CHARLOTTE, N.C. – First Union (NYSE:FTU) today reported diluted first quarter 2001 cash operating earnings of $684 million, or 69 cents per share, in a quarter highlighted by very strong expense control, loan and deposit growth (excluding divestitures), and slightly lower loan losses. First quarter 2001 operating earnings were $610 million, or 62 cents per share, and net income was $584 million, or 59 cents per share. The decline in earnings, as anticipated, reflected a decrease in principal investing revenues, the winding down of divested businesses and a difficult financial market environment.
The cash operating return on average tangible stockholders' equity was 22.91 percent in the first quarter of 2001 and 34.03 percent in the first quarter of 2000. Cash operating earnings are earnings before goodwill and other intangible amortization. Based on first quarter 2001 operating earnings, First Union's return on average stockholders' equity (ROE) was 15.64 percent and 20.31 percent in the first quarter of 2000.
"Our first quarter results were in line with market expectations. Beneath the numbers, what we see is some very good execution by our employees on controlling costs, managing risk and serving their customers,” said Ken Thompson, First Union chairman and CEO. "The results are clear in improved customer satisfaction and retention. I’m particularly pleased with the continuing good loan and deposit growth that we’re seeing in our General Bank. Given the exceptionally difficult market over the last quarter, we were satisfied with the performance in our Capital Management and Capital Markets businesses.”
Net Interest Income
Net interest income on a tax-equivalent basis was $1.7 billion in the first quarter of 2001, a 13 percent decline from $2.0 billion in the first quarter of 2000, largely due to a reduction in earning assets related to the sale of loans and securities in connection with First Union’s restructuring in 2000. The net interest margin was 3.42 percent in the first quarter of 2001 and 3.69 percent in the first quarter of 2000.
Fee and Other Income
On an operating basis, fee and other income in the first quarter of 2001 was $1.5 billion, down 16 percent from the first quarter of 2000, primarily attributable to declines of $93 million in commissions and $242 million in principal investing revenue. Results include a $75 million gain recorded in connection with the sale of Star Systems, Inc., an automated teller machine network in which First Union held an interest. On an operating basis, fee and other income as a percentage of total revenue was 47 percent in the first quarter of 2001 and 48 percent in the first quarter of 2000.
Provision for Loan Losses
The loan loss provision was $219 million in the first quarter of 2001, an increase of $27 million from the first quarter of 2000. The provision exceeded net charge-offs by $60 million. At March 31, 2001, the ratio of allowance to net loans increased to 1.43 percent from 1.30 percent at March 31, 2000.
Noninterest Expense
On an operating basis, noninterest expense was $2.1 billion in the first quarter of 2001, down 10 percent from the first quarter of 2000, reflecting solid expense control and lower variable compensation expense.
Divestitures Update
In the first quarter of 2001, the final 26 branches were sold as part of First Union’s strategic repositioning announced in June 2000. This included $617 million in deposits and $115 million in loans in the first quarter of 2001. In addition, $3 billion of The Money Store home equity portfolio was securitized and sold in the first quarter of 2001.
Restructuring and Other Charges and Gains
The restructuring and other charges and gains in the first quarter of 2001 amounted to a pre-tax charge of $43 million ($26 million after-tax) or 3 cents per share. This included pre-tax charges of $116 million, which were offset by $73 million in gains on the branch sales mentioned above.
Net Charge-offs and Nonperforming Assets
Net charge-offs amounted to $159 million in the first quarter of 2001, a decrease of $30 million from the first quarter of 2000. This represented 0.53 percent of average net loans, down 4 basis points from the first quarter of 2000.
At March 31, 2001, nonperforming assets were $1.7 billion, or 1.30 percent of net loans, foreclosed properties and assets held for sale, up 29 percent from March 31, 2000. Excluding assets held for sale, nonperforming assets rose by 5 percent. In line with previous guidance, the company said that it anticipates a rise in nonperforming assets in 2001 to mirror with industry trends. First quarter 2001 nonperforming assets included $344 million of nonperforming assets classified as held for sale.
Lines of Business
The General Bank has three major business lines: Consumer, Commercial and Small Business. Due to substantial improvement in customer service, General Bank revenue increased 4 percent from the first quarter of 2000 with strong growth in loans and in fee and other income. Fee and other income was led by improved service charge income and strong debit card revenues. The increased provision reflected a $29 million increase in Commercial and Small Business net charge-offs. The Consumer provision increased $34 million, primarily related to a $13 million market value adjustment on First Union Home Equity nonperforming loans moved to assets held for sale and other home equity charge-offs related to the normal aging of a growing portfolio. The impact of expense control initiatives was reflected in a 2 percent decline in noninterest expense from the first quarter of 2000.
Loans increased 13 percent from the first quarter of 2000, with across-the-board strength in consumer lending, while commercial real estate and small business lending drove commercial lending growth.
Average core deposits grew 1 percent from the first quarter of 2000, excluding divestitures, primarily in interest checking, savings and money market accounts that have low funding costs.
Overall customer satisfaction scores as measured by Gallup improved for the eighth consecutive quarter. Household retention also continued to improve. Online customer growth continued to be strong, reaching 2.6 million enrollments by March 31, 2001. This included 111,000 online wholesale enrollments.
Capital Management includes Retail Brokerage Services, Asset Management, and Wealth and Trust Services. These businesses, with their diversified portfolio and multiple channels of distribution, performed solidly in the first quarter of 2001 despite an exceptionally difficult market environment. Capital Management’s revenue declined 10 percent from a very strong first quarter of 2000, primarily reflecting lower brokerage fee income. Noninterest expense decreased 7 percent from the first quarter of 2000, primarily due to decreased incentives tied to revenue production.
While fee income and transaction activity declined in a difficult market, Capital Management’s balanced product mix (34 percent equity products, 28 percent fixed income products and 38 percent money market products) enabled First Union to serve client needs. In a declining market, assets under management were down 1 percent from year-end 2000 to $168 billion at March 31, 2001. Assets under management include mutual fund assets, which grew to a record $87 billion, up 2 percent from year-end 2000. Money market net fund sales in the first quarter of 2001 reached a record $5 billion.
The brokerage sales force increased to nearly 7,800, mainly due to the addition of JWGenesis, a purchase acquisition that closed on January 1, 2001. This acquisition provided an additional independent distribution channel. The online brokerage channel grew 13 percent from year-end 2000, ending with 67,000 online enrollments at March 31, 2001.
Capital Markets encompasses Investment Banking and Corporate Banking businesses that offer a range of fixed income products, debt and equity products, structured products and advisory services for corporate and institutional clients. First quarter 2001 revenue declined 22 percent from the first quarter of 2000, primarily related to anticipated lower principal investing gains, which were down $242 million from an exceptionally strong first quarter of 2000. Fixed income fee and other income increased 90 percent from the first quarter of 2000, primarily driven by equity derivatives and fixed income sales and trading. The increase was offset by declines in the agency businesses, primarily loan syndications and asset securitization. Restructuring actions undertaken in 2000 to streamline and focus Capital Markets businesses showed solid results in the first quarter of 2001, with a modest 3 percent growth in noninterest expense from the first quarter of 2000.
First Union (NYSE:FTU), with $253 billion in assets and stockholders' equity of $16 billion at March 31, 2001, is a leading provider of financial services to 15 million retail and corporate customers throughout the East Coast and the nation. The company operates full-service banking offices in 11 East Coast states and Washington, D.C., and full-service brokerage offices in 47 states. Online banking products and services can be accessed through www.firstunion.com.
Earnings Conference Call
First Union CFO Bob Kelly will review First Union's first quarter results in a pre-recorded conference call and audio webcast that will be available beginning at 8 a.m. today. Supplemental materials relating to the first quarter results are available on the Internet at www.ftuinvestor.com, and investors are encouraged to access such materials. In addition, he will be available for a live question-and-answer session on earnings results in a teleconference call at 1 p.m. today.
Webcast Instructions:
To gain access to the webcast, which will be "listen-only," go to www.ftuinvestor.com and click on the link First Union First Quarter Earnings Audio Webcast. In order to listen to the webcast, you will need to download Real Player Basic 8.
Pre-Recorded Teleconference Instructions:
At 8 a.m. today, the telephone number for the pre-recorded conference call is 800-294-9508 for U.S. callers or 402-220-3770 outside U.S. You will be asked to tell the answering coordinator your name and the name of your firm. Mention the conference Access Code: 33345.
Live Teleconference Instructions:
At 1 p.m. today, the telephone number for the live question-and-answer session on earnings results is 888-989-7593 for U.S. callers (or 712-257-2881 for international callers). You will be asked to tell the answering coordinator your name and the name of your firm. Mention the conference Access Code: 33345.
Additional Information
This news release, the pre-recorded conference call and live question-and-answer session may contain certain forward-looking statements with respect to the goals, plans, objectives, intentions, expectations, financial condition, results of operations, future performance and business of First Union, including, without limitation, (i) statements relating to certain of First Union’s goals and expectations with respect to earnings, revenue, expenses, and the growth rate in such items, as well as other measures of economic performance, including statements relating to estimates of credit quality trends, and (ii) statements preceded by, followed by or that include the words “may”, “could”, “would”, “should”, “believes”, “expects”, “anticipates”, “estimates”, “intends”, “plans”, “targets” or similar expressions. These forward-looking statements involve certain risks and uncertainties that are subject to change based on various factors (many of which are beyond First Union’s control). A discussion of various factors that could cause First Union’s actual results or conditions to differ materially from the goals, plans, objectives, intentions, and expectations expressed in such forward-looking statements is included in First Union’s most recent annual, quarterly and current reports filed with the Securities and Exchange Commission, including its Current Report on Form 8-K dated April 16, 2001. Some of the factors described in those reports, include, without limitation, factors relating to (1) the strength of the U.S. economy in general and the strength of the local economies in which First Union conducts operations, which may be different than expected resulting in, among other things, a deterioration in credit quality or a reduced demand for credit, including the resultant effect on First Union’s loan portfolio and allowance for loan losses; (2) the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System; (3) adverse conditions in the stock market, the public debt market and other capital markets (including changes in interest rate conditions) and the impact of such conditions on First Union’s capital markets and capital management activities; (4) the impact of changes in financial services’ laws and regulations (including laws concerning taxes, banking, securities and insurance); and (5) the effect of corporate restructuring, acquisitions and/or dispositions on First Union. Forward-looking statements speak only as of the date they are made. First Union does not undertake any obligation to update any forward-looking statement to reflect circumstances or events that occur after the date the forward-looking statements are made.
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