| | Full Year | | Fourth Quarter |
| | % Change | | % Change |
| | From | | From |
| | 2000 | 1999 | 2000% | 1999 |
| |
| Earnings (in millions) |
| Net income | $ 92 | (97)% | $ 599 | (29)% |
| Operating* | 2,935 | (16)% | 681 | (20)% |
| Cash Operating** | 3,270 | (14)% | 753 | (20)% |
| |
| Earnings per share |
| Net income | $ 0.07 | (98)% | $ 0.60 | (30)% |
| Operating* | 2.97 | (18)% | 0.69 | (20)% |
| Cash operating** | 3.30 | (16)% | 0.76 | (20)% |
| |
| Return on stockholders' equity |
| Net income | 0.6% | ------------ | 16.2% | ------------ |
| Operating* | 17.2% | ------------ | 15.4% | ------------ |
| Cash operating** | 26.3% | ------------ | 21.6% | ------------ |
| |
| Efficiency ratio |
| Net income | 86.2% | ------------ | 67.7% | ------------ |
| Operating* | 64.2% | ------------ | 63.9% | ------------ |
| Cash operating** | 61.7% | ------------ | 61.5% | ------------ |
* Income before net merger-related, restructuring and other charges and the cumulative effect of a change in accounting principle.
** Cash operating earnings exclude goodwill and other intangible amortization.
CHARLOTTE, N.C. – First Union (NYSE:FTU) today reported 2000 operating earnings of $2.9 billion, or $2.97 per share, before merger-related charges and the previously announced net restructuring and other charges amounting to $2.8 billion, or $2.85 per share, in conjunction with the company's strategic repositioning. After the restructuring charges and net after-tax gains on the sale of certain businesses related to the restructuring, full year 2000 earnings were $138 million (12 cents per share) and $92 million (seven cents per share) after recording an after-tax $46 million charge for the cumulative effect of a change in the accounting for beneficial interests. This compares with $3.2 billion, or $3.33, in 1999, which included 20 cents per share from the sale of businesses.
In the fourth quarter of 2000, operating earnings were $681 million, or 69 cents per share, before $36 million in net merger-related, restructuring and other charges. After these charges, fourth quarter 2000 earnings were $645 million (65 cents per share) and $599 million (60 cents per share) after the accounting change. This compares with $842 million (86 cents per share) in the fourth quarter of 1999.
Based on full year 2000 operating earnings, First Union's return on average stockholders' equity (ROE) was 17.23 percent in 2000 compared with 21.60 percent in 1999.
Diluted cash earnings before net merger-related, restructuring and other charges and the accounting change were 76 cents per share in the fourth quarter of 2000 and $3.30 per share in the full year of 2000, down 20 percent from the fourth quarter of 1999 and 16 percent from the full year of 1999. On the same basis, the cash return on average tangible stockholders' equity was 21.55 percent in the fourth quarter of 2000 and 26.33 percent in the full year 2000. Cash earnings are earnings before goodwill and other intangible amortization.
"We believe that 2000 was a defining year for First Union as we restructured and reset our company's strategic path to prepare us well for the future. It was a year of intensive work at all levels of First Union as we sharpened our focus and streamlined the company for greater efficiency and increased competitiveness," said Ken Thompson, First Union president and CEO. "We now have a growing banking operation, an asset management powerhouse and a tightly focused capital markets business – and our strengths are going to become even more apparent as we move beyond the restructuring and transition years of 2000 and 2001. All of these actions, including the recent decision to reduce the dividend to build capital ratios and to provide strategic flexibility, place us in the best possible position to face a more challenging economic and competitive environment. We will continue to fine-tune and make appropriate capital allocation decisions going forward as we focus our resources more strategically on our three core growth businesses."
First Union's new chief financial officer, Bob Kelly, who joined the company's management team on November 13, 2000, commented, "First Union's financial results for the fourth quarter and the full year of 2000 were in line with expectations and give us a good basis for growth. Our underlying fundamentals are good – period-end core deposits were up 2 percent and period-end loans were up 9 percent from the fourth quarter of 1999, excluding divestitures. While revenues were negatively affected by divestitures and difficult financial markets, we had record performance in Capital Management fee and other income. We began to see positive results in the fourth quarter of 2000 from our expense control initiatives of the past year. In addition, the strong efforts of our risk management team to monitor and actively manage the loan portfolio help us limit the deterioration of credit quality in our portfolio even as the entire industry experiences rising nonperforming assets and loan losses. In short, we are enthusiastic that with the restructuring nearing completion, we should begin to see renewed momentum by the end of 2001."
Net Interest Income
Net interest income on a tax equivalent basis was $1.8 billion in the fourth quarter of 2000, a decline of $214 million from the fourth quarter of 1999, largely due to the impact of divestitures. In full year 2000, net interest income on the same basis was $7.5 billion, flat with full year 1999. The net interest margin was 3.46 percent in the fourth quarter of 2000 and 3.55 percent in the full year of 2000, compared with 3.72 percent and 3.79 percent in the same respective periods of 1999.
Fee and Other Income
On an operating basis, fee and other income in the fourth quarter of 2000 was $1.6 billion, down 14 percent from the fourth quarter of 1999, excluding securities transactions. In full year 2000, fee and other income was $6.8 billion, down 2 percent from full year 1999 largely due to lower principal investing revenues. Despite the difficult financial markets, asset management and brokerage businesses performed well. These results also reflect the impact of the acquisition of EVEREN Capital Corporation, which was completed in the fourth quarter of 1999. On an operating basis, fee and other income as a percentage of total revenue, excluding securities transactions, was 48 percent in 2000 and in 1999.
Noninterest Expense
On an operating basis, noninterest expense was $2.1 billion in the fourth quarter of 2000, down 9 percent from the same quarter of 1999, reflecting solid expense control, lower variable compensation and employee benefit expense. In full year 2000, noninterest expense was $9.2 billion, an increase of 9 percent from full year 1999. The full year increase primarily reflects the addition of expenses related to EVEREN, which was included in all 12 months of 2000 and only three months of 1999 after this purchase acquisition was closed on October 1, 1999.
Divestitures Update
In the fourth quarter of 2000, 58 branch locations were sold and 26 additional branches are under contract for sale in the first quarter of 2001. In the third quarter of 2000, the $35 billion residential mortgage servicing portfolio and $5.7 billion credit card portfolio were sold. The sale of $13 billion of securities was complete by mid-October.
Restructuring and Other Charges and Gains
The restructuring and other charges/gains in the fourth quarter amounted to a pre-tax charge of $74 million ($36 million after-tax) or 4 cents per share. This included charges of $431 million, which were offset by $357 million in gains on branch sales mentioned above. Included in these charges are merger-related charges primarily composed of $34 million in system conversion expenses related to the EVEREN and other acquisitions, $212 million in noninterest expense, mostly personnel expenses, $118 million in additional writedowns of the portion of the large problem loan previously moved to assets held for sale as part of the restructuring announced in June 2000 and $74 million in losses on sales of the remaining $3 billion of the $13 billion of securities referenced above.
Net Charge-offs, Loan Loss Provision and Nonperforming Assets
Net charge-offs amounted to $192 million in the fourth quarter of 2000, an increase of $50 million from the third quarter of 2000 and $23 million from the fourth quarter of 1999. This represented 0.64 percent of average net loans, an increase of 18 basis points from the third quarter of 2000 and 12 basis points from the fourth quarter of 1999. In full year 2000, the charge-off ratio was 0.59 percent, in line with First Union's previous guidance. These numbers include $93 million in charge-offs taken in the fourth quarter related to a previously disclosed single large problem loan.
The loan loss provision was $192 million in the fourth quarter of 2000, a decrease of $10 million from the third quarter of 2000 and an increase of $19 million from the fourth quarter a year ago. In 2000, the loan loss provision was $1.1 billion, an increase of $387 million from 1999. The 2000 provision included a $325 million incremental provision. At December 31, 2000, the allowance to net loans increased to 1.39 percent from 1.32 percent at December 31, 1999.
At December 31, 2000, nonperforming assets were $1.6 billion, or 1.22 percent of net loans, foreclosed properties and loans held for sale, an increase of $533 million from December 31, 1999. Excluding the single, large problem loan, nonperforming assets increased $320 million. Fourth quarter 2000 nonperforming assets included $334 million of nonperforming assets in the held for sale category, down $15 million from the third quarter.
"Our experience in rising nonperforming assets is similar to the rest of the industry at this point in the credit cycle, with a 24 percent increase since September 30. The majority of this increase was related to a large commercial credit to a single borrower. This syndicated credit is an anomaly compared with the rest of the loan portfolio. The next largest nonperforming loan was $33 million," said Rob Nimmo, First Union's chief risk officer. "Excluding the single large nonperforming loan, nonperforming assets – including those held for sale – rose 8 percent from September 30, 2000. We continue to believe that 2001 will be a more challenging economic environment than the previous two years, and for some time we have incorporated into our budgeting process our view that nonperforming assets and loan losses will rise in 2001."
Selected Lines of Business
Capital Management encompasses brokerage and asset and wealth management businesses. Despite turbulent markets, a diverse product set and multiple distribution capabilities enabled Capital Management to generate $792 million in fee and other income in the fourth quarter of 2000, an increase of 2 percent from the fourth quarter of 1999. In full year 2000, Capital Management fee and other income was a record $3.2 billion, up 39 percent from 1999. The increase from 1999 reflects strong internal growth of 16 percent and also includes $564 million of revenue growth related to EVEREN. Revenue growth was propelled by strong performances in brokerage, insurance and asset management fees.
- Assets under management rose to $171 billion at December 31, 2000, up $1.0 billion from December 31, 1999. This includes growth in mutual fund assets under management of 6 percent in 2000 to $85 billion, reflecting strong investment performance coupled with a diversified portfolio. This performance compares favorably against market indices, with the S&P 500 down 10 percent, the Dow Jones Industrial Average down 6 percent and the NASDAQ composite down 39 percent in 2000.
- Evergreen Capital Growth Fund A was cited as a "category king" by The Wall Street Journal in the large cap value Lipper category, ranking among the top 10 funds in its peer group. The Evergreen Health Care Fund also was the top performing fund in its Lipper peer group at year-end 2000.
- Evergreen Funds recognized as a service leader in the mutual fund industry in 2000, ranking among the highest tier in highly regarded DALBAR customer service rankings.
- Nationwide network of 7,400 registered representatives at December 31, 2000, which increased by more than 400 with the closing of the JWGenesis acquisition on January 1, 2001.
- The Capital Management Group conducted two major systems conversion in 2000. Brokerage completed conversion to one common system in the fall of 2000, while systems upgrades in the 401(k) business enabled state-of-the-art record-keeping and Internet processing in this product area that helped fuel a 95 percent increase in asset sales from the fourth quarter of 1999.
- Wealth management business was restructured in 2000 to better meet client needs. Fee and other income related to Wealth and Trust Services increased 5 percent in 2000 from 1999.
Capital Markets, which encompasses investment banking and corporate banking activities, streamlined and exited a number of businesses in 2000 that did not fit strategic or growth needs. With its major buildup phase essentially complete, the Capital Markets Group developed integrated strategies aimed at serving middle market, growth companies. The impact of the restructuring and a $243 million decline in principal investing gains led to a 30 percent decrease in revenues to $608 million in the fourth quarter of 2000 from the fourth quarter of 1999. Excluding principal investing gains, Capital Markets revenues were down 2 percent from the fourth quarter of 1999. Only modest principal investing gains are anticipated in 2001.
The General Bank, which encompasses First Union's commercial, small business and consumer lending and deposit activities, experienced solid growth, with deposit unit sales up 5 percent and Big 3 loans (direct consumer, prime equity lines and small business lines/loans) up 7 percent from the fourth quarter of 1999. Branch divestitures in the fourth quarter of 2000 included $2.1 billion in deposits and $482 million in loans.
- Overall customer satisfaction scores as measured by Gallup improved for the seventh consecutive quarter.
- Customer retention continued to improve, remaining in the 96 to 97 percent range throughout 2000.
- Focused strategies resulted in growth in both commercial and consumer loans, net of securitizations and transfers. Sales of consumer prime equity lines were up 20 percent from the fourth quarter of 1999.
- Core deposits, adjusted for divestitures, grew significantly from year-end 1999, reversing the negative growth trend experienced in 1999.
In First Union's e-commerce business, enrollments for Internet services grew by approximately 100,000 a month in 2000, reaching 2.4 million enrollments at December 31, 2000, including 59,000 online brokerage enrollments and 88,000 online wholesale enrollments.
Earnings Conference Call
First Union CEO Ken Thompson and CFO Bob Kelly will review First Union's fourth quarter results at 10 a.m. on Thursday, January 18, in a teleconference and live audio webcast. During the call, Kelly will review information presented in handouts that are available through ftuinvestor.com. Participants are encouraged to access the handouts before the teleconference begins.
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 Fourth Quarter Earnings Audio Webcast. In order to listen to the webcast, you will need to download Real Player Basic 8 in advance of the event. A replay of the webcast also will be available beginning about noon on Thursday, January 18.
Teleconference Instructions: On January 18, the telephone number to participate in the teleconference is 888-603-7029 for U.S. callers (or 712-271-3895 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.
A continuous telephone replay will be available beginning at noon on Thursday, January 18, and continuing through 5 p.m. on Wednesday, January 24. The replay telephone number is 402-998-0561.
First Union (NYSE:FTU), with $254 billion in assets and stockholders' equity of $15 billion at December 31, 2000, 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 46 states. Online banking products and services can be accessed through www.firstunion.com.
This news release and earnings conference call 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. 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 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 intend to update any forward-looking statement to reflect circumstances or events that occur after the date the forward-looking statements are made.
