
COST
First Union currently estimates the cost for the Year 2000 project will
amount to $60 million to $65 million pretax. This amount 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 projects, which is excluded from the
costs included herein, is expected to be significantly less than the incremental
cost. In the first six months of 1999, $20 million was incurred on the Year 2000
project, and as of June 30, 1999, $46 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, retained 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
21
<PAGE>
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 separate bills providing for
financial modernization legislation. Such legislation would generally permit
common ownership by bank holding companies of commercial banks, investment
banks, insurance companies and similar financial firms, and would permit those
organizations to engage in certain businesses that bank holding companies are
currently prohibited from undertaking. The two versions of financial services
legislation are currently the subject of a House and Senate compromise
committee, and it is uncertain whether final financial modernization legislation
will ultimately be passed by both houses of the U.S. Congress, whether such
legislation will become law and what the impact of such legislation would be to
First Union. Given the uncertainty of the proposal process, we cannot assess the
impact of any such proposals on our financial condition or results of
operations. Various other legislative and accounting proposals concerning the
banking industry are pending in Congress and with the Financial Accounting
Standards Board, respectively.
22
<PAGE>
<TABLE>
<CAPTION>
Table 1
CONSOLIDATED SUMMARIES OF INCOME, PER SHARE, BALANCE SHEET AND OTHER DATA
- ------------------------------------------------------------------------------------------------------------------------------------
TWELVE 1999 1998
MONTHS ---------------------- ---------------------------------------
ENDED
JUNE 30, SECOND FIRST FOURTH THIRD SECOND
(IN MILLIONS, EXCEPT PER SHARE DATA) 1999 QUARTER QUARTER QUARTER QUARTER QUARTER
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SUMMARIES OF INCOME
Interest income $ 14,855 3,624 3,572 3,768 3,891 3,727
- ------------------------------------------------------------------------------------------------------------------------------------
Interest income (a) $ 14,981 3,657 3,603 3,799 3,922 3,754
Interest expense 7,589 1,779 1,792 1,970 2,048 1,922
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income (a) 7,392 1,878 1,811 1,829 1,874 1,832
Provision for loan losses 750 180 164 167 239 150
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for
loan losses (a) 6,642 1,698 1,647 1,662 1,635 1,682
Securities transactions - portfolio (b) 333 (1) 25 98 211 25
Fee and other income 6,878 1,707 1,925 1,644 1,602 1,506
Merger-related and restructuring charges (c) 627 - 398 205 24 954
Other noninterest expense 8,344 2,053 2,111 2,282 1,898 1,855
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes (a) 4,882 1,351 1,088 917 1,526 404
Income taxes 1,325 445 351 29 500 128
Tax-equivalent adjustment 126 33 31 31 31 27
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 3,431 873 706 857 995 249
- ------------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
Basic $ 3.54 0.92 0.73 0.87 1.02 0.27
Diluted 3.51 0.90 0.73 0.87 1.01 0.26
Cash dividends $ 1.78 0.47 0.47 0.42 0.42 0.37
Average shares - Basic (IN THOUSANDS) - 954,548 959,833 980,006 981,659 949,750
Average shares - Diluted (IN THOUSANDS) - 961,793 968,626 990,890 993,208 962,160
Average stockholders' equity (d)
Quarter-to-date $ - 16,215 16,058 16,732 16,383 14,607
Year-to-date - 16,137 16,058 15,800 15,485 15,029
Book value 16.47 16.47 16.76 17.48 17.54 16.72
Common stock price
High 65 11/16 55 15/16 65 1/16 63 15/16 65 11/16 63
Low 42 1/16 42 1/16 48 5/8 44 11/16 47 9/16 55 1/4
Period-end $ 47 1/8 47 1/8 53 7/16 60 13/16 51 3/16 58 1/4
To earnings ratio (e) 13.43 X 13.43 18.62 20.61 19.10 23.78
To book value 286 % 286 319 348 292 348
BALANCE SHEET DATA
Assets 229,911 229,911 222,955 237,363 234,580 228,996
Long-term debt $ 30,350 30,350 24,858 22,949 18,776 14,985
OTHER DATA
ATMs 3,955 3,955 3,849 3,690 3,645 3,613
Employees 66,491 66,491 70,775 71,486 71,307 72,159
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Tax-equivalent.
(b) Securities transactions include an investment security gain of $4 million in
the second quarter of 1998.
(c) 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; $16
million in the third quarter of 1998; and $634 million in the second quarter of
1998.
(d) Excludes average net unrealized gains or losses on debt and equity
securities.
(e) Based on diluted earnings per share.
T-1
<PAGE>
<TABLE>
<CAPTION>
Table 2
MERGER-RELATED AND RESTRUCTURING CHARGES
- ---------------------------------------------------------------------------------------------------------------------
<S> <C>
Six
Months
Ended
June 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
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C>
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
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
T-2
<PAGE>
<TABLE>
<CAPTION>
TABLE 3
BUSINESS SEGMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED JUNE 30, 1999
-----------------------------------------------------------------------------------------------
REAL COMMERCIAL
INVESTMENT ESTATE TRADITIONAL LEASING &
(IN MILLIONS) BANKING FINANCE BANKING RAIL INTERNATIONAL TOTAL
- -------------------------------------- ---------- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CAPITAL MARKETS
Income statement data
Net interest income $ 47 24 166 65 47 349
Provision for loan losses 5 - 47 3 - 55
Trading account profits 70 33 - - - 103
Fee and other income 162 (10) 18 39 51 260
Noninterest expense 158 28 47 27 51 311
Income tax expense 41 (10) 34 23 18 106
- -------------------------------------- ---------- -----------------------------------------------------------------------
Net income $ 75 29 56 51 29 240
- -------------------------------------- ---------- -----------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity (a) 6.26 % 49.87 8.53 98.63 18.91 21.30
Average loans, net $ 3,145 2,352 20,950 5,040 4,559 36,046
Average deposits 2,740 770 3,475 22 4,539 11,546
Average attributed stockholders'
equity $ 826 237 2,635 207 608 4,513
- -----------------------------------------------------------------------------------------------------------------------------------
RETAIL
PRIVATE BROKERAGE &
MUTUAL CLIENT CAP INSURANCE
(IN MILLIONS) TRUST FUNDS BANKING ACCOUNT SERVICES OTHER TOTAL
- -----------------------------------------------------------------------------------------------------------------------------------
CAPITAL MANAGEMENT
Income statement data
Net interest income $ 11 1 43 46 20 - 121
Provision for loan losses - - (1) - - - (1)
Fee and other income 165 111 4 28 234 (22) 520
Noninterest expense 109 68 21 32 209 - 439
Income tax expense 26 17 10 16 17 (8) 78
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $ 41 27 17 26 28 (14) 125
- -----------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity (a) 71.42 % 41.04 27.73 70.71 33.33 - 46.15
Average loans, net $ 158 - 3,599 - 1,525 - 5,282
Average deposits 2,566 - 3,178 14,100 - - 19,844
Average attributed stockholders'
equity $ 232 159 249 149 333 (29) 1,093
- -----------------------------------------------------------------------------------------------------------------------------------
HOME
EQUITY &
FIRST THE RETAIL
UNION MONEY CARD BRANCH
(IN MILLIONS) MORTGAGE STORE PRODUCTS PRODUCTS TOTAL
- -----------------------------------------------------------------------------------------------------------------------------------
CONSUMER
Income statement data
Net interest income $ 21 144 62 673 900
Provision for loan losses - 17 40 37 94
Fee and other income 97 113 108 212 530
Noninterest expense 66 150 65 619 900
Income tax expense 20 34 25 87 166
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $ 32 56 40 142 270
- -----------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity (a) 106.78 % 17.07 36.49 24.86 26.05
Average loans, net $ 1,618 12,284 2,564 36,669 53,135
Average deposits 1,332 66 9 70,687 72,094
Average attributed stockholders'
equity $ 122 1,306 444 2,285 4,157
- -----------------------------------------------------------------------------------------------------------------------------------
(CONTINUED)
</TABLE>
T-3
<PAGE>
<TABLE>
<CAPTION>
TABLE 3
BUSINESS SEGMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED JUNE 30, 1999
----------------------------------------------------------------------------------------
SMALL REAL CASH MGT. &
BUSINESS ESTATE DEPOSIT
(IN MILLIONS) BANKING LENDING BANKING SERVICES TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL
Income statement data
<S> <C> <C> <C> <C> <C>
Net interest income $ 24 94 47 236 401
Provision for loan losses 1 24 7 - 32
Fee and other income - - - 139 139
Noninterest expense 12 85 17 194 308
Income tax expense 4 (14) 9 69 68
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 7 (1) 14 112 132
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity (a) 13.71 % (0.38) 10.01 63.98 19.12
Average loans, net $ 2,951 22,274 8,529 - 33,754
Average deposits - - - 25,637 25,637
Average attributed stockholders'
equity $ 199 1,308 550 704 2,761
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL CAPITAL TREASURY/
(IN MILLIONS) MARKETS MGT. CONSUMER COMMERCIAL NONBANK TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED
Income statement data
Net interest income $ 349 121 900 401 74 1,845
Provision for loan losses 55 (1) 94 32 - 180
Trading account profits 103 - - - - 103
Fee and other income 260 520 530 139 154 1,603
Noninterest expense 311 439 900 308 95 2,053
Income tax expense 106 78 166 68 27 445
- ------------------------------------------------------------------------------------------------------------------------------------
Net income after
merger-related and
restructuring charges 240 125 270 132 106 873
After-tax merger-related and
restructuring charges - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net income before
merger-related and
restructuring charges $ 240 125 270 132 106 873
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity (a) 21.30 % 46.15 26.05 19.12 11.82 21.25
Average loans, net $ 36,046 5,282 53,135 33,754 7,107 135,324
Average deposits 11,546 19,844 72,094 25,637 4,671 133,792
Average attributed stockholders'
equity $ 4,513 1,093 4,157 2,761 3,598 16,122
- ------------------------------------------------------------------------------------------------------------------------------------
(CONTINUED)
</TABLE>
T-4
<PAGE>
<TABLE>
<CAPTION>
TABLE 3
BUSINESS SEGMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED JUNE 30, 1998
-----------------------------------------------------------------------------------
REAL COMMERCIAL
INVESTMENT ESTATE TRADITIONAL LEASING &
(IN MILLIONS) BANKING FINANCE BANKING RAIL INTERNATIONAL TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL MARKETS
Income statement data
<S> <C> <C> <C> <C> <C> <C>
Net interest income $ 13 15 150 31 41 250
Provision for loan losses 5 - 18 3 1 27
Trading account profits 41 28 - - - 69
Fee and other income 207 (1) 18 45 42 311
Noninterest expense 159 27 48 22 54 310
Income tax expense 36 (5) 39 15 11 96
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 61 20 63 36 17 197
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity (a) 6.44 % 26.85 13.16 93.92 12.34 21.98
Average loans, net $ 2,440 1,754 18,188 4,594 5,072 32,048
Average deposits 1,873 658 3,551 21 4,659 10,762
Average attributed stockholders'
equity $ 669 306 1,909 153 555 3,592
- ------------------------------------------------------------------------------------------------------------------------------------
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 40 39 10 - 103
Provision for loan losses - - 2 - - - 2
Fee and other income 154 102 3 18 194 (23) 448
Noninterest expense 109 56 20 26 169 - 380
Income tax expense 22 18 8 12 14 (9) 65
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 36 29 13 19 21 (14) 104
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity (a) 66.65 % 50.33 22.11 72.78 32.18 - 44.21
Average loans, net $ 100 - 3,508 - 1,127 - 4,735
Average deposits 2,167 - 2,620 11,152 - - 15,939
Average attributed stockholders'
equity $ 216 145 242 105 267 (30) 945
- ------------------------------------------------------------------------------------------------------------------------------------
HOME
EQUITY &
FIRST THE RETAIL
UNION MONEY CARD BRANCH
(IN MILLIONS) MORTGAGE STORE PRODUCTS PRODUCTS TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER
Income statement data
Net interest income $ 24 41 83 743 891
Provision for loan losses - 3 57 37 97
Fee and other income 94 9 74 263 440
Noninterest expense 78 26 61 607 772
Income tax expense 16 8 14 138 176
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 24 13 25 224 286
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity (a) 56.87 % 22.46 22.19 34.23 32.97
Average loans, net $ 2,230 6,082 3,676 45,845 57,833
Average deposits 1,429 105 13 78,450 79,997
Average attributed stockholders'
equity $ 170 238 450 2,620 3,478
- ------------------------------------------------------------------------------------------------------------------------------------
(CONTINUED)
</TABLE>
T-5
<PAGE>
<TABLE>
<CAPTION>
Table 3
BUSINESS SEGMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED JUNE 30, 1998
----------------------------------------------------------------------------------------
SMALL REAL CASH MGT. &
BUSINESS ESTATE DEPOSIT
(IN MILLIONS) BANKING LENDING BANKING SERVICES TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL
Income statement data
<S> <C> <C> <C> <C> <C>
Net interest income $ 21 128 52 237 438
Provision for loan losses 1 15 5 - 21
Fee and other income - - - 128 128
Noninterest expense 10 77 15 206 308
Income tax expense 3 11 12 61 87
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 7 25 20 98 150
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity (a) 15.75 % 6.84 12.83 58.58 20.40
Average loans, net $ 2,571 26,155 8,850 - 37,576
Average deposits - - - 24,888 24,888
Average attributed stockholders'
equity $ 167 1,488 618 671 2,944
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL CAPITAL TREASURY/
(IN MILLIONS) MARKETS MGT. CONSUMER COMMERCIAL NONBANK TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED
Income statement data
Net interest income $ 250 103 891 438 123 1,805
Provision for loan losses 27 2 97 21 3 150
Trading account profits 69 - - - - 69
Fee and other income 311 448 440 128 135 1,462
Noninterest expense 310 380 772 308 1,039 2,809
Income tax expense 96 65 176 87 (296) 128
- ------------------------------------------------------------------------------------------------------------------------------------
Net income after
merger-related and
restructuring charges 197 104 286 150 (488) 249
After-tax merger-related and
restructuring charges - - - - 634 634
- ------------------------------------------------------------------------------------------------------------------------------------
Net income before
merger-related and
restructuring charges $ 197 104 286 150 146 883
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity (a) 21.98 % 44.21 32.97 20.40 14.93 23.91
Average loans, net $ 32,048 4,735 57,833 37,576 (46) 132,146
Average deposits 10,762 15,939 79,997 24,888 5,455 137,041
Average attributed stockholders'
equity $ 3,592 945 3,478 2,944 3,922 14,881
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Average attributed stockholders' equity excludes merger-related and
restructuring charges and 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-6
<PAGE>
<TABLE>
<CAPTION>
TABLE 3
BUSINESS SEGMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 1999
-----------------------------------------------------------------------------------
REAL COMMERCIAL
INVESTMENT ESTATE TRADITIONAL LEASING &
(IN MILLIONS) BANKING FINANCE BANKING RAIL INTERNATIONAL TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL MARKETS
Income statement data
<S> <C> <C> <C> <C> <C> <C>
Net interest income $ 78 37 328 128 92 663
Provision for loan losses 6 - 95 3 - 104
Trading account profits 159 56 - - - 215
Fee and other income 431 (22) 37 83 102 631
Noninterest expense 339 61 100 54 107 661
Income tax expense 120 (32) 65 48 33 234
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 203 42 105 106 54 510
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity (a) 48.95 % 36.49 8.24 107.58 18.07 23.15
Average loans, net $ 3,022 2,178 20,987 5,038 4,767 35,992
Average deposits 2,709 740 3,554 22 5,018 12,043
Average attributed stockholders'
equity $ 839 233 2,580 199 604 4,455
- ------------------------------------------------------------------------------------------------------------------------------------
RETAIL
PRIVATE BROKERAGE &
MUTUAL CLIENT CAP INSURANCE
(IN MILLIONS) TRUST FUNDS BANKING ACCOUNT SERVICES OTHER TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL MANAGEMENT
Income statement data
Net interest income $ 26 2 86 91 36 - 241
Provision for loan losses - - (1) - - - (1)
Fee and other income 328 217 8 54 456 (44) 1,019
Noninterest expense 225 129 45 63 410 - 872
Income tax expense 49 34 19 31 31 (17) 147
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 80 56 31 51 51 (27) 242
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity (a) 68.53 % 45.43 25.10 69.80 31.80 - 45.03
Average loans, net $ 170 - 3,570 - 1,518 - 5,258
Average deposits 2,662 - 3,112 14,132 - - 19,906
Average attributed stockholders'
equity $ 235 155 247 147 324 (29) 1,079
- ------------------------------------------------------------------------------------------------------------------------------------
HOME
EQUITY &
FIRST THE RETAIL
UNION MONEY CARD BRANCH
(IN MILLIONS) MORTGAGE STORE PRODUCTS PRODUCTS TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER
Income statement data
Net interest income $ 44 268 121 1,354 1,787
Provision for loan losses 1 28 85 77 191
Fee and other income 205 197 166 499 1,067
Noninterest expense 145 307 129 1,238 1,819
Income tax expense 39 49 28 205 321
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 64 81 45 333 523
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity (a) 86.40 % 12.29 20.45 28.51 24.66
Average loans, net $ 1,821 12,224 2,581 38,122 54,748
Average deposits 1,336 34 10 71,494 72,874
Average attributed stockholders'
equity $ 149 1,325 445 2,354 4,273
- ------------------------------------------------------------------------------------------------------------------------------------
(CONTINUED)
</TABLE>
T-7
<PAGE>
<TABLE>
<CAPTION>
TABLE 3
BUSINESS SEGMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 1999
----------------------------------------------------------------------------------------
SMALL REAL CASH MGT. &
BUSINESS ESTATE DEPOSIT
(IN MILLIONS) BANKING LENDING BANKING SERVICES TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL
Income statement data
<S> <C> <C> <C> <C> <C>
Net interest income $ 46 188 94 488 816
Provision for loan losses 2 35 14 - 51
Fee and other income - - - 272 272
Noninterest expense 24 161 36 396 617
Income tax expense 7 (19) 17 139 144
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 13 11 27 225 276
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity (a) 13.48 % 1.58 9.82 61.34 19.53
Average loans, net $ 2,924 22,656 8,458 - 34,038
Average deposits - - - 26,276 26,276
Average attributed stockholders'
equity $ 194 1,354 562 740 2,850
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL CAPITAL TREASURY/
(IN MILLIONS) MARKETS MGT. CONSUMER COMMERCIAL NONBANK TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED
Income statement data
Net interest income $ 663 241 1,787 816 118 3,625
Provision for loan losses 104 (1) 191 51 (1) 344
Trading account profits 215 - - - - 215
Fee and other income 631 1,019 1,067 272 452 3,441
Noninterest expense 661 872 1,819 617 593 4,562
Income tax expense 234 147 321 144 (50) 796
- ------------------------------------------------------------------------------------------------------------------------------------
Net income after
merger-related and
restructuring charges 510 242 523 276 28 1,579
After-tax merger-related and
restructuring charges - - - - 259 259
- ------------------------------------------------------------------------------------------------------------------------------------
Net income before
merger-related and
restructuring charges $ 510 242 523 276 287 1,838
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity (a) 23.15 % 45.03 24.66 19.53 16.28 22.75
Average loans, net $ 35,992 5,258 54,748 34,038 4,584 134,620
Average deposits 12,043 19,906 72,874 26,276 3,922 135,021
Average attributed stockholders'
equity $ 4,455 1,079 4,273 2,850 3,556 16,213
- ------------------------------------------------------------------------------------------------------------------------------------
(CONTINUED)
</TABLE>
T-8
<PAGE>
<TABLE>
<CAPTION>
TABLE 3
BUSINESS SEGMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 1998
-----------------------------------------------------------------------------------
REAL COMMERCIAL
INVESTMENT ESTATE TRADITIONAL LEASING &
(IN MILLIONS) BANKING FINANCE BANKING RAIL INTERNATIONAL TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL MARKETS
Income statement data
<S> <C> <C> <C> <C> <C> <C>
Net interest income $ 40 32 310 50 68 500
Provision for loan losses 5 - 24 4 2 35
Trading account profits 74 30 - - - 104
Fee and other income 341 (4) 26 95 100 558
Noninterest expense 267 51 93 56 99 566
Income tax expense 66 (19) 84 25 26 182
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 117 26 135 60 41 379
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity (a) 30.11 % 17.83 14.14 80.45 15.68 20.77
Average loans, net $ 2,325 1,792 18,048 4,420 4,622 31,207
Average deposits 1,731 624 3,562 21 4,112 10,050
Average attributed stockholders'
equity $ 780 291 1,925 151 528 3,675
- ------------------------------------------------------------------------------------------------------------------------------------
RETAIL
PRIVATE BROKERAGE &
MUTUAL CLIENT CAP INSURANCE
(IN MILLIONS) TRUST FUNDS BANKING ACCOUNT SERVICES OTHER TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL MANAGEMENT
Income statement data
Net interest income $ 28 1 78 74 22 - 203
Provision for loan losses - - 3 - - - 3
Fee and other income 294 198 5 35 388 (43) 877
Noninterest expense 218 111 41 51 338 - 759
Income tax expense 40 34 15 22 27 (16) 122
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 64 54 24 36 45 (27) 196
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity (a) 59.56 % 50.21 20.76 71.72 33.90 - 42.58
Average loans, net $ 114 - 3,442 - 934 - 4,490
Average deposits 2,261 - 2,569 11,017 - - 15,847
Average attributed stockholders'
equity $ 216 140 237 101 265 (28) 931
- ------------------------------------------------------------------------------------------------------------------------------------
HOME
EQUITY &
FIRST THE RETAIL
UNION MONEY CARD BRANCH
(IN MILLIONS) MORTGAGE STORE PRODUCTS PRODUCTS TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER
Income statement data
Net interest income $ 43 79 177 1,462 1,761
Provision for loan losses 2 5 110 84 201
Fee and other income 147 19 144 489 799
Noninterest expense 148 53 120 1,204 1,525
Income tax expense 15 15 34 254 318
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 25 25 57 409 516
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity (a) 33.86 % 23.80 25.50 31.49 30.33
Average loans, net $ 2,066 5,572 3,779 46,405 57,822
Average deposits 1,270 53 14 78,163 79,500
Average attributed stockholders'
equity $ 148 211 447 2,622 3,428
- ------------------------------------------------------------------------------------------------------------------------------------
(CONTINUED)
</TABLE>
T-9
<PAGE>
<TABLE>
<CAPTION>
Table 3
BUSINESS SEGMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 1998
----------------------------------------------------------------------------------------
SMALL REAL CASH MGT. &
BUSINESS ESTATE DEPOSIT
(IN MILLIONS) BANKING LENDING BANKING SERVICES TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL
Income statement data
<S> <C> <C> <C> <C> <C>
Net interest income $ 42 251 106 465 864
Provision for loan losses 1 31 7 - 39
Fee and other income - - - 257 257
Noninterest expense 19 160 30 407 616
Income tax expense 9 17 26 121 173
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 13 43 43 194 293
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity (a) 16.01 % 5.82 13.60 58.59 20.06
Average loans, net $ 2,552 25,710 9,188 - 37,450
Average deposits - - - 24,596 24,596
Average attributed stockholders'
equity $ 164 1,475 638 669 2,946
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL CAPITAL TREASURY/
(IN MILLIONS) MARKETS MGT. CONSUMER COMMERCIAL NONBANK TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED
Income statement data
Net interest income $ 500 203 1,761 864 308 3,636
Provision for loan losses 35 3 201 39 7 285
Trading account profits 104 - - - - 104
Fee and other income 558 877 799 257 285 2,776
Noninterest expense 566 759 1,525 616 1,181 4,647
Income tax expense 182 122 318 173 (250) 545
- ------------------------------------------------------------------------------------------------------------------------------------
Net income after
merger-related and
restructuring charges 379 196 516 293 (345) 1,039
After-tax merger-related and
restructuring charges - - - - 653 653
- ------------------------------------------------------------------------------------------------------------------------------------
Net income before
merger-related and
restructuring charges $ 379 196 516 293 308 1,692
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity (a) 20.77 % 42.58 30.33 20.06 14.30 22.55
Average loans, net $ 31,207 4,490 57,822 37,450 713 131,682
Average deposits 10,050 15,847 79,500 24,596 5,822 135,815
Average attributed stockholders'
equity $ 3,675 931 3,428 2,946 4,343 15,323
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Average attributed stockholders' equity excludes merger-related and
restructuring charges and 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
<PAGE>
<TABLE>
<CAPTION>
TABLE 4
SELECTED PERFORMANCE, DIVIDEND PAYOUT AND OTHER RATIOS
- -----------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30, 1999 1998
------------------------- ------------------------- --------------------------------------
SECOND FIRST FOURTH THIRD SECOND
1999 1998 QUARTER QUARTER QUARTER QUARTER QUARTER
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PERFORMANCE RATIOS (a)
Assets to stockholders' equity 13.85 X 14.02 13.92 13.78 13.49 13.67 14.71
Return on assets 1.42 % 0.97 1.56 1.27 1.47 1.72 0.46
Return on stockholders' equity (b) 19.73 13.94 21.59 17.83 20.32 24.10 6.83
Internal capital growth (b) 8.35 % 4.64 10.32 6.35 10.51 14.08 (2.89)
- -----------------------------------------------------------------------------------------------------------------------------------
DIVIDEND PAYOUT RATIOS ON
Operating earnings 49.47 % 40.97 52.22 47.00 42.00 41.18 40.22
Net income 57.67 % 66.71 52.22 64.38 48.28 41.58 142.31
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER RATIOS ON
Operating earnings
Return on assets 1.65 % 1.59 1.56 1.74 1.70 1.75 1.62
Return on stockholders' equity (b) 22.75 % 22.55 21.25 24.30 22.59 23.50 23.91
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on average balances and net income.
(b) Excludes average net unrealized gains or losses on debt and equity
securities.
<TABLE>
<CAPTION>
Table 5
LOANS - ON-BALANCE SHEET AND MANAGED RETAIL PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998
---------------------- ----------------------------------------
SECOND FIRST FOURTH THIRD SECOND
(IN MILLIONS) QUARTER QUARTER QUARTER QUARTER QUARTER
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ON-BALANCE SHEET
COMMERCIAL
Commercial, financial and agricultural $ 52,727 52,798 53,961 52,179 50,972
Real estate - construction and other 2,636 2,602 2,628 2,884 3,033
Real estate - mortgage 8,441 8,489 8,565 8,977 9,718
Lease financing 10,527 10,525 9,730 9,388 9,155
Foreign 4,609 4,084 4,805 4,289 4,365
- ------------------------------------------------------------------------------------------------------------------------------------
Total commercial 78,940 78,498 79,689 77,717 77,243
- ------------------------------------------------------------------------------------------------------------------------------------
RETAIL
Real estate - mortgage 26,628 20,901 21,729 25,522 26,221
Installment loans - Bankcard (a) 2,133 2,579 2,779 2,700 4,043
Installment loans - other 24,320 29,585 29,050 27,564 27,982
Vehicle leasing 5,753 6,257 6,162 5,955 5,692
- ------------------------------------------------------------------------------------------------------------------------------------
Total retail 58,834 59,322 59,720 61,741 63,938
- ------------------------------------------------------------------------------------------------------------------------------------
Total loans 137,774 137,820 139,409 139,458 141,181
Unearned income 4,195 4,404 4,026 3,769 3,791
- ------------------------------------------------------------------------------------------------------------------------------------
Loans, net (ON-BALANCE SHEET) $ 133,579 133,416 135,383 135,689 137,390
- ------------------------------------------------------------------------------------------------------------------------------------
MANAGED RETAIL PORTFOLIO
On-balance sheet retail loan portfolio $ 58,834 59,322 59,720 61,741 63,938
Loans securitized and included in securities available for sale 7,976 1,321 429 432 -
Securitized principal serviced (b) 20,720 19,829 20,740 21,239 18,695
Residential loans serviced 55,796 60,427 61,761 62,799 64,591
- ------------------------------------------------------------------------------------------------------------------------------------
Total managed retail portfolio $ 143,326 140,899 142,650 146,211 147,224
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Installment loans - Bankcard include credit card, ICR, signature and First
Choice.
(b) Information related to the types and amounts of retail loans securitized and
sold with servicing retained can be found in Table 6.
T-11
<PAGE>
<TABLE>
<CAPTION>
Table 6
INTEREST-ONLY AND RESIDUAL CERTIFICATES
- ------------------------------------------------------------------------------------------------------------------------------------
JUNE 30, 1999
------------------------------------------------------------------------------------------------
HOME
EQUITY
HOME CREDIT LINES OF
(IN MILLIONS) EQUITY (A) (B) SBA (B) STUDENT AUTO CARD CREDIT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ACTIVITY
Balance, December 31, 1998 $ 1,095 118 119 16 159 12
Originated residual interests - 75 19 - 146 3
Servicer and other advances, net 21 - - - - -
Net accretion (amortization) (45) (6) 2 (7) (133) (4)
Impairment loss (19) - - (4) - -
Unrealized gain (loss) (50) (5) 4 1 14 -
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1999 $ 1,002 182 144 6 186 11
- ------------------------------------------------------------------------------------------------------------------------------------
HOME EQUITY HOME
---------------------------- EQUITY
FIXED VARIABLE CREDIT LINES OF
RATE RATE SBA STUDENT AUTO CARD CREDIT
- ------------------------------------------------------------------------------------------------------------------------------------
VALUATION ESTIMATES
Discount rate 11.00% 11.00 11.00 9.50 11.00 10.56 11.00
Prepayment rate CPR-24.00% CPR-34.00 CPR-18.57 CPR-4.77 ABS-1.23 9 Months CPR-3.95
Weighted average life 37.0 months 26 months 51.6 months 70.6 months 9.0 months 9 Months 54 Months
Weighted average cumulative
net loss 488 bps 452 465 21 302 503 270
Weighted average coupon rate 11.13 % 10.43 9.44 8.03 10.35 17.51 9.47
Excess annual spread (c) 411 bps 358 540 183 184 479 247
- ------------------------------------------------------------------------------------------------------------------------------------
HOME EQUITY HOME
---------------------------- EQUITY
FIXED VARIABLE CREDIT LINES OF
(DOLLARS IN MILLIONS) RATE RATE SBA STUDENT AUTO CARD CREDIT
- ------------------------------------------------------------------------------------------------------------------------------------
COLLATERAL DATA
Securitized principal serviced $ 7,833 2,695 1,300 4,079 527 4,108 178
Contractual delinquency ratios
30 - 59 days 3.00 % 3.15 0.66 2.52 2.94 0.92 0.29
60 - 89 days 0.92 1.04 0.40 1.14 0.67 0.48 0.09
90 - 179 days 1.02 1.11 0.39 1.63 0.57 0.95 0.34
180 - 359 days 1.03 1.65 0.86 0.75 0.04 - 0.15
Defaults
Foreclosures in process (d) 4.11 8.12 0.96 n/a n/a n/a -
Real estate owned 1.04 % 1.85 0.10 n/a n/a n/a 0.04
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The June 30, 1999, Home Equity balance includes servicer advances of $154
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) Excess annual spread is calculated as the total estimated cash, including
cash released from spread accounts, to be received from the securitization
trust. In prior periods, the calculation did not include cash to be received
from spread accounts for home equity and SBA securitizations. 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.
(d) Foreclosures in process includes loans that are delinquent 360 days or more.
n/a - Data is not available or not meaningful.
T-12
<PAGE>
<TABLE>
<CAPTION>
Table 7
ALLOWANCE FOR LOAN LOSSES AND NONPERFORMING ASSETS
- ----------------------------------------------------------------------------------------------------------------------------------
1999 1998
------------------------- --------------------------------------
SECOND FIRST FOURTH THIRD SECOND
(IN MILLIONS) QUARTER QUARTER QUARTER QUARTER QUARTER
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR LOAN LOSSES
Balance, beginning of period $ 1,826 1,826 1,882 1,870 1,863
Provision for loan losses 180 164 167 239 150
Allowance relating to loans acquired, transferred to
accelerated disposition or sold (41) - (57) (40) 13
Loan losses, net (180) (164) (166) (187) (156)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, end of period $ 1,785 1,826 1,826 1,882 1,870
- ----------------------------------------------------------------------------------------------------------------------------------
as a % of loans, net 1.34 % 1.37 1.35 1.39 1.36
- ----------------------------------------------------------------------------------------------------------------------------------
as a % of nonaccrual and restructured loans 212 % 217 246 267 235
- ----------------------------------------------------------------------------------------------------------------------------------
as a % of nonperforming assets 190 % 192 217 228 206
- ----------------------------------------------------------------------------------------------------------------------------------
LOAN LOSSES
Commercial, financial and agricultural $ 89 78 83 98 63
Real estate - commercial construction and mortgage 10 1 3 1 2
Real estate - residential mortgage 5 5 2 8 6
Installment loans - Bankcard 43 49 60 58 67
Installment loans - other and vehicle leasing 67 65 63 53 52
- ----------------------------------------------------------------------------------------------------------------------------------
Total 214 198 211 218 190
- ----------------------------------------------------------------------------------------------------------------------------------
LOAN RECOVERIES
Commercial, financial and agricultural 12 13 25 9 7
Real estate - commercial construction and mortgage 2 1 3 3 -
Real estate - residential mortgage 2 - - - -
Installment loans - Bankcard 3 4 2 6 4
Installment loans - other and vehicle leasing 15 16 15 13 23
- ----------------------------------------------------------------------------------------------------------------------------------
Total 34 34 45 31 34
- ----------------------------------------------------------------------------------------------------------------------------------
Loan losses, net $ 180 164 166 187 156
- ----------------------------------------------------------------------------------------------------------------------------------
as % of average loans, net (a) 0.53 % 0.49 0.50 0.55 0.47
- ----------------------------------------------------------------------------------------------------------------------------------
as % of average loans, net, excluding Bankcard (a) 0.43 % 0.36 0.33 0.41 0.29
- ----------------------------------------------------------------------------------------------------------------------------------
NONPERFORMING ASSETS
Nonaccrual loans
Commercial loans (b) $ 427 434 362 294 368
Commercial real estate loans 69 74 67 121 141
Consumer real estate loans 166 181 184 181 190
Installment loans 181 152 128 108 94
- ----------------------------------------------------------------------------------------------------------------------------------
Total nonaccrual loans 843 841 741 704 793
Restructured loans and foreclosed properties (c) 97 109 103 121 116
- ----------------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $ 940 950 844 825 909
- ----------------------------------------------------------------------------------------------------------------------------------
as % of loans, net, and foreclosed properties 0.70 % 0.71 0.62 0.61 0.66
- ----------------------------------------------------------------------------------------------------------------------------------
Accruing loans past due 90 days $ 333 344 385 279 248
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Annualized.
(b) 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 $37 million.
(c) Restructured loans do not exceed $2 million for any period presented.
T-13
<PAGE>
<TABLE>
<CAPTION>
Table 8
INTANGIBLE ASSETS
- ------------------------------------------------------------------------------------------------------------------------------
1999 1998
------------------------- --------------------------------------
SECOND FIRST FOURTH THIRD SECOND
(IN MILLIONS) QUARTER QUARTER QUARTER QUARTER QUARTER
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OTHER INTANGIBLE ASSETS
Goodwill $ 4,336 4,354 4,376 4,410 4,439
Deposit base premium 309 335 360 392 421
Other 289 294 300 303 309
- ------------------------------------------------------------------------------------------------------------------------------
Total $ 4,934 4,983 5,036 5,105 5,169
- ------------------------------------------------------------------------------------------------------------------------------
MORTGAGE AND OTHER SERVICING ASSETS $ 744 700 637 554 511
- ------------------------------------------------------------------------------------------------------------------------------
CREDIT CARD PREMIUM $ 10 12 14 16 19
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Table 9
DEPOSITS
- -------------------------------------------------------------------------------------------------------------------------------
1999 1998
------------------------- -------------------------------------
SECOND FIRST FOURTH THIRD SECOND
(IN MILLIONS) QUARTER QUARTER QUARTER QUARTER QUARTER
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CORE DEPOSITS
Noninterest-bearing $ 31,703 31,757 35,614 30,504 33,169
Savings and NOW accounts 37,354 38,131 38,649 33,344 33,938
Money market accounts (a) 20,109 20,006 20,822 23,489 23,106
Other consumer time 33,192 34,339 35,809 36,805 38,053
- -------------------------------------------------------------------------------------------------------------------------------
Total core deposits 122,358 124,233 130,894 124,142 128,266
Foreign (a) 5,591 4,850 5,427 4,226 4,295
Other time 5,654 5,141 6,146 6,160 6,037
- -------------------------------------------------------------------------------------------------------------------------------
Total deposits $ 133,603 134,224 142,467 134,528 138,598
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Table 10
TIME DEPOSITS IN AMOUNTS OF $100,000 OR MORE
- ---------------------------------------------------------------------------------------------------------------------------------
JUNE 30, 1999
----------------
(IN MILLIONS) TIME CERTIFICATES
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
MATURITY OF
3 months or less $ 4,782
Over 3 months through 6 months 1,982
Over 6 months through 12 months 2,383
Over 12 months 1,925
- ---------------------------------------------------------------------------------------------------------------------------------
Total $ 11,072
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
T-14
<PAGE>
<TABLE>
<CAPTION>
Table 11
LONG-TERM DEBT
- ---------------------------------------------------------------------------------------------------------------------------------
1999 1998
------------------------ -----------------------------------
SECOND FIRST FOURTH THIRD SECOND
(IN MILLIONS) QUARTER QUARTER QUARTER QUARTER QUARTER
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NOTES AND DEBENTURES ISSUED BY THE
PARENT COMPANY
Notes
Floating rate extendible, due June 15, 2005 $ 10 10 10 10 10
6-5/8%, due June 15, 2004 398 - - - -
6.60%, due June 15, 2000 250 250 250 249 249
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 298 298 297 297 297
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 249 249 249 249 248
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 150 149 149 149 149
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% - 250 250 250 250
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 4,855 4,706 4,705 4,704 4,703
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(CONTINUED)
T-15
<PAGE>
<TABLE>
<CAPTION>
Table 11
LONG-TERM DEBT
- -----------------------------------------------------------------------------------------------------------------------------------
1999 1998
SECOND FIRST FOURTH THIRD SECOND
(IN MILLIONS) QUARTER QUARTER QUARTER QUARTER QUARTER
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NOTES ISSUED BY SUBSIDIARIES
Notes
9-3/4% senior - - - - 118
Medium-term, varying rates and terms to September 15, 2006 17,903 12,695 10,775 7,206 3,026
Varying rates and terms to January 26, 2004 18 26 33 42 82
Senior notes from acquired companies, varying
rate and terms to April 15, 2004 569 569 569 569 1,059
Subordinated notes
Bank, varying rates and terms to December 15, 2036 1,200 1,200 1,200 650 650
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 150 150 150 150 150
9-5/8% - 100 100 100 100
Subordinated capital notes
9-5/8% - 75 75 75 75
9-7/8% - 75 75 75 75
- -----------------------------------------------------------------------------------------------------------------------------------
Total notes issued by subsidiaries 21,314 16,364 14,451 10,341 6,809
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER DEBT
Trust preferred securities 1,730 1,736 1,736 1,736 1,735
Advances from the Federal Home Loan Bank 1,387 987 986 1,186 1,685
4.556% auto securitization financing, due September 30, 2008 1,022 1,021 1,023 759 -
Mortgage notes and other debt of subsidiaries,
varying rates and terms 7 7 8 9 10
Capitalized leases 35 37 40 41 43
- -----------------------------------------------------------------------------------------------------------------------------------
Total other debt 4,181 3,788 3,793 3,731 3,473
- -----------------------------------------------------------------------------------------------------------------------------------
Total $ 30,350 24,858 22,949 18,776 14,985
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
T-16
<PAGE>
<TABLE>
<CAPTION>
Table 12
CHANGES IN STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
TWELVE 1999 1998
MONTHS ------------------------- --------------------------------
ENDED
JUNE 30, SECOND FIRST FOURTH THIRD SECOND
(IN MILLIONS) 1999 QUARTER QUARTER QUARTER QUARTER QUARTER
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, beginning of period $ 16,526 16,231 17,173 17,370 16,526 15,806
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income
Net income 3,431 873 706 857 995 249
Net unrealized gain (loss) on debt and
equity securities (683) (341) (415) (149) 222 44
- ------------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income 2,748 532 291 708 1,217 293
Purchase of common stock (2,325) (854) (854) (617) - (1,908)
Common stock issued for
Stock options and restricted stock 448 268 49 108 23 380
Dividend reinvestment plan 82 21 22 19 20 15
Acquisitions - - - - - 2,291
Cash dividends paid (1,732) (451) (450) (415) (416) (351)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, end of period $ 15,747 15,747 16,231 17,173 17,370 16,526
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
T-17
<PAGE>
<TABLE>
<CAPTION>
Table 13
CAPITAL RATIOS
- ------------------------------------------------------------------------------------------------------------------------------
1999 1998
------------------------- --------------------------------------
SECOND FIRST FOURTH THIRD SECOND
(IN MILLIONS) QUARTER QUARTER QUARTER QUARTER QUARTER
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED CAPITAL RATIOS (a)
Qualifying capital
Tier 1 capital $ 13,071 13,186 13,603 13,610 12,854
Total capital 20,999 21,288 21,794 21,401 20,731
Adjusted risk-weighted assets 196,654 187,679 196,033 182,105 182,643
Adjusted leverage ratio assets $ 219,629 219,904 225,830 224,189 213,866
Ratios
Tier 1 capital 6.65 % 7.03 6.94 7.47 7.04
Total capital 10.68 11.34 11.12 11.75 11.35
Leverage 5.95 6.00 6.02 6.07 6.01
STOCKHOLDERS' EQUITY TO ASSETS
Quarter-end 6.85 7.28 7.23 7.40 7.22
Average 7.19 % 7.26 7.42 7.32 6.80
- ------------------------------------------------------------------------------------------------------------------------------
BANK CAPITAL RATIOS
Tier 1 capital
First Union National Bank 7.13 % 7.33 7.48 7.49 7.16
First Union Bank of Delaware 9.41 13.11 11.44 16.11 50.55
First Union Home Equity Bank 12.73 13.41 11.91 13.51 12.27
Total capital
First Union National Bank 10.17 10.28 10.38 10.38 10.06
First Union Bank of Delaware 10.98 14.62 12.82 16.56 50.97
First Union Home Equity Bank 14.88 15.51 13.82 15.78 14.48
Leverage
First Union National Bank 6.72 6.63 6.69 6.35 6.23
First Union Bank of Delaware 6.25 8.18 6.96 18.90 23.87
First Union Home Equity Bank 10.29 % 10.53 10.86 11.22 10.75
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(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
<PAGE>
<TABLE>
<CAPTION>
Table 14
UNREALIZED GAINS (LOSSES) IN CERTAIN FINANCIAL INSTRUMENTS
- ----------------------------------------------------------------------------------------------------------------------------------
1999 1998
--------------------- --------------------------------------
SECOND FIRST FOURTH THIRD SECOND
(IN MILLIONS) QUARTER QUARTER QUARTER QUARTER QUARTER
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SECURITIES PORTFOLIOS (a)
Securities available for sale $ (528) (2) 636 867 518
Investment securities 83 122 137 144 136
- ----------------------------------------------------------------------------------------------------------------------------------
Net unrealized gains (losses) - securities portfolios (445) 120 773 1,011 654
Less unrealized gains (losses) in securities considered
an economic hedge of mortgage servicing rights (45) (9) 14 52 27
- ----------------------------------------------------------------------------------------------------------------------------------
Net unrealized gains (losses) - securities portfolios (400) 129 759 959 627
- ----------------------------------------------------------------------------------------------------------------------------------
OFF-BALANCE SHEET DERIVATIVE FINANCIAL
INSTRUMENTS (a)
Asset rate conversions (152) 151 390 618 242
Liability rate conversions 273 386 472 609 323
Rate sensitivity hedges (6) (22) (23) (24) (12)
- ----------------------------------------------------------------------------------------------------------------------------------
Net unrealized gains (losses) - off-balance sheet
derivative financial instruments 115 515 839 1,203 553
Less unrealized gains (losses) in interest rate swaps
designated as offsets to fixed rate debt 8 266 472 609 320
- ----------------------------------------------------------------------------------------------------------------------------------
Net unrealized gains (losses) - off-balance sheet
derivative financial instruments 107 249 367 594 233
- ----------------------------------------------------------------------------------------------------------------------------------
Net unrealized gains (losses) $ (293) 378 1,126 1,553 860
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(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.
T-19
<PAGE>
<TABLE>
<CAPTION>
Table 15
SECURITIES AVAILABLE FOR SALE
- ------------------------------------------------------------------------------------------------------------------------------------
JUNE 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
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury $ 9 1 1,719 552 2,281 - 60 2,341 13.20
U.S. Government agencies 74 1,036 21,460 1,649 24,219 12 675 24,882 8.42
Asset-backed 361 10,814 4,759 11 15,945 436 312 15,821 4.79
State, county and municipal - 1 40 121 162 1 - 161 19.31
Sundry 156 613 481 1,802 3,052 122 52 2,982 7.87
- -----------------------------------------------------------------------------------------------------------------------
Total $ 600 12,465 28,459 4,135 45,659 571 1,099 46,187 7.41
- ------------------------------------------------------------------------------------------------------------------------------------
MARKET VALUE
Debt securities $ 600 12,465 28,459 2,925 44,449 460 1,087 45,076
Equity securities - - - 1,210 1,210 111 12 1,111
- -----------------------------------------------------------------------------------------------------------------------
Total $ 600 12,465 28,459 4,135 45,659 571 1,099 46,187
- -----------------------------------------------------------------------------------------------------------------------
AMORTIZED COST
Debt securities $ 576 12,153 29,307 3,040 45,076
Equity securities - - - 1,111 1,111
- ----------------------------------------------------------------------------------------
Total $ 576 12,153 29,307 4,151 46,187
- ----------------------------------------------------------------------------------------
WEIGHTED AVERAGE
YIELD
U.S. Treasury 6.28 % 4.96 5.76 5.90 5.80
U.S. Government agencies 6.00 6.60 6.42 6.39 6.43
Asset-backed 8.93 8.79 6.78 9.17 8.16
State, county and municipal - 7.21 6.56 7.08 6.96
Sundry 6.28 7.01 7.19 4.86 5.76
Consolidated 7.80 % 8.51 6.46 5.71 6.95
- ----------------------------------------------------------------------------------------
</TABLE>
Included in "Asset-backed" are interest-only and residual certificates with a
market value of $1.5 billion; gross unrealized gains and losses of $49 million
and $85 million, respectively; and an amortized cost of $1.6 billion.
Included in "U.S. Government agencies" and "Sundry" are $849 million of
securities denominated in currencies other than the U.S. dollar. These
securities had a weighted average maturity of 5.15 years and a weighted average
yield of 5.96 percent. For comparative purposes, the weighted average U.S.
dollar equivalent yield of these securities was 7.97 percent based on a weighted
average funding cost differential of (2.01) 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 June 30, 1999, there were forward commitments to purchase securities at a
cost which approximates market value of $19 million, and commitments to sell
securities at a cost of $3 million and a market value of $15 million.
Gross gains and losses realized on the sale of debt securities for the six
months ended June 30, 1999, were $65 million and $41 million, respectively, and
gross gains and losses realized on equity securities were $94 million and $5
million, respectively.
T-20
<PAGE>
<TABLE>
<CAPTION>
Table 16
INVESTMENT SECURITIES
- ------------------------------------------------------------------------------------------------------------------------------------
JUNE 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
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury $ 8 - 1 - 9 - - 9 1.17
U.S. Government agencies 20 440 570 2 1,032 13 14 1,031 4.67
CMOs 48 18 - - 66 1 - 67 1.03
State, county and municipal 104 151 226 230 711 84 - 795 7.32
Sundry 24 25 2 2 53 - 1 52 1.96
- ---------------------------------------------------------------------------------------------------------------------
Total $ 204 634 799 234 1,871 98 15 1,954 5.46
- ------------------------------------------------------------------------------------------------------------------------------------
MARKET VALUE
Debt securities $ 207 651 824 272 1,954
- -----------------------------------------------------------------------------
WEIGHTED AVERAGE
YIELD
U.S. Treasury 4.65% - 4.77 - 4.65
U.S. Government agencies 6.80 6.79 6.41 10.73 6.58
CMOs 7.71 10.75 - - 8.54
State, county and municipal 10.07 9.89 11.57 12.05 11.15
Sundry 7.22 6.94 6.95 5.72 7.01
Consolidated 8.64% 7.64 7.87 11.98 8.39
- -----------------------------------------------------------------------------
</TABLE>
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 June
30, 1999.
There were no gains or losses realized on repurchase agreement
underdeliveries and calls of investment securities for the six months ended June
30, 1999.
T-21
<PAGE>
<TABLE>
<CAPTION>
Table 17
OFF-BALANCE SHEET DERIVATIVE FINANCIAL INSTRUMENTS (a)
- ------------------------------------------------------------------------------------------------------------------------------------
WEIGHTED
AVERAGE RATE(B) ESTIMATED
----------------------- ----------------------
MATURITY
JUNE 30, 1999 NOTIONAL IN FAIR
(IN MILLIONS) AMOUNT RECEIVE PAY YEARS(C) VALUE(D) COMMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
ASSET RATE
CONVERSIONS
<S> <C> <C> <C> <C> <C> <C>
Interest rate swaps $ 18,293 6.42 % 5.07% 1.80 $17.0 billion converts
Carrying amount $ 52 floating rate loans to
Unrealized gross gain 157 fixed rate. Adds to
Unrealized gross loss (65) liability sensitivity.
$1.3 billion converts
fixed rate available for
---------- sale securities to
Total 144 floating rate.
----------
Interest rate collars 6,000 - - 9.22 Converts floating rate
Carrying amount 118 loans to fixed rate when
Unrealized gross gain - LIBOR is below 6.00
Unrealized gross loss (240) percent (purchased floor)
---------- or above 7.00 percent
Total (122) (sold cap).
----------
Interest rate floors 364 - - 0.92 Converts floating rate
Carrying amount 3 loans to fixed rate when
Unrealized gross gain - LIBOR is below 6.60
Unrealized gross loss - percent.
----------
Total 3
----------
Long eurodollar futures 1,633 - - 0.25 Locks in reset rates on
Carrying amount - floating rate loans. $833
Unrealized gross gain - million effective March
Unrealized gross loss - 2000; $495 million, June
2000; $115 million,
September and December
2000; $15 million, March,
June, September and
December 2001; and $15
million March 2002.
----------
Total -
----------
Collar on eurodollar futures 1,667 - - 0.46 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 422 - - 6.20 Includes interest rate
Carrying amount 5 caps and purchased
Unrealized gross gain - options on forward swaps
Unrealized gross loss (4) that convert fixed rate
assets to floating rate
with a weighted average
---------- strike rate of 7.76
Total 1 percent.
- ------------------------------------------------- ----------
Total asset rate
conversions $ 28,379 - - 3.26 $ 26
- ------------------------------------------------------------------------------------------------
LIABILITY RATE
CONVERSIONS
Interest rate swaps $ 22,483 6.63 % 6.03 % 7.52 Converts $6.9 billion of
Carrying amount $ 32 fixed rate long-term
Unrealized gross gain 377 debt, $1.5 billion of
Unrealized gross loss (173) fixed rate bank notes and
$620 million of fixed
rate CDs to variable
rate. Converts $13.5
billion of floating rate
---------- liabilities to fixed
Total 236 rate.
----------
Interest rate collars 6,000 - - 2.00 Converts floating rate
Carrying amount 9 deposits to fixed rate
Unrealized gross gain 52 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 61
- ----------------------------------- ----------
(CONTINUED)
</TABLE>
T-22
<PAGE>
<TABLE>
<CAPTION>
Table 17
OFF-BALANCE SHEET DERIVATIVE FINANCIAL INSTRUMENTS (a)
- ------------------------------------------------------------------------------------------------------------------------------------
WEIGHTED
AVERAGE RATE(B) ESTIMATED
----------------------- ----------------------
MATURITY
JUNE 30, 1999 NOTIONAL IN FAIR
(IN MILLIONS) AMOUNT RECEIVE PAY YEARS(C) VALUE(D) COMMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITY RATE
CONVERSIONS
(CONTINUED)
<S> <C>
Interest rate caps $ 5,000 - - 1.00 Converts floating rate
Carrying amount $ 19 deposits to fixed rate
Unrealized gross gain 18 when LIBOR is above 5.44
Unrealized gross loss - percent.
----------
Total 37
----------
Other derivatives 170 - - 4.08 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 $ 33,653 - - 5.55 $ 334
- ------------------------------------------------------------------------------------------------
RATE SENSITIVITY
HEDGES
Basis swaps $ 783 5.02 % 5.46 % 3.61 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 -
----------
Interest rate caps 12,119 - - 0.83 $9.9 billion locks in
Carrying amount 25 reset rates on pay
Unrealized gross gain - variable swaps under
Unrealized gross loss (13) asset and 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 and liability
Total 12 rate conversions.
----------
Short eurodollar futures 8,166 - - 0.25 Locks in LIBOR reset
Carrying amount - rates on pay variable
Unrealized gross gain 8 swaps under asset or
Unrealized gross loss - liability rate
conversions. $3.9 billion
effective September 1999;
---------- and $4.3 billion,
Total 8 December 1999.
----------
Collar on eurodollar futures 4,333 - - 0.46 Purchased call options
Carrying amount - and written put options
Unrealized gross gain - on eurodollar futures
Unrealized gross loss (1) that offset the December
1999 short eurodollar
---------- futures contracts.
Total (1)
- ------------------------------------------------- ----------
Total rate sensitivity
hedges $ 25,401 - - 0.67 $ 19
- ------------------------------------------------------------------------------------------------
(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 June 30, 1999.
(c) Estimated maturity approximates average life.
(d) Carrying amount includes accrued interest receivable or payable and unamortized premiums paid or received.
</TABLE>
T-23
<PAGE>
<TABLE>
<CAPTION>
Table 18
OFF-BALANCE SHEET DERIVATIVES - EXPECTED MATURITIES (a)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
JUNE 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 $ 11,728 3,059 2,719 481 306 18,293
Notional amount - other $ 3,295 260 269 6,262 - 10,086
Weighted average receive rate (b) 6.63% 6.01 6.04 5.82 6.92 6.42
Estimated fair value $ 94 35 10 (120) 7 26
- ----------------------------------------------------------------------------------------------------------------------------
LIABILITY RATE CONVERSIONS
Notional amount - swaps $ 1,001 458 1,950 11,419 7,655 22,483
Notional amount - other $ - 5,000 6,170 - - 11,170
Weighted average receive rate (b) 6.86% 6.51 6.60 6.62 6.23 6.63
Estimated fair value $ 5 45 97 259 (72) 334
- ----------------------------------------------------------------------------------------------------------------------------
RATE SENSITIVITY HEDGES
Notional amount - swaps $ 77 82 442 182 - 783
Notional amount - other $ 22,375 - 2,243 - - 24,618
Weighted average receive rate (b) 5.02% 5.02 5.02 5.02 - 5.02
Estimated fair value $ 7 - 12 - - 19
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(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.
<PAGE>
<TABLE>
<CAPTION>
Table 19
OFF-BALANCE SHEET DERIVATIVES ACTIVITY (a)
- -------------------------------------------------------------------------------------------------------------------------
ASSET LIABILITY RATE
RATE RATE SENSITIVITY
(IN MILLIONS) CONVERSIONS CONVERSIONS HEDGES TOTAL
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1998 $ 25,908 9,068 14,454 49,430
Additions 3,159 25,450 25,372 53,981
Maturities/Amortizations (2,075) (865) (8,916) (11,856)
Terminations/Redesignations 1,387 - (5,509) (4,122)
- -------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1999 $ 28,379 33,653 25,401 87,433
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes only off-balance sheet derivative financial instruments related to
interest rate risk management activities.
T-24
<PAGE>
<TABLE>
<CAPTION>
FIRST UNION CORPORATION
NET INTEREST INCOME SUMMARIES
- --------------------------------------------------------------------------------------------------------------------------------
SECOND QUARTER 1999 FIRST QUARTER 1999
----------------------------------- -----------------------------------
AVERAGE AVERAGE
INTEREST RATES INTEREST RATES
AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/
(IN MILLIONS) BALANCES EXPENSE PAID BALANCES EXPENSE PAID
- ---------------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing bank balances $ 574 7 4.27 % $ 1,322 17 5.42 %
Federal funds sold and securities
purchased under resale agreements 7,989 93 4.68 11,332 123 4.40
Trading account assets (a) 9,141 139 6.09 7,984 118 5.97
Securities available for sale (a) 38,996 646 6.63 38,074 628 6.60
Investment securities (a)
U.S. Government and other 1,192 19 6.50 1,240 22 6.97
State, county and municipal 719 19 10.59 735 19 10.55
- ------------------------------------------------------------------------------ -----------------------
Total investment securities 1,911 38 8.03 1,975 41 8.30
- ------------------------------------------------------------------------------ -----------------------
Loans (a) (b)
Commercial
Commercial, financial and agricultural 52,714 1,013 7.71 53,418 996 7.55
Real estate - construction and other 2,668 50 7.44 2,613 49 7.61
Real estate - mortgage 8,446 159 7.56 8,532 167 7.94
Lease financing 4,956 161 13.03 4,792 150 12.49
Foreign 4,223 65 6.17 4,393 64 5.94
- ------------------------------------------------------------------------------ ----------------------
Total commercial 73,007 1,448 7.95 73,748 1,426 7.83
- ------------------------------------------------------------------------------ ----------------------
Retail
Real estate - mortgage 23,680 414 6.98 21,774 394 7.25
Installment loans - Bankcard (c) 2,620 89 13.73 2,650 88 13.22
Installment loans - other and vehicle leasing 36,017 783 8.71 35,736 768 8.67
- ------------------------------------------------------------------------------ -----------------------
Total retail 62,317 1,286 8.26 60,160 1,250 8.36
- ------------------------------------------------------------------------------ -----------------------
Total loans 135,324 2,734 8.10 133,908 2,676 8.06
- ------------------------------------------------------------------------------ -----------------------
Total earning assets 193,935 3,657 7.55 194,595 3,603 7.46
----------------------- ---------------------
Cash and due from banks 9,544 10,134
Other assets 20,898 19,958
- ------------------------------------------------------------------- -----------
Total assets $ 224,377 $ 224,687
- ------------------------------------------------------------------- -----------
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest-bearing deposits
Savings and NOW accounts 37,839 242 2.57 37,953 244 2.60
Money market accounts (d) 20,131 153 3.06 20,422 157 3.11
Other consumer time 33,500 421 5.04 35,114 448 5.18
Foreign (d) 5,167 58 4.46 5,243 60 4.71
Other time 5,293 80 6.05 5,534 83 6.04
- ------------------------------------------------------------------------------ -----------------------
Total interest-bearing deposits 101,930 954 3.75 104,266 992 3.86
Federal funds purchased and securities
sold under repurchase agreements 28,688 332 4.64 26,782 309 4.68
Commercial paper 2,087 23 4.42 1,982 23 4.73
Other short-term borrowings 8,117 101 4.98 11,280 135 4.86
Long-term debt 27,129 369 5.44 23,968 333 5.55
- ------------------------------------------------------------------------------ -----------------------
Total interest-bearing liabilities 167,951 1,779 4.24 168,278 1,792 4.31
----------------------- ---------------------
Noninterest-bearing deposits 31,862 31,996
Other liabilities 8,442 8,108
Stockholders' equity 16,122 16,305
- ------------------------------------------------------------------- -----------
Total liabilities and stockholders' equity $ 224,377 $ 224,687
- ------------------------------------------------------------------- -----------
Interest income and rate earned $ 3,657 7.55 % $ 3,603 7.46 %
Interest expense and equivalent rate paid 1,779 3.67 1,792 3.72
----------------------- ---------------------
Net interest income and margin $ 1,878 3.88 % $ 1,811 3.74 %
- ------------------------------------------------------------------------------------------- ---------------------
</TABLE>
(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
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
FOURTH QUARTER 1998 THIRD QUARTER 1998 SECOND 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
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 1,749 25 5.72 % $ 1,752 25 5.76 % $ 2,872 43 5.88 %
13,558 157 4.62 14,331 189 5.19 11,842 151 5.18
10,596 189 7.05 10,235 167 6.50 7,655 109 5.76
38,287 625 6.52 36,677 609 6.64 35,593 589 6.61
1,290 24 7.35 1,366 25 7.26 1,866 32 6.89
765 20 10.40 812 21 10.40 907 23 10.04
------------------------ ------------------------- -------------------------
2,055 44 8.48 2,178 46 8.43 2,773 55 7.92
------------------------ ------------------------- -------------------------
52,473 996 7.53 50,049 984 7.80 49,717 991 7.99
2,756 56 8.04 2,921 62 8.50 3,001 63 8.49
8,745 181 8.21 9,523 210 8.75 9,988 212 8.52
4,590 134 11.74 4,563 131 11.48 4,407 124 11.22
4,797 77 6.37 4,257 75 7.02 4,123 69 6.69
------------------------ ------------------------- -------------------------
73,361 1,444 7.82 71,313 1,462 8.14 71,236 1,459 8.21
------------------------ ------------------------- -------------------------
24,561 454 7.38 26,072 488 7.48 26,300 495 7.54
2,708 92 13.52 3,957 156 15.80 3,931 149 15.14
33,844 769 9.04 33,708 780 9.20 30,679 704 9.19
------------------------ ------------------------- -------------------------
61,113 1,315 8.57 63,737 1,424 8.91 60,910 1,348 8.86
------------------------ ------------------------- -------------------------
134,474 2,759 8.16 135,050 2,886 8.50 132,146 2,807 8.51
------------------------ ------------------------- -------------------------
200,719 3,799 7.53 200,223 3,922 7.80 192,881 3,754 7.80
----------------------- ------------------------ ------------------------
9,491 8,780 9,282
20,515 20,120 16,777
----------- ------------ ------------
$ 230,725 $ 229,123 $ 218,940
----------- ------------ ------------
36,101 246 2.71 33,874 229 2.68 34,358 226 2.64
21,992 185 3.32 23,594 201 3.38 23,391 196 3.35
36,341 487 5.31 37,501 506 5.36 37,927 505 5.35
5,221 66 5.06 4,797 68 5.57 3,737 49 5.35
6,205 90 5.79 6,068 93 6.05 6,596 110 6.67
------------------------ ------------------------- -------------------------
105,860 1,074 4.03 105,834 1,097 4.11 106,009 1,086 4.11
31,340 385 4.87 35,902 473 5.23 34,775 445 5.13
2,071 25 4.77 1,742 24 5.44 2,066 27 5.33
13,128 174 5.26 14,642 201 5.47 9,273 121 5.21
20,944 312 5.96 16,070 253 6.24 14,344 243 6.77
------------------------ ------------------------- -------------------------
173,343 1,970 4.52 174,190 2,048 4.65 166,467 1,922 4.63
----------------------- ------------------------ ------------------------
31,600 30,380 31,032
8,673 7,787 6,560
17,109 16,766 14,881
----------- ------------ ------------
$ 230,725 $ 229,123 $ 218,940
----------- ------------ ------------
$ 3,799 7.53 % $ 3,922 7.80 % $ 3,754 7.80 %
1,970 3.90 2,048 4.06 1,922 4.00
----------------------- ------------------------ ------------------------
$ 1,829 3.63 % $ 1,874 3.74 % $ 1,832 3.80 %
----------------------- ------------------------ ------------------------
</TABLE>
(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 each of the four quarters ended March 31,
1999, have been restated to conform to amounts presented in the second quarter
of 1999.
T-26
<PAGE>
<TABLE>
<CAPTION>
FIRST UNION CORPORATION
NET INTEREST INCOME SUMMARIES
- ------------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED 1999 SIX MONTHS ENDED 1998
----------------------------------- ------------------------------------
AVERAGE AVERAGE
INTEREST RATES INTEREST RATES
AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/
(IN MILLIONS) BALANCES EXPENSE PAID BALANCES EXPENSE PAID
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing bank balances $ 946 24 5.07 % $ 2,921 84 5.77 %
Federal funds sold and securities
purchased under resale agreements 9,651 216 4.52 10,791 280 5.26
Trading account assets (a) 8,566 257 6.03 6,750 199 5.95
Securities available for sale (a) 38,537 1,274 6.61 32,835 1,088 6.64
Investment securities (a)
U.S. Government and other 1,216 41 6.74 2,134 72 6.78
State, county and municipal 727 38 10.57 946 47 9.88
- -------------------------------------------------------------------------------- ----------------------
Total investment securities 1,943 79 8.17 3,080 119 7.73
- -------------------------------------------------------------------------------- ----------------------
Loans (a) (b)
Commercial
Commercial, financial and agricultural 53,064 2,009 7.63 48,880 1,946 8.03
Real estate - construction and other 2,640 99 7.52 2,987 127 8.56
Real estate - mortgage 8,489 326 7.75 10,200 430 8.51
Lease financing 4,874 311 12.77 4,328 237 10.94
Foreign 4,308 129 6.05 4,064 135 6.69
- -------------------------------------------------------------------------------- ----------------------
Total commercial 73,375 2,874 7.89 70,459 2,875 8.22
- -------------------------------------------------------------------------------- ----------------------
Retail
Real estate - mortgage 22,732 808 7.11 26,924 1,026 7.63
Installment loans - Bankcard (c) 2,635 177 13.47 3,941 318 16.12
Installment loans - other and vehicle leasing 35,878 1,551 8.69 30,358 1,395 9.25
- -------------------------------------------------------------------------------- ----------------------
Total retail 61,245 2,536 8.31 61,223 2,739 8.98
- -------------------------------------------------------------------------------- ----------------------
Total loans 134,620 5,410 8.08 131,682 5,614 8.57
- -------------------------------------------------------------------------------- ----------------------
Total earning assets 194,263 7,260 7.51 188,059 7,384 7.89
------------------- ------------------
Cash and due from banks 9,837 9,129
Other assets 20,431 17,709
- ----------------------------------------------------------------- ----------
Total assets $ 224,531 $ 214,897
- ----------------------------------------------------------------- ----------
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest-bearing deposits
Savings and NOW accounts 37,896 486 2.59 34,845 462 2.67
Money market accounts (d) 20,276 310 3.08 22,690 369 3.28
Other consumer time 34,302 869 5.11 37,666 994 5.32
Foreign (d) 5,205 118 4.59 3,841 104 5.48
Other time 5,413 163 6.04 6,551 216 6.65
- -------------------------------------------------------------------------------- ----------------------
Total interest-bearing deposits 103,092 1,946 3.81 105,593 2,145 4.10
Federal funds purchased and securities
sold under repurchase agreements 27,741 641 4.66 32,612 818 5.06
Commercial paper 2,034 46 4.57 2,003 53 5.38
Other short-term borrowings 9,690 236 4.91 8,287 220 5.33
Long-term debt 25,557 702 5.49 13,991 457 6.53
- -------------------------------------------------------------------------------- ----------------------
Total interest-bearing liabilities 168,114 3,571 4.28 162,486 3,693 4.58
------------------- ------------------
Noninterest-bearing deposits 31,929 30,222
Other liabilities 8,275 6,866
Stockholders' equity 16,213 15,323
- ----------------------------------------------------------------- ----------
Total liabilities and stockholders' equity $ 224,531 $ 214,897
- ----------------------------------------------------------------- ----------
Interest income and rate earned $ 7,260 7.51 % $ 7,384 7.89 %
Interest expense and equivalent rate paid 3,571 3.70 3,693 3.95
- ----------------------------------------------------------------------------------------- -----------------------
Net interest income and margin $ 3,689 3.81 % $ 3,691 3.94 %
- ----------------------------------------------------------------------------------------- -----------------------
</TABLE>
(a) Yields related to securities and loans exempt from federal and state income
taxes are stated on a fully tax-equivalent basis. They are reduced by the
nondeductible portion of interest expense, assuming a federal tax rate of 35
percent and applicable state tax rates. Lease financing amounts include related
deferred income taxes. (b) The loan averages are stated net of unearned income,
and the averages include loans on which the accrual of interest has been
discontinued.
T-27
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
YEAR ENDED 1998 NINE MONTHS ENDED 1998
------------------ ----------------------
AVERAGE AVERAGE
INTEREST RATES INTEREST RATES
AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/
BALANCES EXPENSE PAID BALANCES EXPENSE PAID
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 2,331 134 5.76% $ 2,527 109 5.76%
12,381 626 5.06 11,984 469 5.23
8,598 555 6.46 7,925 366 6.19
35,177 2,322 6.60 34,129 1,697 6.63
1,727 121 6.99 1,875 97 6.90
867 88 10.12 901 68 10.04
---------------------- ----------------------
2,594 209 8.04 2,776 165 7.92
---------------------- ----------------------
50,080 3,926 7.84 49,274 2,930 7.95
2,912 245 8.42 2,964 189 8.54
9,663 821 8.50 9,972 640 8.58
4,454 502 11.28 4,408 368 11.12
4,297 287 6.68 4,129 210 6.80
---------------------- ----------------------
71,406 5,781 8.10 70,747 4,337 8.19
---------------------- ----------------------
26,114 1,968 7.54 26,637 1,514 7.58
3,634 566 15.56 3,946 474 16.01
32,081 2,944 9.18 31,487 2,175 9.23
---------------------- ----------------------
61,829 5,478 8.86 62,070 4,163 8.95
---------------------- ----------------------
133,235 11,259 8.45 132,817 8,500 8.55
---------------------- ----------------------
194,316 15,105 7.77 192,158 11,306 7.86
---------------------- ------------------
9,132 9,012
19,024 18,521
------- -------
$ 222,472 $ 219,691
------- -------
34,917 937 2.68 34,518 691 2.68
22,742 755 3.32 22,994 570 3.31
37,291 1,987 5.33 37,611 1,500 5.33
4,429 238 5.38 4,163 172 5.52
6,342 399 6.29 6,388 309 6.46
---------------------- ----------------------
105,721 4,316 4.08 105,674 3,242 4.10
33,121 1,676 5.06 33,721 1,291 5.12
1,954 102 5.23 1,915 77 5.40
11,109 595 5.36 10,428 421 5.40
16,268 1,022 6.28 14,692 710 6.44
---------------------- ----------------------
168,173 7,711 4.59 166,430 5,741 4.61
---------------------- ------------------
30,609 30,275
7,553 7,176
16,137 15,810
------- -------
$ 222,472 $ 219,691
------- -------
$ 15,105 7.77% $ 11,306 7.86%
7,711 3.96 5,741 4.00
---------------------- --------------------
$ 7,394 3.81% $ 5,565 3.86%
---------------------- --------------------
</TABLE>
(c) Installment loans - Bankcard include credit card, ICR, signature and First
Choice. (d) Amounts presented for the six months, year and nine months ended
1998, have been restated to conform to amounts presented for the six months
ended 1999.
T-28
<PAGE>
<TABLE>
<CAPTION>
FIRST UNION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- ----------------------------------------------------------------------------------------------------------------------------------
1999 1998
-------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C>
SECOND FIRST FOURTH THIRD SECOND
(IN MILLIONS, EXCEPT PER SHARE DATA) QUARTER QUARTER QUARTER QUARTER QUARTER
- ----------------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 8,143 9,968 11,192 9,491 9,708
Interest-bearing bank balances 335 699 2,916 1,872 2,139
Federal funds sold and securities
purchased under resale agreements 8,373 8,988 14,529 15,090 11,753
- ----------------------------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 16,851 19,655 28,637 26,453 23,600
- ----------------------------------------------------------------------------------------------------------------------------------
Trading account assets 12,244 10,280 9,759 12,123 9,774
Securities available for sale 45,659 39,417 37,434 38,052 36,798
Investment securities 1,871 2,006 2,025 2,121 2,229
Loans, net of unearned income 133,579 133,416 135,383 135,689 137,390
Allowance for loan losses (1,785) (1,826) (1,826) (1,882) (1,870)
- ----------------------------------------------------------------------------------------------------------------------------------
Loans, net 131,794 131,590 133,557 133,807 135,520
- ----------------------------------------------------------------------------------------------------------------------------------
Premises and equipment 5,080 5,098 5,067 5,079 5,088
Due from customers on acceptances 883 769 1,268 1,026 1,091
Other intangible assets 4,934 4,983 5,036 5,105 5,169
Other assets 10,595 9,157 14,580 10,814 9,727
- ----------------------------------------------------------------------------------------------------------------------------------
Total assets $ 229,911 222,955 237,363 234,580 228,996
- ----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing deposits 31,703 31,757 35,614 30,504 33,169
Interest-bearing deposits 101,900 102,467 106,853 104,024 105,429
- ----------------------------------------------------------------------------------------------------------------------------------
Total deposits 133,603 134,224 142,467 134,528 138,598
Short-term borrowings 39,262 37,377 41,438 51,807 48,897
Bank acceptances outstanding 883 769 1,281 1,037 1,106
Other liabilities 10,066 9,496 12,055 11,062 8,884
Long-term debt 30,350 24,858 22,949 18,776 14,985
- ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 214,164 206,724 220,190 217,210 212,470
- ----------------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred stock - - - - -
Common stock, $3.33-1/3 par value;
authorized 2 billion shares 3,188 3,227 3,274 3,301 3,294
Paid-in capital 5,103 4,906 4,305 4,226 4,190
Retained earnings 7,805 8,106 9,187 9,287 8,708
Accumulated other comprehensive income, net (349) (8) 407 556 334
- ----------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 15,747 16,231 17,173 17,370 16,526
- ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 229,911 222,955 237,363 234,580 228,996
- ----------------------------------------------------------------------------------------------------------------------------------
MEMORANDA
Securities available for sale - amortized cost $ 46,187 39,419 36,798 37,185 36,280
Investment securities - market value $ 1,954 2,128 2,162 2,265 2,365
Shares outstanding (In thousands) 956,286 968,139 982,223 990,373 988,150
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
T-29
<PAGE>
<TABLE>
<CAPTION>
FIRST UNION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
- ---------------------------------------------------------------------------------------------------------------------------
1999 1998
-------------------------- --------------------------------------
SECOND FIRST FOURTH THIRD SECOND
(IN MILLIONS, EXCEPT PER SHARE DATA) QUARTER QUARTER QUARTER QUARTER QUARTER
- ---------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
<S> <C> <C> <C> <C> <C>
Interest and fees on loans $ 2,714 2,656 2,741 2,869 2,794
Interest and dividends on securities available for sale 641 624 621 604 583
Interest and dividends on investment securities 32 35 38 39 48
Trading account interest 137 117 186 165 108
Other interest income 100 140 182 214 194
- ---------------------------------------------------------------------------------------------------------------------------
Total interest income 3,624 3,572 3,768 3,891 3,727
- ---------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits 954 992 1,074 1,097 1,086
Interest on short-term borrowings 456 467 584 698 593
Interest on long-term debt 369 333 312 253 243
- ---------------------------------------------------------------------------------------------------------------------------
Total interest expense 1,779 1,792 1,970 2,048 1,922
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income 1,845 1,780 1,798 1,843 1,805
Provision for loan losses 180 164 167 239 150
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 1,665 1,616 1,631 1,604 1,655
- ---------------------------------------------------------------------------------------------------------------------------
FEE AND OTHER INCOME
Capital markets
Trading account profit (loss) 103 112 93 (73) 69
Securities transactions - equity investments 37 52 - 17 83
Investment banking 115 205 140 74 120
Other capital markets income 108 114 109 134 108
- ---------------------------------------------------------------------------------------------------------------------------
Total capital markets 363 483 342 152 380
Capital management 520 499 474 454 448
Residential mortgage 118 195 172 183 145
Service charges on deposit accounts 277 287 290 275 273
Fees for other banking services 87 90 86 94 105
Securities transactions - portfolio (1) 25 98 211 25
Securitization 149 71 120 93 18
Sundry (a) 193 300 160 351 137
- ---------------------------------------------------------------------------------------------------------------------------
Total fee and other income 1,706 1,950 1,742 1,813 1,531
- ---------------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Salaries and employee benefits 1,130 1,184 1,180 1,042 1,044
Occupancy 130 142 135 150 139
Equipment 182 203 194 174 172
Advertising 64 61 68 69 49
Communications and supplies 117 123 136 127 110
Professional and consulting fees 83 66 91 67 63
Other intangible amortization 95 96 98 99 76
Merger-related and restructuring charges - 398 205 24 954
Sundry expense 252 236 380 170 202
- ---------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 2,053 2,509 2,487 1,922 2,809
- ---------------------------------------------------------------------------------------------------------------------------
Income before income taxes 1,318 1,057 886 1,495 377
Income taxes (b) 445 351 29 500 128
- ---------------------------------------------------------------------------------------------------------------------------
Net income $ 873 706 857 995 249
- ---------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
Basic earnings $ 0.92 0.73 0.87 1.02 0.27
Diluted earnings 0.90 0.73 0.87 1.01 0.26
Cash dividends $ 0.47 0.47 0.42 0.42 0.37
AVERAGE SHARES (IN THOUSANDS)
Basic 954,548 959,833 980,006 981,659 949,750
Diluted 961,793 968,626 990,890 993,208 962,160
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(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-30
<PAGE>
<TABLE>
<CAPTION>
FIRST UNION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
- -------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30,
-------------------------
(IN MILLIONS, EXCEPT PER SHARE DATA) 1999 1998
- -------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
<S> <C> <C>
Interest and fees on loans $ 5,370 5,586
Interest and dividends on securities available for sale 1,265 1,079
Interest and dividends on investment securities 67 105
Trading account interest 254 195
Other interest income 240 364
- -------------------------------------------------------------------------------------------------------------------------
Total interest income 7,196 7,329
- -------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits 1,946 2,145
Interest on short-term borrowings 923 1,091
Interest on long-term debt 702 457
- -------------------------------------------------------------------------------------------------------------------------
Total interest expense 3,571 3,693
- -------------------------------------------------------------------------------------------------------------------------
Net interest income 3,625 3,636
Provision for loan losses 344 285
- -------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 3,281 3,351
- -------------------------------------------------------------------------------------------------------------------------
FEE AND OTHER INCOME
Capital markets
Trading account profits 215 104
Securities transactions - equity investments 89 83
Investment banking 320 244
Other capital markets income 222 231
- -------------------------------------------------------------------------------------------------------------------------
Total capital markets 846 662
Capital management 1,019 877
Residential mortgage 313 178
Service charges on deposit accounts 564 546
Fees for other banking services 177 196
Securities transactions - portfolio 24 48
Securitization 220 35
Sundry (a) 493 338
- -------------------------------------------------------------------------------------------------------------------------
Total fee and other income 3,656 2,880
- -------------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Salaries and employee benefits 2,314 2,028
Occupancy 272 276
Equipment 385 355
Advertising 125 86
Communications and supplies 240 217
Professional and consulting fees 149 153
Other intangible amortization 191 151
Merger-related and restructuring charges 398 983
Sundry expense 488 398
- -------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 4,562 4,647
- -------------------------------------------------------------------------------------------------------------------------
Income before income taxes 2,375 1,584
Income taxes 796 545
- -------------------------------------------------------------------------------------------------------------------------
Net income $ 1,579 1,039
- -------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
Basic earnings $ 1.65 1.09
Diluted earnings 1.63 1.07
Cash dividends $ 0.94 0.74
AVERAGE SHARES (IN THOUSANDS)
Basic 957,191 957,430
Diluted 964,963 969,180
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The first six 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-31
<PAGE>
<TABLE>
<CAPTION>
FIRST UNION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30,
------------------------
(IN MILLIONS) 1999 1998
- --------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 1,579 1,039
Adjustments to reconcile net income to net cash provided (used) by operating activities
Accretion and amortization of securities discounts and premiums, net 204 86
Provision for loan losses 344 285
Securitization gains (220) 35
Gain on sale of mortgage servicing rights (38) (4)
Securities available for sale transactions (113) (127)
Investment securities transactions - (4)
Depreciation and amortization 489 497
Trading account assets, net (3,983) (2,607)
Mortgage loans held for resale 861 (1,107)
Gain on sales of premises and equipment (3) (6)
Other assets, net 4,450 3,090
Other liabilities, net (1,989) 543
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,581 1,720
- --------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Increase (decrease) in cash realized from
Sales of securities available for sale 15,839 7,013
Maturities of securities available for sale 2,563 2,419
Purchases of securities available for sale (18,758) (22,559)
Calls and underdeliveries of investment securities - 387
Maturities of investment securities 284 1,111
Purchases of investment securities (134) (197)
Origination of loans, net (6,839) (2,238)
Sales of premises and equipment 122 93
Purchases of premises and equipment (440) (497)
Other intangible assets, net (89) (110)
Purchase of bank-owned separate account life insurance (27) (56)
Cash equivalents acquired, net of purchases of banking organizations - 366
- --------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (7,479) (14,268)
- --------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase (decrease) in cash realized from
Purchases (sales) of deposits, net (8,864) 1,270
Securities sold under repurchase agreements and other short-term borrowings, net (2,176) 14,984
Issuances of long-term debt 9,310 2,535
Payments of long-term debt (1,909) (2,159)
Sales of common stock 360 762
Purchases of common stock (1,708) (2,439)
Cash dividends paid (901) (693)
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (5,888) 14,260
- --------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (11,786) 1,712
Cash and cash equivalents, beginning of year 28,637 21,888
- --------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 16,851 23,600
- --------------------------------------------------------------------------------------------------------------------------
NONCASH ITEMS
Increase in securities available for sale and a decrease in trading accounts $ 1,498 -
Increase in securities available for sale and a decrease in loans 7,622 -
Increase in foreclosed properties and a decrease in loans 5 2
Issuance of common stock for purchase accounting acquisitions $ - 2,540
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
T-32
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 8,143
<INT-BEARING-DEPOSITS> 335
<FED-FUNDS-SOLD> 8,373
<TRADING-ASSETS> 12,244
<INVESTMENTS-HELD-FOR-SALE> 45,659
<INVESTMENTS-CARRYING> 1,871
<INVESTMENTS-MARKET> 1,954
<LOANS> 137,774
<ALLOWANCE> (1,785)
<TOTAL-ASSETS> 229,911
<DEPOSITS> 133,603
<SHORT-TERM> 39,262
<LIABILITIES-OTHER> 10,066
<LONG-TERM> 30,350
0
0
<COMMON> 3,188
<OTHER-SE> 12,559
<TOTAL-LIABILITIES-AND-EQUITY> 229,911
<INTEREST-LOAN> 5,370
<INTEREST-INVEST> 1,332
<INTEREST-OTHER> 240
<INTEREST-TOTAL> 7,196
<INTEREST-DEPOSIT> 1,946
<INTEREST-EXPENSE> 3,571
<INTEREST-INCOME-NET> 3,625
<LOAN-LOSSES> 344
<SECURITIES-GAINS> 113
<EXPENSE-OTHER> 4,562
<INCOME-PRETAX> 2,375
<INCOME-PRE-EXTRAORDINARY> 2,375
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,579
<EPS-BASIC> 1.65
<EPS-DILUTED> 1.63
<YIELD-ACTUAL> 3.81
<LOANS-NON> 843
<LOANS-PAST> 333
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,826
<CHARGE-OFFS> 412
<RECOVERIES> 68
<ALLOWANCE-CLOSE> 1,785
<ALLOWANCE-DOMESTIC> 1,162
<ALLOWANCE-FOREIGN> 18
<ALLOWANCE-UNALLOCATED> 605
</TABLE>
<TABLE>
<CAPTION>
BUSINESS SEGMENTS EXHIBIT (99)
- ------------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31, 1999
---------------------------------------------------------------------
REAL COMMERCIAL
INVESTMENT ESTATE TRADITIONAL LEASING &
(IN MILLIONS) BANKING FINANCE BANKING RAIL INTERNATIONAL TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CAPITAL MARKETS
Income statement data
Net interest income $ 31 13 161 63 45 313
Provision for loan losses 2 -- 47 -- -- 49
Trading account profits 89 23 -- -- -- 112
Fee and other income 269 (12) 19 44 51 371
Noninterest expense 180 33 53 27 55 348
Income tax expense 78 (22) 31 25 16 128
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 129 13 49 55 25 271
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity (a) 61.38% 22.27 7.85 117.38 17.21 25.08
Average loans, net $2,898 2,002 21,025 5,035 4,978 35,938
Average deposits 2,678 709 3,633 22 5,502 12,544
Average attributed stockholders'
equity $ 853 229 2,524 191 599 4,396
- ------------------------------------------------------------------------------------------------------------------------------------
RETAIL
PRIVATE BROKERAGE &
MUTUAL CLIENT CAP INSURANCE
(IN MILLIONS) TRUST FUNDS BANKING ACCOUNT SERVICES OTHER TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL MANAGEMENT
Income statement data
Net interest income $ 15 1 43 45 16 -- 120
Provision for loan losses -- -- 1 -- -- -- 1
Fee and other income 163 106 4 26 222 (22) 499
Noninterest expense 116 60 25 31 201 -- 433
Income tax expense 23 18 7 16 14 (8) 70
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 39 29 14 24 23 (14) 115
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity (a) 64.98 % 50.13 22.40 68.85 30.15 -- 43.88
Average loans, net $ 182 -- 3,540 -- 1,512 -- 5,234
Average deposits 2,167 -- 3,046 14,165 -- -- 19,378
Average attributed stockholders'
equity $ 239 152 245 144 314 (29) 1,065
- ------------------------------------------------------------------------------------------------------------------------------------
HOME
EQUITY &
FIRST THE RETAIL
UNION MONEY CARD BRANCH
(IN MILLIONS) MORTGAGE STORE PRODUCTS PRODUCTS TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER
Income statement data
Net interest income $ 23 124 60 681 888
Provision for loan losses -- 10 46 40 96
Fee and other income 108 84 57 288 537
Noninterest expense 79 157 64 619 919
Income tax expense 20 16 2 119 157
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 32 25 5 191 253
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity (a) 72.25% 7.59 4.28 31.98 23.33
Average loans, net $2,026 12,164 2,598 39,590 56,378
Average deposits 1,340 2 10 72,310 73,662
Average attributed stockholders'
equity $ 177 1,344 446 2,423 4,390
- ------------------------------------------------------------------------------------------------------------------------------------
(CONTINUED)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BUSINESS SEGMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31, 1999
----------------------------------------------------------------------------------------
SMALL REAL CASH MGT. &
BUSINESS ESTATE DEPOSIT
(IN MILLIONS) BANKING LENDING BANKING SERVICES TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COMMERCIAL
Income statement data
Net interest income $ 22 95 48 252 417
Provision for loan losses 1 12 6 -- 19
Fee and other income -- -- -- 133 133
Noninterest expense 11 76 19 203 309
Income tax expense 4 (5) 9 69 77
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 6 12 14 113 145
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity (a) 13.24% 3.39 9.64 58.91 19.92
Average loans, net $ 2,896 23,043 8,387 -- 34,326
Average deposits -- -- -- 26,922 26,922
Average attributed stockholders'
equity $ 190 1,400 575 776 2,941
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL CAPITAL TREASURY/
(IN MILLIONS) MARKETS MGT. CONSUMER COMMERCIAL NONBANK TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED
Income statement data
Net interest income $ 313 120 888 417 42 1,780
Provision for loan losses 49 1 96 19 (1) 164
Trading account profits 112 -- -- -- -- 112
Fee and other income 371 499 537 133 298 1,838
Noninterest expense 348 433 919 309 500 2,509
Income tax expense 128 70 157 77 (81) 351
- ------------------------------------------------------------------------------------------------------------------------------------
Net income after
merger-related and
restructuring charges 271 115 253 145 (78) 706
After-tax merger-related and
restructuring charges -- -- -- -- 259 259
- ------------------------------------------------------------------------------------------------------------------------------------
Net income before
merger-related and
restructuring charges $ 271 115 253 145 181 965
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity (a) 25.08 % 43.88 23.33 19.92 20.90 24.30
Average loans, net $ 35,938 5,234 56,378 34,326 2,032 133,908
Average deposits 12,544 19,378 73,662 26,922 3,756 136,262
Average attributed stockholders'
equity $ 4,396 1,065 4,390 2,941 3,513 16,305
- ------------------------------------------------------------------------------------------------------------------------------------
(CONTINUED)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BUSINESS SEGMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED DECEMBER 31, 1998
-------------------------------------------------------------------------
REAL COMMERCIAL
INVESTMENT ESTATE TRADITIONAL LEASING &
(IN MILLIONS) BANKING FINANCE BANKING RAIL INTERNATIONAL TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CAPITAL MARKETS
Income statement data
Net interest income $ 49 21 157 31 57 315
Provision for loan losses (5) -- 26 2 10 33
Trading account profits 67 26 -- -- -- 93
Fee and other income 135 -- 17 48 49 249
Noninterest expense 170 40 50 28 50 338
Income tax expense 32 (8) 37 13 17 91
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 54 15 61 36 29 195
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity (a) 6.65 % 15.42 9.99 91.60 17.98 17.47
Average loans, net $ 2,956 2,017 20,356 4,743 5,166 35,238
Average deposits 2,729 734 3,993 22 5,926 13,404
Average attributed stockholders'
equity $ 809 389 2,409 153 642 4,402
- ------------------------------------------------------------------------------------------------------------------------------------
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 43 8 -- 107
Provision for loan losses -- -- 1 -- -- -- 1
Fee and other income 160 108 3 23 201 (21) 474
Noninterest expense 104 54 23 30 184 -- 395
Income tax expense 27 21 8 14 9 (8) 71
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 42 34 13 22 16 (13) 114
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity (a) 76.38% 65.55 19.65 70.60 22.01 -- 45.13
Average loans, net $ 107 -- 3,698 -- 1,481 -- 5,286
Average deposits 2,406 -- 2,971 13,126 -- -- 18,503
Average attributed stockholders'
equity $ 223 152 254 126 270 (27) 998
- ------------------------------------------------------------------------------------------------------------------------------------
HOME
EQUITY &
FIRST THE RETAIL
UNION MONEY CARD BRANCH
(IN MILLIONS) MORTGAGE STORE PRODUCTS PRODUCTS TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER
Income statement data
Net interest income $ 26 119 56 707 908
Provision for loan losses -- 3 59 44 106
Fee and other income 94 26 90 337 547
Noninterest expense 84 172 69 650 975
Income tax expense 14 (11) 7 134 144
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 22 (19) 11 216 230
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity (a) 53.06% (5.47) 10.43 33.85 20.59
Average loans, net $2,511 9,202 2,636 43,510 57,859
Average deposits 1,407 65 9 73,780 75,261
Average attributed stockholders'
equity $ 168 1,327 439 2,534 4,468
- ------------------------------------------------------------------------------------------------------------------------------------
(CONTINUED)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BUSINESS SEGMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED DECEMBER 31, 1998
----------------------------------------------------------------------------------------
SMALL REAL CASH MGT. &
BUSINESS ESTATE DEPOSIT
(IN MILLIONS) BANKING LENDING BANKING SERVICES TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
COMMERCIAL
Income statement data
Net interest income $ 23 99 51 262 435
Provision for loan losses 1 19 6 -- 26
Fee and other income -- -- -- 129 129
Noninterest expense 11 79 19 211 320
Income tax expense 4 (6) 10 69 77
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 7 7 16 111 141
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity (a) 14.49% 2.26 10.39 59.15 19.40
Average loans, net $ 2,791 23,130 8,651 -- 34,572
Average deposits -- -- -- 27,760 27,760
Average attributed stockholders'
equity $ 180 1,359 606 746 2,891
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL CAPITAL TREASURY/
(IN MILLIONS) MARKETS MGT. CONSUMER COMMERCIAL NONBANK TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED
Income statement data
Net interest income $ 315 107 908 435 33 1,798
Provision for loan losses 33 1 106 26 1 167
Trading account profits 93 -- -- -- -- 93
Fee and other income 249 474 547 129 250 1,649
Noninterest expense 338 395 975 320 459 2,487
Income tax expense 91 71 144 77 (354) 29
- ------------------------------------------------------------------------------------------------------------------------------------
Net income after
merger-related and
restructuring charges 195 114 230 141 177 857
After-tax merger-related and
restructuring charges -- -- -- -- 136 136
- ------------------------------------------------------------------------------------------------------------------------------------
Net income before
merger-related and
restructuring charges $ 195 114 230 141 313 993
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity (a) 17.47 % 45.13 20.59 19.40 28.55 22.59
Average loans, net $ 35,238 5,286 57,859 34,572 1,519 134,474
Average deposits 13,404 18,503 75,261 27,760 2,532 137,460
Average attributed stockholders'
equity $ 4,402 998 4,468 2,891 4,350 17,109
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Average attributed stockholders' equity excludes merger-related and
restructuring charges and 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.
(CONTINUED)
<PAGE>
<TABLE>
<CAPTION>
BUSINESS SEGMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, 1998
----------------------------------------------------------------------------------------
REAL COMMERCIAL
INVESTMENT ESTATE TRADITIONAL LEASING &
(IN MILLIONS) BANKING FINANCE BANKING RAIL INTERNATIONAL TOTAL
- ----------------------------------------------- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CAPITAL MARKETS
Income statement data
Net interest income $ 20 18 152 35 53 278
Provision for loan losses -- (1) 62 -- -- 61
Trading account profits 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 CARD BRANCH
(IN MILLIONS) MORTGAGE STORE PRODUCTS 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)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BUSINESS SEGMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, 1998
----------------------------------------------------------------------------------------
SMALL REAL CASH MGT. &
BUSINESS ESTATE DEPOSIT
(IN MILLIONS) BANKING LENDING BANKING SERVICES TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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 (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 23.50
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)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BUSINESS SEGMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31, 1998
------------------------------------------------------------------------
REAL COMMERCIAL
INVESTMENT ESTATE TRADITIONAL LEASING &
(IN MILLIONS) BANKING FINANCE BANKING RAIL INTERNATIONAL TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CAPITAL MARKETS
Income statement data
Net interest income $ 27 17 160 19 27 250
Provision for loan losses -- -- 6 1 1 8
Trading account profits 33 2 -- -- -- 35
Fee and other income 134 (3) 8 50 58 247
Noninterest expense 109 24 46 34 46 259
Income tax expense 30 (14) 45 10 15 86
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 55 6 71 24 23 179
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity (a) 5.31 % 7.75 15.10 66.50 19.42 19.60
Average loans, net $2,208 1,829 17,906 4,244 4,167 30,354
Average deposits 1,586 590 3,573 21 3,560 9,330
Average attributed stockholders'
equity $ 892 277 1,942 150 501 3,762
- ------------------------------------------------------------------------------------------------------------------------------------
RETAIL
PRIVATE BROKERAGE &
MUTUAL CLIENT CAP INSURANCE
(IN MILLIONS) TRUST FUNDS BANKING ACCOUNT SERVICES OTHER TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL MANAGEMENT
Income statement data
Net interest income $ 15 -- 38 35 12 -- 100
Provision for loan losses -- -- 1 -- -- -- 1
Fee and other income 140 96 2 17 194 (20) 429
Noninterest expense 109 54 21 25 168 -- 377
Income tax expense 17 16 7 10 14 (8) 56
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 29 26 11 17 24 (12) 95
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity (a) 52.41% 50.08 19.35 70.55 35.66 -- 40.87
Average loans, net $ 127 -- 3,375 -- 739 -- 4,241
Average deposits 2,356 -- 2,517 10,880 -- -- 15,753
Average attributed stockholders'
equity $ 217 135 232 97 264 (27) 918
- ------------------------------------------------------------------------------------------------------------------------------------
FIRST RETAIL
UNION HOME CARD BRANCH
(IN MILLIONS) MORTGAGE EQUITY PRODUCTS PRODUCTS TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER
Income statement data
Net interest income $ 19 38 94 719 870
Provision for loan losses 1 2 53 47 103
Fee and other income 53 9 69 226 357
Noninterest expense 70 27 59 596 752
Income tax expense -- 7 20 115 142
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 1 11 31 187 230
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity (a) 2.32 % 25.54 28.89 28.72 27.59
Average loans, net $1,901 5,057 3,884 46,970 57,812
Average deposits 1,109 -- 15 77,873 78,997
Average attributed stockholders'
equity $ 125 184 444 2,624 3,377
- ------------------------------------------------------------------------------------------------------------------------------------
(CONTINUED)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BUSINESS SEGMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31, 1998
----------------------------------------------------------------------------------------
SMALL REAL CASH MGT. &
BUSINESS ESTATE DEPOSIT
(IN MILLIONS) BANKING LENDING BANKING SERVICES TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COMMERCIAL
Income statement data
Net interest income $ 21 123 55 229 428
Provision for loan losses 1 16 2 -- 19
Fee and other income -- -- -- 129 129
Noninterest expense 10 83 16 201 310
Income tax expense 4 6 14 60 84
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 6 18 23 97 144
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity (a) 16.29% 4.77 14.34 58.59 19.72
Average loans, net $2,532 25,261 9,530 -- 37,323
Average deposits -- -- -- 24,302 24,302
Average attributed stockholders'
equity $ 162 1,462 658 667 2,949
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL CAPITAL TREASURY/
(IN MILLIONS) MARKETS MGT. CONSUMER COMMERCIAL NONBANK TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED
Income statement data
Net interest income $ 250 100 870 428 183 1,831
Provision for loan losses 8 1 103 19 4 135
Trading account profits 35 -- -- -- -- 35
Fee and other income 247 429 357 129 180 1,342
Noninterest expense 259 377 752 310 168 1,866
Income tax expense 86 56 142 84 49 417
- ------------------------------------------------------------------------------------------------------------------------------------
Net income after
merger-related and
restructuring charges 179 95 230 144 142 790
After-tax merger-related and
restructuring charges -- -- -- -- 19 19
- ------------------------------------------------------------------------------------------------------------------------------------
Net income before
merger-related and
restructuring charges $ 179 95 230 144 161 809
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity (a) 19.60 % 40.87 27.59 19.72 13.70 21.22
Average loans, net $ 30,354 4,241 57,812 37,323 1,304 131,034
Average deposits 9,330 15,753 78,997 24,302 6,134 134,516
Average attributed stockholders'
equity $ 3,762 918 3,377 2,949 4,765 15,771
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Average attributed stockholders' equity excludes merger-related and
restructuring charges and 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.
