<PAGE> 1
MANAGEMENT'S ANALYSIS OF OPERATIONS
FIRST UNION
CORPORATION
AND SUBSIDIARIES
MANAGEMENT'S ANALYSIS
OF OPERATIONS
QUARTERLY FINANCIAL SUPPLEMENT
SIX MONTHS ENDED JUNE 30, 2000
SECOND QUARTER 2000
DIVIDEND GROWTH
Current dividend
annualized
(In dollars)
(A line chart appears here. See the table for plot points.)
<TABLE>
0.145 0.155 0.165 0.18 0.20 0.225 0.245 0.29 0.325 0.385 0.43 0.50 0.54 0.56 0.64 0.75 0.86 0.98 1.10 1.22 1.58 1.88 1.92
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 Current
</TABLE>
<PAGE> 2
FIRST UNION CORPORATION AND SUBSIDIARIES
QUARTERLY FINANCIAL SUPPLEMENT
SIX MONTHS ENDED JUNE 30, 2000
TABLE OF CONTENTS
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PAGE
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Financial Highlights 1
Management's Analysis of Operations 2
Consolidated Summaries of Income, Per Share, Balance Sheet and Other Data T-1
Restructuring Charges T-2
Business Segments T-3
Fee and Other Income - Capital Markets T-11
Selected Performance, Dividend Payout and Other Ratios T-12
Loans - On-Balance Sheet, and Managed and Servicing Portfolios T-13
Allowance for Loan Losses and Nonperforming Assets T-14
Intangible Assets T-15
Deposits T-16
Time Deposits in Amounts of $100,000 or More T-17
Long-Term Debt T-18
Changes in Stockholders' Equity T-19
Capital Ratios T-20
Unrealized Losses in Certain Financial Instruments T-21
Securities Available for Sale T-22
Investment Securities T-23
Off-Balance Sheet Derivative Financial Instruments T-24
Off-Balance Sheet Derivatives - Expected Maturities T-25
Off-Balance Sheet Derivatives Activity T-26
Net Interest Income Summaries - Five Quarters Ended June 30, 2000 T-27
Net Interest Income Summaries - Six Months Ended June 30, 2000 and 1999 T-29
Consolidated Balance Sheets T-30
Consolidated Statements of Income (Loss) - Five Quarters Ended June 30, 2000 T-31
Consolidated Statements of Income (Loss) - Six Months Ended June 30, 2000 and 1999 T-32
Consolidated Statements of Cash Flows T-33
Supplemental Financial Information (Operating Earnings) S-1
Consolidated Condensed Statement of Income (Loss) S-2
Restructuring and Other Charges S-2
Consolidated Statements of Income - Five Quarters Ended June 30, 2000 S-3
Consolidated Statements of Income - Six Months Ended June 30, 2000 and 1999 S-4
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FINANCIAL HIGHLIGHTS
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Three Months Ended Six Months Ended
June 30, 2 Q 00 June 30, 6 M 00
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vs vs
(Dollars in millions, except per share data) 2000 1999 2 Q 99 2000 1999 6 M 99
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FINANCIAL HIGHLIGHTS
Net income before restructuring
and other charges (Operating earnings) $ 714 873 (18)% $ 1,552 1,838 (16)%
After-tax restructuring and other charges 2,913 -- -- 2,911 259 --
-------------------------------------------------------------------------- ----------------------
Net income (loss) after restructuring
and other charges $ (2,199) 873 --% $ (1,359) 1,579 --%
=============================================================================================================================
PER SHARE DATA
Diluted earnings
Net income before restructuring
and other charges $ 0.73 0.90 (19)% $ 1.58 1.90 (17)%
Net income (loss) after restructuring
and other charges (2.27) 0.90 -- (1.41) 1.63 --
Basic earnings
Net income before restructuring
and other charges 0.73 0.92 (21) 1.59 1.92 (17)
Net income (loss) after restructuring
and other charges (2.27) 0.92 -- (1.41) 1.65 --
Cash dividends 0.48 0.47 2 0.96 0.94 2
Book value 14.14 15.99 (12) 14.14 15.99 (12)
Period-end price $ 25.00 47.125 (47) $ 25.00 47.125 (47)
Dividend payout ratio
(Based on operating earnings) 65.75% 52.22 -- 60.76% 49.47 --
Average shares (In thousands)
Diluted 981,940 961,793 2 983,147 964,963 2
Basic 969,707 954,548 2 970,940 957,191 1
Actual shares (In thousands) 986,394 956,286 3% 986,394 956,286 3%
=============================================================================================================================
PERFORMANCE HIGHLIGHTS
Before restructuring and other charges
Return on average assets (a) 1.13% 1.56 -- 1.24% 1.65 --
Return on average stockholders' equity (a) 17.74 21.94 -- 19.04 23.13 --
Overhead efficiency ratio (b) 64.36 57.28 -- 63.31 56.69 --
Net charge-offs as a percentage of
average loans, net (a) 0.69 0.55 -- 0.63 0.53 --
Nonperforming assets to loans, net, and
foreclosed properties 0.69 0.73 -- 0.69 0.73 --
Net interest margin (a) 3.51% 3.88 -- 3.60% 3.81 --
=============================================================================================================================
CASH EARNINGS (Excluding goodwill
and other intangible amortization)
Before restructuring and other charges
Net income $ 807 953 (15)% $ 1,739 1,999 (13)%
Diluted earnings per share $ 0.82 0.99 (17) $ 1.77 2.07 (14)
Return on average tangible assets (a) 1.30% 1.74 -- 1.42% 1.84 --
Return on average tangible stockholders'
equity (a) 30.18 34.71 -- 32.13 36.48 --
Overhead efficiency ratio (b) 61.64% 54.63 --% 60.62% 54.09 --%
=============================================================================================================================
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(a) Annualized.
(b) The overhead efficiency ratio is equal to noninterest expense divided by
the sum of tax-equivalent net interest income and fee and other income.
1
<PAGE> 4
The following discussion and other portions of this Financial Supplement
contain various forward-looking statements. Please refer to our 1999 Annual
Report on Form 10-K and 2000 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 2000 were $1.6
billion, or $1.58 per share, before restructuring and other charges of $2.9
billion after tax, or $2.99. These charges were announced on June 26, 2000, in
conjunction with the corporation's strategic repositioning, which is a series of
actions designed to intensify our focus on core growth businesses. After these
charges, our reported results were a net loss of $1.4 billion, or $1.41. In the
first six months of 1999, operating earnings were $1.8 billion, or $1.90, before
merger-related and restructuring charges. Included in these earnings was 20
cents of nonrecurring gains 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. After merger-related and restructuring charges of $259
million after tax, or 27 cents, net income in the first six months of 1999 was
$1.6 billion, or $1.63. The Restructuring and Other Charges section has further
information.
Second quarter 2000 operating earnings were $714 million, or 73 cents per
share, before restructuring and other charges of $3.00. After these charges, our
reported second quarter results were a net loss of $2.2 billion, or $2.27.
Second quarter 1999 operating earnings were $873 million, or 90 cents.
Restructuring and other charges had no impact on earnings per share in the
second quarter a year ago. These 1999 earnings included an 8 cent per share
after-tax gain on the sale of the factoring assets.
The first half of 2000 included the impact of the purchase accounting
acquisition of EVEREN Capital Corporation, a full-service brokerage and asset
management firm acquired on October 1, 1999.
On an operating basis, fee and other income was $3.6 billion in the first
six months of 2000 and in the first six months of 1999, excluding portfolio
securities transactions and restructuring and other charges associated with the
strategic repositioning. Fee income generated by Capital Markets and Capital
Management increased 42 percent to $2.6 billion in the first six months of 2000
compared with $1.9 billion in the first six months of 1999. These results
include approximately $411 million in brokerage and other fee income from
EVEREN. Offsetting this strong growth was a 33 percent decline in the Consumer
segment resulting from the impact of the rising interest rate environment on
mortgage and credit card lending, a reduction in securitization activity and
nonrecurring gains recorded in 1999. On an operating basis, fee income as a
percentage of total revenue, excluding portfolio securities transactions, was 48
percent in the first six months of 2000 and 50 percent in the first six months
of 1999.
Noninterest expense, excluding restructuring and other charges associated
with the strategic repositioning, amounted to $4.8 billion in the first six
months of 2000 compared with $4.2 billion in the first six months of 1999.
Expenses in the first six months of 2000 include EVEREN as well as higher
personnel expense, largely reflecting increased staffing and training in the
retail financial centers, as well as increased incentive compensation in Capital
Management and Capital Markets.
The loan loss provision was $685 million in the first six months of 2000
compared with $344 million in the first six months of 1999. In the second
quarter of 2000, we recorded a $265 million supplemental provision to reflect
the current risk profile of the loan portfolio. Annualized net charge-offs in
the first six months of 2000 were 0.63 percent of average net loans, compared
with 0.53 percent in the year-ago period. Nonperforming assets as a percentage
of net loans and foreclosed properties were 0.69 percent at June 30, 2000,
compared with 0.73 percent at June 30, 1999.
2
<PAGE> 5
OUTLOOK In a news release and investor presentation on June 26, 2000, we
announced a strategic repositioning that resulted from a comprehensive review of
our business lines. Senior management and the Board of Directors decided to exit
non-core lines of business that do not meet our strategic or financial
performance criteria or where we do not have the scale to compete effectively.
As a result of this repositioning, we believe that First Union is more sharply
focused on high-growth businesses.
As part of this repositioning, we chose to cease subprime mortgage lending
at The Money Store. This decision was based on continued deterioration in credit
quality and reduced growth prospects associated with The Money Store subprime
business. While we had made progress in improving credit underwriting and
risk-adjusted pricing and in reducing expenses, our strategic review led us to
conclude that the returns would not be sufficient to warrant continued
allocation of capital to this business.
Also in connection with the strategic repositioning, we announced plans to
sell our $38 billion residential mortgage servicing portfolio, $5.5 billion
credit card business, 80 to 90 nonstrategic branch office locations,
approximately $13 billion to $15 billion of securities, approximately $450
million in nonperforming loans and approximately $400 million in poorly
performing loans. As of June 30, 2000, all loans slated for disposition had been
reclassified to other assets, and marketing efforts were under way. As part of
the sale of nonstrategic branches, on July 31, 2000, we announced that Firstar
Corporation of Milwaukee, Wisconsin, had signed a definitive agreement to
purchase all 41 First Union branch office locations in Tennessee. We are in the
latter stages of negotiations with multiple buyers for the other major sales.
In connection with the disposition of these non-core businesses and assets
and other actions that are part of the strategic repositioning, we recorded
restructuring and other charges of $2.9 billion after tax in the second quarter
of 2000. Of the total charges, $1.8 billion represents a noncash write-off of
The Money Store goodwill and other identified intangibles. As announced on June
26, we anticipate additional restructuring and other charges of approximately
$1.0 billion after tax associated with the strategic repositioning actions
described above. We currently anticipate these restructuring and other charges
will be largely offset by gains of an estimated $1.0 billion after tax from the
sale of the non-core businesses and assets.
We are now intently focused on generating core earnings growth from three
key business lines - Capital Management, Capital Markets and the General Bank.
Capital Management's broad and deep product line, including asset management,
mutual funds, brokerage, insurance, trust, CAP Account, employee benefit plans
and other products and services, is ideally positioned to benefit from key
demographic trends, such as the huge generational transference of wealth that is
under way. Capital Management also benefits by leveraging the General Bank's
broad distribution system, as well as by making First Union products and
services available through its own nationwide brokerage network. The General
Bank, while a more mature business with long-term relationships in commercial,
small business and consumer lending and deposit activities, is emerging from the
issues that arose from the introduction of the Future Bank retail delivery model
and has been energized through new leadership. Capital Markets, which primarily
targets middle market and growth companies in specific industry groups, is
leveraging a combination of corporate banking, investment banking, principal
investing and private equity relationships to provide more focused service. With
this strong platform in place, we believe we are solidly positioned to focus on
our strengths and on growing our core business lines.
We recognize the significance of the comprehensive actions planned in
connection with our strategic repositioning, and we have analyzed the related
risks and their potential impact on the corporation. We are taking appropriate
steps, including dedicating the necessary resources and developing operational
plans to facilitate the smooth disposition of the assets and businesses.
3
<PAGE> 6
Market risk related to assets held for sale is an area receiving
significant attention. The assets held for sale have been recorded at the lower
of cost or market value at June 30, 2000, and we have developed marketing plans
to sell these assets in an orderly manner. The valuations of the assets held for
sale and the impact of discontinuing the subprime mortgage lending business at
The Money Store on the valuation of certain securities, specifically residual
interests from The Money Store securitizations, were made based on our best
estimates given information currently available. We have utilized prudent and
conservative assumptions in these valuations; however, changes in market
conditions and the illiquid nature of some of the markets may cause the ultimate
proceeds to differ from our June 30, 2000, estimates.
There are also business risks associated with the sale of the credit card
and mortgage servicing businesses, principally in connection with the
decommissioning of systems and processes and the transition to agency
relationships in our product offerings.
We will continue to evaluate our operations and organizational structures
to ensure they are closely aligned with our goal of maximizing performance in
our core business lines. When consistent with our overall business strategy, we
may consider the disposition of certain assets, branches, subsidiaries or lines
of business. While acquisitions are no longer a primary business activity, we
continue to routinely explore acquisition opportunities, particularly in areas
that would complement our core business lines, and frequently conduct due
diligence activities in connection with possible acquisitions. As a result,
acquisition discussions and, in some cases, negotiations frequently take place
and future acquisitions involving cash, debt or equity securities can be
expected.
CORPORATE RESULTS OF OPERATIONS
RESTRUCTURING AND OTHER CHARGES
As shown on page S-2, we reported $3.7 billion pretax of restructuring and
other charges in connection with the strategic repositioning. Our operating
earnings of $2.3 billion in the six months ended June 30, 2000, exclude these
restructuring and other charges. The $3.7 billion includes a $2.1 billion
restructuring charge and $1.6 billion of other charges associated with the
repositioning actions. The actions associated with the strategic repositioning
began on June 26, 2000, and will be completed within one year.
The $2.1 billion restructuring charge includes a $1.8 billion write-down
for impairment of goodwill recorded in connection with the 1998 acquisition of
The Money Store. Much of this charge is not deductible for federal or state
income tax purposes, and accordingly, it has the effect of significantly
reducing our effective tax rate. The effective tax rate for 2000 is not
reflective of the rate in 1999 or our expectation of our effective tax rate in
2001.
RESTRUCTURING CHARGES The restructuring charge of $2.1 billion included $135
million of employee termination benefits, occupancy-related charges of $93
million, a $1.8 billion write-down of the goodwill and other identified
intangibles associated with The Money Store, write-downs of $35 million
associated with the impairment of certain long-lived assets, contract
cancellation costs of $80 million, and $2 million of other charges.
4
<PAGE> 7
Employee termination benefits of $135 million include severance, which may
be paid in a lump sum or over a defined period, and related benefits and
outplacement services for 5,291 employees terminated in connection with the
repositioning. Of these terminated employees, 1,396 are officers and 3,895 are
non-officers. We notified substantially all of the employees individually about
their termination on or before June 30, 2000. Of the terminated employees,
approximately 85 percent were from the Consumer segment, 2 percent from the
Capital Markets segment and 13 percent from the Treasury/Nonbank segment.
Through June 30, 2000, $5 million in employee termination benefits had been
paid, primarily associated with employees displaced from Capital Markets.
Occupancy charges of $93 million included $82 million that represents the
present value of future lease obligations or lease cancellation penalties in
connection with the closure of sales offices as well as certain other business
operations space. Substantially all of the rest of the occupancy charges are
write-downs of leasehold improvements and furniture and fixtures in the
aforementioned leased space.
In connection with the acquisition of The Money Store in 1998, the
corporation recorded $1.9 billion of goodwill and a $304 million identified
intangible associated with the subprime mortgage origination network. As a
result of the decision to discontinue the subprime mortgage lending origination
business at The Money Store, and therefore generate no future cash flows from
that business, we concluded that the goodwill associated with that business and
the network intangible were no longer recoverable. Therefore, an impairment
charge for the unamortized balance of these intangibles of $1.8 billion at June
30, 2000, was included in the restructuring charge. The unamortized balance of
goodwill associated with the small business and student lending businesses of
The Money Store is fully recoverable from future cash flows, and accordingly, is
not impaired.
Other assets, primarily computer hardware and software, the value of which
was considered to be impaired because they no longer will be used as a result of
the strategic repositioning, were written down to fair value (less cost to
sell). The total charge for other asset impairments amounted to $35 million. The
net book value of long-lived assets held for sale or disposal at June 30, 2000,
was not material.
Also included in the restructuring charge was $80 million related to
contract cancellations. Of this amount, $67 million represents termination fees
for contracts that will be cancelled in connection with the sale of the credit
card business. The remaining $13 million represents costs to buy out the
remaining term or the present value of the remaining payments on various system
and service-related contracts that provided no future benefit to the corporation
as a result of the strategic repositioning.
In connection with the EVEREN acquisition, we have incurred a total of $40
million in merger-related charges, of which $20 million was incurred in the
first six months of 2000. We estimate we will incur an additional $40 million
during the rest of 2000 as merger integration is completed.
The restructuring charge of $2.1 billion, as well as merger-related
expenses associated with the EVEREN acquisition of $20 million, were reflected
in noninterest expense within the Treasury/Nonbank segment. If we were to
allocate the restructuring charge to the various segments affected, $2.0 billion
and $28 million of the charges would have been allocated to the Consumer and
Capital Markets segments, respectively. The rest of the charges would have been
allocated primarily to the Treasury/Nonbank segment and a minimal amount to the
other business segments.
In the first six months of 1999, merger-related and restructuring charges
amounted to $398 million. This included net merger-related charges of $51
million related to the April 1998 CoreStates acquisition and a $347 million
restructuring charge related to a restructuring plan announced in March 1999.
This restructuring plan included reengineering numerous processes and functions,
closing or consolidating branches, service centers and corporate office space,
as well as exiting the indirect auto lending and leasing business. Through June
30, 2000, $292 million had been charged against the accrual. Based on
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<PAGE> 8
revised estimates, $16 million of the initial accrual, primarily relating to
asset write-downs, has been reversed. At June 30, 2000, $39 million of the
accrual remained, principally representing amounts still to be paid in employee
termination benefits and contract cancellations.
In 1998, in connection with the acquisition of CoreStates, we recorded a
$753 million restructuring charge. Through June 30, 2000, $662 million had been
charged against the accrual and $54 million had been reversed from the accrual.
Substantially all of the remaining balance of the accrual of $37 million at June
30, 2000, represents employee termination benefits to be paid over future
periods, at the election of the employees. Also included in the balance of the
restructuring accrual at June 30, 2000, is $35 million primarily related to the
acquisition of Signet, substantially all of which represents amounts still to be
paid in employee termination benefits.
OTHER CHARGES The $1.6 billion of other charges associated with the strategic
repositioning includes a supplemental loan loss provision of $265 million, which
is described further in the Provision and Allowance for Loan Losses section;
$1.3 billion of charges netted in fee and other income that are described below;
and a $27 million charge in other noninterest expense for the write-down of
advances to certain of The Money Store's securitization trusts.
The $1.3 billion of other charges in fee and other income includes a $44
million write-down, substantially all of which relates to the impairment of the
subprime mortgage servicing asset at The Money Store resulting from revisions to
the assumptions used to value this servicing asset as a direct result of the
decision to cease subprime mortgage lending at The Money Store. Also included in
the charges in fee and other income is a $578 million write-down for impairment
of certain mortgage-related securities available for sale as described further
in the Securities Available for Sale section; a $389 million write-down to
market value of certain consumer loans, principally The Money Store subprime
mortgage loans, that were reclassified to assets held for sale in connection
with the strategic repositioning; and $338 million, which includes a $148
million charge to reduce the net book value of certain nonperforming and poorly
performing commercial loans to market value as described further in the Loans
and Asset Quality section, a charge of $175 million in additional reserves
against the lease residuals in the indirect auto leasing portfolio, and other
charges of $15 million.
In the first quarter of 1999, we exited the indirect auto lending and
leasing business. The $175 million of additional lease reserves included in the
other charges relate to this portfolio, which is in a run-off phase, and was
affected by ongoing deterioration in the used car resale market.
The rest of this discussion of Corporate Results of Operations is on an
operating basis, and accordingly, excludes these restructuring and other
charges.
NET INTEREST MARGIN Tax-equivalent net interest income increased 6 percent to
$3.9 billion in the first six months of 2000 from $3.7 billion in the first six
months of 1999. The net interest margin, which is the difference between the
tax-equivalent yield on earning assets and the rate paid to fund those assets,
was 3.60 percent in the first six months of 2000 compared with 3.81 percent in
the first six months of 1999. The average rate on earning assets increased 64
basis points to 8.15 percent in the first six months of 2000 from 7.51 percent
in the first six months of 1999, while the average rate paid on liabilities
increased 82 basis points to 5.10 percent from 4.28 percent over the same
periods.
A higher amount of lower yielding assets and a greater use of market-based
wholesale funding in a period in which we were in a liability sensitive position
negatively affected the net interest margin. A series of interest rate increases
by the Federal Reserve has created downward pressure on net interest margins of
financial services companies. As part of our strategic repositioning, we intend
to sell approximately $13 billion to $15 billion of lower-yielding securities,
beginning in the latter half of 2000. The sale
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of these securities is expected to have a favorable impact on our net interest
margin. The Market Risk Management section provides additional information on
our methodology for interest rate risk management. It should be noted that we
focus on net income and economic contribution when evaluating corporate
strategies and we place less importance on the net interest margin impact of
these decisions.
FEE AND OTHER INCOME On an operating basis, fee and other income, excluding
portfolio securities transactions, was $3.6 billion in the first six months of
2000 and in the first six months of 1999. Commissions, which include brokerage
and insurance commissions, more than doubled in the first six months of 2000 to
$843 million from $409 million in the first six months of 1999, reflecting
strong results from retail brokerage and insurance services, primarily in the
first quarter of 2000, including the addition of EVEREN. Additionally, fiduciary
and asset management fees, which include personal trust, personal financial
consulting, corporate trust, institutional trust, mutual funds, CAP Account and
other fee income, increased 28 percent to $740 million in the first six months
of 2000 from $578 million in the first six months of 1999. Advisory,
underwriting and other capital markets fees, which include the results from risk
management; fixed income sales and trading, and equity capital markets; loan
syndications; and other investment banking activities, increased 7 percent to
$391 million in the first six months of 2000 from $367 million in the first six
months of 1999. Increased revenues in equity capital markets and risk management
drove this growth.
Principal investing income, which includes the results of investments in
equity and mezzanine securities, amounted to $388 million in the first six
months of 2000, an increase of 88 percent from $206 million in the first six
months of 1999. We anticipate only moderate principal investing gains in the
second half of 2000. These activities are discussed further in the Business
Segments section.
Other income, which includes results from portfolio securities transactions
and asset sales and securitizations, declined to $249 million in the first six
months of 2000 from $1.1 billion in the first six months of 1999. The first six
months of 1999 included a gain of $182 million on the sale of our investment in
Electronic Payment Services, Inc., and a $109 million gain on the sale of
certain factoring assets. Portfolio securities transactions resulted in a net
loss of $23 million, which includes a $17 million impairment loss on residual
interests in certain securitizations of student loans in the first six months of
2000. In the first six months of 1999, portfolio securities transactions
amounted to a net gain of $24 million, including a $19 million impairment loss
on residual interests in certain securitizations of home improvement loans.
Asset sales and securitization gains were $112 million in the first six months
of 2000. In the first six months of 1999, these gains were $456 million, which
included $126 million of gains from the sale and securitization of residential
mortgage loans and higher levels of gains from the securitization and sale of
credit card receivables, Small Business Administration (SBA) loans and student
loans.
NONINTEREST EXPENSE On an operating basis, noninterest expense was $4.8 billion
in the first six months of 2000 and $4.2 billion in the first six months of
1999. In addition to the full impact of EVEREN, expenses in the first six months
of 2000 reflected higher personnel costs, primarily incentives associated with
revenue growth in Capital Management and Capital Markets, continued spending
related to increased training and staffing in our retail financial centers and
investments in our Internet initiatives. Revenue-based incentives while up
overall compared with the same period a year ago, declined in the second quarter
of 2000 compared with the first quarter of 2000 in tandem with the decline in
revenue. On an operating basis, the overhead efficiency ratio before
restructuring and other charges was 63.31 percent in the first six months of
2000 and 56.69 percent in the first six months of 1999.
The increase of $11 million in amortization expense in the first six months
of 2000 compared with the first six months of 1999 was primarily attributable to
goodwill recorded in connection with the acquisition of EVEREN on October 1,
1999. In the first six months of 2000, $48 million of additional goodwill was
recorded in connection with this acquisition as a result of refining certain
fair value adjustments.
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We had $3.7 billion in goodwill and other intangible assets at June 30,
2000, and $5.6 billion at December 31, 1999. The significant decline in the
balance from year-end is principally the result of the write-off of $1.8 billion
of goodwill and other identified intangibles that were determined to be impaired
as a result of the decision to discontinue subprime mortgage lending at The
Money Store. This write-off will have the effect of reducing quarterly
amortization expense by $21 million. The remaining balance of goodwill
associated with The Money Store is $305 million and is related to the small
business and student lending businesses that will be retained.
BUSINESS SEGMENTS
First Union's operations are divided into five business segments
encompassing more than 60 distinct product and service units. These segments are
Capital Markets, Capital Management, Consumer, Commercial and Treasury/Nonbank.
Additional information can be found in Table 3. In the first six months of 2000,
we realigned the lines of business within certain segments to better reflect the
way that management of these businesses has evolved. Prior period segment data
has been restated to reflect these changes. The following discussion of segment
results is on an operating basis, and accordingly excludes restructuring and
other charges related to the strategic repositioning.
CAPITAL MARKETS Our Capital Markets products and services are designed to
provide a full range of capital raising, market making and financial advisory
services to meet the needs of corporate and institutional clients. Our strategy
is to focus on middle-market and growth companies, and we leverage the strong
relationship coverage in our East Coast banking markets with our newly
streamlined focus on eight key industries nationwide: technology,
telecommunications, new media and media communications, health care, business
and consumer services, industrial growth, real estate and financial
institutions. We provide full execution including corporate finance, equity
research, merger and acquisition advisory services, and debt and equity
financing. In addition, our International unit continues to develop and utilize
strong correspondent banking relationships overseas.
Capital Markets has three primary lines of business: (1) Investment
Banking, which includes merger and acquisition advisory services; principal
investing; loan syndication; investment grade debt; high yield debt; equity
sales, trading, research and underwriting; fixed income sales and trading;
municipal sales, trading and underwriting; fixed income and equity derivatives;
foreign exchange; asset securitization; and commercial real estate investment
banking activities; (2) Corporate Banking, which includes lending activities for
corporate clients with annual sales greater than $100 million; asset-based
lending; operating, finance and leveraged leasing; and railcar leasing; and (3)
International, whose mission is to meet the trade finance and foreign exchange
needs of our domestic customers and correspondent financial institutions around
the world, and to provide commercial banking products to financial institutions
and corporate clients overseas.
On an operating basis, in the first six months of 2000 compared with the
first six months of 1999, Capital Markets net income declined to $488 million
from $546 million. Fee and other income increased substantially, to $986 million
from $833 million. This increase was outweighed by a decline in net interest
income to $774 million from $795 million, primarily due to the discontinuation
in 1999 of a cash letter processing business in International. In addition,
noninterest expense increased to $840 million from $717 million.
The growth in fee and other income for Capital Markets was primarily the
result of a $132 million increase in Investment Banking fee income, which was
driven by principal investing gains of $388 million compared with $206 million
in the prior year. Principal investing gains were exceptionally strong in the
first half of 2000, and we do not anticipate the same level of gains in the
second half of 2000. In the
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first six months of 2000, our Principal Investing Group committed additional
funds of $1.1 billion and ended the quarter with total committed funds of $3.8
billion. Invested funds in the first six months of 2000 amounted to $778
million. Increased revenues in equity capital markets and risk management also
drove growth in fee and other income.
The first six months of 2000 equity capital markets revenues of $59 million
reflected a $25 million increase from the first six months of 1999, primarily
due to continued growth in our equity platform, increased equity syndicate
revenues and institutional sales and trading activities.
Growth in these Investment Banking businesses was somewhat offset by
decreases in high yield, commercial real estate and loan syndications. In high
yield, declines reflected a comparatively slow high yield origination market for
much of the first six months of 2000. Loan syndication revenue was offset by the
impact of market value adjustments on certain loans held for sale. Commercial
real estate had unusually strong results in the first six months of 1999 related
to recoveries of market losses in commercial mortgage-backed securitization
activities in the third quarter of 1998.
In Corporate Banking, net income declined to $186 million in the first six
months of 2000 from $238 million in the first six months of 1999, largely
reflecting increased charge-offs, particularly in the second quarter of 2000.
The revenues from Capital Markets businesses are typically more volatile
than revenues from more traditional banking businesses and can vary
significantly with market conditions.
Noninterest expense was $840 million in the first six months of 2000
compared with $717 million in the first six months of 1999. The increase in
expenses was largely due to higher personnel and related costs. The increase
also includes a modest impact from EVEREN.
CAPITAL MANAGEMENT Through the Capital Management Group (CMG), we have created
a growing and diversified trust, investment management and brokerage
organization, with products and services that provide the link between
traditional banking and investing for retail and institutional customers. Our
Capital Management Group is organized into four major lines of business: Retail
Brokerage and Insurance Services, Wealth and Trust Services, Mutual Funds and
CAP Account. CMG offers a full line of investment products and services
distributed through multiple channels, including our national retail brokerage
branch network, full-service retail financial centers in our East Coast
marketplace and online brokerage. Assets under management declined to $166
billion at June 30, 2000, from $170 billion at December 31, 1999, largely as a
result of the decline in the stock market. Assets under management include $82
billion in Evergreen mutual funds and $84 billion in trust assets and other
institutional accounts.
On an operating basis in the first six months of 2000 compared with the
first six months of 1999, Capital Management net income increased to $367
million from $247 million, with strong increases in net interest income and fee
and other income partially offset by a rise in noninterest expense. Net interest
income increased 34 percent to $322 million from $241 million, while fee and
other income increased 61 percent to $1.6 billion from $1.0 billion. Results
were strong across multiple business lines and all delivery channels,
particularly in retail brokerage services, where fee and other income more than
doubled from the year ago period. EVEREN contributed approximately $411 million
of the increase in fee and other income.
Fee and other income from Retail Brokerage and Insurance Services increased
by $538 million to $994 million in the first six months of 2000 compared with
$456 million in the first six months of 1999. In addition, Retail Brokerage and
Insurance Services fee and other income nearly doubled from $234 million in the
second quarter of 1999 to $448 million in the second quarter of 2000, but was
down $98 million from $546 million in the seasonally strong first quarter of
2000. Retail brokerage results in the
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first six months of 2000 included the impact of EVEREN mentioned above. The
market value of client assets increased to $170 billion at June 30, 2000. Bank
annuity sales volume was $944 million in the first six months of 2000 compared
with $924 million in the first six months of 1999.
Our Wealth and Trust Services businesses encompass personal trust and
private client banking, corporate trust and benefit services, and institutional
trust services. Wealth and Trust Services fee and other income increased $24
million to $360 million in the first six months of 2000 from $336 million in the
first six months of 1999. Wealth and Trust Services had $4.3 billion in average
net loans in the first six months of 2000 compared with $3.9 billion in the
fourth quarter of 1999, and average deposits of $5.9 billion in the first six
months of 2000 and in the fourth quarter of 1999.
Mutual fund fees increased 20 percent to $260 million in the first six
months of 2000 from $217 million in the first six months of 1999. Assets in the
First Union-advised Evergreen mutual funds at June 30, 2000, were $82 billion
compared with $80 billion at December 31, 1999.
The CAP Account is an asset management product that enables our customers
to manage their securities trading and banking activities in a single,
consolidated account. Income related to the CAP Account is therefore reflected
in both Retail Brokerage and Insurance Services and in Mutual Funds. CAP Account
amounts in Table 3 reflect CAP Account fees and the funding benefit attributed
to the on-balance sheet deposits. Fee and other income in CAP Account increased
$25 million to $79 million in the same period, largely due to an increase in
sales and in asset balances. CAP Account assets were $59 billion at June 30,
2000, compared with $56 billion at year-end 1999, and the number of CAP accounts
increased to 683,000 compared with 603,000 at year-end 1999. As an indication of
increasing investment activity, the number of brokerage trades in CAP Account
increased 46 percent in the first six months of 2000 from the first six months
of 1999.
Noninterest expense in the first six months of 2000 was $1.4 billion
compared with $862 million in the first six months of 1999. This increase
reflected higher personnel costs, primarily incentives associated with revenue
growth and the impact of EVEREN.
CONSUMER The strategic repositioning of First Union is felt most broadly
in our Consumer segment. As we chose to focus on areas with higher growth
potential and on areas in which we can leverage our competitive strengths, we
identified the manufacture of certain proprietary products as no longer being
essential to our core strategies. In the mortgage servicing and credit card
businesses, for example, we lacked scale and competitive advantage, and
therefore believed we could offer a better selection and more competitive
products if we repositioned those businesses to meet our customers' needs
through third party agreements. In addition, for reasons discussed in the
Outlook section, we have ceased origination of subprime mortgage loans through
The Money Store. We believe that the repositioning actions we have taken, when
they are completed, will improve the profitability of the Consumer segment.
Our retail distribution strategy continues to be premised on building
lifetime customer relationships by providing quality customer service, a full
range of superior products and flexible delivery across all channels. Our
multiple channels, including full-service retail financial centers, direct
telephone bank, call centers, ATMs and the Internet, are fully integrated,
enabling customers to have a single view of their accounts. The Consumer segment
includes: First Union Mortgage (FUMC), our mortgage origination and servicing
business; Home Equity, encompassing First Union Home Equity and The Money Store;
Credit Cards, which includes the $1.7 billion owned commercial card and consumer
credit card portfolios and the income from the $3.9 billion securitized
portfolio; and Retail Branch Products, which includes installment loans, ATM,
consumer credit, e-Channels and the various consumer deposit products with the
exception of the CAP Account, which is included in Capital Management.
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On an operating basis in the first six months of 2000 compared with the
first six months of 1999, Consumer net income declined to $266 million from $453
million. Fee and other income declined to $674 million from $1.0 billion in the
first six months of 1999, reflecting declines in home equity, residential
mortgage and credit cards. Results from these businesses were dampened by the
impact of a rising interest rate environment and a reduction in securitization
activity.
FUMC's net income for the first six months of 2000 declined to $2 million
compared with $77 million in the first six months of 1999. FUMC net interest
income declined by $23 million to $22 million in the first six months of 2000 as
a result of lower loan production volume in a higher interest rate environment.
Fee and other income declined to $92 million in the first six months of 2000
from $225 million in the first six months last year largely due to a higher
level of gains on securitization activity in the first half of 1999 and lower
loan production volume in the first six months of this year. Noninterest expense
decreased by $33 million to $111 million in the first six months of 2000 from
$144 million in the first six months of 1999, reflecting lower personnel,
incentive and servicing costs related to production levels.
In the home equity businesses, there was a net loss of $50 million in the
first six months of 2000 compared with net income of $70 million in the first
six months of 1999. The six-month 2000 net loss was the result of a net loss of
$19 million in the first quarter of 2000 and a net loss of $31 million in the
second quarter of 2000. Net interest income increased to $269 million in the
first six months of 2000 from $255 million a year ago largely due to an increase
in average loans generated through First Union Home Equity, partially offset by
a higher cost of funds. Net charge-offs increased by $24 million to $52 million
in the first six months of 2000 due to an increase in loan outstandings and
maturity of The Money Store portfolio. Fee and other income in the home equity
businesses declined to $31 million in the first six months of 2000 from $201
million in the first six months of 1999 primarily due to a decrease in
securitization gains in connection with home equity loans, an impairment loss on
student loan retained interests and lower levels of securitizations of non-home
equity products. Deposit growth largely reflected the movement of deposits
formerly housed in Capital Markets.
Net income from Credit Cards declined to $34 million in the first six
months of 2000 from $48 million in the first six months of 1999. Net interest
income declined $16 million in the period as a result of a decline in average
loans due to securitization. Fee and other income declined by $41 million in the
period due to higher securitization gains in the comparable period of 1999. Net
charge-offs declined substantially in the period. Average loans decreased by
$802 million reflecting the sale and securitization of $555 million in
receivables in the second quarter of 1999 and $543 million in the third quarter
of 1999.
Retail Branch Products results improved markedly year over year. Net income
increased by $22 million to $280 million in the first six months of 2000, driven
primarily by a $61 million increase in net interest income to $1.3 billion in
the first six months of 2000, partially offset by a $30 million increase in
noninterest expense. Average loans were $11 billion in the first six months of
2000 and $10 billion in the fourth quarter of 1999. However, average loans year
over year declined by $5.5 billion as a result of the securitization and
transfer to the securities available for sale portfolio of prime equity loans
with a balance of $6.7 billion at the date of transfer in June 1999. Table 6
provides information related to our total managed portfolio of consumer loans.
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COMMERCIAL Our wholesale delivery strategy is to provide a comprehensive array
of financial solutions, including traditional commercial lending and cash
management products, primarily to small-business customers (annual sales up to
$10 million) and commercial customers (annual sales of $10 million to $100
million). In the first quarter of 2000, corporate client relationships (annual
sales of $100 million to $2 billion) were moved to the Capital Markets segment.
We have an integrated relationship approach that leverages the strong
relationships in our Commercial business with the capabilities of our Capital
Markets business to provide complex financing solutions, risk management
products and international services. We also leverage the capabilities of our
Capital Management business to provide property and casualty insurance, pension
plans and 401(k) plans. The Commercial segment is divided into four lines of
business: Small Business Banking, which represents only the lending that is done
through our Small Business Banking Division (SBBD); Lending, which is all other
commercial lending within our state delivery network and loans to small
businesses originated within our state delivery network rather than through
SBBD; Real Estate Banking, which is lending by our specialized real estate
bankers; and Cash Management and Deposit Services. The majority of SBA lending
is included in the Consumer segment. The corporation's combined portfolio of
$9.4 billion in small business loans at June 30, 2000, includes loans originated
through the SBBD, the SBA loan program and other origination channels.
On an operating basis in the first six months of 2000 and in the first six
months of 1999, Commercial net income was $249 million compared with $245
million. In the same period, net interest income declined to $673 million from
$683 million due to a decrease in average deposits of $1.2 billion, partially
offset by an increase in average loans of $845 million. Fee and other income
rose to $284 million from $271 million due to strong sales efforts in Cash
Management and Deposit Services. Net charge-offs declined by $14 million in the
first six months of 2000 from the first six months of 1999 because of the impact
of unusually high charge-offs in the second quarter of 1999.
Average commercial loans increased by $400 million to $27 billion in the
first six months of 2000 from the fourth quarter of 1999, all of which came from
Real Estate Banking. Small Business Banking average loans increased by $62
million due to an increase in business credit lines, which were introduced in
the third quarter of 1999. This increase was offset by a decrease of $61 million
in Lending. This decline primarily reflects our emphasis on providing capital
markets financing alternatives for our clients and seasonality in the credit
requirements of our customers.
Average deposits were $22 billion in the first six months of 2000 compared
with $23 billion in the fourth quarter of 1999. The majority of the decline was
in commercial money market deposits and commercial demand deposit accounts,
reflecting seasonality and movement of customers into off-balance sheet
products.
TREASURY/NONBANK SEGMENT The Treasury/Nonbank segment includes management of
our securities portfolios and our portfolio of first mortgage loans, overall
funding requirements and asset and liability management functions. The
Treasury/Nonbank segment also contains merger-related and restructuring charges;
the goodwill asset and the associated amortization expense and funding cost;
certain nonrecurring revenue items discussed in the Fee and Other Income
section; certain expenses that are not allocated to the business segments;
corporate charges; and the results of our discontinued indirect auto lending and
leasing business. The Liquidity and Funding Sources and Market Risk Management
sections provide information about our funding sources, asset and liability
management functions and securities portfolios.
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LOANS AND ASSET QUALITY
In connection with our strategic repositioning, we decided to sell $5.5
billion of loans, which includes $4.8 billion of subprime mortgage loans at The
Money Store, $589 million of commercial loans and $123 million of other consumer
loans. Included among these loans are approximately $450 million in
nonperforming loans and approximately $400 million in poorly performing loans.
These loans, along with $1.7 billion of credit card receivables that will be
sold as part of the sale of our credit card business, were the components of a
$7.2 billion reclassification to assets held for sale, which are included in
other assets. An additional charge of $537 million was recorded in connection
with the transfer to reduce the net book value of these loans to their June 30,
2000, market value.
As a result of selling these loans, we will reduce nonperforming assets
particularly in health care, subprime mortgage lending and residential real
estate, and mitigate our exposure to increases in nonperforming assets in these
loan categories in the near term. The planned sale of the credit card business
will reduce our exposure to the higher charge-offs typically associated with
credit card receivables.
LOANS Net loans were $128 billion at June 30, 2000, and $133 billion at
December 31, 1999. Managed loans were $172 billion at June 30, 2000, and $171
billion at December 31, 1999. Commercial loans represented 63 percent and
consumer loans 37 percent of the loan portfolio at June 30, 2000. Managed
commercial loans increased 4 percent from year-end 1999, while managed consumer
loans declined 3 percent primarily as a result of run-off of the portfolio
associated with our discontinued indirect auto lending and leasing business.
Average net loans were $132 billion in the first six months of 2000 and $130
billion in the first six months of 1999. The average rate earned on loans was
8.81 percent in the first six months of 2000 compared with 8.12 percent in the
first six months of 1999.
At June 30, 2000, unused loan commitments related to commercial and
consumer loans were $96 billion and $46 billion, respectively. Commercial and
standby letters of credit were $13 billion. Loan participations sold to other
lenders amounted to $3.4 billion at June 30, 2000.
NONPERFORMING ASSETS At June 30, 2000, nonperforming assets were $884 million,
or 0.69 percent of net loans and foreclosed properties, compared with $1.1
billion, or 0.80 percent, at December 31, 1999. The amount of nonperforming
loans at June 30, 2000, does not include nonperforming assets with a net book
value of $331 million that are classified as assets held for sale.
Nonperforming loans reduce interest income because the contribution from
these loans is eliminated or sharply reduced. In the first six months of 2000,
$56 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 2000 was $8 million.
Impaired loans, which are included in nonperforming loans, amounted to $620
million at June 30, 2000, compared with $603 million at December 31, 1999.
Included in the allowance for loan losses at June 30, 2000, was $99 million
related to $443 million of impaired loans. The remaining impaired loans were
recorded at or below either fair value or the present value of expected future
cash flows. In the first six months of 2000, the average recorded investment in
impaired loans was $755 million, and $12 million of interest income was
recognized on impaired loans.
This income was recognized using the cash-basis method of accounting. The amount
of impaired loans at June 30, 2000, does not include impaired loans with a net
book value of $158 million that are classified as assets held for sale.
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PAST DUE LOANS Accruing loans 90 days past due were $84 million at June 30,
2000, compared with $144 million at December 31, 1999. The decline primarily
reflects the transfer of the credit card portfolio to assets held for sale. Of
these past due loans at June 30, 2000, $7 million were commercial loans or
commercial real estate loans and $77 million were consumer loans.
NET CHARGE-OFFS Net charge-offs amounted to $417 million in the first six
months of 2000 and $344 million in the first six months of 1999. Annualized net
charge-offs were 0.63 percent of average net loans in the first six months of
2000 compared with 0.53 percent in the first six months of 1999. The increase in
net charge-offs includes charge-offs on loans, including identified problem
loans in the health care industry, which were subsequently transferred to assets
held for sale in connection with the strategic repositioning.
PROVISION AND ALLOWANCE FOR LOAN LOSSES The loan loss provision was $685
million in the first six months of 2000 compared with $344 million in the first
six months of 1999. The increase largely reflected a $265 million supplemental
provision to reflect the current risk profile of the loan portfolio. In general
there is an industry-wide trend toward increasing pressure on credit quality,
and we are seeing evidence of this in our commercial loan portfolio. This was
one of the key factors in our decision to record this supplemental loan loss
provision in connection with the strategic repositioning.
The allowance for loan losses was $1.7 billion at June 30, 2000, and $1.8
billion at December 31, 1999. The allowance was reduced by $319 million in
connection with the aforementioned reclassification of $7.2 billion of loans to
assets held for sale. The allowance as a percentage of net loans was 1.33
percent at June 30, 2000, and 1.32 percent at year-end 1999. We believe the
allowance for loan losses is adequate to cover probable credit losses in the
loan portfolio.
Our methodology for determining the allowance for loan losses establishes
both an allocated and an unallocated component. The allocated portion of the
allowance represents the results of analyses of individual commercial loans and
pools of loans within the portfolio. The allocated portion of the allowance for
commercial loans is based principally on current loan grades, historical loan
loss rates adjusted to reflect current conditions, as well as analyses of other
factors that may have affected the collectibility of loans in the portfolio. We
analyze all commercial loans with a principal balance in excess of $1 million
that are being monitored as credit problems to determine whether such loans are
impaired, with impairment measured by reference to the borrowers' collateral
values and cash flows. The allocated portion of the allowance for consumer loans
is based principally on loan payment status and historical loss rates adjusted
to reflect current conditions. The unallocated portion of our allowance for loan
losses represents the results of analyses that measure probable losses in our
portfolio that are not adequately captured in the allocated allowance analyses.
These analyses include consideration of unidentified losses inherent in the
portfolio resulting from 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 economic indicators used to estimate probable incurred
losses.
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LIQUIDITY AND FUNDING SOURCES
We believe we will measurably improve liquidity through our repositioning
strategies, which will result in a smaller balance sheet as we sell loans and
securities and reduce short-term debt.
CORE DEPOSITS Core deposits were $119 billion at June 30, 2000, compared with
$122 billion at December 31, 1999. The $3.0 billion decline since year-end 1999
primarily reflects the movement of noninterest-bearing and time deposits into
alternative investment products. In response to growing customer demand for
investment products as alternatives to deposit products, we offer mutual funds,
annuities and other investment products in addition to deposits. Although this
reduces our deposit base, it also enables us to retain valuable customer
relationships that might otherwise be lost to other financial services
companies.
The portion of core deposits in higher-rate, other consumer time deposits
was 30 percent at June 30, 2000, and 28 percent at December 31, 1999. Other
consumer time and other noncore deposits usually pay higher rates than savings
and transaction accounts, but they generally are not available for immediate
withdrawal. They are also less expensive to process.
Average core deposit balances were $118 billion in the first six months of
2000 and $119 billion in the fourth quarter of 1999. In the first six months of
2000 and in the fourth quarter of 1999, average noninterest-bearing deposits
were 24 percent and 25 percent, respectively, of average core deposits.
Deposits can be affected by numerous factors, including branch closings and
consolidations, seasonal factors and the rates being offered compared to other
investment opportunities.
PURCHASED FUNDS Average purchased funds, which include wholesale borrowings
with maturities of 12 months or less, were $72 billion in the first six months
of 2000 compared with $65 billion in the fourth quarter of 1999. The increase
from 1999 represents funding for the growth in average earning assets. Purchased
funds at June 30, 2000, were $76 billion and at December 31, 1999, $69 billion.
LONG-TERM DEBT Long-term debt, which includes any wholesale borrowings with an
original maturity in excess of 12 months, amounted to $33 billion at June 30,
2000, and $32 billion at year-end 1999.
Long-term debt included $2.0 billion of trust capital securities at June
30, 2000, and at December 31, 1999. Subsidiary trusts issued these capital
securities and used the proceeds to purchase junior subordinated debentures from
the corporation. These capital securities are considered tier 1 capital for
regulatory purposes.
In the first six months of 2000, the parent company issued $2.1 billion of
notes with varying rates and maturities. Under a shelf registration statement
filed with the Securities and Exchange Commission, we have $4.3 billion of
senior or subordinated debt securities, common stock or preferred stock
available for issuance. The sale of any additional debt or equity securities
will depend on future market conditions, funding needs and other factors.
Our principal banking subsidiary, First Union National Bank, has available
global note programs for the issuance of up to $45 billion of senior and
subordinated notes. Under these programs, $18 billion of long-term debt has been
issued and was outstanding at June 30, 2000. The sale of any additional notes
will depend on future market conditions, funding needs and other factors.
In the second half of 2000, scheduled maturities of long-term debt amount
to $7.5 billion. As a result of balance sheet reduction strategies associated
with the strategic repositioning, only a modest portion of these maturities will
need to be refinanced.
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CREDIT LINES We have a $175 million committed back-up line of credit, which
expires in July 2002. This credit facility contains 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 this line of credit. In the third
quarter of 2000, we anticipate having in place an additional $175 million
back-up line of credit to replace a line of credit that expired in June 2000.
STOCKHOLDERS' EQUITY Stockholders' equity was $14 billion at June 30, 2000, and
$17 billion at December 31, 1999. Common shares outstanding amounted to 986
million at June 30, 2000, and 988 million at December 31, 1999. Eleven million
shares at a cost of $353 million were repurchased in the first six months of
2000, all of which was pursuant to a Board of Directors authorization to
repurchase a number of shares equal to the number issued in the EVEREN
acquisition. Of the approximately 31 million shares expected to be repurchased
in relation to this acquisition, a total of 24 million shares had been
repurchased as of June 30, 2000. Based on the Board authorizations for share
repurchases in November 1998, May 1999 and June 2000, each for 50 million
shares, at June 30, 2000, we had authority to repurchase up to 101 million
shares of our common stock, which is incremental to share repurchases related to
the EVEREN acquisition and does not include shares subject to the forward
contracts described below. In the first six months of 1999, we repurchased 37
million shares of common stock at a cost of $1.9 billion.
In early 1999, the Board authorized the use of forward equity sales
transactions (equity forwards) in connection with our buyback programs. The use
of equity forwards is intended to provide us with the ability to purchase shares
under the buyback programs in the open market and then issue shares in private
transactions to a counterparty in the amounts necessary to maintain targeted
capital ratios. Under the terms of the equity forwards, we issued shares of
common stock to an investment banking firm at a specified price that
approximated market value. Simultaneously, we entered into a forward contract
with the same counterparty to repurchase the shares at the same price plus a
premium (the forward price).
In addition to equity forwards, we have also entered into forward purchase
contracts with various counterparties. Under the terms of these contracts, we
have agreed to purchase shares on a specific future date, at a specified price
(the forward price). The counterparties to these contracts generally purchase
the shares to which the contract is subject in the open market and hold the
shares for the duration of the contract. The forward price is the price at which
the counterparty purchased the shares plus a premium.
The equity forwards and forward purchase contracts mature at various times
in 2000 and 2001, and can be extended by mutual consent of the counterparties.
At our election, the contracts can be settled by purchase of the shares at the
forward price or by net settlement in shares or cash. At June 30, 2000, we had
equity forwards involving 17 million shares at a cost of $800 million and
forward purchase contracts involving 17 million shares at a cost of $683
million. This aggregate cost of $1.5 billion does not include the premium
component of the forward price. Premiums accrue over the period that the
contracts are outstanding and will be settled at maturity.
We paid $949 million in dividends to common stockholders in the first six
months of 2000 compared with $901 million in the first six months of 1999. This
represented a dividend payout ratio on operating earnings of 60.76 percent in
the first six months of 2000.
At June 30, 2000, stockholders' equity was reduced by $1.2 billion in
accumulated other comprehensive income, net, substantially all of which was
related to net unrealized losses on debt and equity securities.
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SUBSIDIARY DIVIDENDS First Union National Bank is the largest source of parent
company dividends. Capital requirements established by regulators limit
dividends that this subsidiary and certain other of our subsidiaries can pay.
Under these and other limitations, which include an internal requirement to
maintain all deposit-taking banks at the well capitalized level, at June 30,
2000, our subsidiaries had $1.9 billion available for dividends that could be
paid without prior regulatory approval. Our subsidiaries paid $500 million in
dividends and, in connection with the consolidation of two of our banking
subsidiaries, returned $75 million in capital to the parent company in the first
six months of 2000.
REGULATORY CAPITAL At June 30, 2000, our tier 1 and total capital ratios were
6.65 percent and 10.57 percent, respectively, compared with 7.08 percent and
10.87 percent at December 31, 1999. Our leverage ratio at June 30, 2000, was
5.34 percent and at December 31, 1999, 5.97 percent. At June 30, 2000, our
deposit-taking subsidiary banks met the capital and leverage ratio requirements
for well capitalized banks. First Union Trust Company, N.A., and First Union
Direct Bank, N.A., are not deposit-taking banks.
MARKET RISK MANAGEMENT
Managing interest rate risk is fundamental to banking. The inherent
maturity and repricing characteristics of our day-to-day lending and deposit
activities create a naturally asset-sensitive structure. By using a combination
of on- and off-balance sheet financial instruments, we manage the sensitivity of
earnings to changes in interest rates within our established policy guidelines.
The Credit/Market Risk Committee of the Board of Directors reviews overall
interest rate risk management activity. The Funds Management Committee oversees
the interest rate risk management process and approves policy guidelines.
Balance sheet management and finance personnel monitor the day-to-day exposure
to changes in interest rates in response to loan and deposit flows. They make
adjustments within established policy guidelines.
In analyzing interest rate sensitivity for policy measurement, we compare
our forecasted earnings per share in both a "high rate" and "low rate" scenario
to base-line scenarios. One base-line scenario is our estimated most likely path
for future short-term interest rates over the next 24 months. The second
base-line scenario holds short-term rates flat at their current level over our
forecast horizon. The "high rate" and "low rate" scenarios assume gradual 200
basis point increases or decreases in the federal funds rate from the beginning
point of each base-line scenario over the next 12-month period. Our policy limit
for the maximum negative impact on earnings per share resulting from "high rate"
or "low rate" scenarios is 5 percent. The policy limit applies to both the "most
likely rate"and the "flat rate" base-line scenarios. The policy measurement
period is 12 months in length, beginning with the first month of the forecast.
EARNINGS SENSITIVITY Our "flat rate" scenario holds the federal funds rate
constant at 6.50 percent through June 2002. Based on the July 2000 outlook, if
interest rates were to follow our "high rate" scenario (i.e., a 200 basis point
increase in short-term rates from our "flat rate" scenario), the model indicates
earnings during the policy measurement period would be negatively affected by
1.5 percent. Our model indicates that earnings would benefit by 0.9 percent in
our "low rate" scenario (i.e., a 200 basis point decline in short-term rates
from our "flat rate" scenario).
For our "most likely rate" scenario, we currently believe the market
forward implied rate ("market rate") is the most appropriate. This scenario
assumes the federal funds rate gradually rises to 6.75 percent by the end of
June 2001. Sensitivity to the "market rate" scenario is measured using a gradual
200 basis point increase over a 12-month period. Our model indicates that
earnings would be negatively affected by 1.9 percent in a "high rate" scenario
relative to the market rate over the policy period.
17
<PAGE> 20
In addition to the standard scenarios used to analyze rate sensitivity over
the policy measurement period, we regularly analyze the potential impact of
other remote, more extreme interest rate scenarios. These alternate "what if"
scenarios may include interest rate paths that are higher, lower and more
volatile than those used for policy measurement. We also perform our analysis
for time periods that reach beyond the 12-month policy period. For example,
based on our July 2000 outlook, if interest rates in 2001 were 200 basis points
higher than the "market rate" scenario, earnings would be negatively affected by
1.2 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, we 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 Information related
to unrealized gains and losses in the securities available for sale, investment
securities and off-balance sheet derivatives portfolios is in Table 14. Changes
in the market value of the instruments in these three portfolios, and
corresponding unrealized gains and losses, primarily result from changes in
market interest rates. The securities available for sale and the off-balance
sheet derivatives portfolios are the primary means we use to manage overall
interest rate risk while enhancing corporate earnings. Changes in the market
values of these portfolios offset changes in market values and future interest
income or expense related to other balance sheet items, such as loans, deposits
and borrowings.
SECURITIES AVAILABLE FOR SALE The securities available for sale portfolio
consists primarily of U.S. Treasury, U.S. Government agency, municipal and
asset-backed securities. Activity in this portfolio is undertaken primarily to
manage liquidity and interest rate risk and to take advantage of market
conditions that create more economically attractive returns on these
investments. At June 30, 2000, we had securities available for sale with a
market value of $53 billion compared with $51 billion at year-end 1999.
Included in securities available for sale at June 30, 2000, were residual
interests with a market value of $454 million, which included a net unrealized
gain of $57 million. These residual interests resulted from securitizations of
SBA, credit card, student, auto and home equity loans. At December 31, 1999,
securities available for sale included residual interests with a market value of
$583 million and a net unrealized gain of $84 million.
The June 2000 restructuring and other charges included $578 million of
impairment losses on securities available for sale, including $438 million
mentioned below and other impairment losses on residual interests of $140
million.
In 1999, we transferred $744 million of mortgage-related residual interests
and $8.7 billion of other mortgage-related securities to a trust in exchange for
a new security representing substantially all of the interest in the assets
transferred to the trust. Substantially all of the corporation's investment in
mortgage-related retained interests from the securitization of The Money Store
subprime mortgage loans was included in the transfer. The decision as part of
our strategic repositioning to discontinue the subprime mortgage lending
business at The Money Store caused us to revise the assumptions used to estimate
the amount and timing of the cash flows associated with this security,
particularly the assumptions related to
18
<PAGE> 21
credit losses. Based on the revised assumptions, we concluded that the fair
value of the security had declined on an other than temporary basis to an amount
less than its book value at June 30, 2000. Accordingly, in connection with the
strategic repositioning, we recorded a $438 million impairment loss on the
security to reduce the book value to its fair value.
The average rate earned on securities available for sale was 7.27 percent
in the first six months of 2000 and 6.61 percent in the first six months of
1999. The average maturity of the portfolio was 8.45 years at June 30, 2000.
INVESTMENT SECURITIES The investment securities portfolio consists primarily of
U.S. Government agency, corporate, municipal and mortgage-backed securities, and
collateralized mortgage obligations. Our investment securities had a carrying
value of $1.7 billion and a market value of $1.8 billion at June 30, 2000, and a
carrying value and a market value of $1.8 billion at December 31, 1999.
The average rate earned on investment securities was 8.20 percent in the
first six months of 2000 and 8.17 percent in the first six months of 1999. The
average maturity of the portfolio was 5.88 years at June 30, 2000.
OFF-BALANCE SHEET DERIVATIVES FOR INTEREST RATE RISK MANAGEMENT As part of our
overall interest rate risk management strategy, we use off-balance sheet
derivatives as a cost- and capital-efficient way to modify the repricing or
maturity characteristics of on-balance sheet assets and liabilities. Our
off-balance sheet derivative transactions used for interest rate risk management
include various interest rate swap, futures and option structures with indices
that relate to the pricing of specific financial instruments of the corporation.
We believe we have appropriately controlled the risk so that derivatives used
for interest rate risk management will not have any significant unintended
effect on corporate earnings. The impact of derivative instruments on our
earnings and rate sensitivity is fully incorporated in the earnings simulation
model in the same manner as on-balance sheet instruments.
The fair value of off-balance sheet derivatives used to manage our interest
rate sensitivity was $106 million, based on a notional amount of $289 billion,
at June 30, 2000, compared with $213 million, based on a notional amount of $190
billion, at December 31, 1999. The increase in the notional amount of
derivatives in the first six months of 2000 primarily resulted from additional
interest rate swaps and futures contracts. Substantially all of the aggregate
outstanding notional amount of these positions will amortize by December 31,
2000. From time to time, we re-balance our off-balance sheet positions to
reflect current market conditions and management's assessment of desired balance
sheet characteristics, and this can result in significant changes in derivative
notional amounts. Deferred gains of $32 million and deferred losses of $4
million at June 30, 2000, related to terminated positions will be recognized in
the second half of 2000. The remaining balances of deferred gains and losses at
June 30, 2000, will be amortized over approximately ten years and the annual
amortization is not significant.
Although off-balance sheet derivative financial instruments do not expose
the corporation to credit risk equal to the notional amount, we are exposed to
credit risk equal to the extent of the fair value gain in an off-balance sheet
derivative financial instrument if the counterparty fails to perform. We
minimize the credit risk in these instruments by dealing only with high-quality
counterparties. Each transaction is specifically approved for applicable credit
exposure. At June 30, 2000, the total mark-to-market related credit risk for
derivative transactions in excess of counterparty thresholds was $600 million.
The fair value of collateral held exceeded the total mark-to-market related
credit risk in excess of counterparty thresholds as of that date. For nondealer
transactions, the need for collateral is evaluated on an individual transaction
basis, and it is primarily dependent on the financial strength of the
counterparty.
19
<PAGE> 22
TRADING RISK MANAGEMENT Trading activities are undertaken primarily to satisfy
the investment and risk management needs of our customers and secondarily to
enhance our earnings through profitable trading for the corporation's own
account. We trade a variety of debt securities and foreign exchange instruments,
as well as financial and foreign currency derivatives, in order to provide
customized solutions for the risk management challenges faced by our customers.
We maintain diversified trading positions in both the fixed income and foreign
exchange markets. Risk is controlled through the use of value-at-risk (VAR)
limits and an active, independent monitoring process.
We use the VAR methodology for measuring the market risk of the
corporation's trading positions. This statistical methodology uses recent market
volatility to estimate the maximum daily trading loss that the corporation would
expect to incur, on average, 97.5 percent of the time. The model also estimates
the effect of the interrelationships among the various trading instruments to
determine how much risk is eliminated by offsetting positions. The VAR analysis
is supplemented by stress testing on a daily basis. The analysis captures all
financial assets and liabilities that are considered trading positions. The
calculation uses historical data from the most recent 252 business days. The
total VAR amount at June 30, 2000, was $11 million compared with $6 million at
December 31, 1999, substantially all of which related to interest rate risk. The
high, low and average VARs in the first six months of 2000 were $16 million, $5
million and $9 million, respectively.
20
<PAGE> 23
ACCOUNTING AND REGULATORY MATTERS
Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended by Statement 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 these instruments be measured at
fair value through adjustments to either other comprehensive income or to
current earnings, depending on the purpose for which the derivative is held.
This Standard, which is effective January 1, 2001, significantly changes the
accounting for hedge-related derivatives. The corporation is in the process of
assessing the impact of this Standard; however, we expect that it will affect
certain risk management strategies and that it may result in some repositioning
of the derivatives portfolio.
Legislation has been enacted providing that deposits and certain claims for
administrative expenses and employee compensation against an insured depository
institution are afforded a priority over other general unsecured claims against
an institution, including federal funds and letters of credit, in the
liquidation or other resolution of such an institution by any receiver.
In 1999, the President signed into law the Gramm-Leach-Bliley Financial
Modernization Act of 1999 (Modernization Act). The Modernization Act allows bank
holding companies meeting management, capital and Community Reinvestment Act
standards to engage in a substantially broader range of nonbanking activities
than was permissible before enactment, including underwriting insurance and
making merchant banking investments in commercial and financial companies. It
also allows insurers and other financial services companies to acquire banks;
removes various restrictions that currently apply to bank holding company
ownership of securities firms and mutual fund advisory companies; and
establishes the overall regulatory structure applicable to bank holding
companies that also engage in insurance and securities operations. This part of
the Modernization Act became effective in March 2000. In the first quarter of
2000, First Union became a financial holding company pursuant to the
Modernization Act and is thereby permitted to engage in the broader range of
activities that the Modernization Act permits.
The Modernization Act also modifies current law related to financial
privacy and community reinvestment. The new privacy provisions will generally
prohibit financial institutions, including First Union, from disclosing
nonpublic personal financial information to nonaffiliated third parties unless
customers have the opportunity to "opt out" of the disclosure.
21
<PAGE> 24
Table 1
CONSOLIDATED SUMMARIES OF INCOME, PER SHARE, BALANCE SHEET AND OTHER DATA
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
Twelve 2000 1999
Months --------------------- -----------------------------------
Ended
June 30, SECOND First Fourth Third Second
(Dollars in millions, except per share data) 2000 QUARTER Quarter Quarter Quarter Quarter
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SUMMARIES OF INCOME
Interest income $ 16,760 4,492 4,313 4,143 3,812 3,624
==============================================================================================================================
Interest income (a) $ 16,862 4,517 4,336 4,169 3,840 3,657
Interest expense 9,062 2,587 2,347 2,198 1,930 1,779
------------------------------------------------------------------------------------------------------------------------------
Net interest income (a) 7,800 1,930 1,989 1,971 1,910 1,878
Provision for loan losses 1,033 493 192 173 175 180
------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for
loan losses (a) 6,767 1,437 1,797 1,798 1,735 1,698
Securities transactions - portfolio (688) (582) (19) (7) (80) (1)
Fee and other income 6,204 979 1,861 1,844 1,520 1,707
Restructuring charges 2,111 2,110 (5) 6 -- --
Other noninterest expense 9,074 2,393 2,387 2,354 1,940 2,053
------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income
taxes (benefits) (a) 1,098 (2,669) 1,257 1,275 1,235 1,351
Income taxes (benefits) 711 (495) 394 407 405 445
Tax-equivalent adjustment 102 25 23 26 28 33
------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 285 (2,199) 840 842 802 873
==============================================================================================================================
PER SHARE DATA
Basic $ 0.29 (2.27) 0.86 0.86 0.84 0.92
Diluted 0.28 (2.27) 0.85 0.86 0.84 0.90
Cash dividends $ 1.90 0.48 0.48 0.47 0.47 0.47
Average shares - Basic (In thousands) -- 969,707 972,174 976,377 946,802 954,548
Average shares - Diluted (In thousands) -- 981,940 984,095 984,537 953,964 961,793
Average stockholders' equity
Quarter-to-date $ -- 16,614 16,583 16,686 15,299 15,701
Year-to-date -- 16,599 16,583 15,932 15,678 15,870
Book value 14.14 14.14 17.16 16.91 16.19 15.99
Common stock price
High 48 3/8 38 7/8 37 15/16 43 5/8 48 3/8 55 15/16
Low 25 25 28 7/16 32 7/16 35 5/16 42 1/16
Period-end $ 25 25 37 1/4 32 15/16 35 5/8 47 1/8
To earnings ratio (b) 89.29X 89.29 10.80 9.89 10.67 13.43
To book value 177% 177 217 195 220 295
BALANCE SHEET DATA
Assets $ 257,994 257,994 253,648 253,024 234,408 229,452
Long-term debt $ 33,140 33,140 33,043 31,975 31,910 30,350
OTHER DATA
ATMs 3,832 3,832 3,786 3,778 3,954 3,955
Employees 73,988 73,988 73,060 71,659 66,391 66,491
==============================================================================================================================
</TABLE>
(a) Tax-equivalent.
(b) Based on diluted earnings per share.
T-1
<PAGE> 25
Table 2
RESTRUCTURING CHARGES
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
Six Months Ended June 30, 2000
--------------------------------------------------------------------------------
Staff
First The Units
Capital Union Money Credit and
(In millions) Markets Mortgage Store Cards Other Total
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
RESTRUCTURING CHARGES
Employee termination benefits $ 28 9 45 25 28 135
Occupancy -- 9 83 1 -- 93
Goodwill and other intangible
impairments -- -- 1,754 -- -- 1,754
Other asset impairments -- 1 34 -- -- 35
Contract cancellations -- 3 9 67 1 80
Other -- -- -- -- 2 2
-----------------------------------------------------------------------------------------------------------------------------
Total 28 22 1,925 93 31 2,099
Reversal of March 1999
restructuring charge -- -- -- -- (14) (14)
-----------------------------------------------------------------------------------------------------------------------------
Total 28 22 1,925 93 17 2,085
EVEREN merger-related charges -- -- -- -- 20 20
-----------------------------------------------------------------------------------------------------------------------------
Total restructuring charges $ 28 22 1,925 93 37 2,105
=============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Signet
June 2000 March 1999 Acquisition
Strategic Restructuring CoreStates and
(In millions) Repositioning Charge Acquisition Other Total
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ACTIVITY IN THE
RESTRUCTURING
ACCRUAL
Balance, December 31, 1999 $ -- 84 38 40 162
Cash payments -- (18) -- (2) (20)
Reversal of prior accruals -- (14) -- -- (14)
Noncash write-downs and
other adjustments -- (4) -- -- (4)
-----------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 2000 -- 48 38 38 124
Restructuring charges 2,099 -- -- -- 2,099
Cash payments (5) (5) (1) (3) (14)
Noncash write-downs and
other adjustments (1,754) (4) -- -- (1,758)
-----------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 2000 $ 340 39 37 35 451
=============================================================================================================================
</TABLE>
T-2
<PAGE> 26
TABLE 3
BUSINESS SEGMENTS (a)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED JUNE 30, 2000
----------------------------------------------------------------------------
INVESTMENT CORPORATE
(In millions) BANKING BANKING INTERNATIONAL OTHER TOTAL
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CAPITAL MARKETS
Income statement data
Net interest income $ 54 275 37 -- 366
Provision for loan losses 12 114 5 -- 131
Fee and other income 396 66 56 (32) 486
Noninterest expense 294 111 42 -- 447
Income tax expense 47 44 18 (32) 77
------------------------------------------------------------------------------------------------------------------------------
Operating earnings $ 97 72 28 -- 197
------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 20.87% 8.30 19.30 -- 13.35
Average loans, net $ 6,796 33,521 5,143 -- 45,460
Average deposits 6,215 4,973 4,575 -- 15,763
Average attributed stockholders'
equity (b) $ 1,881 3,488 586 -- 5,955
==============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
RETAIL
BROKERAGE & WEALTH
INSURANCE & TRUST MUTUAL CAP
(In millions) SERVICES SERVICES FUNDS ACCOUNT OTHER TOTAL
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CAPITAL MANAGEMENT
Income statement data $
Net interest income 41 59 2 58 -- 160
Provision for loan losses -- -- -- -- -- --
Fee and other income 448 177 130 41 (23) 773
Noninterest expense 402 140 64 37 -- 643
Income tax expense 34 37 26 23 (9) 111
------------------------------------------------------------------------------------------------------------------------------
Operating earnings $ 53 59 42 39 (14) 179
------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 38.65% 51.02 72.11 85.36 -- 52.81
Average loans, net $ -- 4,415 -- -- -- 4,415
Average deposits -- 5,863 -- 13,868 -- 19,731
Average attributed stockholders'
equity (b) $ 565 465 183 180 (30) 1,363
==============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
HOME
EQUITY &
FIRST THE RETAIL
UNION MONEY CREDIT BRANCH
(In millions) MORTGAGE STORE CARDS PRODUCTS TOTAL
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CONSUMER
Income statement data
Net interest income $ 12 135 49 638 834
Provision for loan losses -- 29 23 27 79
Fee and other income 46 16 66 217 345
Noninterest expense 56 173 63 597 889
Income tax expense 1 (20) 12 88 81
------------------------------------------------------------------------------------------------------------------------------
Operating earnings $ 1 (31) 17 143 130
------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 9.15% (10.43) 15.55 30.19 14.33
Average loans, net $ 433 14,928 1,786 11,047 28,194
Average deposits 944 212 12 68,165 69,333
Average attributed stockholders'
equity (b) $ 82 1,225 479 1,903 3,689
==============================================================================================================================
</TABLE>
(Continued)
T-3
<PAGE> 27
TABLE 3
BUSINESS SEGMENTS (a)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED JUNE 30, 2000
-------------------------------------------------------------------
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 $ 19 66 43 206 334
Provision for loan losses 1 3 5 -- 9
Fee and other income -- -- -- 140 140
Noninterest expense 12 49 17 191 269
Income tax expense 2 4 8 60 74
------------------------------------------------------------------------------------------------------------------------------
Operating earnings $ 4 10 13 95 122
------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 9.72% 4.97 13.73 58.26 24.64
Average loans, net $ 2,840 14,441 9,277 -- 26,558
Average deposits -- -- -- 22,004 22,004
Average attributed stockholders'
equity (b) $ 161 801 385 665 2,012
==============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
CAPITAL CAPITAL TREASURY/
(In millions) MARKETS MGT. CONSUMER COMMERCIAL NONBANK TOTAL
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED
Income statement data
Net interest income $ 366 160 834 334 211 1,905
Provision for loan losses 131 -- 79 9 9 228
Fee and other income 486 773 345 140 2 1,746
Noninterest expense 447 643 889 269 118 2,366
Income tax expense 77 111 81 74 -- 343
-----------------------------------------------------------------------------------------------------------------------------
Operating earnings 197 179 130 122 86 714
-----------------------------------------------------------------------------------------------------------------------------
Adjustments from operating
earnings to net income (loss)
Restructuring and other charges
Provision for loan losses -- -- -- -- (265) (265)
Fee and other income (149) -- (1,008) -- (192) (1,349)
Noninterest expense -- -- (27) -- (2,110) (2,137)
Income tax benefit 55 -- 383 -- 400 838
-----------------------------------------------------------------------------------------------------------------------------
After-tax restructuring and
other charges (94) -- (652) -- (2,167) (2,913)
-----------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 103 179 (522) 122 (2,081) (2,199)
-----------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 13.35% 52.81 14.33 24.64 9.62 17.74
Average loans, net $ 45,460 4,415 28,194 26,558 27,987 132,614
Average deposits 15,763 19,731 69,333 22,004 14,373 141,204
Average attributed stockholders'
equity (b) $ 5,955 1,363 3,689 2,012 3,595 16,614
=============================================================================================================================
</TABLE>
(Continued)
T-4
<PAGE> 28
TABLE 3
BUSINESS SEGMENTS (a)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
Three Months Ended June 30, 1999
---------------------------------------------------------------------------------
Investment Corporate
(In millions) Banking Banking International Other Total
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CAPITAL MARKETS
Income statement data
Net interest income $ 78 290 45 -- 413
Provision for loan losses 18 43 -- -- 61
Fee and other income 285 41 51 (27) 350
Noninterest expense 191 102 50 -- 343
Income tax expense 49 70 17 (27) 109
------------------------------------------------------------------------------------------------------------------
Net income $ 105 116 29 -- 250
------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 27.48% 13.37 17.35 -- 17.64
Average loans, net $7,262 31,477 4,517 -- 43,256
Average deposits 4,872 5,237 4,544 -- 14,653
Average attributed stockholders'
equity (b) $1,535 3,497 649 -- 5,681
==================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Retail
Brokerage & Wealth
Insurance & Trust Mutual CAP
(In millions) Services Services Funds Account Other Total
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CAPITAL MANAGEMENT
Income statement data
Net interest income $ 20 54 1 46 -- 121
Provision for loan losses -- (2) -- -- -- (2)
Fee and other income 234 169 110 28 (22) 519
Noninterest expense 208 129 68 31 -- 436
Income tax expense 18 36 17 17 (9) 79
------------------------------------------------------------------------------------------------------------------
Net income $ 28 60 26 26 (13) 127
------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 34.08% 56.25 41.62 72.27 -- 49.55
Average loans, net $ -- 3,757 -- -- -- 3,757
Average deposits -- 5,743 -- 14,096 -- 19,839
Average attributed stockholders'
equity (b) $ 334 419 159 149 (28) 1,033
==================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Home
Equity &
First The Retail
Union Money Credit Branch
(In millions) Mortgage Store Cards Products Total
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CONSUMER
Income statement data
Net interest income $ 21 139 62 608 830
Provision for loan losses 1 18 39 20 78
Fee and other income 109 115 109 212 545
Noninterest expense 66 154 63 589 872
Income tax expense 25 31 26 81 163
------------------------------------------------------------------------------------------------------------------
Net income $ 38 51 43 130 262
------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 124.97% 14.66 35.74 29.18 27.90
Average loans, net $ 475 11,881 2,564 16,570 31,490
Average deposits 1,332 66 9 70,364 71,771
Average attributed stockholders'
equity (b) $ 129 1,396 467 1,802 3,794
==================================================================================================================
</TABLE>
(Continued)
T-5
<PAGE> 29
TABLE 3
BUSINESS SEGMENTS (a)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
Three Months Ended June 30, 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 $ 23 61 45 211 340
Provision for loan losses 1 14 8 -- 23
Fee and other income -- -- -- 139 139
Noninterest expense 10 59 16 186 271
Income tax expense 4 (11) 7 63 63
----------------------------------------------------------------------------------------------------------------------------
Net income $ 8 (1) 14 101 122
----------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 16.30% (0.27) 12.28 63.88 22.97
Average loans, net $2,751 14,347 8,528 -- 25,626
Average deposits -- -- -- 22,530 22,530
Average attributed stockholders'
equity (b) $ 166 879 408 633 2,086
============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Capital Capital Treasury/
(In millions) Markets Mgt. Consumer Commercial Nonbank Total
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED
Income statement data
Net interest income $ 413 121 830 340 141 1,845
Provision for loan losses 61 (2) 78 23 20 180
Fee and other income 350 519 545 139 153 1,706
Noninterest expense 343 436 872 271 131 2,053
Income tax expense 109 79 163 63 31 445
----------------------------------------------------------------------------------------------------------------------------
Net income after
merger-related and
restructuring charges 250 127 262 122 112 873
After-tax merger-related and
restructuring charges -- -- -- -- -- --
----------------------------------------------------------------------------------------------------------------------------
Net income before
merger-related and
restructuring charges $ 250 127 262 122 112 873
----------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 17.64% 49.55 27.90 22.97 14.46 21.94
Average loans, net $43,256 3,757 31,490 25,626 27,023 131,152
Average deposits 14,653 19,839 71,771 22,530 4,999 133,792
Average attributed stockholders'
equity (b) $ 5,681 1,033 3,794 2,086 3,107 15,701
============================================================================================================================
</TABLE>
(Continued)
T-6
<PAGE> 30
TABLE 3
BUSINESS SEGMENTS (a)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 2000
----------------------------------------------------------------------------------------
INVESTMENT CORPORATE
(In millions) BANKING BANKING INTERNATIONAL OTHER TOTAL
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CAPITAL MARKETS
Income statement data
Net interest income $ 139 567 68 -- 774
Provision for loan losses 46 167 5 -- 218
Fee and other income 821 119 109 (63) 986
Noninterest expense 542 219 79 -- 840
Income tax expense 127 114 36 (63) 214
-----------------------------------------------------------------------------------------------------------------------------
Operating earnings $ 245 186 57 -- 488
-----------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 26.66% 10.75 19.34 -- 16.58
Average loans, net $ 6,854 32,806 5,015 -- 44,675
Average deposits 6,842 5,182 4,400 -- 16,424
Average attributed stockholders'
equity (b) $ 1,851 3,479 597 -- 5,927
============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
RETAIL
BROKERAGE & WEALTH
INSURANCE & TRUST MUTUAL CAP
(In millions) SERVICES SERVICES FUNDS ACCOUNT OTHER TOTAL
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CAPITAL MANAGEMENT
Income statement data $
Net interest income 86 115 4 117 -- 322
Provision for loan losses -- -- -- -- -- --
Fee and other income 994 360 260 79 (48) 1,645
Noninterest expense 884 282 131 75 -- 1,372
Income tax expense 75 74 51 46 (18) 228
-------------------------------------------------------------------------------------------------------------------------------
Operating earnings $ 121 119 82 75 (30) 367
-------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 39.07 % 51.59 68.72 78.66 -- 51.58
Average loans, net $ -- 4,273 -- 1 -- 4,274
Average deposits -- 5,902 -- 14,137 -- 20,039
Average attributed stockholders'
equity (b) $ 624 463 183 192 (31) 1,431
============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
HOME
EQUITY &
FIRST THE RETAIL
UNION MONEY CREDIT BRANCH
(In millions) MORTGAGE STORE CARDS PRODUCTS TOTAL
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CONSUMER
Income statement data
Net interest income $ 22 269 106 1,270 1,667
Provision for loan losses -- 52 51 49 152
Fee and other income 92 31 125 426 674
Noninterest expense 111 329 124 1,194 1,758
Income tax expense 1 (31) 22 173 165
----------------------------------------------------------------------------------------------------------------------------
Operating earnings $ 2 (50) 34 280 266
----------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 5.83% (8.12) 14.45 29.73 14.50
Average loans, net $ 435 14,323 1,777 10,839 27,374
Average deposits 854 212 14 67,720 68,800
Average attributed stockholders'
equity (b) $ 78 1,245 487 1,894 3,704
============================================================================================================================
</TABLE>
(Continued)
T-7
<PAGE> 31
TABLE 3
BUSINESS SEGMENTS (a)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 2000
----------------------------------------------------------------------------------------
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 $ 39 137 88 409 673
Provision for loan losses 2 10 10 -- 22
Fee and other income -- -- -- 284 284
Noninterest expense 23 95 32 385 535
Income tax expense 5 10 18 118 151
----------------------------------------------------------------------------------------------------------------------------
Operating earnings $ 9 22 28 190 249
----------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 10.64 % 5.46 14.81 57.66 24.82
Average loans, net $ 2,818 14,544 9,140 -- 26,502
Average deposits -- -- -- 21,812 21,812
Average attributed stockholders'
equity (b) $ 160 809 387 664 2,020
============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
CAPITAL CAPITAL TREASURY/
(In millions) MARKETS MGT. CONSUMER COMMERCIAL NONBANK TOTAL
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED
Income statement data
Net interest income $ 774 322 1,667 673 435 3,871
Provision for loan losses 218 152 22 28 420
Fee and other income 986 1,645 674 284 (1) 3,588
Noninterest expense 840 1,372 1,758 535 248 4,753
Income tax expense 214 228 165 151 (24) 734
----------------------------------------------------------------------------------------------------------------------------
Operating earnings 488 367 266 249 182 1,552
----------------------------------------------------------------------------------------------------------------------------
Adjustments from operating
earnings to net income (loss)
Restructuring and other charges
Provision for loan losses -- -- -- -- (265) (265)
Fee and other income (149) -- (1,008) -- (192) (1,349)
Noninterest expense -- -- (27) -- (2,105) (2,132)
Income tax benefit 55 -- 383 -- 397 835
----------------------------------------------------------------------------------------------------------------------------
After-tax restructuring and
other charges (94) -- (652) -- (2,165) (2,911)
----------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 394 367 (386) 249 (1,983) (1,359)
----------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 16.58% 51.58 14.50 24.82 10.41 19.04
Average loans, net $ 44,675 4,274 27,374 26,502 29,223 132,048
Average deposits 16,424 20,039 68,800 21,812 13,737 140,812
Average attributed stockholders'
equity (b) $ 5,927 1,431 3,704 2,020 3,517 16,599
============================================================================================================================
</TABLE>
(Continued)
T-8
<PAGE> 32
TABLE 3
BUSINESS SEGMENTS (a)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
Six Months Ended June 30, 1999
----------------------------------------------------------------------------------------
Investment Corporate
(In millions) Banking Banking International Other Total
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CAPITAL MARKETS
Income statement data
Net interest income $ 138 565 92 -- 795
Provision for loan losses 39 77 -- -- 116
Fee and other income 689 100 99 (55) 833
Noninterest expense 405 208 104 -- 717
Income tax expense 129 142 33 (55) 249
----------------------------------------------------------------------------------------------------------------------------
Net income $ 254 238 54 -- 546
----------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 34.26% 13.80 17.17 -- 19.65
Average loans, net $ 7,113 31,672 4,722 -- 43,507
Average deposits 4,941 5,325 5,026 -- 15,292
Average attributed stockholders'
equity (b) $ 1,500 3,478 631 -- 5,609
============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Retail
Brokerage & Wealth
Insurance & Trust Mutual CAP
(In millions) Services Services Funds Account Other Total
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CAPITAL MANAGEMENT
Income statement data
Net interest income $ 37 111 2 91 -- 241
Provision for loan losses -- (1) -- -- -- (1)
Fee and other income 456 336 217 54 (44) 1,019
Noninterest expense 407 266 127 62 -- 862
Income tax expense 33 69 35 32 (17) 152
----------------------------------------------------------------------------------------------------------------------------
Net income $ 53 113 57 51 (27) 247
----------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 33.28 % 53.72 47.29 71.10 -- 48.92
Average loans, net $ -- 3,740 -- -- -- 3,740
Average deposits -- 5,775 -- 14,128 -- 19,903
Average attributed stockholders'
equity (b) $ 324 421 155 146 (28) 1,018
============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Home
Equity &
First The Retail
Union Money Credit Branch
(In millions) Mortgage Store Cards Products Total
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CONSUMER
Income statement data
Net interest income $ 45 255 122 1,209 1,631
Provision for loan losses 1 28 85 43 157
Fee and other income 225 201 166 416 1,008
Noninterest expense 144 315 125 1,164 1,748
Income tax expense 48 43 30 160 281
----------------------------------------------------------------------------------------------------------------------------
Net income $ 77 70 48 258 453
----------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 101.15% 10.37 20.66 28.57 24.04
Average loans, net $ 482 11,604 2,579 16,377 31,042
Average deposits 1,336 34 10 71,131 72,511
Average attributed stockholders'
equity (b) $ 156 1,368 468 1,829 3,821
============================================================================================================================
</TABLE>
(Continued)
T-9
<PAGE> 33
TABLE 3
BUSINESS SEGMENTS (a)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
Six Months Ended June 30, 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 $ 43 121 90 429 683
Provision for loan losses 2 20 14 -- 36
Fee and other income -- -- -- 271 271
Noninterest expense 20 111 35 376 542
Income tax expense 8 (16) 15 124 131
----------------------------------------------------------------------------------------------------------------------------------
Net income $ 13 6 26 200 245
----------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 15.81 % 1.66 12.30 61.51 23.31
Average loans, net $ 2,724 14,475 8,458 -- 25,657
Average deposits -- -- -- 23,027 23,027
Average attributed stockholders'
equity (b) $ 164 893 410 657 2,124
==================================================================================================================================
<CAPTION>
Capital Capital Treasury/
(In millions) Markets Mgt. Consumer Commercial Nonbank Total
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED
Income statement data
Net interest income $ 795 241 1,631 683 275 3,625
Provision for loan losses 116 (1) 157 36 36 344
Fee and other income 833 1,019 1,008 271 525 3,656
Noninterest expense 717 862 1,748 542 693 4,562
Income tax expense 249 152 281 131 (17) 796
----------------------------------------------------------------------------------------------------------------------------------
Net income after
merger-related and
restructuring charges 546 247 453 245 88 1,579
After-tax merger-related and
restructuring charges -- -- -- 259 259
----------------------------------------------------------------------------------------------------------------------------------
Net income before
merger-related and
restructuring charges $ 546 247 453 245 347 1,838
----------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 19.65 % 48.92 24.04 23.31 21.22 23.13
Average loans, net $ 43,507 3,740 31,042 25,657 26,369 130,315
Average deposits 15,292 19,903 72,511 23,027 4,288 135,021
Average attributed stockholders'
equity (b) $ 5,609 1,018 3,821 2,124 3,298 15,870
==================================================================================================================================
</TABLE>
(a) Business Segment information reflects the purchase accounting acquisition
of EVEREN for the three and six months ended June 30, 2000. This acquisition
occurred on October 1, 1999. See the "Business Segments" discussion in
Management's Analysis of Operations for further information about the
methodology and assumptions used in presenting this information.
(b) Average attributed stockholders' equity excludes merger-related,
restructuring and other charges. 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> 34
TABLE 4
FEE AND OTHER INCOME - CAPITAL MARKETS
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
2000 1999
---------------------- -----------------------------------
SECOND First Fourth Third Second
(In millions) QUARTER Quarter Quarter Quarter Quarter
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Principal investing $ 185 203 210 176 60
Risk management (a) 79 63 41 46 44
Investment banking (a) 122 115 156 102 144
Corporate banking 66 53 51 33 41
International 56 53 52 53 51
Fixed income and other (a) 10 44 40 6 37
--------------------------------------------------------------------------------------------------------------------------------
Total 518 531 550 416 377
Eliminations (32) (31) (72) (22) (27)
--------------------------------------------------------------------------------------------------------------------------------
Total fee and other income - Capital Markets $ 486 500 478 394 350
================================================================================================================================
</TABLE>
(a) The aggregate amounts of trading account profits included in this table in
the second and first quarters of 2000 and in the fourth, third and second
quarters of 1999 were $73 million, $99 million, $72 million, $20 million and $87
million, respectively. This includes risk management and proprietary trading as
well as amounts included in investment banking and fixed income and other
trading.
T-11
<PAGE> 35
TABLE 5
SELECTED PERFORMANCE, DIVIDEND PAYOUT AND OTHER RATIOS
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
Six Months Ended
June 30, 2000 1999
---------------------- --------------------- ------------------------------------
SECOND First Fourth Third Second
2000 1999 QUARTER Quarter Quarter Quarter Quarter
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PERFORMANCE RATIOS (a)
Assets to stockholders' equity 15.18 X 14.13 15.38 14.97 14.60 14.98 14.26
Return on assets (1.08)% 1.42 (3.46) 1.36 1.37 1.39 1.56
Return on stockholders' equity (16.47)% 20.06 (53.24) 20.38 20.00 20.82 22.30
===============================================================================================================================
DIVIDEND PAYOUT RATIOS ON
Operating earnings 60.76 % 49.47 65.75 56.47 54.65 55.95 52.22
Net income (b) -- % 57.67 -- 56.47 54.65 55.95 52.22
===============================================================================================================================
OTHER RATIOS
Operating earnings
Return on assets 1.24 % 1.65 1.13 1.36 1.38 1.39 1.56
Return on stockholders' equity 19.04 % 23.13 17.74 20.31 19.78 20.47 21.94
===============================================================================================================================
</TABLE>
(a) Based on average balances and net income.
(b) Dividend payout ratios are not presented for periods in which there is a
net loss.
T-12
<PAGE> 36
TABLE 6
LOANS - ON-BALANCE SHEET, AND MANAGED AND SERVICING PORTFOLIOS
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
2000 1999
------------------------ ---------------------------------------
SECOND First Fourth Third Second
(In millions) QUARTER Quarter Quarter Quarter Quarter
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ON-BALANCE SHEET LOAN PORTFOLIO
COMMERCIAL
Commercial, financial and agricultural $ 53,870 54,082 51,683 52,497 52,727
Real estate - construction and other 2,600 2,344 2,435 2,709 2,636
Real estate - mortgage 9,239 9,275 8,768 8,404 8,441
Lease financing 13,181 12,511 12,742 11,969 10,527
Foreign 4,956 4,587 4,991 4,933 4,609
--------------------------------------------------------------------------------------------------------------------------
Total commercial 83,846 82,799 80,619 80,512 78,940
--------------------------------------------------------------------------------------------------------------------------
RETAIL
Real estate - mortgage 25,204 27,528 27,793 26,427 24,314
Installment loans - Bankcard (a) 141 1,752 1,879 1,681 2,133
Installment loans - other 21,656 25,145 23,916 22,853 22,619
Vehicle leasing 3,112 3,822 4,483 5,096 5,753
--------------------------------------------------------------------------------------------------------------------------
Total retail 50,113 58,247 58,071 56,057 54,819
--------------------------------------------------------------------------------------------------------------------------
Total loans 133,959 141,046 138,690 136,569 133,759
Unearned income 5,600 5,243 5,513 5,087 4,188
--------------------------------------------------------------------------------------------------------------------------
Loans, net (on-balance sheet) $ 128,359 135,803 133,177 131,482 129,571
==========================================================================================================================
MANAGED PORTFOLIO (b)
--------------------------------------------------------------------------------------------------------------------------
COMMERCIAL
On-balance sheet loan portfolio $ 83,846 82,799 80,619 80,512 78,940
Securitized loans 1,139 1,173 1,223 1,257 1,300
Loans held for sale included in other assets 2,446 2,089 1,843 -- --
--------------------------------------------------------------------------------------------------------------------------
Total commercial 87,431 86,061 83,685 81,769 80,240
--------------------------------------------------------------------------------------------------------------------------
RETAIL
Real estate - mortgage
On-balance sheet loan portfolio 25,204 27,528 27,793 26,427 24,314
Loans held for sale included in other assets 782 1,341 1,503 1,413 2,314
--------------------------------------------------------------------------------------------------------------------------
Total real estate mortgage 25,986 28,869 29,296 27,840 26,628
--------------------------------------------------------------------------------------------------------------------------
Installment loans - Bankcard (a)
On-balance sheet loan portfolio 141 1,752 1,879 1,681 2,133
Securitized loans 3,941 3,941 3,941 3,941 3,398
Loans held for sale included in other assets 1,594 -- -- -- --
--------------------------------------------------------------------------------------------------------------------------
Total installment loans - Bankcard 5,676 5,693 5,820 5,622 5,531
--------------------------------------------------------------------------------------------------------------------------
Installment loans - other
On-balance sheet loan portfolio 21,656 25,145 23,916 22,853 22,619
Securitized loans 11,726 12,533 13,259 14,390 15,312
Securitized loans included in
securities available for sale 10,143 9,596 9,265 8,660 7,976
Loans held for sale included in other assets 5,882 1,339 898 591 177
--------------------------------------------------------------------------------------------------------------------------
Total installment loans - other 49,407 48,613 47,338 46,494 46,084
--------------------------------------------------------------------------------------------------------------------------
Vehicle leasing - on-balance sheet loan portfolio 3,112 3,822 4,483 5,096 5,753
--------------------------------------------------------------------------------------------------------------------------
Total retail 84,181 86,997 86,937 85,052 83,996
--------------------------------------------------------------------------------------------------------------------------
Total managed portfolio $ 171,612 173,058 170,622 166,821 164,236
==========================================================================================================================
SERVICING PORTFOLIO
Commercial $ 29,000 28,985 29,193 28,433 24,693
Residential $ 37,722 37,108 38,200 39,385 40,606
==========================================================================================================================
</TABLE>
(a) Installment loans - Bankcard include credit cards, instant cash reserve,
signature and First Choice.
(b) The managed portfolio includes the on-balance sheet loan portfolio, loans
held for sale that are classified in other assets, loans securitized for which
the securities are classified in securities available for sale and the
off-balance sheet portfolio of securitized loans.
T-13
<PAGE> 37
TABLE 7
ALLOWANCE FOR LOAN LOSSES AND NONPERFORMING ASSETS
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
2000 1999
------------------------- ----------------------------------
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 $ 1,760 1,757 1,759 1,785 1,825
Provision for loan losses 493 192 173 175 180
Allowance relating to loans acquired, transferred to
other assets or sold (319) -- (6) (26) (40)
Loan losses, net (228) (189) (169) (175) (180)
--------------------------------------------------------------------------------------------------------------------------------
Balance, end of period $ 1,706 1,760 1,757 1,759 1,785
================================================================================================================================
as a % of loans, net 1.33 % 1.30 1.32 1.34 1.38
================================================================================================================================
as a % of nonaccrual and restructured loans 215 % 150 181 187 212
================================================================================================================================
as a % of nonperforming assets 193 % 139 165 169 190
================================================================================================================================
LOAN LOSSES
Commercial, financial and agricultural $ 157 107 93 95 89
Real estate - commercial construction and mortgage 1 2 9 4 10
Real estate - residential mortgage 5 4 5 5 5
Installment loans - Bankcard 25 31 37 37 43
Installment loans - other and vehicle leasing 76 73 64 67 67
--------------------------------------------------------------------------------------------------------------------------------
Total 264 217 208 208 214
--------------------------------------------------------------------------------------------------------------------------------
LOAN RECOVERIES
Commercial, financial and agricultural 21 10 21 17 12
Real estate - commercial construction and mortgage -- 1 3 3 2
Real estate - residential mortgage 1 -- 1 -- 2
Installment loans - Bankcard 2 3 1 2 3
Installment loans - other and vehicle leasing 12 14 13 11 15
--------------------------------------------------------------------------------------------------------------------------------
Total 36 28 39 33 34
--------------------------------------------------------------------------------------------------------------------------------
Loan losses, net $ 228 189 169 175 180
================================================================================================================================
as % of average loans, net (a) 0.69 % 0.57 0.52 0.55 0.55
================================================================================================================================
NONPERFORMING ASSETS (b)
Nonaccrual loans
Commercial, financial and agricultural $ 562 729 551 506 427
Real estate - commercial construction and mortgage 59 62 55 59 69
Real estate - residential mortgage 28 148 150 156 166
Installment loans - Bankcard -- -- -- 5 5
Installment loans - other and vehicle leasing 142 236 212 212 176
--------------------------------------------------------------------------------------------------------------------------------
Total nonaccrual loans 791 1,175 968 938 843
Foreclosed properties (c) 93 95 98 103 97
--------------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $ 884 1,270 1,066 1,041 940
================================================================================================================================
as % of loans, net, and foreclosed properties 0.69 % 0.93 0.80 0.79 0.73
================================================================================================================================
Accruing loans past due 90 days $ 84 134 144 194 209
================================================================================================================================
</TABLE>
(a) Annualized.
(b) Nonperforming assets at June 30, 2000, do not include net book values of
$161 million of nonperforming commercial loans and $170 million of nonperforming
retail loans that are classified as and included in loans held for sale in other
assets.
(c) Restructured loans are insignificant.
T-14
<PAGE> 38
TABLE 8
INTANGIBLE ASSETS
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
2000 1999
---------------------- -------------------------------------
SECOND First Fourth Third Second
(In millions) QUARTER Quarter Quarter Quarter Quarter
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill $ 3,510 5,065 5,091 4,276 4,336
Deposit base premium 215 236 257 283 309
Origination network -- 269 274 279 284
Other 11 11 4 4 5
------------------------------------------------------------------------------------------------------------------
Total $ 3,736 5,581 5,626 4,842 4,934
==================================================================================================================
MORTGAGE AND OTHER SERVICING ASSETS $ 662 681 703 712 744
==================================================================================================================
CREDIT CARD PREMIUM $ 4 5 6 8 10
==================================================================================================================
</TABLE>
T-15
<PAGE> 39
TABLE 9
DEPOSITS
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
2000 1999
------------------------ ---------------------------------------
SECOND First Fourth Third Second
(In millions) QUARTER Quarter Quarter Quarter Quarter
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CORE DEPOSITS
Noninterest-bearing $ 30,229 29,885 31,375 28,737 31,703
Savings and NOW accounts 35,346 36,955 37,748 36,667 37,354
Money market accounts 17,988 18,207 19,405 19,666 20,109
Other consumer time 35,789 34,881 33,812 32,743 33,192
-------------------------------------------------------------------------------------------------------------
Total core deposits 119,352 119,928 122,340 117,813 122,358
OTHER DEPOSITS
Foreign 9,178 7,062 6,729 5,590 5,591
Other time 16,334 12,900 11,978 10,500 5,654
-------------------------------------------------------------------------------------------------------------
Total deposits $144,864 139,890 141,047 133,903 133,603
=============================================================================================================
</TABLE>
T-16
<PAGE> 40
TABLE 10
TIME DEPOSITS IN AMOUNTS OF $100,000 OR MORE
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
JUNE 30, 2000
-------------
(In millions)
-------------------------------------------------------------------------------------------------------------
<S> <C>
MATURITY OF
3 months or less $ 8,568
Over 3 months through 6 months 5,606
Over 6 months through 12 months 5,063
Over 12 months 3,557
-------------------------------------------------------------------------------------------------------------
Total $ 22,794
=============================================================================================================
</TABLE>
T-17
<PAGE> 41
TABLE 11
LONG-TERM DEBT
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
2000 1999
---------------------- -------------------------------------
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
6.60% to 7.70%, due 2000 to 2005 $ 1,790 2,039 1,592 996 648
Floating rate, due 2001 to 2005 1,770 1,087 90 -- --
Floating rate extendible, due 2005 10 10 10 10 10
Subordinated notes
6.00% to 9.45%, due 2001 to 2009 2,662 2,662 2,661 2,659 2,659
7.18% to 8.00%, due 2009 to 2011 208 208 208 208 208
6.30%, Putable/Callable, due 2028 200 200 200 200 200
8.77% -- -- -- 149 149
Floating rate, due 2003 150 150 150 150 150
Subordinated debentures
6.55% to 7.5%, due 2026 to 2035 794 794 794 794 794
-------------------------------------------------------------------------------------------------------------------------------
Total notes and debentures issued by the
Parent Company 7,584 7,150 5,705 5,166 4,818
-------------------------------------------------------------------------------------------------------------------------------
NOTES ISSUED BY SUBSIDIARIES
Notes, primarily notes issued under global
note programs, varying rates and terms to 2015 16,988 17,339 18,026 18,890 18,527
Subordinated notes
5-7/8% to 9-5/8%, due 2001 to 2006 1,075 1,074 1,074 1,074 1,224
Bank, 5.80% to 7-7/8%, due 2006 to 2036 1,549 1,549 1,200 1,200 1,200
6-5/8% to 8-3/8%, due 2002 to 2007 570 570 570 400 400
-------------------------------------------------------------------------------------------------------------------------------
Total notes issued by subsidiaries 20,182 20,532 20,870 21,564 21,351
-------------------------------------------------------------------------------------------------------------------------------
OTHER DEBT
Trust preferred securities 2,010 1,992 2,027 1,730 1,730
4.556% auto securitization financing, due
September 30, 2008 944 945 945 1,022 1,022
Advances from the Federal Home Loan Bank 2,387 2,387 2,387 2,387 1,387
Capitalized leases 26 30 34 34 35
Mortgage notes and other debt 7 7 7 7 7
-------------------------------------------------------------------------------------------------------------------------------
Total other debt 5,374 5,361 5,400 5,180 4,181
-------------------------------------------------------------------------------------------------------------------------------
Total $33,140 33,043 31,975 31,910 30,350
===============================================================================================================================
</TABLE>
T-18
<PAGE> 42
TABLE 12
CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
Twelve
Months 2000 1999
Ended --------------------- -----------------------------------
June 30, SECOND First Fourth Third Second
(In millions) 2000 QUARTER Quarter Quarter Quarter Quarter
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, beginning of period $ 15,288 16,884 16,709 15,513 15,288 15,976
----------------------------------------------------------------------------------------------------------------------------
Comprehensive income
Net income (loss) 285 (2,199) 840 842 802 873
Net unrealized loss on debt and
equity securities (837) (212) (44) (388) (193) (341)
----------------------------------------------------------------------------------------------------------------------------
Total comprehensive income (552) (2,411) 796 454 609 532
Purchases of common stock (458) (132) (221) (83) (22) (854)
Common stock issued for
Stock options and restricted stock 214 76 47 66 25 268
Dividend reinvestment plan 80 19 20 20 21 21
Acquisitions 1,251 -- -- 1,251 -- --
Deferred compensation, net (7) (14) 11 (48) 44 (204)
Cash dividends paid (1,865) (471) (478) (464) (452) (451)
----------------------------------------------------------------------------------------------------------------------------
Balance, end of period $ 13,951 13,951 16,884 16,709 15,513 15,288
============================================================================================================================
</TABLE>
T-19
<PAGE> 43
TABLE 13
CAPITAL RATIOS
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
2000 1999
-------------------------- ------------------------------------------
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 $ 13,452 14,422 14,204 13,117 12,612
Total capital 21,385 22,191 21,810 20,922 20,540
Adjusted risk-weighted assets 202,391 207,955 200,704 187,635 196,195
Adjusted leverage ratio assets $ 251,895 242,869 238,082 224,497 219,208
Ratios
Tier 1 capital 6.65% 6.94 7.08 6.99 6.43
Total capital 10.57 10.67 10.87 11.15 10.47
Leverage 5.34 5.94 5.97 5.84 5.75
STOCKHOLDERS' EQUITY TO ASSETS
Quarter-end 5.41 6.66 6.60 6.62 6.66
Average 6.50% 6.68 6.85 6.68 7.01
==========================================================================================================================
BANK CAPITAL RATIOS
Tier 1 capital
First Union National Bank 7.16% 7.38 7.26 7.27 7.13
First Union National Bank of Delaware(b) 12.02 11.43 10.83 11.56 9.41
Total capital
First Union National Bank 10.58 10.54 10.22 10.39 10.17
First Union National Bank of Delaware(b) 14.05 12.45 11.89 12.73 10.98
Leverage
First Union National Bank 6.09 6.74 6.48 6.46 6.72
First Union National Bank of Delaware(b) 8.20% 7.33 7.08 6.05 6.25
==========================================================================================================================
</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.
(b) On June 26, 2000, First Union National Bank of Delaware was formed through
the merger of First Union Bank of Delaware and First Union Home Equity Bank.
T-20
<PAGE> 44
TABLE 14
UNREALIZED LOSSES IN CERTAIN FINANCIAL INSTRUMENTS
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
2000 1999
--------------------- ----------------------------
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(b) $ (1,901) (1,559) (1,431) (833) (528)
Investment securities 48 46 51 70 83
----------------------------------------------------------------------------------------------------------------------
Net unrealized losses - securities portfolios (1,853) (1,513) (1,380) (763) (445)
Less unrealized losses in securities considered
an economic hedge of mortgage servicing rights (39) (34) (79) (56) (45)
----------------------------------------------------------------------------------------------------------------------
Net unrealized losses, net - securities portfolios (1,814) (1,479) (1,301) (707) (400)
----------------------------------------------------------------------------------------------------------------------
OFF-BALANCE SHEET DERIVATIVE FINANCIAL
INSTRUMENTS(A)
Asset rate conversions(b) (369) (374) (504) (217) (152)
Liability rate conversions 161 23 338 256 273
Rate sensitivity hedges 55 45 4 (7) (6)
----------------------------------------------------------------------------------------------------------------------
Net unrealized gains (losses) - off-balance sheet
derivative financial instruments (153) (306) (162) 32 115
Less unrealized gains (losses) in interest rate swaps
designated as offsets to long-term fixed rate debt (274) (287) (262) (72) 8
----------------------------------------------------------------------------------------------------------------------
Net unrealized gains (losses) - off-balance sheet
derivative financial instruments 121 (19) 100 104 107
----------------------------------------------------------------------------------------------------------------------
Net unrealized losses $ (1,693) (1,498) (1,201) (603) (293)
======================================================================================================================
</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.
(b) As of June 30, 2000, March 31, 2000, December 31, 1999, and September 30,
1999, unrealized gains (losses) of $(45) million, $13 million, $14 million and
$22 million, respectively, associated with $25.6 billion, $8.8 billion, $8.3
billion and $7.5 billion, respectively, of interest rate swaps that qualify as
asset rate conversions of securities available for sale are included with the
results of the securities available for sale portfolio.
T-21
<PAGE> 45
TABLE 15
SECURITIES AVAILABLE FOR SALE
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
JUNE 30, 2000
---------------------------------------------------------------------------------------------
GROSS UNREALIZED AVERAGE
1 YEAR 1-5 5-10 AFTER 10 ---------------- AMORTIZED MATURITY
(In millions) OR LESS YEARS YEARS YEARS TOTAL GAINS LOSSES COST IN YEARS
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MARKET VALUE
U.S. Treasury $ 1 1 1,542 439 1,983 -- 91 2,074 11.81
U.S. Government agencies 4 160 26,481 -- 26,645 5 1,346 27,986 8.59
Asset-backed 567 10,503 5,743 540 17,353 207 532 17,678 5.97
State, county and municipal - 2 41 1,487 1,530 19 6 1,517 28.35
Sundry 88 587 2,738 2,567 5,980 40 197 6,137 8.93
----------------------------------------------------------------------------------------------------------------
Total $ 660 11,253 36,545 5,033 53,491 271 2,172 55,392 8.45
============================================================================================================================
MARKET VALUE
Debt securities $ 660 11,253 36,545 3,973 52,431 239 2,167 54,359
Equity securities -- -- -- 1,060 1,060 32 5 1,033
----------------------------------------------------------------------------------------------------------------
Total $ 660 11,253 36,545 5,033 53,491 271 2,172 55,392
================================================================================================================
AMORTIZED COST
Debt securities $ 575 11,328 38,379 4,077 54,359
Equity securities -- -- -- 1,033 1,033
--------------------------------------------------------------------------------
Total $ 575 11,328 38,379 5,110 55,392
================================================================================
WEIGHTED AVERAGE
YIELD
U.S. Treasury 5.58% 4.58 5.75 5.59 5.71
U.S. Government agencies 5.91 7.24 6.60 -- 6.60
Asset-backed 8.30 8.62 7.15 7.43 8.07
State, county and municipal -- 8.25 7.24 9.19 9.14
Sundry 8.39 7.21 7.43 6.70 7.11
Consolidated 8.29% 8.53 6.71 7.39 7.16
================================================================================
</TABLE>
Included in "Sundry" are $3.4 billion of securities denominated in
currencies other than the U.S. dollar. These securities had a weighted average
maturity of 9.06 years and a weighted average yield of 6.87 percent. For
comparative purposes, the weighted average U.S. dollar equivalent yield of these
securities was 8.16 percent based on a weighted average funding cost
differential of (1.29) percent.
Included in "Asset-backed" are interest-only and residual certificates
with a market value of $454 million; gross unrealized gains and losses of $91
million and $34 million, respectively; and an amortized cost of $397 million.
Expected maturities may differ from contractual maturities because
issuers may have the right to call or prepay obligations with or without call or
prepayment penalties. Average maturity excludes equity securities and money
market funds.
Yields related to securities exempt from federal and state income taxes
are stated on a fully tax-equivalent basis. They are reduced by the
nondeductible portion of interest expense, assuming a federal tax rate of 35
percent and applicable state tax rates.
At June 30, 2000, there were forward commitments to purchase securities
at a cost which approximates a market value of $87 million, and commitments to
sell securities at a cost which approximates a market value of $5 million.
Gross gains and losses realized on the sale of debt securities for the
six months ended June 30, 2000, were $2 million and $608 million, respectively,
and gross gains realized on equity securities were $5 million.
T-22
<PAGE> 46
TABLE 16
INVESTMENT SECURITIES
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
JUNE 30, 2000
--------------------------------------------------------------------------------------
GROSS UNREALIZED AVERAGE
1 YEAR 1-5 5-10 AFTER 10 ---------------- MARKET MATURITY
(In millions) OR LESS YEARS YEARS YEARS TOTAL GAINS LOSSES VALUE IN YEARS
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CARRYING VALUE
U.S. Treasury $ -- -- 1 -- 1 -- -- 1 4.58
U.S. Government agencies 22 259 783 -- 1,064 4 23 1,045 5.27
CMOs 30 9 -- -- 39 -- 1 38 1.42
State, county and municipal 36 146 276 125 583 68 -- 651 7.41
Sundry 2 21 -- 2 25 -- -- 25 2.55
-----------------------------------------------------------------------------------------------------------------
Total $ 90 435 1,060 127 1,712 72 24 1,760 5.88
============================================================================================================================
MARKET VALUE
Debt securities $ 90 444 1,080 146 1,760
====================================================================================
WEIGHTED AVERAGE
YIELD
U.S. Treasury --% -- 4.77 -- 4.77
U.S. Government agencies 7.02 7.76 6.64 -- 6.92
CMOs 8.44 7.03 -- -- 8.10
State, county and municipal 9.02 10.39 12.06 11.29 11.29
Sundry 7.39 6.96 -- 6.63 6.97
Consolidated 8.29% 8.59 8.05 11.23 8.43
====================================================================================
</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, 2000.
There were no gains or losses realized on repurchase agreement
underdeliveries and calls of investment securities for the six months ended June
30, 2000.
T-23
<PAGE> 47
TABLE 17
OFF-BALANCE SHEET DERIVATIVE FINANCIAL INSTRUMENTS (a)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
JUNE 30, 2000
----------------------------------------------------------------------
GROSS UNREALIZED AVERAGE
NOTIONAL CARRYING ----------------- MARKET MATURITY IN
(In millions) AMOUNT AMOUNT (f) GAINS LOSSES VALUE YEARS (g)
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSET RATE CONVERSIONS (b)
Interest rate swaps $ 76,473 (4) 229 312 (87) 5.98
Options (c) 6,553 117 -- 330 (213) 7.95
Futures 82 -- -- 1 (1) 0.25
-----------------------------------------------------------------------------------------------------------
Total asset rate conversions $ 83,108 113 229 643 (301) 6.13
=========================================================================================================================
LIABILITY RATE CONVERSIONS (d)
Interest rate swaps $ 41,979 32 541 481 92 5.73
Options (c) 17,320 78 101 1 178 1.28
Futures 96,956 -- 12 11 1 0.25
-----------------------------------------------------------------------------------------------------------
Total liability rate conversions $ 156,255 110 654 493 271 1.84
=========================================================================================================================
RATE SENSITIVITY HEDGES (e)
Basis swaps $ 706 -- -- -- -- 2.68
Options (c) 9,743 81 12 -- 93 0.69
Futures 37,089 -- 42 -- 42 0.25
Options on futures 2,000 -- 1 -- 1 0.22
-----------------------------------------------------------------------------------------------------------
Total rate sensitivity hedges $ 49,538 81 55 -- 136 0.37
=========================================================================================================================
</TABLE>
(a) Includes only off-balance sheet derivative financial instruments related to
interest rate risk management activities.
(b) Off-balance sheet derivative financial instruments with a notional amount of
$57.5 billion at June 30, 2000, primarily convert floating rate loans to fixed
rate. The notional amount includes $29.2 billion of interest rate swaps maturing
in December 2000 that are extendible at the option of the counterparty as a $7.5
billion forward-starting swap that is an asset rate conversion and which matures
in 2012. In addition, at June 30, 2000, interest rate swaps with a notional
amount of $25.6 billion, including $17.0 billion of forward-starting swaps, are
rate conversions of securities available for sale.
(c) Includes purchased interest rate floors, caps and collars and purchased
options on swaps.
(d) Off-balance sheet derivative financial instruments with a notional amount of
$23.6 billion at June 30, 2000, convert fixed rate liabilities, primarily CD's,
long-term debt and bank notes, to floating rate. The 2000 notional amount of
$23.6 billion includes $12.4 billion of interest rate swaps that decline on a
quarterly basis through December 2000, based on the estimated decline in the
balance of the designated fixed rate liabilities, to $6.0 billion which matures
in 2009. Off-balance sheet derivative financial instruments with a notional
amount of $132.6 billion convert or hedge floating rate liabilities. Of this
amount, $18.5 billion are forward-starting swaps that convert floating rate
liabilities, primarily deposits and long-term debt, to fixed rate, and $97.0
billion are futures that hedge floating rate liabilities, primarily short-term
and long-term debt.
(e) Off-balance sheet derivative financial instruments designated as rate
sensitivity hedges are primarily used to modify the interest rate
characteristics of pay-variable interest rate swaps under asset rate conversions
or liability rate conversions.
(f) Carrying amount includes accrued interest receivable or payable and
unamortized premiums.
(g) Estimated maturity approximates average life.
T-24
<PAGE> 48
TABLE 18
OFF-BALANCE SHEET DERIVATIVES - EXPECTED MATURITIES (a)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
June 30, 2000
-------------------------------------------------------------------
1 YEAR 1 -2 2 -5 5 -10 AFTER 10
(In millions) OR LESS YEARS YEARS YEARS YEARS TOTAL
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSET RATE CONVERSIONS
Notional amount - swaps $ 27,753 1,835 3,737 16,653 26,495 76,473
Notional amount - other 14 76 263 6,282 -- 6,635
Weighted average receive rate (b) 7.03% 6.39 6.82 6.98 7.13 7.03
Weighted average pay rate (b) 6.24% 6.39 6.59 6.55 6.39 6.36
Estimated fair value $ (56) (18) (24) (151) (52) (301)
-----------------------------------------------------------------------------------------------------------------------
LIABILITY RATE CONVERSIONS
Notional amount - swaps $ 7,680 500 3,350 21,319 9,130 41,979
Notional amount - other 78,517 35,439 320 -- -- 114,276
Weighted average receive rate (b) 6.67% 7.50 6.89 6.53 7.46 6.72
Weighted average pay rate (b) 6.19% 6.82 6.83 6.29 6.83 6.38
Estimated fair value $ (11) 112 (21) 142 49 271
-----------------------------------------------------------------------------------------------------------------------
RATE SENSITIVITY HEDGES
Notional amount - swaps $ 82 178 264 182 -- 706
Notional amount - other 46,589 2,243 -- -- -- 48,832
Weighted average receive rate (b) 6.65% 6.65 6.07 6.07 -- 6.29
Weighted average pay rate (b) 6.34% 6.34 6.14 6.14 -- 6.21
Estimated fair value $ 117 19 -- -- -- 136
=======================================================================================================================
</TABLE>
(a) Includes only off-balance sheet derivative financial instruments related to
interest rate risk management activities.
(b) Weighted average receive and pay rates include the impact of currently
effective interest rate swaps and basis swaps only, and therefore, they exclude
the impact of forward-starting interest rate swaps. Substantially all of the
currently effective interest rate swaps are receive-fixed/pay-variable with pay
rates generally based on one-to-six month LIBOR, and they are the pay rates in
effect at June 30, 2000.
T-25
<PAGE> 49
TABLE 19
OFF-BALANCE SHEET DERIVATIVES ACTIVITY (a)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
Asset Liability Rate
Rate Rate Sensitivity
(In millions) Conversions Conversions Hedges Total
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1999 $ 57,551 74,158 58,571 190,280
Additions 17,389 121,478 64,940 203,807
Maturities and amortizations (1,239) (20,681) (63,767) (85,687)
Terminations and redesignations, net 9,407 (18,700) (10,206) (19,499)
-------------------------------------------------------------------------------------------------------------
Balance, June 30, 2000 $ 83,108 156,255 49,538 288,901
=============================================================================================================
</TABLE>
(a) Includes only off-balance sheet derivative financial instruments related to
interest rate risk management activities.
T-26
<PAGE> 50
FIRST UNION CORPORATION
NET INTEREST INCOME SUMMARIES
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
SECOND QUARTER 2000 FIRST QUARTER 2000
--------------------------------- -----------------------------------
AVERAGE Average
INTEREST RATES Interest Rates
AVERAGE INCOME/ EARNED/ Average Income/ Earned/
(In millions) BALANCES EXPENSE PAID Balances Expense Paid
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-bearing bank balances $ 977 13 5.52% $ 666 7 4.40%
Federal funds sold and securities
purchased under resale agreements 9,318 132 5.72 9,555 129 5.40
Trading account assets (a) 12,950 220 6.83 11,326 193 6.84
Securities available for sale (a) 54,340 1,000 7.37 52,682 943 7.16
Investment securities (a)
U.S. Government and other 1,095 19 6.90 1,100 19 6.92
State, county and municipal 592 16 10.56 607 16 10.57
----------------------------------------------------------------------------- ----------------------
Total investment securities 1,687 35 8.18 1,707 35 8.22
----------------------------------------------------------------------------- ----------------------
Loans (a) (b)
Commercial
Commercial, financial and agricultural 54,486 1,251 9.22 52,809 1,174 8.95
Real estate - construction and other 2,458 52 8.49 2,406 48 8.08
Real estate - mortgage 9,302 195 8.44 8,979 183 8.19
Lease financing 5,123 153 11.90 5,213 160 12.29
Foreign 4,582 80 7.08 4,532 74 6.56
----------------------------------------------------------------------------- ----------------------
Total commercial 75,951 1,731 9.15 73,939 1,639 8.92
----------------------------------------------------------------------------- ----------------------
Retail
Real estate - mortgage 25,760 469 7.28 27,551 499 7.24
Installment loans - Bankcard 1,839 55 12.05 1,822 67 14.62
Installment loans - other and vehicle leasing 29,064 685 9.46 28,169 652 9.31
----------------------------------------------------------------------------- ----------------------
Total retail 56,663 1,209 8.55 57,542 1,218 8.49
----------------------------------------------------------------------------- ----------------------
Total loans 132,614 2,940 8.90 131,481 2,857 8.73
----------------------------------------------------------------------------- ----------------------
Other earning assets 8,175 177 8.66 8,337 172 8.29
----------------------------------------------------------------------------- ----------------------
Total earning assets 220,061 4,517 8.24 215,754 4,336 8.06
==================== =====================
Cash and due from banks 7,830 8,078
Other assets 27,692 24,458
------------------------------------------------------------------ ----------
Total assets $ 255,583 $ 248,290
================================================================== ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest-bearing deposits
Savings and NOW accounts 38,940 283 2.92 39,830 289 2.92
Money market accounts 14,959 154 4.13 15,564 151 3.89
Other consumer time 35,386 478 5.43 33,991 423 5.00
Foreign 8,795 130 5.92 9,125 123 5.44
Other time 14,153 240 6.82 13,224 209 6.37
----------------------------------------------------------------------------- ----------------------
Total interest-bearing deposits 112,233 1,285 4.60 111,734 1,195 4.30
Federal funds purchased and securities
sold under repurchase agreements 36,762 552 6.04 35,286 482 5.50
Commercial paper 3,308 49 6.03 2,996 42 5.56
Other short-term borrowings 11,096 149 5.37 9,100 115 5.09
Long-term debt 33,555 552 6.58 32,564 513 6.30
----------------------------------------------------------------------------- ----------------------
Total interest-bearing liabilities 196,954 2,587 5.28 191,680 2,347 4.92
==================== =====================
Noninterest-bearing deposits 28,971 28,687
Other liabilities 13,044 11,340
Stockholders' equity 16,614 16,583
------------------------------------------------------------------ ----------
Total liabilities and stockholders' equity $ 255,583 $ 248,290
================================================================== ==========
Interest income and rate earned $ 4,517 8.24% $ 4,336 8.06%
Interest expense and equivalent rate paid 2,587 4.73 2,347 4.37
----------------------------------------------------------------------------------------- ---------------------
Net interest income and margin (c) $ 1,930 3.51% $ 1,989 3.69%
========================================================================================= =====================
</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> 51
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
FOURTH QUARTER 1999 THIRD QUARTER 1999 SECOND QUARTER 1999
---------------------------------- ----------------------------------- -----------------------------------
Average Average Average
Interest Rates Interest Rates Interest Rates
Average Income/ Earned/ Average Income/ Earned/ Average Income/ Earned/
Balances Expense Paid Balances Expense Paid Balances Expense Paid
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 859 8 3.62% $ 593 7 4.43% $ 574 7 4.27%
10,260 136 5.24 8,545 107 4.97 7,989 93 4.68
11,201 185 6.58 10,182 167 6.52 9,141 139 6.09
51,024 902 7.07 46,798 813 6.96 38,996 646 6.63
1,121 19 6.82 1,100 18 6.62 1,192 19 6.50
654 18 10.72 695 19 10.62 719 19 10.59
---------------------- ---------------------- -----------------------
1,775 37 8.26 1,795 37 8.17 1,911 38 8.03
---------------------- ---------------------- -----------------------
53,395 1,152 8.57 51,331 1,036 8.01 52,714 1,013 7.71
2,655 53 7.88 2,654 50 7.59 2,668 50 7.44
8,472 171 8.00 8,421 166 7.80 8,446 159 7.56
5,214 164 12.53 4,904 154 12.57 4,956 161 13.03
4,684 75 6.37 4,695 69 5.82 4,223 65 6.17
---------------------- ---------------------- -----------------------
74,420 1,615 8.62 72,005 1,475 8.14 73,007 1,448 7.95
---------------------- ---------------------- -----------------------
27,253 483 7.09 25,002 439 7.03 21,822 382 6.99
1,743 54 12.26 2,169 74 13.64 2,620 89 13.73
27,803 650 9.30 28,158 642 9.08 33,703 739 8.78
---------------------- ---------------------- -----------------------
56,799 1,187 8.33 55,329 1,155 8.33 58,145 1,210 8.33
---------------------- ---------------------- -----------------------
131,219 2,802 8.49 127,334 2,630 8.22 131,152 2,658 8.12
---------------------- ---------------------- -----------------------
5,346 99 7.43 4,100 79 7.60 4,172 76 7.31
---------------------- ---------------------- -----------------------
211,684 4,169 7.84 199,347 3,840 7.67 193,935 3,657 7.55
==================== ===================== ====================
8,584 8,477 9,544
23,272 21,338 20,477
---------- ---------- ----------
$ 243,540 $ 229,162 $ 223,956
========== ========== ==========
36,761 283 3.07 37,254 266 2.82 37,839 242 2.57
19,493 162 3.29 20,087 159 3.14 20,131 153 3.06
33,047 399 4.79 32,600 407 4.95 33,500 421 5.04
6,446 79 4.83 5,345 62 4.60 5,167 58 4.46
11,674 179 6.10 7,545 112 5.91 5,293 80 6.05
---------------------- ---------------------- -----------------------
107,421 1,102 4.07 102,831 1,006 3.88 101,930 954 3.75
34,689 454 5.19 29,940 357 4.73 28,688 332 4.64
2,532 33 5.19 2,287 28 4.83 2,087 23 4.42
9,414 119 5.00 7,973 105 5.26 8,117 101 4.98
32,623 490 6.00 31,112 434 5.59 27,129 369 5.44
---------------------- ---------------------- -----------------------
186,679 2,198 4.68 174,143 1,930 4.41 167,951 1,779 4.24
==================== ===================== ====================
29,559 30,593 31,862
10,616 9,127 8,442
16,686 15,299 15,701
---------- ---------- ----------
$ 243,540 $ 229,162 $ 223,956
========== ========== ==========
$ 4,169 7.84% $ 3,840 7.67% $ 3,657 7.55%
2,198 4.12 1,930 3.85 1,779 3.67
-------------------- --------------------- --------------------
$ 1,971 3.72% $ 1,910 3.82% $ 1,878 3.88%
==================== ===================== ====================
</TABLE>
(c) The net interest margin includes (in basis points): 27, 27, 23, 24 and 19
for the quarters ended June 30, 2000, March 31, 2000, December 31, 1999,
September 30, 1999 and June 30, 1999, respectively, related to net interest
income from off-balance sheet derivative transactions.
T-28
<PAGE> 52
FIRST UNION CORPORATION
NET INTEREST INCOME SUMMARIES
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED 2000 SIX MONTH ENDED 1999
-------------------------------- --------------------------------
AVERAGE Average
INTEREST RATES Interest Rates
AVERAGE INCOME/ EARNED/ Average Income/ Earned/
(In millions) BALANCES EXPENSE PAID Balances Expense Paid
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-bearing bank balances $ 822 20 5.07% $ 946 24 5.07%
Federal funds sold and securities
purchased under resale agreements 9,436 261 5.56 9,651 216 4.52
Trading account assets (a) 12,138 413 6.84 8,566 257 6.03
Securities available for sale (a) 53,511 1,943 7.27 38,537 1,274 6.61
Investment securities (a)
U.S. Government and other 1,097 38 6.91 1,216 41 6.74
State, county and municipal 600 32 10.56 727 38 10.57
-------------------------------------------------------------------------- --------------------
Total investment securities 1,697 70 8.20 1,943 79 8.17
-------------------------------------------------------------------------- --------------------
Loans (a) (b)
Commercial
Commercial, financial and agricultural 53,647 2,425 9.09 53,064 2,009 7.63
Real estate - construction and other 2,432 100 8.29 2,640 99 7.52
Real estate - mortgage 9,141 378 8.32 8,489 326 7.75
Lease financing 5,168 313 12.10 4,874 311 12.77
Foreign 4,557 154 6.82 4,308 129 6.05
-------------------------------------------------------------------------- --------------------
Total commercial 74,945 3,370 9.04 73,375 2,874 7.89
-------------------------------------------------------------------------- --------------------
Retail
Real estate - mortgage 26,655 968 7.26 20,697 739 7.14
Installment loans - Bankcard 1,831 122 13.33 2,635 177 13.47
Installment loans - other and vehicle leasing 28,617 1,337 9.38 33,608 1,472 8.80
-------------------------------------------------------------------------- --------------------
Total retail 57,103 2,427 8.52 56,940 2,388 8.41
-------------------------------------------------------------------------- --------------------
Total loans 132,048 5,797 8.81 130,315 5,262 8.12
-------------------------------------------------------------------------- --------------------
Other earning assets 8,256 349 8.47 4,305 148 6.92
-------------------------------------------------------------------------- --------------------
Total earning assets 217,908 8,853 8.15 194,263 7,260 7.51
================== ====================
Cash and due from banks 7,954 9,837
Other assets 26,074 20,088
-------------------------------------------------------------- ----------
Total assets $ 251,936 $ 224,188
============================================================== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits
Savings and NOW accounts 39,385 572 2.92 37,896 486 2.59
Money market accounts 15,262 305 4.01 20,276 310 3.08
Other consumer time 34,688 901 5.22 34,302 869 5.11
Foreign 8,960 253 5.68 5,205 118 4.59
Other time 13,688 449 6.60 5,413 163 6.04
-------------------------------------------------------------------------- ---------------------
Total interest-bearing deposits 111,983 2,480 4.45 103,092 1,946 3.81
Federal funds purchased and securities
sold under repurchase agreements 36,024 1,034 5.77 27,741 641 4.66
Commercial paper 3,152 91 5.81 2,034 46 4.57
Other short-term borrowings 10,098 264 5.24 9,690 236 4.91
Long-term debt 33,060 1,065 6.44 25,557 702 5.49
-------------------------------------------------------------------------- ---------------------
Total interest-bearing liabilities 194,317 4,934 5.10 168,114 3,571 4.28
================== ===================
Noninterest-bearing deposits 28,829 31,929
Other liabilities 12,191 8,275
Stockholders' equity 16,599 15,870
-------------------------------------------------------------- -----------
Total liabilities and stockholders' equity $ 251,936 $ 224,188
============================================================== ===========
Interest income and rate earned $ 8,853 8.15% $ 7,260 7.51%
Interest expense and equivalent rate paid 4,934 4.55 3,571 3.70
------------------------------------------------------------------------------------ -------------------
Net interest income and margin (c) $ 3,919 3.60% $ 3,689 3.81%
==================================================================================== ===================
</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.
(c) The net interest margin includes (in basis points): 27 and 18 for the six
months ended June 30, 2000 and June 30, 1999, respectively, related to net
interest income from off-balance sheet derivative transactions.
T-29
<PAGE> 53
FIRST UNION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
2000 1999
-------------------------- -------------------------------------
SECOND First Fourth Third Second
(In millions, except per share data) QUARTER Quarter Quarter Quarter Quarter
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 8,028 7,854 10,081 6,987 8,143
Interest-bearing bank balances 1,913 1,037 1,073 647 335
Federal funds sold and securities purchased
under resale agreements 9,054 8,206 11,523 8,561 8,373
-------------------------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 18,995 17,097 22,677 16,195 16,851
-------------------------------------------------------------------------------------------------------------------------------
Trading account assets 18,237 17,076 14,946 13,806 12,244
Securities available for sale 53,491 50,421 51,277 48,695 45,659
Investment securities 1,712 1,668 1,758 1,760 1,871
Loans, net of unearned income 128,359 135,803 133,177 131,482 129,571
Allowance for loan losses (1,706) (1,760) (1,757) (1,759) (1,785)
-------------------------------------------------------------------------------------------------------------------------------
Loans, net 126,653 134,043 131,420 129,723 127,786
-------------------------------------------------------------------------------------------------------------------------------
Premises and equipment 5,211 5,171 5,180 5,024 5,080
Due from customers on acceptances 839 842 995 807 883
Goodwill and other intangible assets 3,736 5,581 5,626 4,842 4,934
Other assets 29,120 21,749 19,145 13,556 14,144
-------------------------------------------------------------------------------------------------------------------------------
Total assets $ 257,994 253,648 253,024 234,408 229,452
===============================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing deposits 30,229 29,885 31,375 28,737 31,703
Interest-bearing deposits 114,635 110,005 109,672 105,166 101,900
-------------------------------------------------------------------------------------------------------------------------------
Total deposits 144,864 139,890 141,047 133,903 133,603
Short-term borrowings 50,883 49,389 50,107 41,834 39,262
Bank acceptances outstanding 847 847 995 807 883
Other liabilities 14,309 13,595 12,191 10,441 10,066
Long-term debt 33,140 33,043 31,975 31,910 30,350
-------------------------------------------------------------------------------------------------------------------------------
Total liabilities 244,043 236,764 236,315 218,895 214,164
-------------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred stock -- -- -- -- --
Common stock, $3.33-1/3 par value;
authorized 2 billion shares 3,288 3,280 3,294 3,195 3,188
Paid-in capital 6,066 6,021 5,980 4,808 4,644
Retained earnings 5,783 8,557 8,365 8,052 7,805
Accumulated other comprehensive income, net (1,186) (974) (930) (542) (349)
-------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 13,951 16,884 16,709 15,513 15,288
-------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 257,994 253,648 253,024 234,408 229,452
===============================================================================================================================
MEMORANDA
Securities available for sale - amortized cost $ 55,392 51,980 52,708 49,528 46,187
Investment securities - market value $ 1,760 1,714 1,809 1,830 1,954
Shares outstanding (In thousands) 986,394 984,148 988,315 958,440 956,286
===============================================================================================================================
</TABLE>
T-30
<PAGE> 54
FIRST UNION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
2000 1999
-------------------------- -----------------------------------
SECOND First Fourth Third Second
(In millions, except per share data) QUARTER Quarter Quarter Quarter Quarter
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 2,929 2,848 2,792 2,615 2,638
Interest and dividends on securities available for sale 993 936 895 809 641
Interest and dividends on investment securities 30 30 31 31 32
Trading account interest 218 191 182 164 137
Other interest income 322 308 243 193 176
----------------------------------------------------------------------------------------------------------------------------------
Total interest income 4,492 4,313 4,143 3,812 3,624
----------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits 1,285 1,195 1,102 1,006 954
Interest on short-term borrowings 750 639 606 490 456
Interest on long-term debt 552 513 490 434 369
----------------------------------------------------------------------------------------------------------------------------------
Total interest expense 2,587 2,347 2,198 1,930 1,779
----------------------------------------------------------------------------------------------------------------------------------
Net interest income 1,905 1,966 1,945 1,882 1,845
Provision for loan losses 493 192 173 175 180
----------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 1,412 1,774 1,772 1,707 1,665
----------------------------------------------------------------------------------------------------------------------------------
FEE AND OTHER INCOME
Service charges and fees 447 486 513 487 503
Commissions 375 468 398 207 205
Fiduciary and asset management fees 374 366 353 307 296
Advisory, underwriting and other Capital Markets fees 182 209 205 130 184
Principal investing 185 203 210 176 60
Other income (1,166) 110 158 133 458
----------------------------------------------------------------------------------------------------------------------------------
Total fee and other income 397 1,842 1,837 1,440 1,706
----------------------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Salaries and employee benefits 1,396 1,429 1,310 1,092 1,130
Occupancy 155 157 148 126 130
Equipment 210 214 215 193 182
Advertising 31 30 48 61 64
Communications and supplies 123 125 135 106 117
Professional and consulting fees 82 71 79 59 83
Goodwill and other intangible amortization 100 102 105 95 95
Restructuring charges 2,110 (5) 6 -- --
Sundry expense 296 259 314 208 252
----------------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 4,503 2,382 2,360 1,940 2,053
----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (benefits) (2,694) 1,234 1,249 1,207 1,318
Income taxes (benefits) (495) 394 407 405 445
----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (2,199) 840 842 802 873
==================================================================================================================================
PER SHARE DATA
Basic earnings $ (2.27) 0.86 0.86 0.84 0.92
Diluted earnings (2.27) 0.85 0.86 0.84 0.90
Cash dividends $ 0.48 0.48 0.47 0.47 0.47
AVERAGE SHARES (IN THOUSANDS)
Basic 969,707 972,174 976,377 946,802 954,548
Diluted 981,940 984,095 984,537 953,964 961,793
==================================================================================================================================
</TABLE>
T-31
<PAGE> 55
FIRST UNION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
Six Months Ended
June 30,
---------------------------
(In millions, except per share data) 2000 1999
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 5,777 5,222
Interest and dividends on securities available for sale 1,929 1,265
Interest and dividends on investment securities 60 67
Trading account interest 409 254
Other interest income 630 388
---------------------------------------------------------------------------------------------------------
Total interest income 8,805 7,196
---------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits 2,480 1,946
Interest on short-term borrowings 1,389 923
Interest on long-term debt 1,065 702
---------------------------------------------------------------------------------------------------------
Total interest expense 4,934 3,571
---------------------------------------------------------------------------------------------------------
Net interest income 3,871 3,625
Provision for loan losses 685 344
---------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 3,186 3,281
---------------------------------------------------------------------------------------------------------
FEE AND OTHER INCOME
Service charges and fees 933 987
Commissions 843 409
Fiduciary and asset management fees 740 578
Advisory, underwriting and other Capital Markets fees 391 367
Principal investing 388 206
Other income (1,056) 1,109
---------------------------------------------------------------------------------------------------------
Total fee and other income 2,239 3,656
---------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Salaries and employee benefits 2,825 2,314
Occupancy 312 272
Equipment 424 385
Advertising 61 125
Communications and supplies 248 240
Professional and consulting fees 153 149
Goodwill and other intangible amortization 202 191
Restructuring charges 2,105 398
Sundry expense 555 488
---------------------------------------------------------------------------------------------------------
Total noninterest expense 6,885 4,562
---------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (benefits) (1,460) 2,375
Income taxes (benefits) (101) 796
---------------------------------------------------------------------------------------------------------
Net income (loss) $ (1,359) 1,579
=========================================================================================================
PER SHARE DATA
Basic earnings $ (1.41) 1.65
Diluted earnings (1.41) 1.63
Cash dividends $ 0.96 0.94
AVERAGE SHARES (IN THOUSANDS)
Basic 970,940 957,191
Diluted 983,147 964,963
=========================================================================================================
</TABLE>
T-32
<PAGE> 56
FIRST UNION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
Six Months Ended
June,
---------------------------
(In millions) 2000 1999
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (1,359) 1,579
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities
Accretion and amortization of securities discounts and premiums, net 130 204
Provision for loan losses 685 344
Securitization gains 277 (456)
Gain on sale of mortgage servicing rights (5) (38)
Securities available for sale transactions 601 (24)
Depreciation, goodwill and other amortization 635 564
Goodwill impairments 1,754 --
Trading account assets, net (3,291) (3,983)
Mortgage loans held for resale 795 861
Gain on sales of premises and equipment (6) (3)
Other assets, net (1,967) 4,994
Other liabilities, net 2,118 (1,989)
---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 367 2,053
---------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Increase (decrease) in cash realized from
Sales of securities available for sale 1,337 15,750
Maturities of securities available for sale 2,033 2,563
Purchases of securities available for sale (5,290) (18,758)
Calls and underdeliveries of investment securities 23 --
Maturities of investment securities 157 284
Purchases of investment securities (135) (134)
Origination of loans, net (6,208) (6,964)
Sales of premises and equipment 63 122
Purchases of premises and equipment (421) (440)
Goodwill and other intangible assets, net (66) (89)
Purchase of bank-owned separate account life insurance (57) (27)
---------------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (8,564) (7,693)
---------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase (decrease) in cash realized from
Sales of deposits, net 3,817 (8,864)
Securities sold under repurchase agreements and other short-term borrowings, net 776 (2,176)
Issuances of long-term debt 7,239 9,310
Payments of long-term debt (6,074) (1,909)
Sales of common stock 59 102
Purchases of common stock (353) (1,708)
Cash dividends paid (949) (901)
---------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 4,515 (6,146)
---------------------------------------------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents (3,682) (11,786)
Cash and cash equivalents, beginning of year 22,677 28,637
---------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 18,995 16,851
=================================================================================================================================
NONCASH ITEMS
Transfer to securities available for sale from trading account assets $ -- 1,498
Transfer to securities available for sale from loans 2,829 7,622
Transfer to other assets from securities available for sale 1,335 --
Transfer to other assets from loans 7,182 --
Transfer to foreclosed properties from loans $ 2 5
=================================================================================================================================
</TABLE>
T-33
<PAGE> 57
FIRST UNION
CORPORATION
AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL INFORMATION
OPERATING EARNINGS
SIX MONTHS ENDED JUNE 30, 2000
SECOND QUARTER 2000
S-1
<PAGE> 58
FIRST UNION CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF INCOME (LOSS)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED JUNE 30, 2000 SIX MONTHS ENDED JUNE 30, 2000
-------------------------------------- ---------------------------------
RESTRUCTURING RESTRUCTURING
OPERATING AND OTHER AS OPERATING AND OTHER AS
(In millions) EARNINGS CHARGES REPORTED EARNINGS CHARGES REPORTED
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net interest income $ 1,905 -- 1,905 3,871 -- 3,871
Provision for loan losses 228 265 493 420 265 685
---------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 1,677 (265) 1,412 3,451 (265) 3,186
---------------------------------------------------------------------------------------------------------------------------------
Fee and other income
Service charges and fees 491 (44) 447 977 (44) 933
Other income
Security transactions - portfolio (4) (578) (582) (23) (578) (601)
Asset sales and securitization 42 (389) (347) 112 (389) (277)
Other income 1,217 (338) 879 2,522 (338) 2,184
---------------------------------------------------------------------------------------------------------------------------------
Total fee and other income 1,746 (1,349) 397 3,588 (1,349) 2,239
---------------------------------------------------------------------------------------------------------------------------------
Noninterest expense
Restructuring charges -- 2,110 2,110 -- 2,105 2,105
Other noninterest expense 2,366 27 2,393 4,753 27 4,780
---------------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 2,366 2,137 4,503 4,753 2,132 6,885
---------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (benefits) 1,057 (3,751) (2,694) 2,286 (3,746) (1,460)
Income taxes (benefits) 343 (838) (495) 734 (835) (101)
---------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 714 (2,913) (2,199) 1,552 (2,911) (1,359)
=================================================================================================================================
Diluted earnings per share $ 0.73 (3.00) (2.27) 1.58 (2.99) (1.41)
=================================================================================================================================
</TABLE>
FIRST UNION CORPORATION AND SUBSIDIARIES
RESTRUCTURING AND OTHER CHARGES
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
THREE
MONTHS
ENDED
JUNE 30,
(In millions) 2000
---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
RESTRUCTURING CHARGES
Employee termination benefits $ 135
Occupancy 93
Goodwill impairment (non-cash) 1,754
Other asset impairments 35
Contract cancellations 80
Other 2
---------------------------------------------------------------------------------------------------------------------------------
Total 2,099
EVEREN merger-related charges 11
---------------------------------------------------------------------------------------------------------------------------------
Total restructuring charges 2,110
---------------------------------------------------------------------------------------------------------------------------------
OTHER CHARGES
June 2000 strategic repositioning
Provision for loan losses 265
Service charges and fees 44
Other income 1,305
Other noninterest expense 27
---------------------------------------------------------------------------------------------------------------------------------
Total other charges 1,641
---------------------------------------------------------------------------------------------------------------------------------
Total restructuring and other charges 3,751
Income tax benefits 838
---------------------------------------------------------------------------------------------------------------------------------
After-tax restructuring and other charges $ 2,913
=================================================================================================================================
</TABLE>
S-2
<PAGE> 59
FIRST UNION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (OPERATING EARNINGS)(a)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
2000 1999
--------------------- ----------------------------------
SECOND First Fourth Third Second
(In millions, except per share data) QUARTER Quarter Quarter Quarter Quarter
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 2,929 2,848 2,792 2,615 2,638
Interest and dividends on securities available for sale 993 936 895 809 641
Interest and dividends on investment securities 30 30 31 31 32
Trading account interest 218 191 182 164 137
Other interest income 322 308 243 193 176
--------------------------------------------------------------------------------------------------------------------------------
Total interest income 4,492 4,313 4,143 3,812 3,624
--------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits 1,285 1,195 1,102 1,006 954
Interest on short-term borrowings 750 639 606 490 456
Interest on long-term debt 552 513 490 434 369
--------------------------------------------------------------------------------------------------------------------------------
Total interest expense 2,587 2,347 2,198 1,930 1,779
--------------------------------------------------------------------------------------------------------------------------------
Net interest income 1,905 1,966 1,945 1,882 1,845
Provision for loan losses 228 192 173 175 180
--------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 1,677 1,774 1,772 1,707 1,665
--------------------------------------------------------------------------------------------------------------------------------
FEE AND OTHER INCOME
Service charges and fees 491 486 513 487 503
Commissions 375 468 398 207 205
Fiduciary and asset management fees 374 366 353 307 296
Advisory, underwriting and other Capital Markets fees 182 209 205 130 184
Principal investing 185 203 210 176 60
Other income 139 110 158 133 458
--------------------------------------------------------------------------------------------------------------------------------
Total fee and other income 1,746 1,842 1,837 1,440 1,706
--------------------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Salaries and employee benefits 1,396 1,429 1,310 1,092 1,130
Occupancy 155 157 148 126 130
Equipment 210 214 215 193 182
Advertising 31 30 48 61 64
Communications and supplies 122 125 135 106 117
Professional and consulting fees 82 71 79 59 83
Goodwill and other intangible amortization 100 102 105 95 95
Sundry expense 270 259 314 208 252
--------------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 2,366 2,387 2,354 1,940 2,053
--------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 1,057 1,229 1,255 1,207 1,318
Income taxes 343 391 409 405 445
--------------------------------------------------------------------------------------------------------------------------------
Net income (Operating earnings) $ 714 838 846 802 873
================================================================================================================================
Diluted earnings per share $ 0.73 0.85 0.86 0.84 0.90
================================================================================================================================
</TABLE>
(a) Operating earnings exclude restructuring and other charges.
S-3
<PAGE> 60
FIRST UNION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (OPERATING EARNINGS)(a)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
Six Months Ended
June 30,
----------------------
(In millions, except per share data) 2000 1999
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 5,777 5,222
Interest and dividends on securities available for sale 1,929 1,265
Interest and dividends on investment securities 60 67
Trading account interest 409 254
Other interest income 630 388
-------------------------------------------------------------------------------------------------------------
Total interest income 8,805 7,196
-------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits 2,480 1,946
Interest on short-term borrowings 1,389 923
Interest on long-term debt 1,065 702
-------------------------------------------------------------------------------------------------------------
Total interest expense 4,934 3,571
-------------------------------------------------------------------------------------------------------------
Net interest income 3,871 3,625
Provision for loan losses 420 344
-------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 3,451 3,281
-------------------------------------------------------------------------------------------------------------
FEE AND OTHER INCOME
Service charges and fees 977 987
Commissions 843 409
Fiduciary and asset management fees 740 578
Advisory, underwriting and other Capital Markets fees 391 367
Principal investing 388 206
Other income 249 1,109
-------------------------------------------------------------------------------------------------------------
Total fee and other income 3,588 3,656
-------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Salaries and employee benefits 2,825 2,314
Occupancy 312 272
Equipment 424 385
Advertising 61 125
Communications and supplies 247 240
Professional and consulting fees 153 149
Goodwill and other intangible amortization 202 191
Sundry expense 529 488
-------------------------------------------------------------------------------------------------------------
Total noninterest expense 4,753 4,164
-------------------------------------------------------------------------------------------------------------
Income before income taxes 2,286 2,773
Income taxes 734 935
-------------------------------------------------------------------------------------------------------------
Net income (Operating earnings) $ 1,552 1,838
=============================================================================================================
Diluted earnings per share $ 1.58 1.90
=============================================================================================================
</TABLE>
(a) Operating earnings exclude restructuring and other charges.
S-4
