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October 14, 1998
FIRST UNION POSTS RECORD OPERATING EARNINGS, UP 35%
First Union's financial service businesses and product lines fueled operating earnings to a record $1.0 billion in the third quarter of 1998, an increase of 35 percent from $748 million in the third quarter of 1997. On a per share basis, operating earnings increased 31 percent to $1.02 in the third quarter of 1998 from $0.78 in the third quarter of 1997, representing a return on average stockholders' equity of 23.50 percent and a return on average assets of 1.75 percent.
In the first nine months of 1998, operating earnings increased 25 percent to $2.7 billion compared with $2.2 billion in the first nine months of 1997. On a per share basis, operating earnings in the first nine months of 1998 increased 24 percent to $2.77 from $2.24 in the first nine months of 1997, representing a return on average stockholders' equity of 22.89 percent and a return on average assets of 1.64 percent.
At September 30, 1998, First Union had assets of $234.6 billion and stockholders' equity of $17.4 billion.
"Our third quarter performance, with revenues up 21 percent and operating earnings up 35 percent, clearly demonstrated the value of creating a financial services company with diversified sources of revenue and earnings," said Edward E. Crutchfield, First Union's chairman and chief executive officer.
The global flight to quality pushed the unrealized gains in First Union's interest-bearing on-balance sheet as well as off-balance sheet portfolios up, to more than $2 billion. The company realized 10 percent of the unrealized gain, or $211 million (pre-tax), as securities gains in the third quarter. Most of the realized gains offset the effect of the same market movements on commercial real estate loans held for securitization. Such loans are held for sale and recorded at the lower of cost or market in the normal course of business. Securities gains of the magnitude realized and the impact on commercial real estate securitizations, as influenced by market movements in the third quarter of 1998, are not currently anticipated in future quarters.
When compared with the third quarter of 1997, Capital Management noninterest income increased 60 percent and Capital Markets noninterest income, excluding trading activities, increased 36 percent.
A balanced portfolio of products and services enabled First Union's Capital Management businesses to continue to produce strong results. Good growth was seen in sales of CAP accounts, retail brokerage, mutual funds and insurance products through the Wheat First Union and First Union retail delivery networks.
The Capital Markets Group provides a variety of sophisticated financing products and services including asset securitizations, loan syndications, private finance and specialized lending primarily to First Union's middle-market commercial customer base. The Capital Management Group, with $134 billion in assets under management, provides a comprehensive selection of products such as trust and brokerage services, mutual funds and annuities primarily for retail customers.
The third quarter of 1998 included:
- Continuing smooth integration of the CoreStates acquisition. Nearly 75 percent of major systems conversions were completed by quarter-end, and all systems conversions are scheduled to be completed by early November.
- Record production in residential mortgages and home equity loans. Residential first mortgage origination volume increased 93 percent to $4 billion and home equity volume increased 138 percent to $4 billion from the third quarter of 1997.
- A 6 percent decrease in tax-equivalent net interest income from the third quarter of 1997 primarily due to the restructuring of the consumer loan portfolio in 1997, which included the sale of underperforming credit cards in late 1997 and early 1998.
- Continued strength in credit quality, with nonperforming assets as a percentage of net loans and foreclosed properties improving to 0.61 percent from 0.73 percent in the third quarter of 1997. Annualized net charge-offs were 0.55 percent of average net loans compared with 0.68 percent in the year-ago period. Consumer-related charge-offs declined from the third quarter of 1997 as a result of the restructuring of the consumer loan portfolio in the fourth quarter of 1997, partially offset by an increase in commercial-related charge-offs. Credit exposure in Asian emerging markets is limited to short-term, bank-to-bank and trade finance, with an average maturity of 120 days, and amounts to 0.3 percent of total assets.
- An increase in the quarterly dividend from 37 cents to 42 cents per share, or $1.68 on an annualized basis -- First Union's third dividend increase in the past 12 months.
First Union (NYSE: FTU) is a leading provider of financial services to more than 16 million customers throughout the nation. The company operates full-service banking offices in Connecticut, Delaware, Florida, Georgia, Maryland, New Jersey, New York, North Carolina, Pennsylvania, South Carolina, Tennessee, Virginia and Washington, D.C.
This news release contains various forward-looking statements. A discussion of various factors that could cause First Union's actual results to differ materially from those expressed in such forward-looking statements is included in First Union's 1998 filings with the Securities and Exchange Commission. In addition, the statements with respect to the effect of market movements could be significantly affected by changes in such movements and other factors.
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