0000950109-01-504423.txt : 20011029 0000950109-01-504423.hdr.sgml : 20011029 ACCESSION NUMBER: 0000950109-01-504423 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20011023 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits ITEM INFORMATION: FILED AS OF DATE: 20011023 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WACHOVIA CORP NEW CENTRAL INDEX KEY: 0000036995 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 560898180 STATE OF INCORPORATION: NC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10000 FILM NUMBER: 1764101 BUSINESS ADDRESS: STREET 1: ONE FIRST UNION CTR CITY: CHARLOTTE STATE: NC ZIP: 28288-0013 BUSINESS PHONE: 7043746565 MAIL ADDRESS: STREET 1: ONE FIRST UNION CENTER CITY: CHARLOTTE STATE: NC ZIP: 28288-0013 FORMER COMPANY: FORMER CONFORMED NAME: CAMERON FINANCIAL CORP DATE OF NAME CHANGE: 19750522 FORMER COMPANY: FORMER CONFORMED NAME: FIRST UNION CORP DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: FIRST UNION NATIONAL BANCORP INC DATE OF NAME CHANGE: 19721115 8-K 1 d8k.txt WACHOVIA CORP. FORM 8-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) October 23, 2001 ---------------- Wachovia Corporation ------------------------------------------------------ (Exact name of registrant as specified in its charter) North Carolina 1-10000 56-0898180 -------------------------------------------------------------------------------- (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification No.) One First Union Center Charlotte, North Carolina 28288-0013 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (704) 374-6565 ------------------- (Former name or former address, if changed since last report.) Item 5. Other Events. On October 23, 2001, Wachovia Corporation ("Wachovia") issued a news release announcing its financial results for the third quarter ended September 30, 2001 (the "News Release"). The News Release is attached as Exhibit 99(a) to this report and is incorporated into this Item 5 by reference. Item 7. Financial Statements and Exhibits. (c) Exhibits. 99(a) The News Release. 99(b) The Supplemental Earnings Package (as defined below). 99(c) The Earnings Slide Presentation (as defined below). Item 9. Regulation FD Disclosure. On October 23, 2001, in connection with Wachovia's issuance of the News Release, Wachovia released its Third Quarter 2001 Supplemental Earnings Package (the "Supplemental Earnings Package") and 3rd Quarter 2001 Earnings Review slide presentation (the "Earnings Slide Presentation" and, together with the Supplemental Earnings Package, the "Supplemental Materials"), which include certain additional historical and forward-looking financial information relating to Wachovia. In addition, on October 23, 2001, Wachovia intends to hold a conference call/webcast to discuss the News Release and the Supplemental Materials. The Supplemental Earnings Package and the Earnings Slide Presentation are attached as Exhibits 99(b) and 99(c), respectively, to this report and are incorporated into this Item 9 by reference. * * * This Current Report on Form 8-K (including information included or incorporated by reference herein) may contain, among other things, certain forward-looking statements with respect to Wachovia, as well as the goals, plans, objectives, intentions, expectations, financial condition, results of operations, future performance and business of Wachovia, including, without limitation, (i) statements relating to certain of Wachovia's goals and expectations with respect to earnings, earnings per share, 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" "probably", "potentially", "projects" 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 Wachovia's control). The following factors, among others, could cause Wachovia's financial performance to differ materially from the goals, plans, objectives, intentions, and expectations expressed in such forward-looking statements: (1) the risk that the businesses of former First Union Corporation and former Wachovia Corporation in connection with their merger (the "Merger") will not be integrated successfully or such integration may be more difficult, time-consuming or costly than expected; (2) expected revenue synergies and cost savings from the Merger may not be fully realized or realized within the expected time frame; (3) revenues following the Merger may be lower than expected; (4) deposit attrition, operating costs, customer loss and business disruption following the Merger, including, without limitation, difficulties in maintaining relationships with employees, may be greater than expected; (5) the strength of the United States economy in general and the strength of the local economies in which Wachovia conducts operations 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 Wachovia's loan portfolio and allowance for loan losses; (6) 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; (7) inflation, interest rate, market and monetary fluctuations; (8) 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 Wachovia's capital markets and capital management activities, including, without limitation, its mergers and acquisition advisory business, equity and debt underwriting activities, private equity investment activities, derivative securities activities, investment and wealth management advisory businesses, and brokerage activities; (9) the timely development of competitive new products and services and the acceptance of these products and services by new and existing customers; (10) the willingness of customers to accept third party products marketed by Wachovia; (11) the willingness of customers to substitute competitors' products and services for Wachovia's products and services and vice versa; (12) the impact of changes in financial services' laws and regulations (including laws concerning taxes, banking, securities and insurance); (13) technological changes; (14) changes in consumer spending and saving habits; (15) the effect of corporate restructurings, acquisitions and/or dispositions, including, without limitation, the Merger, and the actual restructuring and other charges related thereto; (16) the growth and profitability of Wachovia's noninterest or fee income being less than expected; (17) unanticipated regulatory or judicial proceedings; (18) the impact of changes in accounting policies by the Securities and Exchange Commission; (19) adverse changes in the financial performance and/or condition of Wachovia's borrowers which could impact the repayment of such borrowers' outstanding loans; (20) the impact on Wachovia's businesses, as well as on the risks set forth above, of various domestic or international military or terrorist activities or conflicts; and (21) the success of Wachovia at managing the risks involved in the foregoing. Additional information with respect to factors that may cause actual results to differ materially from those contemplated by such forward-looking statements is included in the reports filed by Wachovia with the Securities and Exchange Commission. Wachovia cautions that the foregoing list of factors is not exclusive. All subsequent written and oral forward-looking statements concerning Wachovia or other matters and attributable to Wachovia or any person acting on its behalf are expressly qualified in their entirety by the cautionary statements above. Wachovia does not undertake any obligation to update any forward-looking statement, whether written or oral, relating to the matters discussed in this Current Report on Form 8-K. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. WACHOVIA CORPORATION Date: October 23, 2001 By: /s/ Robert P. Kelly ------------------------------------ Name: Robert P. Kelly Title: Executive Vice President and Chief Financial Officer Exhibit Index Exhibit No. Description ----------- ----------- 99(a) The News Release. 99(b) The Supplemental Earnings Package. 99(c) The Earnings Slide Presentation. EX-99.(A) 3 dex99a.txt THE NEWS RELEASE Exhibit 99(a) WACHOVIA News Announcement October 23, 2001 Media Contacts: Investor Contacts: Ginny Mackin, 704-383-3715 Alice Lehman, 704-374-4139 Mary Eshet, 704-383-7777 Ellen Taylor, 704-383-1381 WACHOVIA REPORTS CASH OPERATING EARNINGS OF $395 MILLION, OR 36 CENTS PER SHARE IN 3rd QUARTER 2001 34 cents per share in principal investing write-downs and proactive steps taken to strengthen balance sheet -------------------------------------------------------------------------------- THIRD QUARTER 2001 HIGHLIGHTS . First Union-Wachovia merger completed on September 1, 2001; integration progressing well. . Strong growth trend continued in the General Bank. . Record customer service scores represent 10th consecutive quarter of improvements. . Expenses declined 9 percent, excluding expenses from the former Wachovia. . Greatly strengthened credit reserves. . Nonperforming assets declined 4 percent from pro forma 2001 second quarter amounts. . Excluding principal investing write-downs, operating earnings per share were 61 cents; cash operating earnings per share were 70 cents.
----------------------------------------------------------------------------------------------------------------------------------- Earnings Highlights Three Months Ended September 30, June 30, September 30, ------------------------------------------------- (In millions, except per share data) 2001 2001 2000 ---------------------------------------------------------------------------------------------------------------------------------- Earnings Operating earnings(a) $ 298 649 702 Diluted earnings per common share (Operating earnings) 0.27 0.66 0.71 Net income (loss) (As reported) (334) 633 852 Diluted earnings per common share (As reported) $ (0.31) 0.64 0.86 ---------------------------------------------------------------------------------------------------------------------------------- Financial ratios (Operating earnings) Return on average common stockholders' equity 5.77 % 16.19 15.76 Overhead efficiency ratio 76.74 64.34 66.42 Net interest margin 3.58 3.41 3.52 Fee and other income as % of total revenue 34.42 48.32 46.93 Dividend payout ratio 89.45 % 36.36 67.42 ---------------------------------------------------------------------------------------------------------------------------------- Cash operating earnings Net income $ 395 723 778 Diluted earnings per common share $ 0.36 0.73 0.79 Return on average tangible common stockholders' equity 11.36 % 23.35 22.15 Overhead efficiency ratio 72.86 % 62.06 64.17 ---------------------------------------------------------------------------------------------------------------------------------- Asset quality Allowance as % of nonaccrual and restructured loans 202 % 144 202 Allowance as % of loans, net 1.79 1.44 1.39 Net charge-offs as % of average loans, net 0.73 0.52 0.46 Nonperforming assets to loans, net, foreclosed properties and assets held for sale 1.08 % 1.23 0.98 ---------------------------------------------------------------------------------------------------------------------------------- (a) Operating earnings are reported net income excluding after-tax net merger-related, restructuring and other charges and gains.
-------------------------------------------------------------------------------- The merger of First Union and the former Wachovia closed on September 1, 2001; therefore third quarter 2001 earnings reflect the financial results for one month from the former Wachovia. Because this merger was accounted for as a purchase, previous periods have not been restated. --more-- WACHOVIA REPORTS 3rd QUARTER EARNINGS/Page 2 CHARLOTTE, N.C. - Wachovia Corp. (NYSE:WB) today reported third quarter 2001 cash operating earnings of $395 million, or 36 cents per share; operating earnings of $298 million, or 27 cents per share; and a net loss of $334 million, or 31 cents per share. Cash operating earnings for the third quarter of 2001 exclude $632 million after tax in merger-related, restructuring and other charges described below as well as intangibles amortization. "I am pleased with the underlying performance in our businesses and the strength of our core earnings, which give us great optimism for the future," said Ken Thompson, Wachovia president and CEO. "While we are not satisfied with the bottom line results, we believe we have taken exactly the right actions to increase reserves and prudently strengthen our balance sheet in a weakening economy. "Despite the weight we all feel from the terrible events of September 11 and the upheaval in the financial markets, our employees have been dedicated in taking care of their customers while at the same time making excellent progress with merger integration. Our commitment to putting our customers first as we proceed with merger integration is evident in the solid loan and deposit growth in our General Bank and our 10th consecutive quarter of improvement in customer service scores. Expense control is a keystone in the new Wachovia and we expect to see further evidence of that in 2002 as merger synergies gain traction," he said. Principal Investing Write-downs Principal investing write-downs in the third quarter of 2001 amounted to $380 million after tax or 34 cents per share. Since the company last reported results for its principal investing portfolio at the end of the second quarter of 2001, both direct and indirect investments in the portfolio have been impaired by the sharp declines in equity market valuations, in line with a 31 percent decline in the NASDAQ composite index and a 15 percent decline in the S&P 500 index in the third quarter of 2001. The third quarter 2001 write-downs related primarily to investments made in 1999 and 2000 largely in the technology and telecom sectors. Merger-Related, Restructuring and Other Charges These charges include: . A $357 million after tax or 33 cents per share provision for loan losses to provide for deterioration in the economic environment experienced in the third quarter. We would expect the allowance to loan loss ratio to be above average for the peer group. . A $215 million after tax or 20 cents per share provision for loan losses plus a $102 million purchase accounting adjustment representing the impact of integrating the two loan portfolios and of moving $1.5 billion of higher risk loans to assets held for sale for eventual disposition. In April the company had estimated this cost at $450 million pre-tax, or $293 million after tax. . $57 million after tax or 5 cents per share of merger-related and restructuring charges, part of the previously announced $1.5 billion charge in connection with the merger. Wachovia will record the majority of those charges over the next several years until merger integration is complete. September 11-Related Impact Wachovia estimated that the third quarter impact of the September 11 tragedy amounted to $55 million after tax, or 5 cents per share, from lost brokerage and trading income during market closings and trading losses due to spread widening. Also, $20 million in pre-tax costs were included in the third quarter of 2001 related to Wachovia's World Trade Center trust operations. --more-- WACHOVIA REPORTS 3rd QUARTER EARNINGS/Page 3 Lines of Business
------------------------------------------------------------------------------------------------------------------------------------ General Bank Highlights Three Months Ended September 30, June 30, September 30, ------------------------------------------------ (In millions) 2001 2001 2000 ------------------------------------------------------------------------------------------------------------------------------------ Total revenue (Tax-equivalent) $ 1,754 1,555 1,482 Provision for loan losses 98 98 51 Noninterest expense 1,023 936 933 Operating earnings 411 343 328 Average loans, net 76,590 65,462 60,029 Average core deposits 110,755 99,388 97,186 Economic capital $ 4,465 3,691 3,652 ------------------------------------------------------------------------------------------------------------------------------------
General Bank financial results continued to show very good momentum, with growth in revenues and low cost core deposits and strong consumer credit production. The focus in the General Bank is on providing excellent service to customers throughout the merger integration process, on growing low-cost core deposits, on improving loan spreads and on becoming more efficient.
------------------------------------------------------------------------------------------------------------------------------------ Capital Management Highlights Three Months Ended September 30, June 30, September 30, ------------------------------------------------ (In millions) 2001 2001 2000 ------------------------------------------------------------------------------------------------------------------------------------ Total revenue (Tax-equivalent) $ 676 711 707 Provision for loan losses - - - Noninterest expense 573 583 576 Operating earnings 67 84 87 Average loans, net 269 110 84 Average core deposits 1,535 1,609 2,356 Economic capital $ 848 817 844 ------------------------------------------------------------------------------------------------------------------------------------
Despite the unsettled markets and the continued slide in the broader equity markets, the Capital Management Group achieved record annuity sales and record gross and net fluctuating mutual fund sales. Excluding the impact of the former Wachovia, assets under management increased 4 percent from the third quarter of 2000. Assets under management were $226 billion at September 30, 2001, including $47 billion from the former Wachovia. Continued focus on expense control was evident in the modest decline from the third quarter of 2000, despite the higher expense base associated with the merger. --more-- WACHOVIA REPORTS 3rd QUARTER EARNINGS/Page 4
----------------------------------------------------------------------------------------------------------------------------------- Wealth Management Highlights Three Months Ended September 30, June 30, September 30, ------------------------------------------------ (In millions) 2001 2001 2000 ----------------------------------------------------------------------------------------------------------------------------------- Total revenue (Tax-equivalent) $ 161 127 126 Provision for loan losses 2 - - Noninterest expense 115 84 80 Operating earnings 29 29 30 Average loans, net 5,680 4,449 4,211 Average core deposits 7,328 6,367 5,579 Economic capital $ 236 169 161 -----------------------------------------------------------------------------------------------------------------------------------
Wealth Management, which serves affluent and ultra high net worth individuals, is focused on gathering assets and serving clients well. While rate compression had an impact on the value of the loan and deposit portfolios in the Wealth Management segment, sales volumes and lending relationships increased year over year. Retention of both clients and sales professionals remained strong in the third quarter. The increase in expenses year over year reflects the higher expense base due to the Wachovia merger and to incremental investments to drive future performance.
----------------------------------------------------------------------------------------------------------------------------------- Corporate and Investment Banking Highlights Three Months Ended September 30, June 30, September 30, ------------------------------------------------ (In millions) 2001 2001 2000 ----------------------------------------------------------------------------------------------------------------------------------- Total revenue (Tax-equivalent) $ 233 787 767 Provision for loan losses 126 93 83 Noninterest expense 479 498 486 Operating earnings (207) 153 151 Average loans, net 42,076 41,145 42,017 Average core deposits 10,499 10,200 9,086 Economic capital $ 6,267 6,012 6,048 -----------------------------------------------------------------------------------------------------------------------------------
Corporate and Investment Banking was negatively affected by the decline in the equity markets and reduced liquidity for non-public investments, with the $534 million decline in total revenue reflecting the $380 million after-tax write-down in private equity investments in the third quarter of 2001. Fixed income sales and trading and interest rate derivatives continued to perform well due to declining short-term rates. Excluding the impact of one month of expenses related to the former Wachovia, noninterest expense declined 8 percent, largely due to strong cost controls. *** Wachovia Corporation (NYSE:WB), created through the September 1, 2001, merger of First Union and Wachovia with assets of $326 billion as of September 30 and $29 billion in stockholders' equity, is a leading provider of financial services to 19 million retail and corporate customers throughout the East Coast and the nation. The company operates full-service banking offices under the First Union and Wachovia names in 11 East Coast states and Washington, D.C., and offers full-service brokerage with offices in 47 states and global services through more than 30 international offices. Online banking and brokerage products and services are available through wachovia.com and firstunion.com. --more-- WACHOVIA REPORTS 3rd QUARTER EARNINGS/Page 5 Earnings Conference Call and Supplemental Materials Wachovia President and CEO Ken Thompson and CFO Bob Kelly will review Wachovia's third quarter results in a conference call and audio webcast beginning at 10 a.m. today. Supplemental materials relating to the third quarter results are available on the Internet at http://wachovia.firstunion.com, and investors are encouraged to access such materials. Webcast Instructions: To gain access to the webcast, which will be "listen-only," go to http://wachovia.firstunion.com and click on the link Wachovia Third Quarter Earnings Audio Webcast. In order to listen to the webcast, you will need to download Real Player Basic 8. Teleconference Instructions: The telephone number for the conference call is 800-369-1921 for U.S. callers or 312-470-7362 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. Replay: Tuesday, October 23, from noon until 5 p.m. EDT on Friday, November 9. Replay telephone number is 402-998-1060. This news release may contain various forward-looking statements. A discussion of various factors that could cause Wachovia Corporation's actual results to differ materially from those expressed in such forward-looking statements is included in Wachovia's 2001 filings with the Securities and Exchange Commission, including its Current Report on Form 8-K dated October 23, 2001. PAGE 6 WACHOVIA CORPORATION FINANCIAL HIGHLIGHTS (Unaudited)
----------------------------------------------------------------------------------------------------------------- 2001 2000 --------------------------------- --------------------- (Dollars in millions, except Third Second First Fourth Third per share data) Quarter Quarter Quarter Quarter Quarter ----------------------------------------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS Operating Earnings Net interest income - tax-equivalent $ 1,974 1,742 1,734 1,757 1,860 Fee and other income 1,036 1,629 1,546 1,582 1,645 ----------------------------------------------------------------------------------------------------------------- Total revenue - tax-equivalent 3,010 3,371 3,280 3,339 3,505 Provision for loan losses 244 223 219 192 142 Noninterest expense 2,310 2,169 2,138 2,132 2,328 Income taxes - tax-equivalent 158 330 313 334 333 ----------------------------------------------------------------------------------------------------------------- Income before merger-related, restructuring and other charges and cumulative effect of a change in accounting principle (Operating earnings) 298 649 610 681 702 After-tax merger-related, restructuring and other charges (632) (16) (26) (36) 150 ----------------------------------------------------------------------------------------------------------------- Income (loss) before cumulative effect of a change in accounting principle (334) 633 584 645 852 Cumulative effect of a change in the accounting for beneficial interests, net of income taxes -- -- -- (46) -- ----------------------------------------------------------------------------------------------------------------- Net income (loss) (As reported) $ (334) 633 584 599 852 ----------------------------------------------------------------------------------------------------------------- DILUTED EARNINGS PER COMMON SHARE Income before merger-related, restructuring and other charges and cumulative effect of a change in accounting principle $ 0.27 0.66 0.62 0.69 0.71 Income (loss) before cumulative effect of a change in accounting principle (0.31) 0.64 0.59 0.65 0.86 Net income (loss) $ (0.31) 0.64 0.59 0.60 0.86 ----------------------------------------------------------------------------------------------------------------- PROFITABILITY (Operating earnings) Return on average common stockholders' equity 5.77 % 16.19 15.64 15.36 15.76 Net interest margin 3.58 3.41 3.42 3.46 3.52 Fee and other income as % of total revenue 34.42 48.32 47.13 47.38 46.93 Overhead efficiency ratio 76.74 64.34 65.18 63.85 66.42 Effective income tax rate 27.67 % 31.54 31.54 31.21 30.43 ----------------------------------------------------------------------------------------------------------------- CASH OPERATING EARNINGS Net income $ 395 723 684 753 778 Diluted earnings per common share $ 0.36 0.73 0.69 0.76 0.79 Return on average tangible common stockholders' equity 11.36 % 23.35 22.91 21.55 22.15 Return on average common stockholders' equity 7.66 18.04 17.52 17.00 17.47 Overhead efficiency ratio 72.86 % 62.06 62.80 61.46 64.17 Operating leverage $ (462) 59 (67) 31 (154) -----------------------------------------------------------------------------------------------------------------
PAGE 7 WACHOVIA CORPORATION OTHER FINANCIAL DATA (Unaudited)
---------------------------------------------------------------------------------------------------------------------------------- 2001 2000 ------------------------------------- ------------------------- (Dollars in millions, except Third Second First Fourth Third per share data) Quarter Quarter Quarter Quarter Quarter ---------------------------------------------------------------------------------------------------------------------------------- CAPITAL ADEQUACY (a) Tier I capital ratio 6.70 % 7.37 7.18 7.02 7.00 Total capital ratio 10.74 11.45 11.33 11.19 11.32 Leverage ratio 7.24 % 6.00 5.88 5.92 5.73 ---------------------------------------------------------------------------------------------------------------------------------- ASSET QUALITY Allowance as % of loans, net 1.79 % 1.44 1.43 1.39 1.39 Allowance as % of nonperforming assets 186 133 132 135 181 Net charge-offs as % of average loans, net 0.73 0.52 0.53 0.64 0.46 Nonperforming assets to loans, net, foreclosed properties and assets held for sale 1.08 % 1.23 1.30 1.22 0.98 ---------------------------------------------------------------------------------------------------------------------------------- OTHER DATA Employees 84,719 67,420 69,362 70,639 70,533 Branches 2,795 2,162 2,164 2,193 2,253 ATMs 4,698 3,419 3,676 3,772 3,831 Common shares outstanding (In thousands) 1,360,996 979,205 981,268 979,963 986,004 Common stock price $ 31.00 34.94 33.00 27.81 32.19 Book value per common share $ 20.94 16.49 16.39 15.66 15.00 Common stock price to book value 148 % 212 201 178 215 Market capitalization $ 42,191 34,213 32,382 27,253 31,739 Dividends paid per common share $ 0.24 0.24 0.24 0.48 0.48 ---------------------------------------------------------------------------------------------------------------------------------- AVERAGE BALANCE SHEET DATA Commercial loans, net $ 83,633 76,378 77,270 76,253 75,380 Consumer loans, net 49,393 42,834 42,580 43,840 48,095 Loans, net 133,026 119,212 119,850 120,093 123,475 Earning assets 219,672 204,673 203,720 202,606 211,089 Total assets 267,366 247,254 245,469 239,375 246,818 Core deposits 132,203 119,035 118,192 118,944 118,074 Total deposits 150,218 136,979 137,282 138,329 143,112 Interest-bearing liabilities 198,322 185,224 183,995 181,832 190,146 Stockholders' equity $ 20,330 16,026 15,846 14,753 14,236 ---------------------------------------------------------------------------------------------------------------------------------- PERIOD END BALANCE SHEET DATA Commercial loans, net $ 106,701 79,529 80,470 80,240 79,361 Consumer loans, net 62,979 42,963 42,383 43,520 44,058 Loans, net 169,680 122,492 122,853 123,760 123,419 Goodwill and other intangible assets Goodwill subject to amortization through December 31, 2001 3,427 3,476 3,524 3,481 3,551 New goodwill not subject to amortization 7,069 - - - - Deposit base premium 2,433 140 157 174 195 Other 8 9 9 9 10 Total assets 325,897 245,941 252,949 254,170 246,640 Core deposits 159,787 121,022 120,786 122,383 118,317 Total deposits 180,549 138,567 140,795 142,668 138,870 Stockholders' equity $ 28,506 16,144 16,081 15,347 14,795 ----------------------------------------------------------------------------------------------------------------------------------
(a) The third quarter of 2001 is based on estimates. PAGE 8 WACHOVIA CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF INCOME (LOSS) (Unaudited)
---------------------------------------------------------------------------------------------------------------------------- Three Months Ended Nine Months Ended September 30, 2001 September 30, 2001 ---------------------------------- ------------------------------------ Merger- Merger- Related Related Restructuring Restructuring and Other and Other Operating Charges/ As Operating Charges/ As (In millions, except per share data) Earnings Gains Reported Earnings Gains Reported ---------------------------------------------------------------------------------------------------------------------------- Net interest income $ 1,930 - 1,930 5,343 - 5,343 Provision for loan losses 244 880 1,124 686 880 1,566 ---------------------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 1,686 (880) 806 4,657 (880) 3,777 ---------------------------------------------------------------------------------------------------------------------------- Fee and other income Service charges and fees 541 - 541 1,495 - 1,495 Advisory, underwriting and other investment banking fees 177 - 177 613 - 613 Other income Security transactions - portfolio (35) - (35) (51) - (51) Asset sales and securitization 89 31 120 165 (21) 144 Gain on sale of branches - - - - 73 73 Other income 264 (35) 229 1,989 (27) 1,962 ---------------------------------------------------------------------------------------------------------------------------- Total fee and other income 1,036 (4) 1,032 4,211 25 4,236 ---------------------------------------------------------------------------------------------------------------------------- Noninterest expense Merger-related and restructuring charges - 85 85 - 18 18 Other noninterest expense 2,310 - 2,310 6,617 166 6,783 ---------------------------------------------------------------------------------------------------------------------------- Total noninterest expense 2,310 85 2,395 6,617 184 6,801 ---------------------------------------------------------------------------------------------------------------------------- Income (loss) before income taxes (benefits) 412 (969) (557) 2,251 (1,039) 1,212 Income taxes (benefits) 114 (337) (223) 694 (365) 329 ---------------------------------------------------------------------------------------------------------------------------- Net income (loss) $ 298 (632) (334) 1,557 (674) 883 ---------------------------------------------------------------------------------------------------------------------------- Diluted earnings per common share $ 0.27 (0.58) (0.31) 1.51 (0.66) 0.85 ----------------------------------------------------------------------------------------------------------------------------
PAGE 9 WACHOVIA CORPORATION CONSOLIDATED STATEMENTS OF OPERATING EARNINGS (a) (Unaudited)
------------------------------------------------------------------------------------------------------------------------- 2001 2000 ------------------------------------ --------------------- Third Second First Fourth Third (In millions, except per share data) Quarter Quarter Quarter Quarter Quarter ------------------------------------------------------------------------------------------------------------------------- INTEREST INCOME Interest and fees on loans $ 2,621 2,420 2,526 2,701 2,768 Interest and dividends on securities 852 881 925 939 975 Trading account interest 192 198 204 199 212 Other interest income 279 321 370 425 510 ------------------------------------------------------------------------------------------------------------------------- Total interest income 3,944 3,820 4,025 4,264 4,465 ------------------------------------------------------------------------------------------------------------------------- INTEREST EXPENSE Interest on deposits 1,183 1,192 1,253 1,367 1,422 Interest on short-term borrowings 417 454 493 538 609 Interest on long-term debt 414 463 577 627 600 ------------------------------------------------------------------------------------------------------------------------- Total interest expense 2,014 2,109 2,323 2,532 2,631 ------------------------------------------------------------------------------------------------------------------------- Net interest income 1,930 1,711 1,702 1,732 1,834 Provision for loan losses 244 223 219 192 142 ------------------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 1,686 1,488 1,483 1,540 1,692 ------------------------------------------------------------------------------------------------------------------------- FEE AND OTHER INCOME Service charges and fees 541 486 468 481 508 Commissions 356 389 375 383 365 Fiduciary and asset management fees 400 384 381 387 384 Advisory, underwriting and other investment banking fees 177 238 198 187 148 Principal investing (585) (58) (43) (43) 34 Other income 147 190 167 187 206 ------------------------------------------------------------------------------------------------------------------------- Total fee and other income 1,036 1,629 1,546 1,582 1,645 ------------------------------------------------------------------------------------------------------------------------- NONINTEREST EXPENSE Salaries and employee benefits 1,374 1,363 1,329 1,243 1,381 Occupancy 176 155 163 150 157 Equipment 214 198 205 221 213 Advertising 15 11 9 16 14 Communications and supplies 117 111 110 123 117 Professional and consulting fees 79 69 73 97 87 Goodwill and other intangible amortization 117 77 78 80 79 Sundry expense 218 185 171 202 280 ------------------------------------------------------------------------------------------------------------------------- Total noninterest expense 2,310 2,169 2,138 2,132 2,328 ------------------------------------------------------------------------------------------------------------------------- Income before income taxes 412 948 891 990 1,009 Income taxes 114 299 281 309 307 ------------------------------------------------------------------------------------------------------------------------- Net operating earnings $ 298 649 610 681 702 ------------------------------------------------------------------------------------------------------------------------- Diluted earnings per common share $ 0.27 0.66 0.62 0.69 0.71 -------------------------------------------------------------------------------------------------------------------------
(a) Operating earnings exclude merger-related, restructuring and other charges and gains and cumulative effect of a change in accounting principle. PAGE 10 WACHOVIA CORPORATION CONSOLIDATED STATEMENTS OF OPERATING EARNINGS (a) (Unaudited)
------------------------------------------------------------------------------------ Nine Months Ended September 30, ---------------------- (In millions, except per share data) 2001 2000 ------------------------------------------------------------------------------------ INTEREST INCOME Interest and fees on loans $ 7,567 8,545 Interest and dividends on securities 2,658 2,964 Trading account interest 594 621 Other interest income 970 1,140 ------------------------------------------------------------------------------------ Total interest income 11,789 13,270 ------------------------------------------------------------------------------------ INTEREST EXPENSE Interest on deposits 3,628 3,902 Interest on short-term borrowings 1,364 1,998 Interest on long-term debt 1,454 1,665 ------------------------------------------------------------------------------------ Total interest expense 6,446 7,565 ------------------------------------------------------------------------------------ Net interest income 5,343 5,705 Provision for loan losses 686 562 ------------------------------------------------------------------------------------ Net interest income after provision for loan losses 4,657 5,143 ------------------------------------------------------------------------------------ FEE AND OTHER INCOME Service charges and fees 1,495 1,485 Commissions 1,120 1,208 Fiduciary and asset management fees 1,165 1,124 Advisory, underwriting and other investment banking fees 613 539 Principal investing (686) 438 Other income 504 439 ------------------------------------------------------------------------------------ Total fee and other income 4,211 5,233 ------------------------------------------------------------------------------------ NONINTEREST EXPENSE Salaries and employee benefits 4,066 4,206 Occupancy 494 469 Equipment 617 637 Advertising 35 75 Communications and supplies 338 364 Professional and consulting fees 221 240 Goodwill and other intangible amortization 272 281 Sundry expense 574 809 ------------------------------------------------------------------------------------ Total noninterest expense 6,617 7,081 ------------------------------------------------------------------------------------ Income before income taxes 2,251 3,295 Income taxes 694 1,041 ------------------------------------------------------------------------------------ Net operating earnings $ 1,557 2,254 ------------------------------------------------------------------------------------ Diluted earnings per common share $ 1.51 2.29 ------------------------------------------------------------------------------------
(a) Operating earnings exclude merger-related, restructuring and other charges and gains. PAGE 11 WACHOVIA CORPORATION CONSOLIDATED STATEMENTS OF INCOME (LOSS) (Unaudited)
-------------------------------------------------------------------------------------------------------------------------------- 2001 2000 --------------------------------------- ----------------------- Third Second First Fourth Third (In millions, except per share data) Quarter Quarter Quarter Quarter Quarter -------------------------------------------------------------------------------------------------------------------------------- INTEREST INCOME Interest and fees on loans $ 2,621 2,420 2,526 2,701 2,768 Interest and dividends on securities 852 881 925 939 975 Trading account interest 192 198 204 199 212 Other interest income 279 321 370 425 510 -------------------------------------------------------------------------------------------------------------------------------- Total interest income 3,944 3,820 4,025 4,264 4,465 -------------------------------------------------------------------------------------------------------------------------------- INTEREST EXPENSE Interest on deposits 1,183 1,192 1,253 1,367 1,422 Interest on short-term borrowings 417 454 493 538 609 Interest on long-term debt 414 463 577 627 600 -------------------------------------------------------------------------------------------------------------------------------- Total interest expense 2,014 2,109 2,323 2,532 2,631 -------------------------------------------------------------------------------------------------------------------------------- Net interest income 1,930 1,711 1,702 1,732 1,834 Provision for loan losses 1,124 223 219 192 322 -------------------------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 806 1,488 1,483 1,540 1,512 -------------------------------------------------------------------------------------------------------------------------------- FEE AND OTHER INCOME Service charges and fees 541 486 468 481 506 Commissions 356 389 375 383 365 Fiduciary and asset management fees 400 384 381 387 384 Advisory, underwriting and other investment banking fees 177 238 198 182 145 Principal investing (585) (58) (43) (43) 34 Other income 143 191 195 363 749 -------------------------------------------------------------------------------------------------------------------------------- Total fee and other income 1,032 1,630 1,574 1,753 2,183 -------------------------------------------------------------------------------------------------------------------------------- NONINTEREST EXPENSE Salaries and employee benefits 1,374 1,400 1,373 1,407 1,427 Occupancy 176 180 164 150 160 Equipment 214 207 211 233 213 Advertising 15 16 14 35 18 Communications and supplies 117 111 110 130 125 Professional and consulting fees 79 84 83 104 91 Goodwill and other intangible amortization 117 77 78 80 79 Merger-related and restructuring charges 85 (69) 2 33 52 Sundry expense 218 191 174 205 283 -------------------------------------------------------------------------------------------------------------------------------- Total noninterest expense 2,395 2,197 2,209 2,377 2,448 -------------------------------------------------------------------------------------------------------------------------------- Income (loss) before income taxes and cumulative effect of a change in accounting principle (557) 921 848 916 1,247 Income taxes (benefits) (223) 288 264 271 395 -------------------------------------------------------------------------------------------------------------------------------- Income (loss) before cumulative effect of a change in accounting principle (334) 633 584 645 852 Cumulative effect of a change in the accounting for beneficial interests, net of income taxes - - - (46) - -------------------------------------------------------------------------------------------------------------------------------- Net income (loss) $ (334) 633 584 599 852 -------------------------------------------------------------------------------------------------------------------------------- PER COMMON SHARE DATA Basic Income (loss) before change in accounting principle $ (0.31) 0.65 0.60 0.66 0.87 Net income (loss) (0.31) 0.65 0.60 0.61 0.87 Diluted Income (loss) before change in accounting principle (0.31) 0.64 0.59 0.65 0.86 Net income (loss) (0.31) 0.64 0.59 0.60 0.86 Cash dividends per common share $ 0.24 0.24 0.24 0.48 0.48 AVERAGE COMMON SHARES (In thousands) Basic 1,094,398 969,333 967,671 969,097 971,453 Diluted 1,105,270 978,185 975,847 990,445 986,763 --------------------------------------------------------------------------------------------------------------------------------
PAGE 12 WACHOVIA CORPORATION CONSOLIDATED STATEMENTS OF INCOME (LOSS) (Unaudited)
----------------------------------------------------------------------------------------------------------------------- Nine Months Ended September 30, ------------------------------- (In millions, except per share data) 2001 2000 ----------------------------------------------------------------------------------------------------------------------- INTEREST INCOME Interest and fees on loans $ 7,567 8,545 Interest and dividends on securities 2,658 2,964 Trading account interest 594 621 Other interest income 970 1,140 ----------------------------------------------------------------------------------------------------------------------- Total interest income 11,789 13,270 ----------------------------------------------------------------------------------------------------------------------- INTEREST EXPENSE Interest on deposits 3,628 3,902 Interest on short-term borrowings 1,364 1,998 Interest on long-term debt 1,454 1,665 ----------------------------------------------------------------------------------------------------------------------- Total interest expense 6,446 7,565 ----------------------------------------------------------------------------------------------------------------------- Net interest income 5,343 5,705 Provision for loan losses 1,566 1,544 ----------------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 3,777 4,161 ----------------------------------------------------------------------------------------------------------------------- FEE AND OTHER INCOME Service charges and fees 1,495 1,439 Commissions 1,120 1,208 Fiduciary and asset management fees 1,165 1,124 Advisory, underwriting and other investment banking fees 613 536 Principal investing (686) 438 Other income 529 214 ----------------------------------------------------------------------------------------------------------------------- Total fee and other income 4,236 4,959 ----------------------------------------------------------------------------------------------------------------------- NONINTEREST EXPENSE Salaries and employee benefits 4,147 4,252 Occupancy 520 472 Equipment 632 637 Advertising 45 79 Communications and supplies 338 373 Professional and consulting fees 246 244 Goodwill and other intangible amortization 272 281 Merger-related and restructuring charges 18 2,157 Sundry expense 583 838 ----------------------------------------------------------------------------------------------------------------------- Total noninterest expense 6,801 9,333 ----------------------------------------------------------------------------------------------------------------------- Income (loss) before income taxes 1,212 (213) Income taxes 329 294 ----------------------------------------------------------------------------------------------------------------------- Net income (loss) $ 883 (507) ----------------------------------------------------------------------------------------------------------------------- PER COMMON SHARE DATA Basic earnings $ 0.86 (0.54) Diluted earnings 0.85 (0.54) Cash dividends per common share $ 0.72 1.44 AVERAGE COMMON SHARES (In thousands) Basic 1,010,467 971,111 Diluted 1,019,721 984,340 -----------------------------------------------------------------------------------------------------------------------
PAGE 13 WACHOVIA CORPORATION CONSOLIDATED BALANCE SHEETS (Unaudited)
----------------------------------------------------------------------------------------------------------------------------------- 2001 2000 ------------------------------------ ------------------------- Third Second First Fourth Third (In millions, except per share data) Quarter Quarter Quarter Quarter Quarter ----------------------------------------------------------------------------------------------------------------------------------- ASSETS Cash and due from banks $ 10,051 8,665 7,857 9,906 7,063 Interest-bearing bank balances 2,128 1,666 2,971 3,239 4,585 Federal funds sold and securities purchased under resale agreements (carrying amount of collateral $4,512 at September 30, 2001, $2,029 repledged) 9,354 9,161 11,866 11,240 5,395 ----------------------------------------------------------------------------------------------------------------------------------- Total cash and cash equivalents 21,533 19,492 22,694 24,385 17,043 ----------------------------------------------------------------------------------------------------------------------------------- Trading account assets 26,763 23,181 20,431 21,630 17,417 Securities (carrying amount of collateral $31,903 at September 30, 2001) 56,929 48,055 51,528 49,246 52,065 Loans, net of unearned income 169,680 122,492 122,853 123,760 123,419 Allowance for loan losses (3,039) (1,760) (1,759) (1,722) (1,720) ----------------------------------------------------------------------------------------------------------------------------------- Loans, net 166,641 120,732 121,094 122,038 121,699 ----------------------------------------------------------------------------------------------------------------------------------- Premises and equipment 5,775 4,852 4,968 5,024 5,090 Due from customers on acceptances 796 856 894 874 968 Goodwill and other intangible assets 12,937 3,625 3,690 3,664 3,756 Other assets 34,523 25,148 27,650 27,309 28,602 ----------------------------------------------------------------------------------------------------------------------------------- Total assets $ 325,897 245,941 252,949 254,170 246,640 ----------------------------------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Deposits Noninterest-bearing deposits 36,382 29,633 28,582 30,315 28,501 Interest-bearing deposits 144,167 108,934 112,213 112,353 110,369 ----------------------------------------------------------------------------------------------------------------------------------- Total deposits 180,549 138,567 140,795 142,668 138,870 Short-term borrowings 44,303 34,754 39,719 39,446 39,388 Bank acceptances outstanding 798 859 902 880 976 Trading account liabilities 10,084 7,907 8,130 7,475 5,138 Other liabilities 18,424 11,650 11,230 12,545 11,215 Long-term debt 43,233 36,060 36,092 35,809 36,258 ----------------------------------------------------------------------------------------------------------------------------------- Total liabilities 297,391 229,797 236,868 238,823 231,845 ----------------------------------------------------------------------------------------------------------------------------------- STOCKHOLDERS' EQUITY Preferred stock, issued 345 thousand shares at September 30, 2001 - - - - - Common stock, $3.33-1/3 par value; authorized 3 billion shares, issued 1.361 billion shares at September 30, 2001 4,537 3,264 3,271 3,267 3,287 Paid-in capital 17,835 6,345 6,307 6,272 6,211 Retained earnings 5,139 6,627 6,281 6,021 6,135 Accumulated other comprehensive income, net 995 (92) 222 (213) (838) ------------------------------------------------------------------------------ ---------------------------------------------------- Total stockholders' equity 28,506 16,144 16,081 15,347 14,795 ----------------------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 325,897 245,941 252,949 254,170 246,640 -----------------------------------------------------------------------------------------------------------------------------------
PAGE 14 WACHOVIA CORPORATION NET INTEREST INCOME SUMMARIES (Unaudited)
--------------------------------------------------------------------------------------------------------------------------------- THIRD QUARTER 2001 SECOND QUARTER 2001 ------------------------------------- -------------------------------- Average Average Interest Rates Interest Rates Average Income/ Earned/ Average Income/ Earned/ (In millions) Balances Expense Paid Balances Expense Paid --------------------------------------------------------------------------------------------------------------------------------- ASSETS Interest-bearing bank balances $ 1,740 17 3.86% $ 2,529 29 4.57% Federal funds sold and securities purchased under resale agreements 10,031 107 4.25 8,923 99 4.41 Trading account assets 14,572 199 5.43 13,965 202 5.78 Securities 50,621 877 6.93 49,931 899 7.21 Loans Commercial Commercial, financial and agricultural 55,490 1,142 8.17 53,160 1,098 8.29 Real estate - construction and other 4,512 66 5.88 3,193 52 6.56 Real estate - mortgage 10,923 184 6.66 8,525 149 7.01 Lease financing 6,441 168 10.42 6,075 157 10.29 Foreign 6,267 83 5.26 5,425 83 6.12 -------------------------------------------------------------------------------- ----------------------- Total commercial 83,633 1,643 7.80 76,378 1,539 8.08 -------------------------------------------------------------------------------- ----------------------- Consumer Real estate - mortgage 19,816 353 7.12 17,435 318 7.29 Installment loans and vehicle leasing 29,577 637 8.57 25,399 572 9.02 -------------------------------------------------------------------------------- ----------------------- Total consumer 49,393 990 7.99 42,834 890 8.32 -------------------------------------------------------------------------------- ----------------------- Total loans 133,026 2,633 7.87 119,212 2,429 8.17 -------------------------------------------------------------------------------- ----------------------- Other earning assets 9,682 155 6.35 10,113 193 7.68 -------------------------------------------------------------------------------- ----------------------- Total earning assets 219,672 3,988 7.23 204,673 3,851 7.54 ------------------- ------------------ Cash and due from banks 8,357 7,568 Other assets 39,337 35,013 ------------------------------------------------------------------ ---------- Total assets $ 267,366 $ 247,254 ------------------------------------------------------------------ ---------- LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing deposits Savings and NOW accounts 41,897 259 2.46 39,640 267 2.70 Money market accounts 24,904 269 4.28 18,746 225 4.81 Other consumer time 35,484 474 5.30 33,268 477 5.76 Foreign 7,441 71 3.74 6,357 73 4.62 Other time 10,574 110 4.13 11,587 150 5.20 -------------------------------------------------------------------------------- ----------------------- Total interest-bearing deposits 120,300 1,183 3.90 109,598 1,192 4.36 Federal funds purchased and securities sold under repurchase agreements 26,982 332 4.87 27,128 356 5.27 Commercial paper 2,950 25 3.36 2,435 25 4.08 Other short-term borrowings 9,870 60 2.45 9,809 73 2.98 Long-term debt 38,220 414 4.34 36,254 463 5.11 -------------------------------------------------------------------------------- ---------- -------- Total interest-bearing liabilities 198,322 2,014 4.04 185,224 2,109 4.57 ------------------- ------------------ Noninterest-bearing deposits 29,918 27,381 Other liabilities 18,796 18,623 Stockholders' equity 20,330 16,026 ----------------------------------------------------------------- ---------- Total liabilities and stockholders' equity $ 267,366 $ 247,254 ------------------------------------------------------------------ ---------- Interest income and rate earned $ 3,988 7.23% $ 3,851 7.54% Interest expense and equivalent rate paid 2,014 3.65 2,109 4.13 ---------------------------------------------------------------------------------------- ------------------ Net interest income and margin (a) $ 1,974 3.58% $ 1,742 3.41% ---------------------------------------------------------------------------------------- ------------------
(a) The net interest margin includes (in basis points): 18, 13, 14, 15 and 22 in the third, second and first quarters of 2001 and in the fourth and third quarters of 2000, respectively, related to net interest income from hedge-related derivative transactions. PAGE 15 WACHOVIA CORPORATION NET INTEREST INCOME SUMMARIES (Unaudited)
------------------------------------------------------------------------------------------------------------------------------------ FIRST QUARTER 2001 FOURTH QUARTER 2000 THIRD QUARTER 2000 ----------------------------------------- ---------------------------------------- ---------------------------------------- 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 ----------------------------------------------------------------------------------------------------------------------------------- $ 1,826 25 5.69% $ 1,266 14 4.34% $ 1,465 20 5.28% 7,036 95 5.49 5,994 89 5.86 6,367 97 6.11 13,315 206 6.24 11,569 201 6.95 12,204 214 6.99 50,417 945 7.50 50,554 952 7.54 52,780 988 7.48 53,416 1,130 8.56 53,554 1,233 9.17 53,226 1,250 9.34 3,231 62 7.76 3,011 65 8.69 2,676 59 8.65 9,195 180 7.95 9,130 198 8.63 9,294 203 8.70 6,084 161 10.62 5,272 150 11.37 5,168 148 11.45 5,344 92 7.01 5,286 97 7.29 5,016 91 7.17 ------------------------- ------------------------- ------------------------ 77,270 1,625 8.51 76,253 1,743 9.11 75,380 1,751 9.24 ------------------------- ------------------------- ------------------------ 17,610 331 7.52 18,805 362 7.70 23,163 432 7.47 24,970 580 9.41 25,035 606 9.63 24,932 596 9.51 ------------------------- ------------------------- ------------------------ 42,580 911 8.63 43,840 968 8.80 48,095 1,028 8.53 ------------------------- ------------------------- ------------------------ 119,850 2,536 8.55 120,093 2,711 8.99 123,475 2,779 8.96 ------------------------- ------------------------- ------------------------ 11,276 250 8.96 13,130 322 9.76 14,798 393 10.63 ------------------------- ------------------------- ------------------------ 203,720 4,057 8.03 202,606 4,289 8.44 211,089 4,491 8.48 ------------------------ ------------------------ ---------------------- 7,749 7,653 7,446 34,000 29,116 28,283 ------------ ------------ ------------ $ 245,469 $ 239,375 $ 246,818 ------------ ------------ ------------ 38,756 264 2.76 37,640 301 3.17 37,680 296 3.13 17,941 200 4.52 17,008 202 4.74 15,629 175 4.46 34,452 506 5.96 36,421 541 5.91 36,328 524 5.74 6,851 94 5.59 7,483 110 5.85 9,721 151 6.18 12,239 189 6.27 11,902 213 7.13 15,317 276 7.16 ------------------------- ------------------------- ------------------------ 110,239 1,253 4.61 110,454 1,367 4.92 114,675 1,422 4.93 25,005 378 6.13 23,686 400 6.72 28,363 459 6.43 2,540 33 5.32 2,639 42 6.19 2,588 40 6.25 9,580 82 3.46 9,345 96 4.09 9,257 110 4.74 36,631 577 6.30 35,708 627 7.03 35,263 600 6.80 ------------------------- --------------------------------------- ------------------------ 183,995 2,323 5.10 181,832 2,532 5.55 190,146 2,631 5.51 ------------------------ ------------------------ ---------------------- 27,043 27,875 28,437 18,585 14,915 13,999 15,846 14,753 14,236 ------------ ------------ ------------ $ 245,469 $ 239,375 $ 246,818 ------------ ------------ ------------ $ 4,057 8.03% $ 4,289 8.44% $ 4,491 8.48% 2,323 4.61 2,532 4.98 2,631 4.96 ------------------------ ------------------------ ---------------------- $ 1,734 3.42% $ 1,757 3.46% $ 1,860 3.52% ------------------------ ------------------------ ----------------------
PAGE 16 WACHOVIA CORPORATION NET INTEREST INCOME SUMMARIES (Unaudited)
------------------------------------------------------------------------------------------------------------------------------------ NINE MONTHS ENDED 2001 NINE MONTHS ENDED 2000 ------------------------------------- -------------------------------------- Average Average Interest Rates Interest Rates Average Income/ Earned/ Average Income/ Earned/ (In millions) Balances Expense Paid Balances Expense Paid ------------------------------------------------------------------------------------------------------------------------------------ ASSETS Interest-bearing bank balances $ 2,031 71 4.70% $ 1,038 40 5.17% Federal funds sold and securities purchased under resale agreements 8,674 301 4.64 8,406 358 5.70 Trading account assets 13,955 607 5.80 12,160 627 6.89 Securities 50,324 2,721 7.21 54,392 3,001 7.36 Loans Commercial Commercial, financial and agricultural 54,029 3,370 8.34 53,506 3,675 9.17 Real estate - construction and other 3,651 180 6.63 2,514 159 8.42 Real estate - mortgage 9,554 513 7.17 9,192 581 8.45 Lease financing 6,201 486 10.44 5,168 461 11.88 Foreign 5,682 258 6.08 4,711 245 6.94 ------------------------------------------------------------------------------- ------------------------ Total commercial 79,117 4,807 8.12 75,091 5,121 9.11 ------------------------------------------------------------------------------- ------------------------ Consumer Real estate - mortgage 18,295 1,002 7.30 25,483 1,400 7.33 Installment loans and vehicle leasing 26,666 1,789 8.97 28,595 2,055 9.59 ------------------------------------------------------------------------------- ------------------------ Total consumer 44,961 2,791 8.29 54,078 3,455 8.52 ------------------------------------------------------------------------------- ------------------------ Total loans 124,078 7,598 8.18 129,169 8,576 8.86 ------------------------------------------------------------------------------- ------------------------ Other earning assets 10,352 598 7.72 10,453 742 9.48 ------------------------------------------------------------------------------- ------------------------ Total earning assets 209,414 11,896 7.59 215,618 13,344 8.26 -------------------- -------------------- Cash and due from banks 7,894 7,783 Other assets 36,135 26,817 ------------------------------------------------------------------ ---------- Total assets $ 253,443 $ 250,218 ------------------------------------------------------------------ ---------- LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing deposits Savings and NOW accounts 40,109 790 2.63 38,813 868 2.99 Money market accounts 20,556 694 4.51 15,385 480 4.17 Other consumer time 34,405 1,457 5.66 35,239 1,425 5.40 Foreign 6,885 238 4.62 9,215 404 5.86 Other time 11,460 449 5.24 14,235 725 6.80 ------------------------------------------------------------------------------- ------------------------ Total interest-bearing deposits 113,415 3,628 4.28 112,887 3,902 4.62 Federal funds purchased and securities sold under repurchase agreements 26,379 1,066 5.40 33,451 1,493 5.96 Commercial paper 2,643 83 4.20 2,963 131 5.94 Other short-term borrowings 9,754 215 2.95 9,815 374 5.09 Long-term debt 37,041 1,454 5.24 33,800 1,665 6.57 ------------------------------------------------------------------------------- ------------------------ Total interest-bearing liabilities 189,232 6,446 4.55 192,916 7,565 5.24 -------------------- -------------------- Noninterest-bearing deposits 28,125 28,698 Other liabilities 18,669 12,799 Stockholders' equity 17,417 15,805 ------------------------------------------------------------------ ---------- Total liabilities and stockholders' equity $ 253,443 $ 250,218 ------------------------------------------------------------------ ---------- Interest income and rate earned $ 11,896 7.59% $ 13,344 8.26% Interest expense and equivalent rate paid 6,446 4.12 7,565 4.68 ------------------------------------------------------------------------------------------- -------------------- Net interest income and margin (a) $ 5,450 3.47% $ 5,779 3.58% ------------------------------------------------------------------------------------------- --------------------
(a) The net interest margin includes (in basis points): 15 and 26 for the nine months ended September 30, 2001, and September 30, 2000, respectively, related to net interest income from hedge-related derivative transactions. EX-99.B 4 dex99b.txt SUPPLEMENTAL EARNINGS PACKAGE Exhibit 99(b) Wachovia THIRD QUARTER 2001 SUPPLEMENTAL EARNINGS PACKAGE (ALL COMPARISONS ARE WITH SECOND QUARTER 2001 UNLESS OTHERWISE NOTED) TABLE OF CONTENTS HIGHLIGHTS OF THE QUARTER ................................................. 1 PERFORMANCE REVIEW ........................................................ 3 EARNINGS SUMMARY .......................................................... 4 NET INTEREST INCOME ....................................................... 4 FEE AND OTHER INCOME ...................................................... 6 NONINTEREST EXPENSE ....................................................... 7 ASSET QUALITY ............................................................. 8 NONPERFORMING LOANS ....................................................... 9 LOANS HELD FOR SALE........................................................ 10 FIRST UNION/WACHOVIA MERGER INTEGRATION UPDATE ............................ 12 BUSINESS SEGMENT RESULTS .................................................. 15 GENERAL BANK .............................................................. 17 CAPITAL MANAGEMENT ........................................................ 21 WEALTH MANAGEMENT ......................................................... 24 CORPORATE AND INVESTMENT BANKING .......................................... 25 PARENT .................................................................... 28 ALL INFORMATION EXCLUDES MERGER-RELATED, RESTRUCTURING AND OTHER CHARGES/GAINS AND IS BEFORE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE EXCEPT WHERE SPECIFICALLY NOTED. ALL CONTRIBUTIONS ATTRIBUTED TO WACHOVIA IN 3Q01 ARE ESTIMATES, WHETHER OR NOT EXPLICITLY STATED AS SUCH. Wachovia -------------------------------------------------------------------------------- HIGHLIGHTS OF THE QUARTER ------------------------- Earnings Summary
----------------------------------------------------------------------------------------------------------------------------------- Earnings Summary Third Quarter 2001 ------------------------------ After-Tax Earnings (In millions) (Loss) EPS ----------------------------------------------------------------------------------------------------------------------------------- Core cash operating earnings $ 775 0.70 Deposit base intangible amortization (Includes higher run-rate amortization for one month only) (37) (0.03)(a) Goodwill amortization (related to former First Union, only until December 31, 2001) (60) (0.06) ----------------------------------------------------------------------------------------------------------------------------------- Core operating earnings 678 0.61 Write-downs on principal investing portfolio (380) (0.34) ----------------------------------------------------------------------------------------------------------------------------------- Operating earnings 298 0.27 ----------------------------------------------------------------------------------------------------------------------------------- Merger-related, restructuring and other charges/gains Merger-related and restructuring charges (57) (0.05) Credit related charges (572) (0.53) Other charges, net (3) - ----------------------------------------------------------------------------------------------------------------------------------- Total merger-related, restructuring and other charges/gains (632) (0.58) ----------------------------------------------------------------------------------------------------------------------------------- Net loss (GAAP) $ (334) (0.31) ----------------------------------------------------------------------------------------------------------------------------------- (a) Estimated full quarter amortization is $0.07- 0.12 per share; the deposit base intangible valuation is preliminary and will be finalized in 4Q01.
. Core cash operating earnings of $.70 per share and core operating earnings of $.61 per share. . In 2Q01, cash operating earnings were $723 million, or $0.73 per share; operating earnings were $649 million, or $0.66 per share; and reported earnings were $633 million, or $0.64 per share. SEPTEMBER 11 IMPACT
----------------------------------------------------------------------------------------------------------------------------------- Estimated Lost Revenue and Losses Related to September 11th After- Tax (In millions) Loss EPS ----------------------------------------------------------------------------------------------------------------------------------- Losses related to World Trade Center trust operations $ 13 0.01 Corporate and Investment Banking Estimated losses due to widening spreads on trading portfolio 14 0.01 Lost revenues due to market disruption 20 0.02 Capital Management Four-day market closure effect on brokerage services 8 0.01 ----------------------------------------------------------------------------------------------------------------------------------- Total estimated lost revenue and losses related to September 11th $ 55 0.05 -----------------------------------------------------------------------------------------------------------------------------------
. Earnings were also affected by estimated after-tax costs of $55 million or $.05 per share, resulting from the market disruption during the week of the September 11th tragedy. The businesses impacted, due to the closure of the equity markets for four days as well as the sharp decline in the equity valuations upon the reopening of the market, were brokerage, asset management, trading and fixed income sales and trading. MERGER-RELATED IMPACTS . The dilution that resulted from issuing new shares in connection with the merger amounted to $.01 - $.02 per share. Earnings were further affected by an additional one month of preliminary deposit base intangible amortization amounting to $24 million after-tax or $.02 per share. Estimated full-quarter deposit base amortization is $0.07-$0.12 per share and will be finalized in 4Q01. . Average diluted shares increased 127 million, primarily due to the impact on average shares of one month of new shares related to the Wachovia merger. Shares issued in the merger amounted to 407 million. Ten million shares were repurchased through the settlement of an equity forward contract totaling $500 million and 16.5 million shares owned by the former Wachovia were retired at the consummation of the merger. There were no open market share repurchases in the quarter. At quarter-end, shares subject to forward contracts were 38 million with a weighted average price of $34.94. -------------------------------------------------------------------------------- Page-1 Wachovia -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS . General Bank revenues grew 13% vs. 2Q01, while expenses increased 9%. General Bank growth in loan outstandings remained strong and low cost core deposits continued to increase, up 18%; 4% within the former First Union franchise. Former First Union customer satisfaction scores up for 10th consecutive quarter and former Wachovia Mystery Customer Profile up for 6th consecutive quarter. . Capital Management revenues decreased 5% as a result of generally lower brokerage trading volume, the four-day market closure and lower asset management fees earned as a result of lower equity market valuations and a continued shift in asset allocations toward money market funds. Assets under management grew 31% to $226 billion reflecting strong organic net funds inflows and the contribution of $47 billion in AUM from the former Wachovia. Mutual fund and annuity sales remained strong in the quarter. . Wealth Management revenues increased 27% aided by stronger service charges and insurance commissions. Results are indicative of strong client relationships and advisor retention. . Corporate and Investment Banking recorded write-downs of $585 million in principal investing reflecting the significant decline in the equity markets and reduced liquidity for non-public investments. Strong cost control reduced expenses by 4%. CAPITAL
------------------------------------------------------------------------------------------------------------- Tier 1 Capital Tier 1 ---------------------------- (In millions) Capital Ratio ------------------------------------------------------------------------------------------------------------- First Union as reported June 30, 2001 $ 14,631 7.37 % Impact of merger with Wachovia (-34 bps due to fair value adjustments) 5,537 2.01 Retirement of First Union stock (568) (0.21) Settlement of equity forward contract (previously scheduled for Q4) (547) (0.20) Principal investing write-down (380) (0.14) Credit actions (572) (0.21) Dividend (237) (0.09) Core operating earnings 678 0.25 Merger-related, restructuring and other charges, net (60) (0.02) Increase in risk weighted assets - (2.06) ------------------------------------------------------------------------------------------------------------- As of September 30, 2001 (estimated) $ 18,482 6.70 % ----------------------------------------------------------------------------------------------------------
. Tier 1 capital was reduced by 3Q01 actions, including the early settlement of a $500 million equity forward contract, the retirement of 16.5 million First Union shares held by the former Wachovia, as well as the effect of the principal investing write-downs and the credit actions taken at the end of the quarter. We expect Tier 1 capital to resume its growth in 4Q01 and in subsequent quarters. . Total capital ratio declined to 10.74% from 11.45% while the leverage ratio increased to 7.24% from 6.00%. Total capital is not affected by the cost of the above credit actions. The leverage ratio reflects the higher level of combined on-balance sheet assets for only one month of the quarter. CREDIT . Net charge-offs were .73% in 3Q01 bringing the year-to-date charge-off ratio to .60%. Recorded provision of $880 million in excess of net charge-offs, of which $230 million related to write-downs recorded on loans sold or transferred to assets held for sale. . Total nonperforming assets including assets held for sale declined 4% from a 2Q01 pro forma combined balance of $1.98 billion. Allowance as a percentage of loans improved to 1.79%, primarily due to the addition of $523 million in reserves from a pro forma combined June 30 level of $2.516 billion. 4Q 2001 Outlook . Continuing focus on customer service, expense control and merger integration . Charge-off guidance of 55-65 bps for the year 2001 continues to be appropriate . Core cash operating earnings per share in line with 2Q01-3Q01 levels -------------------------------------------------------------------------------- Page-2 Wachovia -------------------------------------------------------------------------------- PERFORMANCE REVIEW ------------------ Before Merger-Related, Restructuring and Other Charges/Gains
----------------------------------------------------------------------------------------------------------------------------------- Operating Basis Performance Highlights 2001 2000 ----------------------------------------- ------------------------ Third Second First Fourth Third (In millions, except per share data) Quarter Quarter Quarter Quarter Quarter ----------------------------------------------------------------------------------------------------------------------------------- Cash operating earnings (a) Net income $ 395 723 684 753 778 Diluted earnings per common share $ 0.36 0.73 0.69 0.76 0.79 Return on average tangible assets 0.60 % 1.19 1.15 1.26 1.26 Return on average tangible common stockholders' equity 11.36 23.35 22.91 21.55 22.15 Overhead efficiency ratio 72.86 % 62.06 62.80 61.46 64.17 Operating leverage $ (462) 59 (67) 31 (154) ----------------------------------------------------------------------------------------------------------------------------------- Operating earnings (b) Net income $ 298 649 610 681 702 Diluted earnings per common share $ 0.27 0.66 0.62 0.69 0.71 Return on average assets 0.44 % 1.05 1.01 1.12 1.12 Return on average common stockholders' equity 5.77 16.19 15.64 15.36 15.76 Overhead efficiency ratio 76.74 % 64.34 65.18 63.85 66.42 Operating leverage $ (502) 60 (65) 30 (133) ----------------------------------------------------------------------------------------------------------------------------------- Other financial data Net interest margin 3.58 % 3.41 3.42 3.46 3.52 Fee and other income as % of total revenue 34.42 48.32 47.13 47.38 46.93 Effective income tax rate 27.67 % 31.54 31.54 31.21 30.43 Period-end common stock price $ 31.00 34.94 33.00 27.81 32.19 ----------------------------------------------------------------------------------------------------------------------------------- Asset quality Net charge-offs as % of average loans, net 0.73 % 0.52 0.53 0.64 0.46 Nonperforming assets to loans, net, foreclosed properties and assets held for sale 1.08 % 1.23 1.30 1.22 0.98 ----------------------------------------------------------------------------------------------------------------------------------- Capital adequacy Tier 1 capital ratio (c) 6.70 % 7.37 7.18 7.02 7.00 Total capital ratio (c) 10.74 11.45 11.33 11.19 11.32 Leverage ratio (c) 7.24 % 6.00 5.88 5.92 5.73 ----------------------------------------------------------------------------------------------------------------------------------- Other Average diluted common shares (In thousands) 1,105,270 978,185 975,847 990,445 986,763 Actual common shares (In thousands) 1,360,996 979,205 981,268 979,963 986,004 Dividends paid per common share $ 0.24 0.24 0.24 0.48 0.48 Dividend payout ratio 89.45 % 36.36 38.71 69.57 67.42 Book value per common share $ 20.94 16.49 16.39 15.66 15.00 FTE employees 84,719 67,420 69,362 70,639 70,533 ----------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------- ------------------------- Operating Basis Performance Highlights 3 Q 01 Estimated vs Contribution From (In millions, except per share data) 2 Q 01 WB FTU ----------------------------------------------------------------------------- ------------------------- Cash operating earnings (a) Net income (45) % 17 (62) % Diluted earnings per common share (51) 11 (62) Return on average tangible assets - - - Return on average tangible common stockholders' equity - - - Overhead efficiency ratio - - - Operating leverage nm % - - % ----------------------------------------------------------------------------- ------------------------- Operating earnings (b) Net income (54) % 15 (69) % Diluted earnings per common share (59) 9 (68) Return on average assets - - - Return on average common stockholders' equity - - - Overhead efficiency ratio - - - Operating leverage nm % - - % ----------------------------------------------------------------------------- ------------------------- Other financial data Net interest margin - - - Fee and other income as % of total revenue - - - Effective income tax rate - - - Period-end common stock price (11) % - - % ----------------------------------------------------------------------------- ------------------------- Asset quality Net charge-offs as % of average loans, net - - - Nonperforming assets to loans, net, foreclosed properties and assets held for sale - - - ----------------------------------------------------------------------------- ------------------------- Capital adequacy Tier 1 capital ratio (c) - - - Total capital ratio (c) - - - Leverage ratio (c) - - - ----------------------------------------------------------------------------- ------------------------- Other Average diluted common shares (In thousands) 13 % 13 - % Actual common shares (In thousands) 39 40 (1) Dividends paid per common share - - - Dividend payout ratio - - - Book value per common share 27 - - FTE employees 26 % 30 (4) % ----------------------------------------------------------------------------- -------------------------
(a) Cash operating earnings are reported net income excluding after-tax net merger-related, restructuring and other charges and gains, and exclude deposit base intangible and goodwill amortization. (b) Operating earnings are reported net income excluding after-tax net merger-related, restructuring and other charges and gains, and include deposit base intangible and goodwill amortization. (c) The third quarter of 2001 is based on estimates. Operating earnings and cash operating earnings exclude merger-related, restructuring and other charges of $632 million after-tax. These after-tax charges include $57 million ($0.05 per share) of merger-related and restructuring charges related to former Wachovia; $215 million of provision ($0.20 per share) representing the impact of integrating the two loan portfolios and of moving $1.5 billion of higher risk loans to assets held for sale; $357 million of provision ($0.33 per share) to increase the loan loss allowance in the face of a weaker economy. -------------------------------------------------------------------------------- Page-3 Wachovia -------------------------------------------------------------------------------- EARNINGS SUMMARY ---------------- Before Restructuring and Other Charges/Gains
------------------------------------------------------------------------------------------------------------------------- Operating Earnings Summary 2001 --------------------------------------------- Third Second First (In millions, except per share data) Quarter(a) Quarter Quarter ------------------------------------------------------------------------------------------------------------------------- Net interest income (Tax-equivalent) $ 1,974 1,742 1,734 Fee and other income 1,036 1,629 1,546 ------------------------------------------------------------------------------------------------------------------------- Total revenue (Tax-equivalent) 3,010 3,371 3,280 Provision for loan losses 244 223 219 Noninterest expense 2,310 2,169 2,138 ------------------------------------------------------------------------------------------------------------------------- Income before income taxes (Tax-equivalent) 456 979 923 Income taxes (Tax-equivalent) 158 330 313 ------------------------------------------------------------------------------------------------------------------------- Net income $ 298 649 610 Net income (Cash basis) $ 395 723 684 ------------------------------------------------------------------------------------------------------------------------- Diluted earnings per common share $ 0.27 0.66 0.62 Diluted earnings per common share (Cash basis) $ 0.36 0.73 0.69 Return on average common stockholders' equity 5.77 % 16.19 15.64 Return on average tangible common stockholders' equity (Cash basis) 11.36 % 23.35 22.91 ------------------------------------------------------------------------------------------------------------------------- (a) Results include one month of the former Wachovia. ------------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------- ----------------------- Operating Earnings Summary 2000 3 Q 01 Estimated --------------------------- Fourth Third vs Contribution From (In millions, except per share data) Quarter Quarter 2 Q 01 WB FTU --------------------------------------------------------------------------------------------------------- ----------------------- Net interest income (Tax-equivalent) 1,757 1,860 13 % 12 1 % Fee and other income 1,582 1,645 (36) 8 (44) --------------------------------------------------------------------------------------------------------- ----------------------- Total revenue (Tax-equivalent) 3,339 3,505 (11) 10 (21) Provision for loan losses 192 142 9 6 3 Noninterest expense 2,132 2,328 7 9 (2) --------------------------------------------------------------------------------------------------------- ----------------------- Income before income taxes (Tax-equivalent) 1,015 1,035 (53) 12 (65) Income taxes (Tax-equivalent) 334 333 (52) 7 (59) --------------------------------------------------------------------------------------------------------- ----------------------- Net income 681 702 (54)% 15 (69)% Net income (Cash basis) 753 778 (45) % 17 (62)% --------------------------------------------------------------------------------------------------------- ----------------------- Diluted earnings per common share 0.69 0.71 (59) % 9 (68)% Diluted earnings per common share (Cash basis) 0.76 0.79 (51) % 11 (62)% Return on average common stockholders' equity 15.36 15.76 - - - Return on average tangible common stockholders' equity (Cash basis) 21.55 22.15 - - - --------------------------------------------------------------------------------------------------------- ----------------------- (a) Results include one month of the former Wachovia. --------------------------------------------------------------------------------------------------------- -----------------------
NET INTEREST INCOME -------------------
----------------------------------------------------------------------------------------------------------------------------------- Interest Income Summary 2001 2000 ----------------------------------------------- ------------------------------ Third Second First Fourth Third (In millions) Quarter Quarter Quarter Quarter Quarter ----------------------------------------------------------------------------------------------------------------------------------- Average earning assets $ 219,672 204,673 203,720 202,606 211,089 Average interest-bearing liabilities 198,322 185,224 183,995 181,832 190,146 ----------------------------------------------------------------------------------------------------------------------------------- Interest income (Tax-equivalent) 3,988 3,851 4,057 4,289 4,491 Interest expense 2,014 2,109 2,323 2,532 2,631 ----------------------------------------------------------------------------------------------------------------------------------- Net interest income (Tax-equivalent) $ 1,974 1,742 1,734 1,757 1,860 ----------------------------------------------------------------------------------------------------------------------------------- Rate earned 7.23 % 7.54 8.03 8.44 8.48 Equivalent rate paid 3.65 4.13 4.61 4.98 4.96 ----------------------------------------------------------------------------------------------------------------------------------- Net interest margin 3.58 % 3.41 3.42 3.46 3.52 -----------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------- ------------------------- Interest Income Summary 3 Q 01 Estimated vs Contribution From (In millions) 2 Q 01 WB FTU ------------------------------------------------------------------- ------------------------- Average earning assets 7 % 9 (2)% Average interest-bearing liabilities 7 9 (2) ------------------------------------------------------------------- ------------------------- Interest income (Tax-equivalent) 4 9 (5) Interest expense (5) 6 (11) ------------------------------------------------------------------- ------------------------- Net interest income (Tax-equivalent) 13 % 12 1 % ------------------------------------------------------------------- ------------------------- Rate earned - - - Equivalent rate paid - - - ------------------------------------------------------------------- ------------------------- Net interest margin - - - ------------------------------------------------------------------- -------------------------
Key Points . Approximately two thirds of the higher margin related to improvement at former First Union and one third to the addition of the former Wachovia Net Interest Income increased 13%, with 12% due to the merger with former Wachovia. Results also benefited from the lower interest rate environment. Net interest margin increased 17 bps to 3.58%, primarily due to higher spreads related to the declining rate environment. Additionally, the margin increase was due to a reduction in low-spread assets and a higher margin at former Wachovia. -------------------------------------------------------------------------------- Page-4
-------------------------------------------------------- ------------------------------------------- --------------------------- Average Balance Sheet Data 2001 2000 ------------------------------------------- --------------------------- Third Second First Fourth Third (In millions) Quarter Quarter Quarter Quarter Quarter ----------------------------------------------------------------------------------------------------------------------------------- Assets ----------------------------------------------------------------------------------------------------------------------------------- Securities and trading assets $ 65,193 63,896 63,732 62,123 64,984 Commercial loans 83,633 76,378 77,270 76,253 75,380 Consumer loans 49,393 42,834 42,580 43,840 48,095 ----------------------------------------------------------------------------------------------------------------------------------- Total loans 133,026 119,212 119,850 120,093 123,475 ----------------------------------------------------------------------------------------------------------------------------------- Other earning assets (a) 21,453 21,565 20,138 20,390 22,630 Cash and other assets 47,694 42,581 41,749 36,769 35,729 ----------------------------------------------------------------------------------------------------------------------------------- Total assets $ 267,366 247,254 245,469 239,375 246,818 ----------------------------------------------------------------------------------------------------------------------------------- Liabilities and Stockholders' Equity ----------------------------------------------------------------------------------------------------------------------------------- Core interest-bearing deposits 102,285 91,654 91,149 91,069 89,637 Noninterest-bearing deposits 29,918 27,381 27,043 27,875 28,437 ----------------------------------------------------------------------------------------------------------------------------------- Total core deposits 132,203 119,035 118,192 118,944 118,074 Foreign and other time deposits 18,015 17,944 19,090 19,385 25,038 ----------------------------------------------------------------------------------------------------------------------------------- Total deposits 150,218 136,979 137,282 138,329 143,112 Short-term borrowings 39,802 39,372 37,125 35,670 40,208 Long-term debt 38,220 36,254 36,631 35,708 35,263 Other liabilities 18,796 18,623 18,585 14,915 13,999 ----------------------------------------------------------------------------------------------------------------------------------- Total liabilities 247,036 231,228 229,623 224,622 232,582 Stockholders' equity 20,330 16,026 15,846 14,753 14,236 ----------------------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 267,366 247,254 245,469 239,375 246,818 ----------------------------------------------------------------------------------------------------------------------------------- (a) Includes loans held for sale, interest-bearing bank balances, federal funds sold and securities purchased under resale agreements. ----------------------------------------------------------------------------------------------------------------------------------- Wachovia ------------------------------------------------------------------------- ------------------------ Average Balance Sheet Data 3 Q 01 Estimated vs Contribution From (In millions) 2 Q 01 WB FTU ------------------------------------------------------------------------- ------------------------ Assets ------------------------------------------------------------------------- ------------------------ Securities and trading assets 2 % - - % Commercial loans 9 13 (4) Consumer loans 15 14 1 ------------------------------------------------------------------------- ------------------------ Total loans 12 14 (2) ------------------------------------------------------------------------- ------------------------ Other earning assets (a) (1) - - Cash and other assets 12 - - ------------------------------------------------------------------------- ------------------------ Total assets 8 % - - % ------------------------------------------------------------------------- ------------------------ Liabilities and Stockholders' Equity ------------------------------------------------------------------------- ------------------------ Core interest-bearing deposits 12 11 1 Noninterest-bearing deposits 9 10 (1) ------------------------------------------------------------------------- ------------------------ Total core deposits 11 11 - Foreign and other time deposits - 6 (6) ------------------------------------------------------------------------- ------------------------ Total deposits 10 10 - Short-term borrowings 1 - - Long-term debt 5 - - Other liabilities 1 - - ------------------------------------------------------------------------- ------------------------ Total liabilities 7 - - Stockholders' equity 27 - - ------------------------------------------------------------------------- ------------------------ Total liabilities and stockholders' equity 8 % - - % ------------------------------------------------------------------------- ------------------------ (a) Includes loans held for sale, interest-bearing bank balances, federal funds sold and securities purchased under resale agreements. ---------------------------------------------------------------------------------------------------
Average earning assets increased 7%, of which an estimated 9% was contributed by former Wachovia. The increase was due to the contribution of both consumer and commercial loans following the merger with Wachovia, offset by the strategic reduction of lower yielding loans from the commercial loan portfolio. Average loans increased 12%, due to the estimated contribution of 14% by former Wachovia. Average commercial loans were up 9%, as former Wachovia contributed an estimated 13%. The growth was offset by a 4% decrease in former First Union commercial loans, primarily in commercial and commercial mortgage loans. Average consumer loans increased 15%, due to former Wachovia's estimated contribution of 14% as well as increases in installment loans and second mortgage loans. Securities and trading assets increased 2%. Trading account assets were up 4% while securities increased 1%. Other earning assets decreased 1% due to a strategic reduction of home equity securitizations. Average interest-bearing liabilities increased 7%, of which former Wachovia contributed an estimated 9%. Average core deposits increased 11%. Former Wachovia contributed all of the increase. Otherwise, core deposits were flat compared to the seasonal spikes in noninterest-bearing deposits seen in 2Q01 when consumers accumulate tax payments. Money market and interest checking continued to be strong but were offset by declines in time deposits as a result of the declining rate environment. Due to continued sales and retention efforts, low cost core deposits, which exclude CAP-FDIC and time deposits balances, increased 15%, of which former Wachovia contributed an estimated 13%. Other deposits were flat, with former Wachovia contributing an estimated 6% increase. However, both foreign and other time deposits were reduced due to a shift to lower cost wholesale funding sources. Liquidity improved as growth in cash and cash equivalents of $789 million outpaced growth of $430 million in short-term borrowings and $71 million in other deposits. Long-term debt increased 5%. -------------------------------------------------------------------------------- Page - 5 FEE AND OTHER INCOME --------------------
-------------------------------------------------------------------------------------------------- --------------------------- Fee and Other Income 2001 2000 --------------------------------------------- --------------------------- Third Second First Fourth Third (In millions) Quarter Quarter Quarter Quarter Quarter --------------------------------------------------------------------------------------------------------------------------------- Service charges and fees $ 541 486 468 481 508 Commissions 356 389 375 383 365 Fiduciary and asset management fees 400 384 381 387 384 Advisory, underwriting and other investment banking fees 177 238 198 187 148 Principal investing (585) (58) (43) (43) 34 Other income 147 190 167 187 206 --------------------------------------------------------------------------------------------------------------------------------- Total fee and other income $ 1,036 1,629 1,546 1,582 1,645 --------------------------------------------------------------------------------------------------------------------------------- Wachovia ------------------------------------------------------------------- ----------------------- Fee and Other Income 3 Q 01 Estimated vs Contribution From (In millions) 2 Q 01 WB FTU ------------------------------------------------------------------- ----------------------- Service charges and fees 11 % 12 (1) % Commissions (8) 4 (12) Fiduciary and asset management fees 4 7 (3) Advisory, underwriting and other investment banking fees (26) 4 (30) Principal investing nm - - Other income (23) 11 (34) ------------------------------------------------------------------- ----------------------- Total fee and other income (36) % 8 (44) % ------------------------------------------------------------------- -----------------------
Key Point . $1.6 billion in fees earned excluding principal investing write-downs . Solid sales of annuities, fluctuating funds and money market funds dampened by lower equity valuations and mix change . Strong mortgage and home equity-related income helped to offset securities losses of approximately $35 million Fee and other income excluding principal investing was $1.6 billion in an extremely tough environment. Total fee income decreased 36% after $585 million in write-downs on the principal investing portfolio. Sustained weakness in the capital markets confined fee growth in the former First Union to traditional banking, and risk management activities. Fees were 34% of total revenue in 3Q01 compared with 48% in 2Q01. Service charges and fees grew 11% from the expanded franchise. While deposit service fees rose 12% as lower interest rates encouraged commercial customers to shift to structured fee payments, lower ATM and debit card transaction volume in the wake of the September 11th tragedy dampened results. Further, linked quarter results were negatively affected by seasonally higher volumes in the second quarter of 2001. Commissions were down 8%, consistent with suppressed industry activity. The weakness was due to a poor trading environment and the loss of four trading days following the World Trade Center tragedy. Management estimates that the market interruption equated to $25 million in lost commissions. Annuity sales results, however, hit a record, with volume of over $1.2 billion. Fiduciary and asset management fees rose 4%. The incremental contribution of the former Wachovia was softened by lower equity values which reduced asset management fees and encouraged a further shift toward lower-yielding money market funds. Money market flows were strong, and mutual fund assets reached a record $102 billion. Advisory, underwriting and other investment banking fees decreased 26% as key segments of the capital markets were effectively closed for four days following September 11th. Growth in leveraged finance, risk management and high yield was offset by minimal deal flow in agency businesses and the effect of widening spreads on commercial real estate finance. Principal investing recorded a loss of $585 million, due to charges taken against private equity investments in the quarter. Charges are largely attributable to 1999 and 2000 vintage investments in the telecom and technology sectors. The charges equated to a 25% write-down of private equity investments, or 20% on the total principal investment portfolio. Cumulative net losses in principal investing were $101 million in the first half of 2001. Other income was down $43 million. In aggregate, net securities and securitization gains were $21 million lower on a linked quarter basis. The third quarter includes a net loss on securities available for sale of $35 million. The third quarter also includes a loss of $6 million on assets held for sale, compared with a $7 million gain in the previous quarter. Revenue from securitizations amounted to $89 million, up 39% from 2Q01. Of this, mortgage income related to deliveries and flow servicing was $48 million compared with $42 million in 2Q01. Gains on prime equity and SBA securitizations were $32 million, compared with $21 million in 2Q01. -------------------------------------------------------------------------------- Page - 6 NONINTEREST EXPENSE -------------------
------------------------------------------------------ ----------------------------------------- ---------------------------- Noninterest Expense 2001 2000 ----------------------------------------- --------------------------- Third Second First Fourth Third (In millions) Quarter Quarter Quarter Quarter Quarter --------------------------------------------------------------------------------------------------------------------------------- Salaries and employee benefits $ 1,374 1,363 1,329 1,243 1,381 Occupancy 176 155 163 150 157 Equipment 214 198 205 221 213 Advertising 15 11 9 16 14 Communications and supplies 117 111 110 123 117 Professional and consulting fees 79 69 73 97 87 Goodwill and other intangible amortization 117 77 78 80 79 Sundry expense 218 185 171 202 280 --------------------------------------------------------------------------------------------------------------------------------- Total noninterest expense $ 2,310 2,169 2,138 2,132 2,328 --------------------------------------------------------------------------------------------------------------------------------- FTE employees 84,719 67,420 69,362 70,639 70,533 Overhead efficiency ratio (Cash basis) 72.86 % 62.06 62.80 61.46 64.17 --------------------------------------------------------------------------------------------------------------------------------- Wachovia --------------------------------------------------------------------- ------------------------ Noninterest Expense 3 Q 01 Estimated vs Contribution From (In millions) 2 Q 01 WB FTU --------------------------------------------------------------------- ------------------------ Salaries and employee benefits 1 % 8 (7) % Occupancy 14 9 5 Equipment 8 10 (2) Advertising 36 36 - Communications and supplies 5 9 (4) Professional and consulting fees 14 12 2 Goodwill and other intangible amortization 52 51 1 Sundry expense 18 2 16 --------------------------------------------------------------------- ------------------------ Total noninterest expense 7 % 9 (2) % --------------------------------------------------------------------- ------------------------ FTE employees 26 % 30 (4) % Overhead efficiency ratio (Cash basis) - - - --------------------------------------------------------------------- ------------------------
Key Points . Former First Union cash expenses (i.e. excluding amortization) down 3% to $2.029 billion . Increased deposit base intangible amortization as a result of the merger . Sundry expense includes $13 million of losses associated with operations at the World Trade Center Noninterest expense increased $141 million, or 7%, due solely to the addition of one month's expenses from the former Wachovia. Total noninterest expense at the former First Union was down 2% due to continued stringent cost management. Salaries and employee benefits expenses were limited to 1% growth despite higher FTEs. Increases in occupancy and equipment expense relate to expanded physical presence of the new Wachovia. Goodwill and other intangible amortization was higher entirely as a result of $39 million of additional deposit base intangible (DBI) amortization associated with the merger. Sundry expense increased $33 million, including $13 million in losses at the World Trade Center. ------------------------------------------------------------------------------- Page - 7 ASSET QUALITY -------------
----------------------------------------------------------------------------------------------------------------------------------- Asset Quality 2001 2000 ----------------------------------------- ----------------------- Third Second First Fourth Third (In millions) Quarter Quarter Quarter Quarter Quarter ----------------------------------------------------------------------------------------------------------------------------------- Nonperforming assets Nonaccrual loans $ 1,506 1,223 1,231 1,176 854 Foreclosed properties 126 104 106 103 97 ----------------------------------------------------------------------------------------------------------------------------------- Total nonperforming assets $ 1,632 1,327 1,337 1,279 951 ----------------------------------------------------------------------------------------------------------------------------------- as % of loans, net and foreclosed properties 0.96 % 1.08 1.09 1.03 0.77 ----------------------------------------------------------------------------------------------------------------------------------- Nonperforming loans in assets held for sale $ 273 250 344 334 349 ----------------------------------------------------------------------------------------------------------------------------------- Total nonperforming assets in loans and in assets held for sale $ 1,905 1,577 1,681 1,613 1,300 ----------------------------------------------------------------------------------------------------------------------------------- as % of loans, net, foreclosed properties and loans in other assets as held for sale 1.08 % 1.23 1.30 1.22 0.98 ----------------------------------------------------------------------------------------------------------------------------------- Allowance for loan losses Balance, beginning of period $ 1,760 1,759 1,722 1,720 1,706 Former Wachovia balance, September 1, 2001 766 - - - - Loan losses, net (243) (157) (159) (192) (142) Allowance relating to loans transferred or sold (368) (65) (23) 2 (166) Provision for loan losses related to loans transferred 230 36 15 - 120 Provision for loan losses 894 187 204 192 202 ------------------------------------------------------------------------------------------------------------------------------------ Balance, end of period $ 3,039 1,760 1,759 1,722 1,720 ------------------------------------------------------------------------------------------------------------------------------------ as % of loans, net 1.79 % 1.44 1.43 1.39 1.39 as % of nonaccrual and restructured loans (a) 202 144 143 146 202 as % of nonperforming assets (a) 186 % 133 132 135 181 ------------------------------------------------------------------------------------------------------------------------------------ Loan losses, net $ 243 157 159 192 142 Commercial, as % of average commercial loans 0.85 % 0.55 0.56 0.80 0.53 Consumer, as % of average consumer loans 0.53 0.48 0.48 0.36 0.35 Total, as % of average loans, net 0.73 % 0.52 0.53 0.64 0.46 ------------------------------------------------------------------------------------------------------------------------------------
(a) These ratios do not include nonperforming loans included in other assets as held for sale. Loans 90 days past due were $310 million, $213 million, $220 million, $183 million and $145 million in the third, second and first quarters of 2001 and in the fourth and third quarters of 2000, respectively. -------------------------------------------------------------------------------- -------------------------
Wachovia -------------------------------------------------------------------------------- ------------------------- Asset Quality 3 Q 01 Estimated vs Contribution From (In millions) 2 Q 01 WB FTU -------------------------------------------------------------------------------- ------------------------- Nonperforming assets Nonaccrual loans 23 % 21 2 % Foreclosed properties 21 28 (7) -------------------------------------------------------------------------------- ------------------------- Total nonperforming assets 23 % 7 16 % -------------------------------------------------------------------------------- ------------------------- as % of loans, net and foreclosed properties - - - -------------------------------------------------------------------------------- ------------------------- Nonperforming loans in assets held for sale 9 31 (22) -------------------------------------------------------------------------------- ------------------------- Total nonperforming assets in loans and in assets held for sale 21 % 23 (2) % -------------------------------------------------------------------------------- ------------------------- as % of loans, net, foreclosed properties and loans in other assets as held for sale - - - -------------------------------------------------------------------------------- ------------------------- Allowance for loan losses Balance, beginning of period - % - - % Former Wachovia balance, September 1, 2001 - - - Loan losses, net 55 8 47 Allowance relating to loans transferred or sold nm - - Provision for loan losses related to loans transferred nm - - Provision for loan losses nm - - -------------------------------------------------------------------------------- ------------------------- Balance, end of period 73 % 45 28 % -------------------------------------------------------------------------------- ------------------------- as % of loans, net - - - as % of nonaccrual and restructured loans (a) - - - as % of nonperforming assets (a) - - - -------------------------------------------------------------------------------- ------------------------- Loan losses, net 55 % 8 47 % Commercial, as % of average commercial loans - - - Consumer, as % of average consumer loans - - - Total, as % of average loans, net - - - -------------------------------------------------------------------------------- ------------------------- (a) These ratios do not include nonperforming loans included in other assets as held for sale. Loans 90 days past due were $310 million, $213 million, $220 million, $183 million and $145 million in the third, second and first quarters of 2001 and in the fourth and third quarters of 2000, respectively. ------------------------------------------------------------------------------------------------------------
Key Points . NPAs declined to $1.9 billion from a June pro forma combined amount of $1.978 billion, reflecting a decrease of 4% Former Wachovia NPAs were $401 million as of June 30, 2001 . Allowance increased by $523 million over combined pro forma June 30, 2001 balance, resulting in 1.79% of loans and 202% of NPLs . Provision for loan losses exceeded net charge-offs by $880 million, $230 million related to loans tranferred to AHFS . Delinquencies 90 days past due were $310 million Net loan losses rose $86 million to $243 million increasing the charge-off ratio to 0.73% from 0.52% in 2Q01. Gross charge-offs were $274 million offset by $31 million in recoveries. Provision for loan losses exceeded net charge-offs by $880 million for the quarter, $230 million of which represents the provision related to $1.5 billion of loans transferred to assets held for sale. The $651 million incremental provision is to provide for deterioration in the credit environment in the third quarter, for the company's initial estimate of the impact of the September 11th tragedy and for the impact of integrating the two loan portfolios as a result of the merger. Additionally, $138 million moved directly from the allowance in connection with loans sold or transferred to assets held for sale. Including $9 million in increased reserves at the former Wachovia in July and August; the resulting net increase in the allowance was $523 million from the combined pro forma allowance reported as of June 30, 2001. Allowance for loan losses increased $523 million from a combined pro forma basis to $3.039 billion, or 1.79% of loans compared with 1.44% in 2Q01. The allowance to nonperforming loans ratio rose to 202% while the allowance to nonperforming assets ratio (excluding NPAs in assets held for sale) was also up significantly to 186% from the prior quarter's 133%. -------------------------------------------------------------------------------- Page - 8 Wachovia -------------------------------------------------------------------------------- Relating to the previously estimated $450 million increase to allowance, the company took the following actions: Provision expense $230 million to reflect the impact of loans transferred to held for sale or sold, $100 million increase in the reserve related to the integration of the two loan portfolios and a $102 million purchase accounting adjustment related to former Wachovia loans moved to assets held for sale or sold. Former Wachovia pre-closing credit actions amounted to $104 million, primarily representing write-downs on loans sold or moved to loans held for sale. In a continuation of our proactive approach to risk management, $401 million in loans were either sold or moved to AHFS. Of these loans, approximately $234 million were performing loans and $167 million were nonperforming. $120 million of the $167 million of nonperforming loans were written down and moved to AHFS at a value of $70 million. Prior to consummation of the merger on September 1, 2001, $176 million of these performing loans and $47 million of these nonperforming loans were sold. Effective with the merger, $626 million in loans were identified for disposition and moved to loans held for sale. Of these loans, $596 million were performing and only $30 million nonperforming. Write-downs amounting to $102 million were taken as purchase accounting adjustments on these assets. NONPERFORMING LOANS -------------------
----------------------------------------------------------------------------------------------------------------------------------- Nonperforming Loans (a) 2001 2000 --------------------------------------- ---------------------------- Third Second First Fourth Third (In millions) Quarter Quarter Quarter Quarter Quarter ----------------------------------------------------------------------------------------------------------------------------------- Balance, beginning of period $ 1,223 1,231 1,176 854 791 ----------------------------------------------------------------------------------------------------------------------------------- Commercial nonaccrual loan activity Commercial nonaccrual loans, beginning of period 1,088 1,026 939 654 621 Former Wachovia balance, September 1, 2001 209 - - - - ----------------------------------------------------------------------------------------------------------------------------------- New nonaccrual loans and advances 376 361 314 532 280 Charge-offs (193) (125) (125) (166) (111) Transfers (to) from assets held for sale (20) - - 11 (46) Transfers (to) from other real estate owned (5) - - - - Sales (36) (50) - (15) - Other, principally payments (103) (124) (102) (77) (90) ----------------------------------------------------------------------------------------------------------------------------------- Net commercial nonaccrual loan activity 19 62 87 285 33 ----------------------------------------------------------------------------------------------------------------------------------- Commercial nonaccrual loans, end of period 1,316 1,088 1,026 939 654 ----------------------------------------------------------------------------------------------------------------------------------- Consumer nonaccrual loan activity Consumer nonaccrual loans, beginning of period 135 205 237 200 170 Former Wachovia balance, September 1, 2001 33 - - - - ----------------------------------------------------------------------------------------------------------------------------------- Transfers (to) from assets held for sale (53) (123) (90) - - Other, net 75 53 58 37 30 ----------------------------------------------------------------------------------------------------------------------------------- Net consumer nonaccrual loan activity 22 (70) (32) 37 30 ----------------------------------------------------------------------------------------------------------------------------------- Consumer nonaccrual loans, end of period 190 135 205 237 200 ----------------------------------------------------------------------------------------------------------------------------------- Balance, end of period $ 1,506 1,223 1,231 1,176 854 ----------------------------------------------------------------------------------------------------------------------------------- (a) Excludes nonperforming loans included in assets held for sale, which in the third, second and first quarters of 2001 and in the fourth and third quarters of 2000 were $273 million, $250 million, $344 million, $334 million and $349 million, respectively, and foreclosed properties. ----------------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------ ------------------------- Nonperforming Loans (a) 3 Q 01 Estimated vs Contribution From (In millions) 2 Q 01 WB FTU ------------------------------------------------------------------------------ ------------------------- Balance, beginning of period (1) % (8) 8 % ------------------------------------------------------------------------------ ------------------------- Commercial nonaccrual loan activity Commercial nonaccrual loans, beginning of period 6 - - Former Wachovia balance, September 1, 2001 - - - ------------------------------------------------------------------------------ ------------------------- New nonaccrual loans and advances 4 - - Charge-offs 54 - - Transfers (to) from assets held for sale - - - Transfers (to) from other real estate owned - - - Sales (28) - - Other, principally payments (17) - - ---------------------------------------------------------------------------------------------------------- Net commercial nonaccrual loan activity nm - - ------------------------------------------------------------------------------ ------------------------- Commercial nonaccrual loans, end of period 21 nm nm ------------------------------------------------------------------------------ ------------------------- Consumer nonaccrual loan activity Consumer nonaccrual loans, beginning of period (34) - - Former Wachovia balance, September 1, 2001 - - - ------------------------------------------------------------------------------ ------------------------- Transfers (to) from assets held for sale (57) - - Other, net 42 - - ------------------------------------------------------------------------------ ------------------------- Net consumer nonaccrual loan activity nm - - ------------------------------------------------------------------------------ ------------------------- Consumer nonaccrual loans, end of period 41 nm nm ------------------------------------------------------------------------------ ------------------------- Balance, end of period 23 % 15 8 % ---------------------------------------------------------------------------------------------------------- (a) Excludes nonperforming loans included in assets held for sale, which in the third, second and first quarters of 2001 and in the fourth and third quarters of 2000 were $273 million, $250 million, $344 million, $334 million and $349 million, respectively, and foreclosed properties. ----------------------------------------------------------------------------------------------------------
Key Points . New nonaccrual loans relatively flat despite increased levels associated with addition of former Wachovia portfolio . Transferred to assets held for sale or sold $114 million of nonperforming loans ($20 + $5 + $36 + $53) Nonperforming loans in the loan portfolio at quarter-end were $1.5 billion, a 23% increase on a linked quarter basis. Excluding the addition of $242 million of former Wachovia nonperforming loans, NPLs would have been up $41 million or 3%. NPLs for the combined company declined by $96 million or 6% from a June 30, pro forma combined level and including NPLs in assets held for sale, were down $73 million, or 4%. New nonaccrual commercial loan balances were basically flat at $376 million compared to the prior quarter's $361 million. In the quarter, $35 million (gross of write-downs and other adjustments) in nonperforming commercial loans and $53 million in nonperforming consumer loans were transferred to assets held for sale, while $15 million in NPLs previously in assets held for sale were moved back in to the loan book. Additionally, $36 million of nonperforming commercial loans were sold out of the loan portfolio. Payments reduced nonperforming commercial loan balances by $103 million. -------------------------------------------------------------------------------- Page - 9 Wachovia -------------------------------------------------------------------------------- Former Wachovia nonperforming assets pre-merger: The following provides nonperforming loan information on former Wachovia for the two months ended August 31, 2001.
--------------------------------------------------------------------------------------------------------------------- Former Wachovia Nonperforming Loans (a) 2001 ------------------- Two Months Ended (In millions) August 31, --------------------------------------------------------------------------------------------------------------------- Balance, June 30, 2001 $ 379 --------------------------------------------------------------------------------------------------------------------- New nonaccrual loans and advances 73 Charge-offs (23) Transfers (to) from assets held for sale (120) Sales (47) Other, principally payments (20) --------------------------------------------------------------------------------------------------------------------- Change in nonperforming loans (137) --------------------------------------------------------------------------------------------------------------------- Balance, August 31, 2001 $ 242 --------------------------------------------------------------------------------------------------------------------- (a) Excludes nonperforming loans included in assets held for sale, foreclosed properties and restructured loans. ---------------------------------------------------------------------------------------------------------------------
LOANS HELD FOR SALE
----------------------------------------------------------------------------------------------------------------------------------- Loans Held for Sale (a) 2001 -------------------------------------------- Third Second First (In millions) Quarter Quarter Quarter ----------------------------------------------------------------------------------------------------------------------------------- Balance, beginning of period $ 5,963 6,790 8,146 Former Wachovia balance as of September 1, 2001 (b) 297 - - Originations 4,955 5,279 4,773 Performing loans transferred to (from) assets held for sale, net 1,351 (189) 192 Nonperforming loans transferred to (from) assets held for sale, net 79 128 90 Allowance for loan losses related to loans transferred to assets held for sale (c) (262) (40) (23) Lower of cost or market valuation adjustments (15) (35) (80) Performing loans sold (5,177) (5,535) (5,910) Nonperforming loans sold (88) (130) (45) Other, net (d) (266) (305) (353) ----------------------------------------------------------------------------------------------------------------------------------- Balance, end of period (e) $ 6,837 5,963 6,790 ----------------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------ Loans Held for Sale (a) 2000 --------------------------------- Fourth Third (In millions) Quarter Quarter ------------------------------------------------------------------------------------------------------------------ Balance, beginning of period 9,091 10,636 Former Wachovia balance as of September 1, 2001 (b) - - Originations 2,701 2,495 Performing loans transferred to (from) assets held for sale, net (556) 658 Nonperforming loans transferred to (from) assets held for sale, net - 37 Allowance for loan losses related to loans transferred to assets held for sale (c) 2 (166) Lower of cost or market valuation adjustments (144) (46) Performing loans sold (2,402) (4,325) Nonperforming loans sold (91) (18) Other, net (d) (455) (180) ------------------------------------------------------------------------------------------------------------------ Balance, end of period (e) 8,146 9,091 ------------------------------------------------------------------------------------------------------------------
(a) All activity reflects two months of former First Union and one month of the combined organization, and excludes other real estate owned. (b) Beginning balance and transfers of former Wachovia loans to assets held for sale are shown net of $82 million allowance for loan losses on these loans and $102 million purchase accounting adjustment. (c) Excludes $82 million of allowance associated with former Wachovia loans and $24 million of allowance and provision associated with loans sold directly out of the loan portfolio. (d) Other, net represents primarily loan payments. (e) Former First Union nonperforming loans included in assets held for sale in the third, second and first quarters of 2001 and in the fourth and third quarters of 2000 were $195 million, $250 million, $344 million, $334 million and $349 million, respectively. The former Wachovia balance as of September 30, 2001, included nonperforming loans of $78 million. -------------------------------------------------------------------------------- Key Points . Proactively moved $1.5 billion of overlapping and higher risk loans to held for sale including $626 million of former Wachovia loans; $1.4 billion were performing loans . Cost totaled $332 million - $230 million provision, $102 million in purchase accounting adjustments; additionally utilized existing reserves of $138 million . Sold $5.2 billion of performing and $88 million of nonperforming loans In 3Q01, $1.5 billion of loans were transferred to assets held for sale (prior to the effect of LOCOM write-downs and purchase accounting adjustments). $1.4 billion of these non-flow loans were performing and $113 million were nonperforming. The loans represent areas of perceived higher risk and were primarily in the textile, technology/telecom, commercial real estate and asbestos-related sectors. Of the total $262 million allowance that was associated with the loans, $51 million represented existing reserves and $211 million represented 3Q01 additional provision to adjust the loans to market value. We sold $17 million of commercial loans and $5.3 billion of consumer loans, primarily mortgages delivered to agencies out of the loans held for sale portfolio. $5 billion of the consumer loan sales represented flow business. -------------------------------------------------------------------------------- Page - 10 Vachovia -------------------------------------------------------------------------------- The following table provides additional detail related to direct loan sale activity and the types of loans transferred to assets held for sale.
----------------------------------------------------------------------------------------------------------------------------------- Third Quarter 2001 Loans Sold Out of Loan Book or Transferred To Held For Sale Balance Direct --------------------------------------------- Non- Allowance Provision to (In millions) performing Performing Total Reduction Adjust Value ----------------------------------------------------------------------------------------------------------------------------------- Commercial loans $ 36 77 113 4 19 Consumer loans - - - - - ----------------------------------------------------------------------------------------------------------------------------------- Loans sold from loan book 36 77 113 4 19 ----------------------------------------------------------------------------------------------------------------------------------- Commercial loans 60 1,367 1,427 126 197 Consumer loans 53 - 53 8 14 ----------------------------------------------------------------------------------------------------------------------------------- Loans transferred to held for sale 113 1,367 1,480 (a) 134 211 ----------------------------------------------------------------------------------------------------------------------------------- Total $ 138 230 ----------------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------- Third Quarter 2001 Loans Sold Out of Loan Book or Transferred To Held For Sale Purchase Inflow as Assets Held For Sale ------------------------------------------------ Accounting Non- (In millions) Adjustments performing Performing Total ------------------------------------------------------------------------------------------------------------------------- Commercial loans - Consumer loans - ------------------------------------------------------------------------------------------------------------------------- Loans sold from loan book - ------------------------------------------------------------------------------------------------------------------------- Commercial loans 102 38 964 1,002 Consumer loans - 31 - 31 ------------------------------------------------------------------------------------------------------------------------- Loans transferred to held for sale 102 69 964 1,033 ------------------------------------------------------------------------------------------------------------------------- Total 102 ------------------------------------------------------------------------------------------------------------------------- (a) Includes former Wachovia loans prior to allowance and purchase accounting adjustments amounting to $82 million and $102 million, respectively. -------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- Page - 11 Wachovia -------------------------------------------------------------------------------- FIRST UNION/WACHOVIA MERGER INTEGRATION UPDATE ----------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------- Merger Integration Metrics Target Goal -------------------------------------------------------- 2002 2003 2004 ----------------------------------------------------------------------------------------------------------------------------------- Customer satisfaction scores TBD 2Q02 New/Lost ratio (a) TBD 2Q02 ----------------------------------------------------------------------------------------------------------------------------------- 3Q Cumulative % of 2001 Total Estimate Goal ----------------------------------------------------------------------------------------------------------------------------------- Expense efficiencies (b) (In millions) $ 12 $ 24 3 % $ 890 One-time charges (In millions) $ 147 $ 147 10 $ 1,525 (d) Position reductions(c) 863 1,315 19 7,000 Branch consolidations - - - % 250-300 ----------------------------------------------------------------------------------------------------------------------------------- (a) New core customers gained divided by core customers lost. Core customers exclude single-service credit card, mortgage and trust customers and out of footprint customers. (b) Expense efficiencies calculated from annualized pro forma 4Q00 base (excluding commissions, incentives, amortization and restructuring or merger costs). (c) Represents change in FTE position from pro forma combined December 31, 2000, base of 84,776 and excludes divested businesses and the impact of strategic repositioning. (d) Includes $75 million of unanticipated costs associated with hostile takeover attempt. -----------------------------------------------------------------------------------------------------------------------------------
Key Points . Will report consolidated customer satisfaction scores and customer attrition beginning 2Q02; will provide target goals at that time . Completed re-due diligence effort supports expense efficiencies and one-time costs . Position reduction of 1,315 largely related to hiring freeze . Data centers decided . Non-customer ATM fees waived for former WB and FTU customers in combined network . System Selection Process: 800 applications analyzed and final decisions completed October 17 . Top 3 tiers of leadership (approximately 1,100 executives) decisioned and in position by October 30 . Expense policy integration; new policies in place by end of October, implementation November 1 . Original estimate of $1.45 billion in one-time charges increased by $75 million to cover unanticipated costs associated with hostile takeover attempt ESTIMATED MERGER CHARGES In connection with the merger, we will record certain merger-related and restructuring charges. These charges will be reflected in the combined company's income statement. In addition, we recorded purchase accounting adjustments as of September 1, 2001, to reflect former Wachovia's assets and liabilities at their respective fair values and to reflect certain exit costs related to the former Wachovia. The purchase accounting adjustments are preliminary and subject to refinement. At the time of the merger announcement, management indicated that the company would incur an estimated $1.45 billion of merger costs. This amount included the merger-related and restructuring charges reflected in the income statement as well as the purchase accounting adjustment for certain exit costs. -------------------------------------------------------------------------------- Page - 12 Wachovia -------------------------------------------------------------------------------- The following chart details the company's progress compared with the estimated merger charges after adjusting for $75 million in additional charges incurred by both former Wachovia and First Union in conjunction with a hostile takeover bid.
--------------------------------------------------------------------------------------------------------------------------------- Estimated Merger Charges Merger- Exit Cost Related/ Purchase Restructuring Accounting (In millions) Charges Adjustments (a) Total --------------------------------------------------------------------------------------------------------------------------------- April 16, 2001 estimated charges $ 750 700 1,450 --------------------------------------------------------------------------------------------------------------------------------- Additional charges relating to hostile bid 75 --------------------------------------------------------------------------------------------------------------------------------- Adjusted total estimate $ 750 700 1,525 --------------------------------------------------------------------------------------------------------------------------------- Total actual charges Third quarter 2001 $ 82 65 147 Total cumulative charges $ 82 65 147 --------------------------------------------------------------------------------------------------------------------------------- (a) These adjustments represent incremental costs related to combining the two companies and are specifically attributable to the former Wachovia. Examples include employee termination costs, contract cancellations including leases and closing redundant former Wachovia facilities. These adjustments flow through goodwill.
Merger-Related and Other Restructuring Charges/Gains -------------------------------------------------------------------------------------------------------------------------------- Merger-Related, Restructuring and Other Charges/Gains (Income Statement Impact) 2001 ----------------------- Third (In millions) Quarter -------------------------------------------------------------------------------------------------------------------------------- Merger-related and restructuring charges Personnel and employee termination benefits $ 43 Occupancy and equipment - Contract cancellations and system conversions - Other 39 -------------------------------------------------------------------------------------------------------------------------------- Total First Union/Wachovia merger-related and restructuring charges 82 -------------------------------------------------------------------------------------------------------------------------------- Merger-related charges from previously announced mergers 3 ------------------------------------------------------------------------------------------------------------------------------- Total merger-related and restructuring charges 85 -------------------------------------------------------------------------------------------------------------------------------- Other charges/gains Provision for loan losses (a) 880 Other charges, net 4 -------------------------------------------------------------------------------------------------------------------------------- Total other charges/gains 884 -------------------------------------------------------------------------------------------------------------------------------- Total merger-related, restructuring and other charges/gains 969 Income tax benefits (337) -------------------------------------------------------------------------------------------------------------------------------- After-tax merger-related, restructuring and other charges/gains $ 632 -------------------------------------------------------------------------------------------------------------------------------- (a) The incremental provision includes $330 million related to credit actions of combining the two loan portfolios, which was not included in the original estimate of one-time charges amounting to $1.45 billion and will be excluded from the cumulative amount of reported First Union/Wachovia one-time charges. --------------------------------------------------------------------------------------------------------------------------------
In the quarter, the company recorded $85 million in merger-related, restructuring charges and other charges/gains primarily related to personnel and employee termination benefits as well as advertising and other charges. $82 million of these charges were related to the merger with the remainder relating to other smaller acquisitions. -------------------------------------------------------------------------------- Page - 13 WACHOVIA -------------------------------------------------------------------------------- GOODWILL AND OTHER INTANGIBLES
--------------------------------------------------------------------------------------------------------------------------- Goodwill and Other Intangibles Created 2001 ----------------------- by the First Union/Wachovia Merger Third (In millions) Quarter --------------------------------------------------------------------------------------------------------------------------- Purchase price less former Wachovia ending tangible stockholders' equity as of September 1, 2001 $ 7,466 --------------------------------------------------------------------------------------------------------------------------- Preliminary fair value purchase accounting adjustments (a) Financial assets 747 Premises and equipment 146 Employee benefit plans 276 Financial liabilities (13) Other (153) --------------------------------------------------------------------------------------------------------------------------- Total fair value purchase accounting adjustments 1,003 --------------------------------------------------------------------------------------------------------------------------- Preliminary exit cost purchase accounting adjustments (b) Personnel and employee termination benefits 43 Occupancy and equipment - Contract cancellations - Other 22 --------------------------------------------------------------------------------------------------------------------------- Total exit cost purchase accounting adjustments (One-time costs) 65 --------------------------------------------------------------------------------------------------------------------------- Total purchase intangibles 8,534 Preliminary deposit base intangible (net of income taxes) 1,465 --------------------------------------------------------------------------------------------------------------------------- Preliminary goodwill $ 7,069 --------------------------------------------------------------------------------------------------------------------------- (a) These adjustments represent preliminary fair value adjustments in compliance with business combination accounting standards and adjust assets and liabilities of the former Wachovia to their fair value as of September 1, 2001. (b) These adjustments represent incremental costs relating to combining the two organizations which are specifically related to the former Wachovia. ---------------------------------------------------------------------------------------------------------------------------
Key Points . Reported $1 billion in preliminary fair value purchase accounting adjustments in order to record former Wachovia's assets and liabilities at their respective fair values . In the quarter, recorded $65 million in exit cost charges, primarily personnel-related The company recorded purchase accounting adjustments resulting in a net write-down of $1 billion. These adjustments were made to record the assets and liabilities of former Wachovia at their respective fair values. Additionally, in 3Q01, the company recorded $65 million in exit cost purchase accounting adjustments, which represent costs associated specifically with the former Wachovia such as lease cancellations, equipment sales or write-offs, and employee termination benefits. -------------------------------------------------------------------------------- Page - 14 WACHOVIA -------------------------------------------------------------------------------- BUSINESS SEGMENT RESULTS
----------------------------------------------------------------------------------------------------------------------------------- Wachovia Corporation Three Months Ended September 30, 2001 ----------------------------------------------------------------------------- Performance Summary General Capital Wealth (In millions) Bank Management Management ----------------------------------------------------------------------------------------------------------------------------------- Income statement data Net interest income (Tax-equivalent) $ 1,280 33 61 Fee and other income 444 655 100 Intersegment revenue 30 (12) - ----------------------------------------------------------------------------------------------------------------------------------- Total revenue (Tax-equivalent) 1,754 676 161 Provision for loan losses 98 - 2 Noninterest expense 1,023 573 115 Income taxes (Tax-equivalent) 222 36 15 ----------------------------------------------------------------------------------------------------------------------------------- Operating earnings $ 411 67 29 ----------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- Performance and other data Economic profit $ 285 42 21 Risk adjusted return on capital (RAROC) 37.31 % 31.54 46.57 Economic capital $ 4,465 848 236 Cash overhead efficiency ratio 57.77 % 84.72 71.08 Average loans, net $ 76,590 269 5,680 Average core deposits $ 110,755 1,535 7,328 -----------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------- Wachovia Corporation ----------------------------------------------------- Performance Summary Corporate and (In millions) Investment Banking Parent Consolidated ------------------------------------------------------------------------------------------------------- Income statement data Net interest income (Tax-equivalent) 498 102 1,974 Fee and other income (250) 87 1,036 Intersegment revenue (15) (3) - ------------------------------------------------------------------------------------------------------- Total revenue (Tax-equivalent) 233 186 3,010 Provision for loan losses 126 18 244 Noninterest expense 479 120 2,310 Income taxes (Tax-equivalent) (165) 50 158 ------------------------------------------------------------------------------------------------------- Operating earnings (207) (2) 298 ------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------- Performance and other data Economic profit (356) 44 36 Risk adjusted return on capital (RAROC) (10.58) 23.29 13.05 Economic capital 6,267 1,576 13,392 Cash overhead efficiency ratio nm 11.51 72.86 Average loans, net 42,076 8,411 133,026 Average core deposits 10,499 2,086 132,203 -------------------------------------------------------------------------------------------------------
Business segment results are presented on an operating basis, and accordingly, they exclude merger and other related charges and gains. Third quarter results at the segment and sub-segment level include three months of former First Union and one month of former Wachovia. In conjunction with the merger, we realigned our segment reporting to reflect the business mix and management reporting structure of the new company. We now report the results of four business segments, compared with three previously, plus the Parent. The most significant change is the separation of Wealth Management from Capital Management. The five trailing quarters at the segment level and the three trailing quarters at the sub-segment level have been restated to reflect these changes. Management reporting methodologies have also been revised to reflect the new company. This includes refinements in funds transfer pricing, economic capital, expected losses, costs, and other balance sheet and income statement allocations. Prior periods have not been restated to reflect these changes, as segment level results of the former First Union would not differ materially as a result of these changes. -------------------------------------------------------------------------------- Page - 15 WACHOVIA -------------------------------------------------------------------------------- Key Definitions --------------- Activity-Based Costing - A method of determining product costs based upon ---------------------- detailed studies that align the cost of activities with the products those activities support. Cost of Capital -The cost of capital rate is the minimum rate of return that --------------- must be earned so as not to dilute shareholder value. Wachovia's cost of capital rate has been established using the capital asset pricing model (CAPM) and is currently set at 12 percent. The cost of capital charge is determined by multiplying the cost of capital rate times the amount of economic capital. Economic Capital - Capital assigned based on a statistical assessment of the ---------------- credit, market and operating risks taken to generate profits in a particular business unit and/or product. Economic Net Income - GAAP net income adjusted for intangibles amortization and ------------------- the after-tax impact of expected losses vs. GAAP loan loss provision. Economic Profit - Economic net income less the cost of capital charge. --------------- Expected Losses - A long-term measure of credit losses expected on a specific --------------- loan or loan portfolio. The loss assigned is based upon studies that analyze the average annual loss rate on groups of loans across multiple business cycles. Intersegment revenues: Intersegment revenues (referral fees) are paid from the ---------------------- segment that "owns" a product to the segment that "sells" the product, and they are based upon comparable fees paid in the market and/or upon negotiated amounts which estimate the relative profitability value provided by the selling party. Cost allocation transfers are made for servicing provided from one business segment to another. RAROC - Risk Adjusted Return On Capital. RAROC is calculated by dividing ----- economic net income by economic capital. -------------------------------------------------------------------------------- Page - 16 WACHOVIA -------------------------------------------------------------------------------- GENERAL BANK ------------ This segment consists of the Retail & Small Business and Commercial operations.
----------------------------------------------------------------------------------------------------------------------------------- General Bank 2001 2000 --------------------------------------------- -------------------------- Performance Summary Third Second First Fourth Third (In millions) Quarter Quarter Quarter Quarter Quarter ----------------------------------------------------------------------------------------------------------------------------------- Income statement data Net interest income (Tax-equivalent) $ 1,280 1,140 1,085 1,104 1,106 Fee and other income 444 388 341 355 352 Intersegment revenue 30 27 25 25 24 ----------------------------------------------------------------------------------------------------------------------------------- Total revenue (Tax-equivalent) 1,754 1,555 1,451 1,484 1,482 Provision for loan losses 98 98 100 74 51 Noninterest expense 1,023 936 907 977 933 Income taxes (Tax-equivalent) 222 178 153 147 170 --------------- ------------ ------------ ------------ ----------- Operating earnings $ 411 343 291 286 328 ----------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- Performance and other data Economic profit $ 285 256 220 190 220 Risk adjusted return on capital (RAROC) 37.31 % 39.85 37.55 32.53 35.98 Economic capital $ 4,465 3,691 3,494 3,689 3,652 Cash overhead efficiency ratio 57.77 % 59.29 61.49 64.89 61.98 Average loans, net $ 76,590 65,462 63,213 61,735 60,029 Average core deposits $ 110,755 99,388 98,376 98,184 97,186 -----------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------- General Bank 3Q01 Estimated Performance Summary vs Contribution From (In millions) 2Q01 WB FTU ----------------------------------------------------- Income statement data Net interest income (Tax-equivalent) 12 % Fee and other income 14 12 2 % Intersegment revenue 11 ----------------------------------------------------------------------- ------------------------ Total revenue (Tax-equivalent) 13 Provision for loan losses - Noninterest expense 9 11 (2) % Income taxes (Tax-equivalent) 25 ----------------------------------------------------------------------- -------------------- ------------ ------------------------ Operating earnings 20 % -------------------------------------------------------------------- ------------------------ --- --- ----------------------------------------------------------------------- ------------------------ Performance and other data Economic profit 11 % Risk adjusted return on capital (RAROC) - Economic capital 21 Cash overhead efficiency ratio - Average loans, net 17 15 2 % Average core deposits 11 % 11 - % ----------------------------------------------------------------------- ------------------------
Key Points . Excluding former Wachovia, solid fee and other income growth was up 8% annualized, and expenses declined 8% annualized . Deposits up 11%, on strong growth of 4% of former First Union low cost core deposits (DDA, interest checking, savings, money market accounts) reflecting our pursuit of a more profitable deposit mix . Cash overhead efficiency ratio below 60% for the second consecutive quarter
----------------------------------------------------------------------------------------------------------------------------------- General Bank Key Metrics 2001 2000 --------------------------------------------- -------------------------- Third Second First Fourth Third Quarter Quarter Quarter Quarter Quarter ----------------------------------------------------------------------------------------------------------------------------------- Customer overall satisfaction score (a) 6.33 6.32 6.29 6.27 6.22 Mystery Customer Profile scores (b) 90.01 % 88.77 88.29 86.81 85.61 Online customers (In thousands) 3,810 2,903 2,640 2,367 2,149 Financial centers 2,795 2,162 2,164 2,193 2,253 ATMs 4,698 3,419 3,676 3,772 3,831 -----------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------- ------------------------ General Bank Key Metrics 3 Q 01 Estimated vs Contribution From 2 Q 01 WB FTU -------------------------------------------------------------------------- ------------------------ Customer overall satisfaction score (a) - % - - % Mystery Customer Profile scores (b) - - - Online customers (In thousands) 31 25 6 Financial centers 29 30 (1) ATMs 37 % 40 (3) % -------------------------------------------------------------------------- ------------------------ (a) Gallup survey measured for customers of former First Union only; on a 1-7 scale; 6.4 = "best in class". (b) Customer Service Profile measured for customers of former Wachovia only; perfect score of 100%.
Overall customer satisfaction score for former First Union customers was 6.33, which increased for the 10th consecutive quarter and is approaching the current goal of 6.4. The Team Wachovia Mystery Customer Exceptional Service Program score, a measurement of customer service for former Wachovia, was 90.01%, the sixth consecutive quarter of improvement toward our goal of 92%. In 1Q02, the company will begin utilizing the Gallup survey company-wide in order to measure customer service satisfaction. ATM count increased by 1,279 units, primary related to former Wachovia. -------------------------------------------------------------------------------- Page - 17 RETAIL & SMALL BUSINESS This sub-segment includes Retail Banking, Small Business Banking, First Union Mortgage Corp., First Union Home Equity Bank, Educaid and other retail businesses.
General Bank ---------------------------------------------------------------------------------------------------------- ----------------------- Retail and Small Business 2001 3 Q 01 Estimated --------------------------------------------- Performance Summary Third Second First vs Contribution From (In millions) Quarter Quarter Quarter 2 Q 01 WB FTU ---------------------------------------------------------------------------------------------------------- ----------------------- Income statement data Net interest income (Tax-equivalent) $ 1,058 960 918 10 % Fee and other income 403 357 314 13 12 1 % Intersegment revenue 16 13 13 23 ---------------------------------------------------------------------------------------------------------- ----------------------- Total revenue (Tax-equivalent) 1,477 1,330 1,245 11 Provision for loan losses 73 85 82 (14) Noninterest expense 909 835 811 9 10 (1) % Income taxes (Tax-equivalent) 174 140 121 24 --------------- ------------ ------------ ------------ ----------------------- Operating earnings $ 321 270 231 19 % ---------------------------------------------------------------------------------------------------------- ----------------------- ---------------------------------------------------------------------------------------------------------- ----------------------- Performance and other data Economic profit $ 240 221 192 9 % Risk adjusted return on capital (RAROC) 42.39 % 44.72 42.59 - Economic capital $ 3,132 2,709 2,550 16 Cash overhead efficiency ratio 61.01 % 61.80 64.06 - Average loans, net $ 47,789 42,288 40,839 13 8 5 % Average core deposits $ 99,969 89,795 89,259 11 % 11 - % ---------------------------------------------------------------------------------------------------------- -----------------------
Net interest income was up 10%, reflecting the addition of Wachovia's strong banking system and continued strong loan production in financial centers despite shrinking deposit margins. Loans increased 13%, due to strong growth in prime equity lines, home equity and student loans. Of this increase, former Wachovia contributed an estimated 8%. Average core deposits grew 11%, primarily due to the contribution by former Wachovia. Low cost core deposits continued to increase on the strength of money market and interest checking, offset by run-off in CDs and CAP accounts. Fee and other income grew 13%, primarily due to service charges and fees. While former Wachovia contributed an estimated 12% of this increase, former First Union results showed continued strength following record loan production in 2Q01. 3Q01 mortgage and home equity results included $21 million in gains on $4 billion in mortgage deliveries to agencies, $26 million in gains on flow servicing sales, and $2 million on other sales. 2Q01 included $22 million in gains on deliveries, $12 million in gains on flow servicing sales, and $9 million in other gains. Expenses were up 9% driven by the incremental expense base of former Wachovia. Solid expense control continued at former First Union and overall financial center staffing levels remain close to 100%. Page -18 RETAIL LOAN PRODUCTION
General Bank -------------------------------------------------------------------------------------------------------- ------------------------- Retail Loan Volume 2001 3 Q 01 Estimated ----------------------------------------------- Third Second First vs Contribution From (In millions) Quarter Quarter Quarter 2 Q 01 WB FTU -------------------------------------------------------------------------------------------------------- ------------------------- Consumer direct $ 1,339 1,755 1,210 (24) % - (24) % Prime equity lines 2,579 2,483 1,984 4 - 4 First Union Home Equity 1,447 1,558 1,274 (7) - (7) First Union Mortgage Corporation 4,279 4,685 3,394 (9) 9 (18) Other 1,348 731 728 84 (9) 93 -------------------- ------------- -------------------------------- ------------------------- Total retail loan volume $ 10,992 11,212 8,590 (2) % 3 (5) % -------------------------------------------------------------------------------------------------------- -------------------------
Loan volume was down 2%, due primarily to extremely strong performance in 2Q01. Increases in PELs and the seasonal strength of Educaid were offset by declines in First Union Mortgage and Consumer direct volume. Former Wachovia contributed an estimated 3% increase.
--------------------------------------------------------------------------------------------------------- ------------------------ Retail Average Loans 2001 3 Q 01 Estimated ----------------------------------------------- Third Second First vs Contribution From (In millions) Quarter Quarter Quarter 2 Q 01 WB FTU --------------------------------------------------------------------------------------------------------- ------------------------ Consumer direct $ 13,767 12,595 12,070 9 % 2 7 % Prime equity lines 10,354 9,738 9,370 6 2 4 First Union Home Equity 12,013 11,383 11,097 6 - 6 First Union Mortgage Corporation 402 416 439 (3) - (3) Other 11,253 8,156 7,863 38 38 - -------------------- ------------------------ Retail average loans $ 47,789 42,288 40,839 13 % 8 5 % --------------------------------------------------------------------------------------------------------- ------------------------
Average retail loan outstandings increased 13%, primarily in Consumer direct, PELs and home equity loans. Former Wachovia contributed an estimated 8% of this increase. Other retail loans, which include Small Business products, increased 38%. Page -19 COMMERCIAL This sub-segment includes middle-market Commercial, Commercial Real Estate and Government Banking.
General Bank --------------------------------------------------------------------------------------------------------- ------------------------ Commercial 2001 3 Q 01 Estimated ------------------------------------------ Performance Summary Third Second First vs Contribution From (In millions) Quarter Quarter Quarter 2 Q 01 WB FTU --------------------------------------------------------------------------------------------------------- ------------------------ Income statement data Net interest income (Tax-equivalent) $ 222 180 167 23 % Fee and other income 41 31 27 32 16 16 % Intersegment revenue 14 14 12 - --------------------------------------------------------------------------------------------------------- ------------------------ Total revenue (Tax-equivalent) 277 225 206 23 Provision for loan losses 25 13 18 92 Noninterest expense 114 101 96 13 15 (2) % Income taxes (Tax-equivalent) 48 38 32 26 ----------- ------------- ------------ ------------ ------------------------ Operating earnings $ 90 73 60 23 % --------------------------------------------------------------------------------------------------------- ------------------------
--------------------------------------------------------------------------------------------------------- ------------------------ Performance and other data Economic profit $ 45 35 28 29 % Risk adjusted return on capital (RAROC) 25.38 % 26.41 23.93 - Economic capital $ 1,333 982 944 36 Cash overhead efficiency ratio 40.59 % 44.44 46.05 - Average loans, net $ 28,801 23,174 22,374 24 26 (2) % Average core deposits $ 10,786 9,593 9,117 12 % 7 5 % --------------------------------------------------------------------------------------------------------- ------------------------
Net interest income increased 23%, due to low cost core deposit growth. Average loans were up 24%, due to the contribution of former Wachovia, estimated to be 26%. Deposits were up a solid 12%, driven by continued focus on attracting low cost core deposits and a flight to safety. Former Wachovia contributed an estimated 7% of this increase. Fee and other income grew 32%, due to increased cash management service charges (on lower compensating balances) as a result of a lower interest rate environment. Management estimates that former Wachovia contributed 16% of this increase. Expenses increased 13% as a result of the merger. The continued focus on expense control reduced expenses 2% at former First Union. Page -20 CAPITAL MANAGEMENT This segment includes Asset Management and Retail Brokerage Services.
Capital Management ----------------------------------------------------------------------------------------------------------------------------------- Capital Management 2001 2000 --------------------------------------------- -------------------------- Performance Summary Third Second First Fourth Third (In millions) Quarter Quarter Quarter Quarter Quarter ----------------------------------------------------------------------------------------------------------------------------------- Income statement data Net interest income (Tax-equivalent) $ 33 30 32 40 38 Fee and other income 655 693 685 692 681 Intersegment revenue (12) (12) (11) (12) (12) ----------------------------------------------------------------------------------------------------------------------------------- Total revenue (Tax-equivalent) 676 711 706 720 707 Provision for loan losses - - - - - Noninterest expense 573 583 575 574 576 Income taxes (Tax-equivalent) 36 44 45 49 44 --------------- ------------ ------------ ------------ ----------- Operating earnings $ 67 84 86 97 87 ----------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- Performance and other data Economic profit $ 42 59 62 72 61 Risk adjusted return on capital (RAROC) 31.54 % 41.26 42.34 46.09 40.91 Economic capital $ 848 817 823 836 844 Cash overhead efficiency ratio 84.72 % 82.04 81.37 79.65 81.40 Average loans, net $ 269 110 129 104 84 Average core deposits $ 1,535 1,609 1,827 2,142 2,356 -----------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------- ------------------------ Capital Management 3 Q 01 Estimated Performance Summary vs Contribution From (In millions) 2 Q 01 WB FTU ----------------------------------------------------------------------- ------------------------ Income statement data Net interest income (Tax-equivalent) 10 % Fee and other income (5) 3 (8) % Intersegment revenue - ----------------------------------------------------------------------- ------------------------ Total revenue (Tax-equivalent) (5) Provision for loan losses - Noninterest expense (2) 4 (6) % Income taxes (Tax-equivalent) (18) -------------------------------------------------------------------- -------------------- Operating earnings (20) % ----------------------------------------------------------------------- ------------------------ ----------------------------------------------------------------------- ------------------------ Performance and other data Economic profit (29) % Risk adjusted return on capital (RAROC) - Economic capital 4 Cash overhead efficiency ratio - Average loans, net nm 17 nm % Average core deposits (5) % 1 (6) % ----------------------------------------------------------------------- ------------------------
Key Points o Balanced model continues to provide solid performance in difficult market conditions o Strong product sales through multiple distribution channels -- Record $1.2 billion total annuity sales, driven by $668 million in-bank sales, up $91 million from 2Q01 -- Record $2.2 billion gross fluctuating mutual fund sales o Continued focus on expense control evident
Capital Management ----------------------------------------------------------------------------------------------------------------------------------- Capital Management Key Metrics 2001 2000 --------------------------------------------- -------------------------- Third Second First Fourth Third (In millions) Quarter Quarter Quarter Quarter Quarter ----------------------------------------------------------------------------------------------------------------------------------- Separate account assets $ 124,592 81,879 81,576 85,933 87,922 Mutual fund assets 101,749 90,279 86,767 84,797 85,223 ----------------------------------------------------------------------------------------------------------------------------------- Total assets under management (a) $ 226,341 172,158 168,343 170,730 173,145 ----------------------------------------------------------------------------------------------------------------------------------- Gross fluctuating mutual fund sales $ 2,213 1,981 1,983 1,762 1,819 ----------------------------------------------------------------------------------------------------------------------------------- Assets under care (Excluding AUM) (b) $ 488,537 499,847 489,380 485,516 500,962 ----------------------------------------------------------------------------------------------------------------------------------- Registered representatives (Actual) 8,139 7,706 7,784 7,459 7,342 Brokerage offices (Actual) 3,390 2,690 2,695 2,568 2,623
----------------------------------------------------------------------- ------------------------ Capital Management Key Metrics 3 Q 01 Estimated vs Contribution From (In millions) 2 Q 01 WB FTU ----------------------------------------------------------------------- ------------------------ Separate account assets 52 % 45 7 % Mutual fund assets 13 11 1 ----------------------------------------------------------------------- ------------------------ Total assets under management (a) 31 27 4 ----------------------------------------------------------------------- ------------------------ Gross fluctuating mutual fund sales 12 2 10 -------------------------------------------------------------------- ---------- Assets under care (Excluding AUM) (b) (2) 4 (6) ----------------------------------------------------------------------- ------------------------ Registered representatives (Actual) 6 8 (2) Brokerage offices (Actual) 26 % 26 - % ------------------------ (a) Includes $80 billion in assets managed for Wealth Management which are also reported in that segment. (b) Includes $22 billion in assets held for Wealth Management which are also reported in that segment. ---------------------------------------------------------------------------------------------------------
Key Points o 4% growth in assets under management produced by former First Union o $47 billion added to assets under management by former Wachovia o $102 billion in mutual funds with strong net fluctuating fund flows of $400 million driven by fixed income Page -21 ASSET MANAGEMENT This sub-segment consists of the mutual fund business, customized investment advisory services and corporate and institutional trust services.
Capital Management ----------------------------------------------------------------------------------------------------------- ---------------------- Asset Management 2001 3 Q 01 Estimated ---------------------------------------- Performance Summary Third Second First vs Contribution From (In millions) Quarter Quarter Quarter 2 Q 01 WB FTU ----------------------------------------------------------------------------------------------------------- ---------------------- Income statement data Net interest income (Tax-equivalent) $ (6) (7) (5) (14) % Fee and other income 210 213 214 (1) 3 (4) % Intersegment revenue (1) - - - ----------------------------------------------------------------------------------------------------------- ---------------------- Total revenue (Tax-equivalent) 203 206 209 (1) Provision for loan losses - - - - Noninterest expense 150 144 141 4 2 2 % Income taxes (Tax-equivalent) 19 20 24 (5) --------- ------------- ------------ ------------ ------------------- Operating earnings $ 34 42 44 (19) % ----------------------------------------------------------------------------------------------------------- ---------------------- ----------------------------------------------------------------------------------------------------------- ---------------------- Performance and other data Economic profit $ 28 36 39 (22) % Risk adjusted return on capital (RAROC) 66.70 % 91.23 99.65 - Economic capital $ 204 182 180 12 Cash overhead efficiency ratio 74.12 % 69.55 67.51 - Average loans, net $ 268 110 128 nm 16 nm % Average core deposits $ 1,442 1,530 1,723 (6) % 1 (7) % ----------------------------------------------------------------------------------------------------------- ----------------------
Fee and other income remained relatively flat at $210 million, off 1% from the prior quarter's $213 million. Former Wachovia added approximately $6 million of fee income. Strong net fund flows largely offset the effects of the declining market and the shift in asset mix to lower fee fund products. Management estimates that events of September 11 reduced fee revenue by approximately $3 million. Expenses were up 4% including a $4 million charge for losses related to the World Trade Center tragedy. Otherwise, expenses, excluding an estimated 2% increase related to former Wachovia, were flat as a focus on cost control continued.
Capital Management ----------------------------------------------------------------------------------------------------------------------------------- Mutual Funds 2001 3 Q 01 ---------------------------------------------------------------------------------------- Third Quarter Second Quarter First Quarter vs ---------------------------------------------------------------------------------------- (In billions) Amount Fund Mix Amount Fund Mix Amount Fund Mix 2 Q 01 ----------------------------------------------------------------------------------------------------------------------------------- Assets under management Money market $ 63 62 % $ 55 61 % $ 53 61 % 15 % Equity 23 22 23 26 22 25 - Fixed income 16 16 12 13 12 14 33 ----------------------------------------------------------------------------------------------------------------------------------- Total mutual fund assets $ 102 100 % $ 90 100 % $ 87 100 % 13 % -----------------------------------------------------------------------------------------------------------------------------------
--------------------------- ------------------------ Mutual Funds Estimated Contribution From (In billions) WB FTU --------------------------- ------------------------ Assets under management Money market 7 8 % Equity 13 (13) Fixed income 25 8 --------------------------- Total mutual fund assets 11 2 % --------------------------- ------------------------
. Despite the severe market decline, Capital Management was able to grow client assets as investors acquired fixed income and money market funds. Total mutual fund assets rose 13%, 2% without the assets of former Wachovia. . Growth in assets was led by record gross fluctuating fund sales of $2.2 billion, driven by strong fixed income sales. Net fluctuating fund sales grew to $400 million, driven by record gross sales and lower redemptions. Strong net money market fund sales continued during the quarter with $3.8 billion in sales. . The fund mix continued its shift toward money market and fixed income funds due to the strong sales in these products and the effects of declining equity markets on equity fund values. Page -22 Wachovia -------------------------------------------------------------------------------- RETAIL BROKERAGE SERVICES This sub-segment includes Retail Brokerage and Insurance Services.
----------------------------------------------------------------------------------------------------------- ---------------------- Retail Brokerage Services 2001 3 Q 01 Estimated ------------------------------------------ Performance Summary Third Second First vs Contribution From (In millions) Quarter Quarter Quarter 2 Q 01 WB FTU ----------------------------------------------------------------------------------------------------------- ---------------------- Income statement data Net interest income (Tax-equivalent) $ 38 35 36 9 % Fee and other income 459 490 482 (6) 4 (10) % Intersegment revenue (14) (11) (11) 27 ----------------------------------------------------------------------------------------------------------- ---------------------- Total revenue (Tax-equivalent) 483 514 507 (6) Provision for loan losses - - - - Noninterest expense 435 449 444 (3) 5 (8) % Income taxes (Tax-equivalent) 16 24 21 (33) ----------------------------------------------------------------------------------------------------------- ---------- Operating earnings $ 32 41 42 (22) % ----------------------------------------------------------------------------------------------------------- ---------------------- ----------------------------------------------------------------------------------------------------------- ---------------------- Performance and other data Economic profit $ 13 22 23 (41) % Risk adjusted return on capital (RAROC) 19.81 % 26.18 26.27 - Economic capital $ 647 638 645 1 Cash overhead efficiency ratio 89.76 % 87.66 87.39 - Average loans, net $ 1 - 1 - - - % Average core deposits $ 93 79 104 18 % 3 15 % ----------------------------------------------------------------------------------------------------------- ----------------------
Net interest income was up 9% driven by the addition of the former Wachovia margin loan receivables. Fee and other income was down $31 million, or 6%, as production declined due to the four day market shutdown and further deterioration in market conditions during the quarter. Record annuity sales help to offset reduced commission volume. Management estimates that the events of September 11 reduced fee revenues by approximately $25 million. Management estimates that former Wachovia businesses added 4% to fee and other income. Expenses declined by $14 million or 3% representing the continued focus on cost control and lower production levels. Management estimates that former Wachovia contributed approximately a 5% increase to expenses. Excluding former Wachovia expenses, expenses would have declined by approximately 8%.
---------------------------------------------------------------------------------------------------------- ----------------------- Retail Brokerage Metrics 2001 3 Q 01 Estimated ----------------------------------------- Third Second First vs Contribution From (Dollars in millions) Quarter Quarter Quarter 2 Q 01 WB FTU ---------------------------------------------------------------------------------------------------------- ----------------------- Broker client assets $ 253,200 240,600 232,900 5 % 13 (8) % Margin loans $ 3,192 3,060 3,060 4 18 (14) ---------------------------------------------------------------------------------------------------------- ----------------------- Licensed sales force Full-service financial advisors 5,208 4,678 4,723 11 13 (2) Financial center series 6 2,931 3,028 3,061 (3) - (3) ---------------------------------------------------------------------------------------------------------- ----------------------- Total sales force 8,139 7,706 7,784 6 % 8 (2) % ---------------------------------------------------------------------------------------------------------- -----------------------
Brokerage client assets grew 5%, as the addition of approximately $31 billion offset the decline in assets due to lower equity values. Capital Management Eliminations In addition to the above sub-segments, Capital Management results include eliminations among business units. Certain brokerage commissions earned on mutual fund sales by the First Union brokerage sales force are eliminated and deferred in the consolidation of Capital Management reported results. In 3Q01, brokerage revenue and associated expense eliminations were $10 million and had no material effect on earnings. -------------------------------------------------------------------------------- Page-23 Wachovia -------------------------------------------------------------------------------- WEALTH MANAGEMENT ----------------- This segment includes Private Capital Management and Personal Trust.
----------------------------------------------------------------------------------------------------------------------------------- Wealth Management 2001 2000 3 Q 01 ---------------------------------------- --------------------------- Performance Summary Third Second First Fourth Third vs (In millions) Quarter Quarter Quarter Quarter Quarter 2 Q 01 ----------------------------------------------------------------------------------------------------------------------------------- Income statement data Net interest income (Tax-equivalent) $ 61 48 46 47 47 27 % Fee and other income 100 79 79 84 79 27 Intersegment revenue - - - - - - ----------------------------------------------------------------------------------------------------------------------------------- Total revenue (Tax-equivalent) 161 127 125 131 126 27 Provision for loan losses 2 - - - - - Noninterest expense 115 84 83 84 80 37 Income taxes (Tax-equivalent) 15 14 15 16 16 7 ----------------------------------------------------------------------------------------------------------------------------------- Operating earnings $ 29 29 27 31 30 - % ----------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- Performance and other data Economic profit $ 21 22 21 25 24 (5) % Risk adjusted return on capital (RAROC) 46.57 % 65.29 64.07 72.41 71.65 - Economic capital $ 236 169 163 164 161 40 Cash overhead efficiency ratio 71.08 % 65.12 66.57 63.82 63.35 - Average loans, net $ 5,680 4,449 4,368 4,319 4,211 28 Average core deposits $ 7,328 6,367 6,176 5,737 5,579 15 % -----------------------------------------------------------------------------------------------------------------------------------
---------------------------------------- ------------------------ Wealth Management Estimated Performance Summary Contribution From (In millions) WB FTU ------------------------ Income statement data Net interest income (Tax-equivalent) Fee and other income 22 5 % Intersegment revenue ---------------------------------------- ------------------------ Total revenue (Tax-equivalent) Provision for loan losses Noninterest expense 27 10 % Income taxes (Tax-equivalent) ------------------------ Operating earnings ---------------------------------------- ------------------------ ---------------------------------------- ------------------------ Performance and other data Economic profit Risk adjusted return on capital (RAROC) Economic capital Cash overhead efficiency ratio Average loans, net 26 2 % Average core deposits 15 - % ---------------------------------------- ------------------------
Key Points o New segment created which includes personal trust, private client and insurance o Fee income stable in difficult markets and showed strength in service charges and insurance commissions Net interest income increased by 27% to $61 million as average loans were up 28% over 2Q01. The increase was primarily attributable to former Wachovia business lines. Average core deposits increased 15%, driven entirely by the addition of former Wachovia balances. Fee and other income also rose 27%, up $21 million in the quarter. Approximately 22% was attributable to former Wachovia businesses. Despite the market declines following September 11, asset management fees were $79 million. Asset management fees are generally priced within the first 10 days of the month, and as a result, slightly lag changes in market valuations. Trust fees were flat from 2Q01 as stronger volume in estate, death settlement and hedge fund fees offset a slight decline in monthly fees. Expenses were up 37% primarily reflecting the expense base of former Wachovia. Otherwise, expenses remained flat reflecting the continuing emphasis on expense control.
--------------------------------------------------------------------------------------------------------------------------------- Wealth Management Key Metrics 2001 2000 3 Q 01 ---------------------------------------- --------------------------- Third Second First Fourth Third vs (Dollars in millions) Quarter Quarter Quarter Quarter Quarter 2 Q 01 --------------------------------------------------------------------------------------------------------------------------------- Total assets under management (a) $ 80,100 48,100 47,900 52,500 53,200 67 % PCM/PFA client relationships (Actual) 87,930 52,500 52,450 52,400 52,400 67 Wealth Management advisors (Actual) 936 552 558 556 540 70 % ---------------------------------------------------------------------------------------------------------------------------------
--------------------------------------- ------------------------ Wealth Management Key Metrics Estimated Contribution From (Dollars in millions) WB FTU --------------------------------------- ------------------------ Total assets under management (a) 74 (7) % PCM/PFA client relationships (Actual) 67 - Wealth Management advisors (Actual) 70 - % --------------------------------------- (a) These assets are managed by and reported in Capital Management. -------------------------------------------------------------------
Key Points o Customer retention in the integrated advisory model remains excellent o Advisor retention remains strong and is bolstered with the addition of 100 new hires in the past six months -------------------------------------------------------------------------------- Page-24 Wachovia -------------------------------------------------------------------------------- CORPORATE AND INVESTMENT BANKING -------------------------------- This segment includes Corporate Banking and Investment Banking.
----------------------------------------------------------------------------------------------------------------------------------- Corporate and Investment Banking 2001 2000 3 Q 01 --------------------------------------------- --------------------------- Performance Summary Third Second First Fourth Third vs (In millions) Quarter Quarter Quarter Quarter Quarter 2 Q 01 ----------------------------------------------------------------------------------------------------------------------------------- Income statement data Net interest income (Tax-equivalent) $ 498 468 445 440 417 6 % Fee and other income (250) 334 314 268 362 nm Intersegment revenue (15) (15) (12) (13) (12) - ----------------------------------------------------------------------------------------------------------------------------------- Total revenue (Tax-equivalent) 233 787 747 695 767 (70) Provision for loan losses 126 93 70 124 83 35 Noninterest expense 479 498 461 411 486 (4) Income taxes (Tax-equivalent) (165) 43 53 (27) 47 nm --------------- ------------ ------------ ------------ ------------ ------------ Operating earnings $ (207) 153 163 187 151 nm % ----------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- Performance and other data Economic profit $ (356) (2) (6) 51 (9) nm % Risk adjusted return on capital (RAROC) (10.58)% 11.89 11.60 15.31 11.44 - Economic capital $ 6,267 6,012 6,182 6,162 6,048 4 Cash overhead efficiency ratio nm % 60.39 59.02 50.24 60.89 - Average loans, net $ 42,076 41,145 42,751 41,770 42,017 2 Average core deposits $ 10,499 10,200 9,456 9,232 9,086 3 % -----------------------------------------------------------------------------------------------------------------------------------
--------------------------------------- ------------------------ Corporate and Investment Banking Estimated Performance Summary Contribution From In millions) WB FTU --------------------------------------- ------------------------ Income statement data Net interest income (Tax-equivalent) Fee and other income 7 nm % Intersegment revenue --------------------------------------- ------------------------ Total revenue (Tax-equivalent) Provision for loan losses Noninterest expense 6 (10) % Income taxes (Tax-equivalent) --------------------------------------- -------------------- Operating earnings --------------------------------------- ------------------------ --------------------------------------- ------------------------ Performance and other data Economic profit Risk adjusted return on capital (RAROC) Economic capital Cash overhead efficiency ratio Average loans, net 9 (7) % Average core deposits 8 (5) % --------------------------------------- ------------------------
Key Points o Total revenues excluding principal investing were $826 million o Provision increased primarily due to one large account o Decreased expenses reflect lower incentive-based compensation and strong cost controls o Excluding former Wachovia, loans down 7% due to portfolio management actions -------------------------------------------------------------------------------- Page-25 WACHOVIA -------------------------------------------------------------------------------- CORPORATE BANKING This sub-segment includes Large Corporate Lending, Commercial Leasing and Rail, and International operations.
-------------------------------------------------------------------------------------------------------- ------------------------- Corporate Banking 2001 3 Q 01 Estimated ----------------------------------------- Performance Summary Third Second First vs Contribution From (In millions) Quarter Quarter Quarter 2 Q 01 WB FTU -------------------------------------------------------------------------------------------------------- ------------------------- Income statement data Net interest income (Tax-equivalent) $ 359 344 347 4 % Fee and other income 182 176 167 3 7 (4) % Intersegment revenue (10) (8) (8) 25 -------------------------------------------------------------------------------------------------------- ------------------------- Total revenue (Tax-equivalent) 531 512 506 4 Provision for loan losses 125 95 71 32 Noninterest expense 241 231 241 4 8 (4) % Income taxes (Tax-equivalent) 56 64 67 (13) ---------------------------------------------------------------------------------------------------- ----------- ----------- Operating earnings $ 109 122 127 (11) % -------------------------------------------------------------------------------------------------------- ------------------------- -------------------------------------------------------------------------------------------------------- ------------------------- Performance and other data Economic profit $ 34 48 41 (29) % Risk adjusted return on capital (RAROC) 15.47 % 17.61 16.64 - Economic capital $ 3,859 3,483 3,551 11 Cash overhead efficiency ratio 45.07 % 45.07 47.39 - Average loans, net $ 36,968 35,737 36,975 3 9 (6) % Average core deposits $ 7,992 7,644 7,336 5 % 9 (4) % -------------------------------------------------------------------------------------------------------- -------------------------
Net interest income rose 4%. Excluding the benefit of former Wachovia, net interest income was reduced both by lower corporate banking loan demand and lower yields on commercial leases. Average loans and deposits were up $1.2 billion and $348 million, respectively, as a result of the merger. Decreased loan balances associated with the former First Union are indicative of reduced demand for credit as well as our strategies for exiting unprofitable relationships. Fee and other income increased 3% as a result of the merger. Excluding the impact of former Wachovia, fee and other income was flat with 2Q01, which benefited from a $4 million gain on sale and higher leasing fees and rental income. Provision increased $30 million due to the addition of one large account. Expenses increased 4% as a result of the merger with former Wachovia.
-------------------------------------------------------------------------------------------------------- ------------------------- Corporate Banking Fees 2001 3 Q 01 Estimated ------------------------------------------ Third Second First vs Contribution From (In millions) Quarter Quarter Quarter 2 Q 01 WB FTU -------------------------------------------------------------------------------------------------------- ------------------------- Lending $ 79 69 64 14 % 17 (3) % Leasing 40 48 45 (17) 2 (19) International 63 59 58 7 - 7 -------------------------------------------------------------------------------------------------------- -------------------------- Corporate banking fees $ 182 176 167 3 % 7 (4) % -------------------------------------------------------------------------------------------------------- -------------------------
-------------------------------------------------------------------------------- Page - 26 WACHOVIA -------------------------------------------------------------------------------- INVESTMENT BANKING This sub-segment includes Principal Investing, Equity Capital Markets, Loan Syndications, High Yield, M&A, Fixed Income Sales & Trading, Municipal Group, Foreign Exchange, Derivatives, Equity Derivatives, Structured Products, Real Estate Capital Markets and Asset Securitization.
------------------------------------------------------------------------------------------------------ ------------------------- Investment Banking 2001 3 Q 01 Estimated ---------------------------------------- Performance Summary Third Second First vs Contribution From (In millions) Quarter Quarter Quarter 2 Q 01 WB FTU ------------------------------------------------------------------------------------------------------ ------------------------- Income statement data Net interest income (Tax-equivalent) $ 139 124 98 12 % Fee and other income (432) 158 147 nm 7 nm % Intersegment revenue (5) (7) (4) (29) ------------------------------------------------------------------------------------------------------ ------------------------- Total revenue (Tax-equivalent) (298) 275 241 nm Provision for loan losses 1 (2) (1) - Noninterest expense 238 267 220 (11) 4 (15) % Income taxes (Tax-equivalent) (221) (21) (14) nm --------- ------------ ------------ --------------- ------------------------- Operating earnings $ (316) 31 36 nm % ------------------------------------------------------------------------------------------------------ ------------------------- ------------------------------------------------------------------------------------------------------ ------------------------- Performance and other data Economic profit $ (390) (50) (47) nm % Risk adjusted return on capital (RAROC) (52.32) % 4.02 4.81 - Economic capital $ 2,408 2,529 2,631 (5) Cash overhead efficiency ratio (91.90) % 85.29 80.69 - Average loans, net $ 5,108 5,408 5,776 (6) 6 (12) % Average core deposits $ 2,507 2,556 2,120 (2) % 5 (7) % ------------------------------------------------------------------------------------------------------ -------------------------
Net interest income increased 12%, primarily due to wider spreads in fixed income sales and trading, as well as equity and fixed income derivatives, driven by the lower rate environment. Fee and other income declined as a result of write-downs in principal investing, exacerbated by systemic weakness in public financial markets from the slowing economy. Excluding principal investing, fees were $153 million, down 29% from the prior quarter, primarily related to reduced fee income caused by widening credit spreads, reduced liquidity and reduced deal flow in investment banking agency business. Principal investing losses were $585 million, primarily due to write-downs in private equity investments taken in the quarter. Charges are largely attributable to 1999 and 2000 vintages and reflect the continued deterioration of the telecom and technology sectors. Losses were $58 million in 2Q01. The invested portfolio amounted to $2.5 billion at quarter-end, of which 1% were public investments, 40% were private direct investments, 35% were fund investments, and the remainder represented mezzanine investments. Losses equate to write-downs of 25% on private equity investments and 20% on the total principal investing portfolio. Expenses decreased 11%, due to lower incentive-based payments, reduced volumes and strong cost control.
------------------------------------------------------------------------------------------------------- ------------------------- Investment Banking Fees 2001 3 Q 01 Estimated Third Second First vs Contribution From (In millions) Quarter Quarter Quarter 2 Q 01 WB FTU ------------------------------------------------------------------------------------------------------- ------------------------- Agency $ 63 116 43 (46) % 3 (49) % Principal investing (585) (58) (43) nm - nm Fixed income 110 116 166 (5) 6 (11) Affordable housing (AH) (20) (16) (19) 25 - 25 ------------------------------------------------------------------------------------------------------- ------------------------- Investment banking fees $ (432) 158 147 nm % 7 nm % ------------------------------------------------------------------------------------------------------- ------------------------- Memoranda Pre-tax value of AH tax credits $ 31 30 29 3 % - 3 % --------------------------------------------------------------------------------------------------- --------------------- Adjusted investment banking fees (401) 188 176 - 6 (6) ------------------------------------------------------------------------------------------------------- ------------------------- Trading profits (included above) $ 66 110 83 (40) % 5 (45) % ------------------------------------------------------------------------------------------------------- -------------------------
-------------------------------------------------------------------------------- Page - 27 WACHOVIA -------------------------------------------------------------------------------- PARENT ------ This sub-segment includes the central money book, investment portfolio, some consumer real estate and mortgage business, divested businesses, goodwill amortization, and core deposit intangible amortization.
----------------------------------------------------------------------------------------------------------------------------------- Parent 2001 2000 3 Q 01 --------------------------------------- --------------------------- Performance Summary Third Second First Fourth Third vs (In millions) Quarter Quarter Quarter Quarter Quarter 2 Q 01 ----------------------------------------------------------------------------------------------------------------------------------- Income statement data Net interest income (Tax-equivalent) $ 102 56 126 126 252 82 % Fee and other income 87 135 127 183 171 (36) Intersegment revenue (3) - (2) - - - ----------------------------------------------------------------------------------------------------------------------------------- Total revenue (Tax-equivalent) 186 191 251 309 423 (3) Provision for loan losses 18 32 49 (6) 8 (44) Noninterest expense 120 68 112 86 253 76 Income taxes (Tax-equivalent) 50 51 47 149 56 (2) -------------------------------------------------------------------------------------------------------------------------------- Operating earnings $ (2) 40 43 80 106 nm % ----------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- Performance and other data Economic profit $ 44 71 75 81 103 (38) % Risk adjusted return on capital (RAROC) 23.29 % 30.54 28.65 32.88 33.51 - Economic capital $ 1,576 1,505 1,837 1,531 1,878 5 Cash overhead efficiency ratio 11.51 % 4.51 22.61 11.41 48.46 - Average loans, net $ 8,411 8,046 9,389 12,165 17,134 5 Average core deposits $ 2,086 1,471 2,357 3,649 3,867 42 % -----------------------------------------------------------------------------------------------------------------------------------
----------------------------------------- ------------------------ Parent Estimated Performance Summary Contribution From (In millions) WB FTU ----------------------------------------- ------------------------ Income statement data Net interest income (Tax-equivalent) Fee and other income 16 (52) % Intersegment revenue ----------------------------------------- ------------------------ Total revenue (Tax-equivalent) Provision for loan losses Noninterest expense 35 41 % Income taxes (Tax-equivalent) ----------------------------------------- ------------------------ Operating earnings ----------------------------------------- ------------------------ Performance and other data -------------------------- Economic profit Risk adjusted return on capital (RAROC) Economic capital Cash overhead efficiency ratio Average loans, net 33 (28) % Average core deposits 17 25 % ----------------------------------------- ------------------------
Net interest income was up 82% due to reductions in corporate borrowing costs as a result of the declining rate environment. Average loans increased 5%, due primarily to the estimated 33% contribution from the merger with former Wachovia. Average core deposits increased 42%, due primarily to balance sheet management. Former Wachovia contributed an estimated 17% of the deposit increase. Fee and other income declined 36% from 2Q01, due to higher write-downs in securities and investments as well as a decline in advisory fees associated with balance sheet management and an $8 million loss related to the World Trade Center. Expenses were up 78%, primarily due to the addition of former Wachovia expenses as well as $39 million in new deposit base intangible amortization expense associated with the Wachovia merger. -------------------------------------------------------------------------------- Page - 28 FIRSTUNION.COM
----------------------------------------------------------------------------------------------------------------------------------- firstunion.com 2001 2000 --------------------------------------------- -------------------------- Third Second First Fourth Third (In thousands) Quarter Quarter Quarter Quarter Quarter ----------------------------------------------------------------------------------------------------------------------------------- Online customers Retail 3,661 2,773 2,529 2,276 2,075 Wholesale 149 130 111 91 74 ----------------------------------------------------------------------------------------------------------------------------------- Total customers online 3,810 2,903 2,640 2,367 2,149 Retail enrollments per quarter 310 297 293 230 290 ----------------------------------------------------------------------------------------------------------------------------------- Dollar value of transactions (In billions) $ 7.8 6.4 4.4 2.2 2.2 ----------------------------------------------------------------------------------------------------------------------------------- Online penetration 31 % 29 27 25 23 -----------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------- ------------------------ firstunion.com 3 Q 01 Estimated vs Contribution From (In thousands) 2 Q 01 WB FTU ---------------------------------------------------------------- ------------------------ Online customers Retail 32 % 26 6 % Wholesale 15 1 14 ---------------------------------------------------------------- ------------------------ Total customers online 31 25 6 Retail enrollments per quarter 4 6 (2) ---------------------------------------------------------------- ------------------------ Dollar value of transactions (In billions) 22 5 17 ---------------------------------------------------------------- ------------------------ Online penetration - % - - % ---------------------------------------------------------------- ------------------------
Online enrollments grew 31% from 2Q01 to 3.8 million, of which former Wachovia contributed an estimated 25% of the increase. There were 310,000 retail enrollments in 3Q01, up 4% from 2Q01. Dollar value of transactions initiated through internet channel (includes billpay and transfers) was $7.8 billion, up 22% from 2Q01, due in large part to an increase in customers to our online Federal Funds Transfer application as well as the estimated 5% contribution from former Wachovia. FIRST UNION DIRECT
----------------------------------------------------------------------------------------------------------------------------------- First Union Direct Metrics 2001 2000 3 Q 01 Estimated ----------------------------- --------------------------- Third Second First Fourth Third vs Contribution From (In millions) Quarter Quarter Quarter Quarter Quarter 2 Q 01 WB FTU ----------------------------------------------------------------------------------------------------------------------------------- Customer calls to Person 8.8 8.4 9.5 9.0 7.0 5 % - - % Voice response unit 27.9 23.5 24.5 24.2 23.0 19 - - ----------------------------------------------------------------------------------------------------------------------------------- Total calls 36.7 31.9 34.0 33.2 30.0 15 - - Calls handled in 30 seconds or less 84 % 72 68 73 79 - % - - % -----------------------------------------------------------------------------------------------------------------------------------
Page -29 WACHOVIA -------------------------------------------------------------------------------- The foregoing supplemental materials may contain, among other things, certain forward-looking statements with respect to Wachovia Corporation ("Wachovia"), as well as the goals, plans, objectives, intentions, expectations, financial condition, results of operations, future performance and business of Wachovia, including, without limitation, (i) statements relating to certain of Wachovia's goals and expectations with respect to earnings, earnings per share, 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" "probably", "potentially", "projects" 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 Wachovia's control). The following factors, among others, could cause Wachovia's financial performance to differ materially from the goals, plans, objectives, intentions, and expectations expressed in such forward-looking statements: (1) the risk that the businesses of former First Union Corporation and former Wachovia Corporation in connection with their merger (the "Merger") will not be integrated successfully or such integration may be more difficult, time-consuming or costly than expected; (2) expected revenue synergies and cost savings from the Merger may not be fully realized or realized within the expected time frame; (3) revenues following the Merger may be lower than expected; (4) deposit attrition, operating costs, customer loss and business disruption following the Merger, including, without limitation, difficulties in maintaining relationships with employees, may be greater than expected; (5) the strength of the United States economy in general and the strength of the local economies in which Wachovia conducts operations 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 Wachovia's loan portfolio and allowance for loan losses; (6) 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; (7) inflation, interest rate, market and monetary fluctuations; (8) 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 Wachovia's capital markets and capital management activities, including, without limitation, its mergers and acquisition advisory business, equity and debt underwriting activities, private equity investment activities, derivative securities activities, investment and wealth management advisory businesses, and brokerage activities; (9) adverse changes in the financial performance and/or condition of Wachovia's borrowers which could impact the repayment of such borrowers' outstanding loans; and (10) the impact on Wachovia's businesses, as well as on the risks set forth above, of various domestic or international military or terrorist activities or conflicts. Additional information with respect to factors that may cause actual results to differ materially from those contemplated by such forward-looking statements is included in the reports filed by Wachovia with the Securities and Exchange Commission, including its Current Report on Form 8-K dated October 23, 2001. Wachovia cautions that the foregoing list of factors is not exclusive. All subsequent written and oral forward-looking statements concerning the Merger or other matters and attributable to Wachovia or any person acting on its behalf are expressly qualified in their entirety by the cautionary statements above. Wachovia does not undertake any obligation to update any forward-looking statement, whether written or oral. Page -30 EX-99.C 5 dex99c.txt EARNINGS SLIDE PRESENTATION Exhibit 99(c) WACHOVIA 3rd Quarter 2001 Earnings Review October 23, 2001 Third Quarter 2001 Financial Highlights WACHOVIA -------------------------------------------------------------------------------- Versus 2Q 2001 -------------- . Core operating earnings of $0.61 per share excluding principal investing write-downs; $0.66 per share excluding the estimated impacts attributed to September 11th - General Bank had an outstanding quarter, displaying continued improvement . Low cost core deposits grew 4% at former FTU, reflective of more profitable and stable deposit mix - Capital Management and Wealth Management temporarily affected by disruption in equity markets; Corporate and Investment Banking impacted by market declines - Former First Union expenses, excluding amortization, declined by 3% and combined FTEs declined by 3,400 versus pro forma combined June level - Total NPLs, including those classified as held for sale, declined 4% from pro forma combined June results . Recently completed a rigorous review of portfolios and reserves in light of precipitous decline in economy - Wrote down principal investing portfolio by $380 million after-tax or 20%, reflecting decline in equity markets and reduced liquidity and capital availability for non-public investments - Proactively managed merged loan portfolio including moving $1.5 billion in higher risk loans (88% performing) to AHFS Purchase accounting adjustments $102 million Increase in reserve - portfolio realignment $100 million Provision - loans transferred to AHFS or sold $230 million ------------ Total pre-tax economic cost $432 million } Reflected in income statement Original Estimate $450 million
- Increased net credit reserves by an additional $523 million from a June 30 pro forma combined level of $2.516 billion thereby raising allowance to NPLs to 202% and to loans to 1.79% 1 Third Quarter 2001 WACHOVIA Earnings Review --------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------ Earnings Summary Third Quarter 2001 --------------------------- After-Tax Earnings (In millions) (Loss) EPS ------------------------------------------------------------------------------------------------------------------------------------ Core cash operating earnings $ 775 0.70 Deposit base intangible amortization (Includes higher run-rate amortization for one month only) (37) (0.03) /(a)/ Goodwill amortization (related to former First Union, only until December 31, 2001) (60) (0.06) ------------------------------------------------------------------------------------------------------------------------------------ Core operating earnings 678 0.61 Write-downs on principal investing portfolio (380) (0.34) ------------------------------------------------------------------------------------------------------------------------------------ Operating earnings 298 0.27 ------------------------------------------------------------------------------------------------------------------------------------ Merger-related, restructuring and other charges/gains Merger-related and restructuring charges (57) (0.05) Credit related charges (572) (0.53) Other charges, net (3) - ------------------------------------------------------------------------------------------------------------------------------------ Total merger-related, restructuring and other charges/gains (632) (0.58) ------------------------------------------------------------------------------------------------------------------------------------ Net loss (GAAP) $ (334) (0.31) ------------------------------------------------------------------------------------------------------------------------------------ /(a)/ Estimated full quarter amortization is $0.07 - 0.12 per share; the deposit base intangible valuation is preliminary and will be finalized in 4Q01. ------------------------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------------------------ Reconciliation to Third Quarter 2001 EPS Consensus Estimate ------------------------------------------------------------------------------------------------------------------------------------ Core operating earnings $ 0.61 Estimated loss related to September 11 0.05 ------------------------------------------------------------------------------------------------------------------------------------ Total $ 0.66 ------------------------------------------------------------------------------------------------------------------------------------ First Call consensus estimate (as of October 18, 2001) $ 0.66 Adjustment for previously disclosed estimate of deposit base intangible amortization (0.02) ------------------------------------------------------------------------------------------------------------------------------------ Total $ 0.64 ------------------------------------------------------------------------------------------------------------------------------------
2 WACHOVIA September 11th Impact --------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------- Estimated Lost Revenue and Losses Related to September 11th After-Tax (In millions) Loss EPS -------------------------------------------------------------------------------------------- Losses related to World Trade Center trust operations $ 13 0.01 Corporate and Investment Banking Estimated losses due to widening spreads on trading portfolio 14 0.01 Lost revenues due to market disruption 20 0.02 Capital Management Four-day market closure effect on brokerage services 8 0.01 -------------------------------------------------------------------------------------------- Total estimated lost revenue and losses related to September 11th $ 55 0.05 --------------------------------------------------------------------------------------------
Key Points . The decline in interest rates accelerated by the events of September 11 contributed to a $1.2 billion increase in the unrealized gains in cash investment securities available for sale. 3 WACHOVIA Summary Operating Results --------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------- ------------------- Operating Earnings Summary 2001 2000 ------------------------------- ---------------- 3 Q 01 Estimated Third Second First Fourth Third vs Contribution From (In millions, except per share data) Quarter/(a)/ Quarter Quarter Quarter Quarter 2 Q 01 WB FTU ----------------------------------------------------------------------------------------------------------- ------------------- Net interest income (Tax-equivalent) $ 1,974 1,742 1,734 1,757 1,860 13% 12 1% Fee and other income 1,036 1,629 1,546 1,582 1,645 (36) 8 (44) ----------------------------------------------------------------------------------------------------------- ------------------- Total revenue (Tax-equivalent) 3,010 3,371 3,280 3,339 3,505 (11) 10 (21) Provision for loan losses 244 223 219 192 142 9 6 3 Noninterest expense 2,310 2,169 2,138 2,132 2,328 7 9 (2) ----------------------------------------------------------------------------------------------------------- ------------------- Income before income taxes (Tax-equivalent) 456 979 923 1,015 1,035 (53) 12 (65) Income taxes (Tax-equivalent) 158 330 313 334 333 (52) 7 (59) ----------------------------------------------------------------------------------------------------------- ------------------- Net income $ 298 649 610 681 702 (54)% 15 (69)% Net income (Cash basis) $ 395 723 684 753 778 (45)% 17 (62)% ----------------------------------------------------------------------------------------------------------- ------------------- Diluted earnings per common share $ 0.27 0.66 0.62 0.69 0.71 (59)% 9 (68)% Diluted earnings per common share (Cash basis) $ 0.36 0.73 0.69 0.76 0.79 (51)% 11 (62)% Return on average common stockholders' equity 5.77% 16.19 15.64 15.36 15.76 - - - Return on average tangible common stockholders' equity (Cash basis) 11.36% 23.35 22.91 21.55 22.15 - - - ----------------------------------------------------------------------------------------------------------- ------------------- /(a)/ Results include one month of the former Wachovia. ----------------------------------------------------------------------------------------------------------- -------------------
Key Points . Provision matched charge-offs which included $50 million related to previously identified single, large credit . Focus on expenses continues; excluding the incremental expense base associated with the merger, expenses down 2%, cash expenses down 3% 4 Key Financial Measures WACHOVIA --------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------- ------------------- Operating Basis Performance Highlights 2001 2000 3 Q 01 Estimated ----------------------------- ------------------ Third Second First Fourth Third vs Contribution From (In millions, except per share data) Quarter Quarter Quarter Quarter Quarter 2 Q 01 WB FTU -------------------------------------------------------------------------------------------------------------- ------------------- Cash operating earnings Net income $ 395 723 684 753 778 (45)% 17 (62)% Diluted earnings per common share $ 0.36 0.73 0.69 0.76 0.79 (51) 11 (62) Return on average tangible assets 0.60% 1.19 1.15 1.26 1.26 - - - Return on average tangible common stockholders' equity 11.36 23.35 22.91 21.55 22.15 - - - Overhead efficiency ratio 72.86% 62.06 62.80 61.46 64.17 - - - Operating leverage $ (462) 59 (67) 31 (154) nm % - - % -------------------------------------------------------------------------------------------------------------- ------------------- Other financial data Net interest margin 3.58% 3.41 3.42 3.46 3.52 - % - - % Average diluted common shares (In thousands) 1,105,270 978,185 975,847 990,445 986,763 13 13 - Actual common shares (In thousands) 1,360,996 979,205 981,268 979,963 986,004 39 40 (1) Dividends paid per common share $ 0.24 0.24 0.24 0.48 0.48 - - - Dividend payout ratio 89.45% 36.36 38.71 69.57 67.42 - - - Book value per common share $ 20.94 16.49 16.39 15.66 15.00 27 - - Tier 1 capital ratio (a) 6.70% 7.37 7.18 7.02 7.00 - - - Total capital ratio (a) 10.74 11.45 11.33 11.19 11.32 - - - Leverage ratio (a) 7.24% 6.00 5.88 5.92 5.73 - % - - % -------------------------------------------------------------------------------------------------------------- ------------------- Other FTE employees 84,719 67,420 69,362 70,639 70,533 26 % 30 (4)% -------------------------------------------------------------------------------------------------------------- ------------------- (a) The third quarter of 2001 is based on estimates. -------------------------------------------------------------------------------------------------------------- -------------------
Key Points . Average diluted shares affected by the addition of merger-related higher share count for one month . Period-end shares reflect 407.4 million shares issued in connection with the merger, less 16.5 million retirement of Wachovia-owned FTU shares and 10 million shares in the settlement of an equity forward . FTEs declined by 3,378 from a combined June 30 level of 88,097, reflecting a continued focus on efficiency as well as the effect of former Wachovia's divested card businesses and the hiring freeze put in place as a result of the merger 5 Tier 1 Capital WACHOVIA --------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------- Tier 1 Capital Tier 1 --------------------------- (In millions) Capital Ratio -------------------------------------------------------------------------------------------------------- First Union as reported June 30, 2001 $ 14,631 7.37% Impact of merger with Wachovia (-34 bps due to fair value adjustments) 5,537 2.01 Retirement of First Union stock (568) (0.21) Settlement of equity forward contract (previously scheduled for Q4) (547) (0.20) Principal investing write-down (380) (0.14) Credit actions (572) (0.21) Dividend (237) (0.09) Core operating earnings 678 0.25 Merger-related, restructuring and other charges, net (60) (0.02) Increase in risk weighted assets - (2.06) -------------------------------------------------------------------------------------------------------- As of September 30, 2001 (estimated) $ 18,482 6.70% --------------------------------------------------------------------------------------------------------
Key Points . $523 million increase in allowance over the June 30, 2001 pro forma level has no effect on total regulatory capital 6 Net Interest Income WACHOVIA --------------------------------------------------------------------------------
Interest Income Summary 2001 2000 -------------------------------- --------------------- 3 Q 01 Estimated Third Second First Fourth Third vs Contribution From (In millions) Quarter Quarter Quarter Quarter Quarter 2 Q 01 WB FTU ------------------------------------------------------------------------------------------------------------- ----------------- Average earning assets $ 219,672 204,673 203,720 202,606 211,089 7 % 9 (2)% Average interest-bearing liabilities 198,322 185,224 183,995 181,832 190,146 7 9 (2) ------------------------------------------------------------------------------------------------------------- ----------------- Interest income (Tax-equivalent) 3,988 3,851 4,057 4,289 4,491 4 9 (5) Interest expense 2,014 2,109 2,323 2,532 2,631 (5) 6 (11) ------------------------------------------------------------------------------------------------------------- ----------------- Net interest income (Tax-equivalent) $ 1,974 1,742 1,734 1,757 1,860 13 % 12 1% ------------------------------------------------------------------------------------------------------------- ----------------- Rate earned 7.23 % 7.54 8.03 8.44 8.48 - - - Equivalent rate paid 3.65 4.13 4.61 4.98 4.96 - - - ------------------------------------------------------------------------------------------------------------- ----------------- Net interest margin 3.58 % 3.41 3.42 3.46 3.52 - - - ------------------------------------------------------------------------------------------------------------- -----------------
Key Points . Approximately two thirds of the higher margin related to improvement at former First Union and one third to the addition of the former Wachovia 7 WACHOVIA Fee and Other Income --------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------- ------------------- Fee and Other Income 2001 2000 --------------------------- ----------------- 3 Q 01 Estimated Third Second First Fourth Third vs Contribution From (In millions) Quarter Quarter Quarter Quarter Quarter 2 Q 01 WB FTU -------------------------------------------------------------------------------------------- ------------------- Service charges and fees $ 541 486 468 481 508 11 % 12 (1)% Commissions 356 389 375 383 365 (8) 4 (12) Fiduciary and asset management fees 400 384 381 387 384 4 7 (3) Advisory, underwriting and other investment banking fees 177 238 198 187 148 (26) 4 (30) Principal investing (585) (58) (43) (43) 34 nm - - Other income 147 190 167 187 206 (23) 11 (34) -------------------------------------------------------------------------------------------- ------------------- Total fee and other income $ 1,036 1,629 1,546 1,582 1,645 (36)% 8 (44)% -------------------------------------------------------------------------------------------- -------------------
Key Points . $1.6 billion in fees earned excluding principal investing write-downs . Solid sales of annuities, fluctuating funds and money market funds dampened by lower equity valuations and mix change . Strong mortgage and home equity-related income helped to offset securities losses of approximately $35 million 8 WACHOVIA Noninterest Expense --------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------ ----------------- Noninterest Expense 2001 2000 --------------------------- ---------------- 3 Q 01 Estimated Third Second First Fourth Third vs Contribution From (In millions) Quarter Quarter Quarter Quarter Quarter 2 Q 01 WB FTU ------------------------------------------------------------------------------------------------ ----------------- Salaries and employee benefits $ 1,374 1,363 1,329 1,243 1,381 1% 8 (7)% Occupancy 176 155 163 150 157 14 9 5 Equipment 214 198 205 221 213 8 10 (2) Advertising 15 11 9 16 14 36 36 - Communications and supplies 117 111 110 123 117 5 9 (4) Professional and consulting fees 79 69 73 97 87 14 12 2 Goodwill and other intangible amortization 117 77 78 80 79 52 51 1 Sundry expense 218 185 171 202 280 18 2 16 ------------------------------------------------------------------------------------------------ ----------------- Total noninterest expense $ 2,310 2,169 2,138 2,132 2,328 7% 9 (2)% ------------------------------------------------------------------------------------------------ ----------------- FTE employees 84,719 67,420 69,362 70,639 70,533 26% 30 (4)% Overhead efficiency ratio (Cash basis) 72.86% 62.06 62.80 61.46 64.17 - - - ------------------------------------------------------------------------------------------------ -----------------
Key Points . Former First Union cash expenses (i.e. excluding amortization) down 3% to $2.029 billion . Increased deposit base intangible amortization as a result of the merger . Sundry expense includes $13 million of losses associated with operations at the World Trade Center 9 Consolidated Results Operating Summary WACHOVIA --------------------------------------------------------------------------------
Wachovia Corporation Performance Summary (In millions) Three Months Ended September 30, 2001 --------------------------------------------------------------------------------------- General Capital Wealth Corporate and Bank Management Management Investment Banking Parent Consolidated Income statement data --------------------- Net interest income (Tax-equivalent) $ 1,280 33 61 498 102 1,974 Fee and other income 444 655 100 (250) 87 1,036 Intersegment revenue 30 (12) - (15) (3) - -------------------------------------------------------------------------------------------------------------------------------- Total revenue (Tax-equivalent) 1,754 676 161 233 186 3,010 Provision for loan losses 98 - 2 126 18 244 Noninterest expense 1,023 573 115 479 120 2,310 Income taxes (Tax-equivalent) 222 36 15 (165) 50 158 -------------------------------------------------------------------------------------------------------------------------------- Operating earnings $ 411 67 29 (207) (2) 298 Performance and other data -------------------------- Economic profit $ 285 42 21 (356) 44 36 Risk adjusted return on capital (RAROC) 37.31 % 31.54 46.57 (10.58) 23.29 13.05 Economic capital $ 4,465 848 236 6,267 1,576 13,392 Cash overhead efficiency ratio 57.77 % 84.72 71.08 nm 11.51 72.86 Average loans, net $ 76,590 269 5,680 42,076 8,411 133,026 Average core deposits $ 110,755 1,535 7,328 10,499 2,086 132,203
10 General Bank Operating Summary WACHOVIA --------------------------------------------------------------------------------
General Bank 2001 2000 --------------------------------- ------------------ 3 Q 01 Estimated Performance Summary Third Second First Fourth Third vs Contribution From (In millions) Quarter Quarter Quarter Quarter Quarter 2 Q 01 WB FTU ----------------------------------------------------------------------------------------------------------------------------------- Income statement data --------------------- Net interest income (Tax-equivalent) $ 1,280 1,140 1,085 1,104 1,106 12 % Fee and other income 444 388 341 355 352 14 12 2 % Intersegment revenue 30 27 25 25 24 11 ----------------------------------------------------------------------------------------------------------------------------------- Total revenue (Tax-equivalent) 1,754 1,555 1,451 1,484 1,482 13 Provision for loan losses 98 98 100 74 51 - Noninterest expense 1,023 936 907 977 933 9 11 (2) % Income taxes (Tax-equivalent) 222 178 153 147 170 25 ----------------------------------------------------------------------------------------------------------------------------------- Operating earnings $ 411 343 291 286 328 20 % Performance and other data --------------------------- Economic profit $ 285 256 220 190 220 11 % Risk adjusted return on capital (RAROC) 37.31 % 39.85 37.55 32.53 35.98 - Economic capital $ 4,465 3,691 3,494 3,689 3,652 21 Cash overhead efficiency ratio 57.77 % 59.29 61.49 64.89 61.98 - Average loans, net $ 76,590 65,462 63,213 61,735 60,029 17 15 2 % Average core deposits $ 110,755 99,388 98,376 98,184 97,186 11 % 11 - %
Key Points . Excluding former Wachovia, solid fee and other income growth was up 8% annualized, and expenses declined 8% annualized . Deposits up 11%, on strong growth of 4% of former First Union low cost core deposits (DDA, interest checking, savings, money market accounts) reflecting our pursuit of a more profitable deposit mix . Cash overhead efficiency ratio below 60% for the second consecutive quarter 11 General Bank Key Operating Measures WACHOVIA --------------------------------------------------------------------------------
General Bank Key Metrics 2001 2000 ------------------------------ ----------------- 3 Q 01 Estimated Third Second First Fourth Third vs Contribution From Quarter Quarter Quarter Quarter Quarter 2 Q 01 WB FTU ----------------------------------------------------------------------------------------------------------- -------------------- Customer overall satisfaction score /(a)/ 6.33 6.32 6.29 6.27 6.22 - % - - % Mystery Customer Profile scores /(b)/ 90.01% 88.77 88.29 86.81 85.61 - - - Online customers (In thousands) 3,810 2,903 2,640 2,367 2,149 31 25 6 Financial centers 2,795 2,162 2,164 2,193 2,253 29 30 (1) ATMs 4,698 3,419 3,676 3,772 3,831 37 % 40 (3)% ----------------------------------------------------------------------------------------------------------- -------------------- /(a)/ Gallup survey measured for customers of former First Union only; on a 1-7 scale; 6.4 = "best in class". /(b)/ Customer Service Profile measured for customers of former Wachovia only; perfect score of 100%. ----------------------------------------------------------------------------------------------------------- --------------------
Key Points . Former FTU Financial Centers recorded 10th consecutive quarterly increase in customer satisfaction scores . Former Wachovia Mystery Customer Profile scores improved for the 6th consecutive quarter; "best in class" 92% . Customer attrition remains stable at 13.3%, industry average estimated to be in the mid-to-high teens . Online customers grew by 907,000 reflecting the effects of the merger and continued growth 12 Capital Management WACHOVIA Operating Summary --------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------- ----------------- 2001 2000 Capital Management --------------------------- ----------------- 3 Q 01 Estimated Performance Summary Third Second First Fourth Third vs Contribution From (In millions) Quarter Quarter Quarter Quarter Quarter 2 Q 01 WB FTU --------------------------------------------------------------------------------------------------- ----------------- Income statement data --------------------- Net interest income (Tax-equivalent) $ 33 30 32 40 38 10% Fee and other income 655 693 685 692 681 (5) 3 (8)% Intersegment revenue (12) (12) (11) (12) (12) - --------------------------------------------------------------------------------------------------- ----------------- Total revenue (Tax-equivalent) 676 711 706 720 707 (5) Provision for loan losses - - - - - - Noninterest expense 573 583 575 574 576 (2) 4 (6)% Income taxes (Tax-equivalent) 36 44 45 49 44 (18) --------------------------------------------------------------------------------------------------- ----------------- Operating earnings $ 67 84 86 97 87 (20)% --------------------------------------------------------------------------------------------------- ----------------- --------------------------------------------------------------------------------------------------- ----------------- Performance and other data -------------------------- Economic profit $ 42 59 62 72 61 (29)% Risk adjusted return on capital (RAROC) 31.54% 41.26 42.34 46.09 40.91 - Economic capital $ 848 817 823 836 844 4 Cash overhead efficiency ratio 84.72% 82.04 81.37 79.65 81.40 - Average loans, net $ 269 110 129 104 84 nm 17 nm% Average core deposits $ 1,535 1,609 1,827 2,142 2,356 (5)% 1 (6)% --------------------------------------------------------------------------------------------------- -----------------
Key Points . Balanced model continues to provide solid performance in difficult market conditions . Strong product sales through multiple distribution channels -- Record $1.2 billion total annuity sales, driven by $668 million in-bank sales, up $91 million from 2Q01 -- Record $2.2 billion gross fluctuating mutual fund sales . Continued focus on expense control evident 13 Capital Management Key Operating Measures WACHOVIA --------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------- ------------------- Capital Management Key Metrics 2001 2000 ------------------------------- ------------------ 3 Q 01 Estimated Third Second First Fourth Third vs Contribution From (In millions) Quarter Quarter Quarter Quarter Quarter 2 Q 01 WB FTU ----------------------------------------------------------------------------------------------------------- ------------------- Separate account assets $ 124,592 81,879 81,576 85,933 87,922 52 % 45 7% Mutual fund assets 101,749 90,279 86,767 84,797 85,223 13 11 1 ----------------------------------------------------------------------------------------------------------- ------------------- Total assets under management/(a)/ $ 226,341 172,158 168,343 170,730 173,145 31 27 4 ----------------------------------------------------------------------------------------------------------- ------------------- Gross fluctuating mutual fund sales $ 2,213 1,981 1,983 1,762 1,819 12 2 10 ----------------------------------------------------------------------------------------------------------- ------------------- Assets under care (Excluding AUM)/(b)/ $ 488,537 499,847 489,380 485,516 500,962 (2) 4 (6) ----------------------------------------------------------------------------------------------------------- ------------------- Registered representatives (Actual) 8,139 7,706 7,784 7,459 7,342 6 8 (2) Brokerage offices (Actual) 3,390 2,690 2,695 2,568 2,623 26 % 26 -% ----------------------------------------------------------------------------------------------------------- ------------------- /(a)/ Includes $80 billion in assets managed for Wealth Management which are also reported in that segment. /(b)/ Includes $22 billion in assets held for Wealth Management which are also reported in that segment. ----------------------------------------------------------------------------------------------------------- -------------------
Key Points . 4% growth in assets under management produced by former First Union . $47 billion added to assets under management by former Wachovia . $102 billion in mutual funds with strong net fluctuating fund flows of $400 million driven by fixed income 14 Wealth Management Operating Summary WACHOVIA --------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------- ----------------- Wealth Management 2001 2000 3 Q 01 Estimated ------------------------------------ ------------------- Performance Summary Third Second First Fourth Third vs Contribution From (In millions) Quarter Quarter Quarter Quarter Quarter 2 Q 01 WB FTU ----------------------------------------------------------------------------------------------------------------- ----------------- Income statement data --------------------- Net interest income (Tax-equivalent) $ 61 48 46 47 47 27 % Fee and other income 100 79 79 84 79 27 22 5 % Intersegment revenue - - - - - - ----------------------------------------------------------------------------------------------------------------- ----------------- Total revenue (Tax-equivalent) 161 127 125 131 126 27 Provision for loan losses 2 - - - - - Noninterest expense 115 84 83 84 80 37 27 10 % Income taxes (Tax-equivalent) 15 14 15 16 16 7 ----------------------------------------------------------------------------------------------------------------- ----------------- Operating earnings $ 29 29 27 31 30 - % ----------------------------------------------------------------------------------------------------------------- ----------------- Performance and other data -------------------------- Economic profit $ 21 22 21 25 24 (5) % Risk adjusted return on capital (RAROC) 46.57 % 65.29 64.07 72.41 71.65 - Economic capital $ 236 169 163 164 161 40 Cash overhead efficiency ratio 71.08 % 65.12 66.57 63.82 63.35 - Average loans, net $ 5,680 4,449 4,368 4,319 4,211 28 26 2 % Average core deposits $ 7,328 6,367 6,176 5,737 5,579 15 % 15 - % ----------------------------------------------------------------------------------------------------------------- -----------------
Key Points . New segment created which includes personal trust, private client and insurance (property & casualty and high net worth life) . Fee income stable in difficult markets and showed strength in service charges and insurance commissions 15 WACHOVIA Wealth Management Key Operating Measures --------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------- ------------------- Wealth Management Key Metrics 2001 2000 3 Q 01 Estimated ------------------------------- ----------------- Third Second First Fourth Third vs Contribution From (Dollars in millions) Quarter Quarter Quarter Quarter Quarter 2 Q 01 WB FTU --------------------------------------------------------------------------------------------------------- ------------------- Total assets under management /(a)/ $ 80,100 48,100 47,900 52,500 53,200 67% 74 (7)% PCM/PFA client relationships (Actual) 87,930 52,500 52,450 52,400 52,400 67 67 - Wealth Management advisors (Actual) 936 552 558 556 540 70% 70 -% --------------------------------------------------------------------------------------------------------- ------------------- /(a)/ These assets are managed by and reported in Capital Management. --------------------------------------------------------------------------------------------------------- -------------------
Key Points . Customer retention in the integrated advisory model remains excellent . Advisor retention remains strong and is bolstered with the addition of 100 new hires in the past six months 16 WACHOVIA Corporate & Investment Banking Operating Summary --------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------- ------------------- Corporate and Investment Banking 2001 2000 3 Q 01 ---------------------------- ------------------ vs Estimated Performance Summary Third Second First Fourth Third Contribution From (In millions) Quarter Quarter Quarter Quarter Quarter 2 Q 01 WB FTU ----------------------------------------------------------------------------------------------------------- ------------------- Income statement data --------------------- Net interest income (Tax-equivalent) $ 498 468 445 440 417 6% Fee and other income (250) 334 314 268 362 nm 7 nm% Intersegment revenue (15) (15) (12) (13) (12) - ----------------------------------------------------------------------------------------------------------- ------------------- Total revenue (Tax-equivalent) 233 787 747 695 767 (70) Provision for loan losses 126 93 70 124 83 35 Noninterest expense 479 498 461 411 486 (4) 6 (10)% Income taxes (Tax-equivalent) (165) 43 53 (27) 47 nm ----------------------------------------------------------------------------------------------------------- ------------------- Operating earnings $ (207) 153 163 187 151 nm % ----------------------------------------------------------------------------------------------------------- ------------------- Performance and other data -------------------------- Economic profit $ (356) (2) (6) 51 (9) nm % Risk adjusted return on capital (RAROC) (10.58)% 11.89 11.60 15.31 11.44 - Economic capital $ 6,267 6,012 6,182 6,162 6,048 4 Cash overhead efficiency ratio nm% 60.39 59.02 50.24 60.89 - Average loans, net $42,076 41,145 42,751 41,770 42,017 2 9 (7)% Average core deposits $10,499 10,200 9,456 9,232 9,086 3% 8 (5)% ----------------------------------------------------------------------------------------------------------- -------------------
Key Points . Total revenues excluding principal investing were $826 million . Provision increased primarily due to one large account . Decreased expenses reflect lower incentive-based compensation and strong cost controls . Excluding former Wachovia, loans down 7% due to portfolio management actions 17 Principal Investing Portfolio* WACHOVIA -------------------------------------------------------------------------------- . Total net write-downs of $380 million after-tax taken in 3Q01 - Results based on a comprehensive review of the entire portfolio . Resulted in 25% write-down of total equity balances; 20% overall . 80% of direct 3Q01 portfolio write-downs attributable to 1999 and 2000 investments . 70% of direct 3Q01 portfolio write-downs attributable to investments in the tech and telecom sectors . YTD gross after-tax charges of $560 million addresses change in the tech/telecom sectors, equity markets and economic outlook . Total principal investing portfolio balance at quarter-end (including former Wachovia balances) was $2.5 billion * See appendix for additional information 18
Loan and Deposit Growth WACHOVIA ------------------------------------------------------------------------------------------------------------------------------------ -------------------------------------------------------------------------------------------------------------- -------------------- Average Balance Sheet Data 2001 2000 3 Q 01 --------------------------------- --------------------- Estimated Third Second First Fourth Third vs Contribution From (In millions) Quarter Quarter Quarter Quarter Quarter 2 Q 01 WB FTU -------------------------------------------------------------------------------------------------------------- -------------------- Commercial loans $ 83,633 76,378 77,270 76,253 75,380 9 % 13 (4)% Consumer loans 49,393 42,834 42,580 43,840 48,095 15 14 1 -------------------------------------------------------------------------------------------------------------- -------------------- Total loans 133,026 119,212 119,850 120,093 123,475 12 % 14 (2)% -------------------------------------------------------------------------------------------------------------- -------------------- Core interest-bearing deposits 102,285 91,654 91,149 91,069 89,637 12 % 11 1 % Noninterest-bearing deposits 29,918 27,381 27,043 27,875 28,437 9 10 (1) -------------------------------------------------------------------------------------------------------------- -------------------- Total core deposits 132,203 119,035 118,192 118,944 118,074 11 11 -- Foreign and other time deposits 18,015 17,944 19,090 19,385 25,038 -- 6 (6) -------------------------------------------------------------------------------------------------------------- -------------------- Total deposits $150,218 136,979 137,282 138,329 143,112 10 % 10 -- % -------------------------------------------------------------------------------------------------------------- --------------------
Key Points . Core deposits reflect run-off of higher cost CDs replaced with lower cost transaction and money market accounts 19 WACHOVIA Asset Quality --------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------ ------------------- Asset Quality 2001 2000 3 Q 01 Estimated Third Second First Fourth Third vs Contribution From (In millions) Quarter Quarter Quarter Quarter Quarter 2 Q 01 WB FTU ------------------------------------------------------------------------------------------------------------ ------------------- Nonperforming assets Nonaccrual loans $ 1,506 1,223 1,231 1,176 854 23% 21 2% Foreclosed properties 126 104 106 103 97 21 28 (7) ------------------------------------------------------------------------------------------------------------ ------------------- Total nonperforming assets $ 1,632 1,327 1,337 1,279 951 23% 7 16% ------------------------------------------------------------------------------------------------------------ ------------------- as % of loans, net and foreclosed properties 0.96% 1.08 1.09 1.03 0.77 - - - ------------------------------------------------------------------------------------------------------------ ------------------- Nonperforming loans in assets held for sale $ 273 250 344 334 349 9 31 (22) ------------------------------------------------------------------------------------------------------------ ------------------- Total nonperforming assets in loans and in assets held for sale $ 1,905 1,577 1,681 1,613 1,300 21% 23 (2)% ------------------------------------------------------------------------------------------------------------ ------------------- as % of loans, net, foreclosed properties and loans in other assets as held for sale 1.08% 1.23 1.30 1.22 0.98 - - - ------------------------------------------------------------------------------------------------------------ ------------------- Allowance for loan losses Balance, beginning of period $ 1,760 1,759 1,722 1,720 1,706 -% - -% Former Wachovia balance, September 1, 2001 766 - - - - - - - Loan losses, net (243) (157) (159) (192) (142) 55 8 47 Allowance relating to loans transferred or sold (368) (65) (23) 2 (166) nm - - Provision for loan losses related to loans transferred 230 36 15 - 120 nm - - Provision for loan losses 894 187 204 192 202 nm - - ------------------------------------------------------------------------------------------------------------ ------------------- Balance, end of period $ 3,039 1,760 1,759 1,722 1,720 73% 45 28% ------------------------------------------------------------------------------------------------------------ ------------------- as % of loans, net 1.79% 1.44 1.43 1.39 1.39 - - - as % of nonaccrual and restructured loans /(a)/ 202 144 143 146 202 - - - as % of nonperforming assets /(a)/ 186% 133 132 135 181 - - - ------------------------------------------------------------------------------------------------------------ ------------------- Loan losses, net $ 243 157 159 192 142 55% 8 47% Commercial, as % of average commercial loans 0.85% 0.55 0.56 0.80 0.53 - - - Consumer, as % of average consumer loans 0.53 0.48 0.48 0.36 0.35 - - - Total, as % of average loans, net 0.73% 0.52 0.53 0.64 0.46 - - - ------------------------------------------------------------------------------------------------------------ ------------------- /(a)/ These ratios do not include nonperforming loans included in other assets as held for sale. Loans 90 days past due were $310 million, $213 million, $220 million, $183 million and $145 million in the third, second and first quarters of 2001 and in the fourth and third quarters of 2000, respectively. ------------------------------------------------------------------------------------------------------------ -------------------
Key Points . NPAs declined to $1.905 billion from a June 30 combined level of $1.978 billion, reflecting a decrease of $73 million, or 4%, former Wachovia NPAs amounted to $401 million as of June 30, 2001 . Allowance increased by $523 million over pro forma 6/30 balance of $2.516 billion, totaling 1.79% of loans and 202% of NPLs . Provision for loan losses exceeded net loan losses by $880 million, $230 related to loans transferred to assets held for sale or sold 20 WACHOVIA Nonperforming Loans --------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------ ------------------- Nonperforming Loans/(a)/ 2001 2000 3 Q 01 Estimated ----------------------------- ----------------- Third Second First Fourth Third vs Contribution From (In millions) Quarter Quarter Quarter Quarter Quarter 2 Q 01 WB FTU ------------------------------------------------------------------------------------------------------------ ------------------- Balance, beginning of period $ 1,223 1,231 1,176 854 791 (1)% (8) 8% ------------------------------------------------------------------------------------------------------------ ------------------- Commercial nonaccrual loan activity Commercial nonaccrual loans, beginning of period 1,088 1,026 939 654 621 6 - - Former Wachovia balance, September 1, 2001 209 - - - - - - - ------------------------------------------------------------------------------------------------------------ ------------------- New nonaccrual loans and advances 376 361 314 532 280 4 - - Charge-offs (193) (125) (125) (166) (111) 54 - - Transfers (to) from assets held for sale (20) - - 11 (46) - - - Transfers (to) from other real estate owned (5) - - - - - - - Sales (36) (50) - (15) - (28) - - Other, principally payments (103) (124) (102) (77) (90) (17) - - ------------------------------------------------------------------------------------------------------------ ------------------- Net commercial nonaccrual loan activity 19 62 87 285 33 nm - - ------------------------------------------------------------------------------------------------------------ ------------------- Commercial nonaccrual loans, end of period 1,316 1,088 1,026 939 654 21 nm nm ------------------------------------------------------------------------------------------------------------ ------------------- Consumer nonaccrual loan activity Consumer nonaccrual loans, beginning of period 135 205 237 200 170 (34) - - Former Wachovia balance, September 1, 2001 33 - - - - - - - ------------------------------------------------------------------------------------------------------------ ------------------- Transfers (to) from assets held for sale (53) (123) (90) - - (57) - - Other, net 75 53 58 37 30 42 - - ------------------------------------------------------------------------------------------------------------ ------------------- Net consumer nonaccrual loan activity 22 (70) (32) 37 30 nm - - ------------------------------------------------------------------------------------------------------------ ------------------- Consumer nonaccrual loans, end of period 190 135 205 237 200 41 nm nm ------------------------------------------------------------------------------------------------------------ ------------------- Balance, end of period $ 1,506 1,223 1,231 1,176 854 23% 15 8% ------------------------------------------------------------------------------------------------------------ ------------------- /(a)/ Excludes nonperforming loans included in assets held for sale, which in the third, second and first quarters of 2001 and in the fourth and third quarters of 2000 were $273 million, $250 million, $344 million, $334 million and $349 million, respectively, and foreclosed properties. ------------------------------------------------------------------------------------------------------------ -------------------
Key Points . New nonaccrual loans relatively flat despite increased levels associated with addition of former Wachovia portfolio . Transferred to assets held for sale or sold $114 million of nonperforming loans ($20 + $5 + $36 + $53) 21 WACHOVIA Loans Held for Sale --------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------- Loans Held for Sale/(a)/ 2001 2000 --------------------------- ------------------ Third Second First Fourth Third (In millions) Quarter Quarter Quarter Quarter Quarter --------------------------------------------------------------------------------------------------------------------- Balance, beginning of period $ 5,963 6,790 8,146 9,091 10,636 Former Wachovia balance as of September 1, 2001/(b)/ 297 - - - - Originations 4,955 5,279 4,773 2,701 2,495 Performing loans transferred to (from) assets held for sale, net 1,351 (189) 192 (556) 658 Nonperforming loans transferred to (from) assets held for sale, net 79 128 90 - 37 Allowance for loan losses related to loans transferred to assets held for sale/(c)/ (262) (40) (23) 2 (166) Lower of cost or market valuation adjustments (15) (35) (80) (144) (46) Performing loans sold (5,177) (5,535) (5,910) (2,402) (4,325) Nonperforming loans sold (88) (130) (45) (91) (18) Other, net/(d)/ (266) (305) (353) (455) (180) --------------------------------------------------------------------------------------------------------------------- Balance, end of period/(e)/ $ 6,837 5,963 6,790 8,146 9,091 --------------------------------------------------------------------------------------------------------------------- /(a)/ All activity reflects two months of former First Union and one month of the combined organization, and excludes other real estate owned. /(b)/ Beginning balance and transfers of former Wachovia loans to assets held for sale are shown net of $82 million allowance for loan losses on these loans and $102 million purchase accounting adjustment. /(c)/ Excludes $82 million of allowance associated with former Wachovia loans and $24 million of allowance and provision associated with loans sold directly out of the loan portfolio. /(d)/ Other, net represents primarily loan payments. /(e)/ Former First Union nonperforming loans included in assets held for sale in the third, second and first quarters of 2001 and in the fourth and third quarters of 2000 were $195 million, $250 million, $344 million, $334 million and $349 million, respectively. The former Wachovia balance as of September 30, 2001, included nonperforming loans of $78 million. ---------------------------------------------------------------------------------------------------------------------
Key Points . Proactively moved $1.5 billion of overlapping and higher risk loans to held for sale including $626 million of former Wachovia loans; $1.4 billion were performing loans . Cost totaled $332 million - $230 million provision, $102 million in purchase accounting adjustments; additionally utilized existing reserves of $138 million . Sold $5.2 billion of performing and $88 million of nonperforming loans 22 Merger Update Wachovia
Merger Integration Metrics Target Goal ------------------------------- 2002 2003 2004 ------------------------------------------------------------------------------------------------- Customer satisfaction scores TBD 2Q02 New/Lost ratio /(a)/ TBD 2Q02 ------------------------------------------------------------------------------------------------- 3Q Cumulative % of 2001 Total Estimate Goal ------------------------------------------------------------------------------------------------- Expense efficiencies /(b)/ (In millions) $ 12 $ 24 3% $ 890 One-time charges (In millions) $ 147 $ 147 10 $ 1,525/(d)/ Position reductions/(c)/ 863 1,315 19 7,000 Branch consolidations - - -% 250-300
-------------------------------------------------------------------------------- /(a)/ New core customers gained divided by core customers lost. Core customers exclude single-service credit card, mortgage and trust customers and out of footprint customers. /(b)/ Expense efficiencies calculated from annualized pro forma 4Q00 base (excluding commissions, incentives, amortization and restructuring or merger costs). /(c)/ Represents change in FTE position from pro forma combined December 31, 2000, base of 84,776 and excludes divested businesses and the impact of strategic repositioning. /(d)/ Includes $75 million of unanticipated costs associated with hostile takeover attempt. -------------------------------------------------------------------------------- Key Points . Will report consolidated customer satisfaction scores and customer attrition beginning 2Q02; will provide target goals at that time . Completed re-due diligence effort supports expense efficiencies and one-time costs . Position reduction of 1,315 largely related to hiring freeze . Data centers decided . Non-customer ATM fees waived for former WB and FTU customers in combined network . System Selection Process: 800 applications analyzed and final decisions completed October 17 . Top 3 tiers of leadership (approximately 1,100 executives) decisioned and in position by October 30 . Expense policy integration; new policies in place by end of October, implementation November 1 . Original estimate of $1.45 billion in one-time charges increased by $75 million to cover unanticipated costs for both former Wachovia and former First Union associated with hostile takeover attempt -------------------------------------------------------------------------------- 23 WACHOVIA Merger Update --------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------ Merger-Related, Restructuring and Other Charges/Gains (Income Statement Impact) 2001 ------------------ Third (In millions) Quarter ------------------------------------------------------------------------------------------------------------------------------------ Merger-related and restructuring charges Personnel and employee termination benefits $ 43 Occupancy and equipment - Contract cancellations and system conversions - Other 39 ------------------------------------------------------------------------------------------------------------------------------------ Total First Union/ Wachovia merger-related and restructuring charges 82 ------------------------------------------------------------------------------------------------------------------------------------ Merger-related charges from previously announced mergers 3 ------------------------------------------------------------------------------------------------------------------------------------ Total merger-related and restructuring charges 85 ------------------------------------------------------------------------------------------------------------------------------------ Other charges/gains Provision for loan losses/(a)/ 880 Other charges, net 4 ------------------------------------------------------------------------------------------------------------------------------------ Total other charges/gains 884 ------------------------------------------------------------------------------------------------------------------------------------ Total merger-related, restructuring and other charges/gains 969 Income tax benefits (337) ------------------------------------------------------------------------------------------------------------------------------------ After-tax merger-related, restructuring and other charges/gains $ 632 ------------------------------------------------------------------------------------------------------------------------------------
/(a)/ The incremental provision includes $330 million related to credit actions of combining the two loan portfolios, which was not included in the original estimate of one-time charges amounting to $1.45 billion and will be excluded from the cumulative amount of reported First Union/Wachovia one-time charges. 24 WACHOVA Purchase Accounting --------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------ Goodwill and Other Intangibles Created 2001 -------- by the First Union/Wachovia Merger Third (In millions) Quarter ------------------------------------------------------------------------------------------------------------------------------------ Purchase price less former Wachovia ending tangible stockholders' equity as of September 1, 2001 $ 7,466 ------------------------------------------------------------------------------------------------------------------------------------ Preliminary fair value purchase accounting adjustments/(a)/ Financial assets 747 Premises and equipment 146 Employee benefit plans 276 Financial liabilities (13) Other (153) ------------------------------------------------------------------------------------------------------------------------------------ Total fair value purchase accounting adjustments 1,003 ------------------------------------------------------------------------------------------------------------------------------------ Preliminary exit cost purchase accounting adjustments/(b)/ Personnel and employee termination benefits 43 Occupancy and equipment - Contract cancellations - Other 22 ------------------------------------------------------------------------------------------------------------------------------------ Total exit cost purchase accounting adjustments (One-time costs) 65 ------------------------------------------------------------------------------------------------------------------------------------ Total purchase intangibles 8,534 Preliminary deposit base intangible (net of income taxes) 1,465 ------------------------------------------------------------------------------------------------------------------------------------ Preliminary goodwill $ 7,069 ------------------------------------------------------------------------------------------------------------------------------------
/(a)/ These adjustments represent preliminary fair value adjustments in compliance with business combination accounting standards and adjust assets and liabilities of the former Wachovia to their fair value as of September 1, 2001. /(b)/ These adjustments represent incremental costs relating to combining the two organizations which are specifically related to the former Wachovia. Key Points . Reported $1 billion in preliminary fair value purchase accounting adjustments in order to record former Wachovia's assets and liabilities at their respective fair values . In the quarter, recorded $65 million in exit cost charges, primarily personnel-related 25 Summary and Outlook WACHOVIA -------------------------------------------------------------------------------- 3Q01 - Progress in the face of economic and market uncertainty -------------------------------------------------------------- . Core earnings remain solid . Momentum in General Bank continues on strong execution . Very strong expense control evident . Reduced NPAs 4% with proactive portfolio management . Reserve coverage much improved due to a net addition of $523 million to the allowance off of June 30 pro forma combined level . Integration on track 4Q01 - Outlook -------------- . Core cash operating earnings per share consistent with 2Q01- 3Q01 levels of approximately $.70 per share . Charge-off guidance of 55-65 bps for the full year 2001 continues to be appropriate . Continuing focus on customer service, expense control, and merger integration 26 Principal Investing Appendix Principal Investing Portfolio Diversification at 9/30/01 WACHOVIA -------------------------------------------------------------------------------- ($ in millions) Mezzanine $ 609 24% ------ --- Direct Equity 998 40 Funds 901 36 ------ --- Total Equity 1,899 76 ------ --- Total Principal Investing $2,508 100% ====== === 28 Direct Investment Portfolio Diversification at 9/30/01 WACHOVIA -------------------------------------------------------------------------------- [CHART] Tech & Telecom 24% All Other Industries 76% . Portfolio size = $ 1.6 billion . Average investment size = $12.6 million . # of Investments = 127 . # of Investments with a carrying value greater than $50 million = 4 greater than or equal to $30 - $ 50 million = 6 . No single industry in the "All Other Industries" category accounts for more than 16% of the total direct portfolio 29 Funds Portfolio Diversification at 9/30/01 WACHOVIA -------------------------------------------------------------------------------- [CHART] Tech & Telecom 26% Diversified 74% . Portfolio size = $901.0 million . Avg. fund commitment = $ 11.2 million . # of funds = 224 . # of fund sponsors = 167 . Typical fund invests in 10 - 15 companies 30 Direct Private Equity Tech/Telecom Exposure at 9/30/01 WACHOVIA -------------------------------------------------------------------------------- ($ in millions) Tech/telecom exposure excluding any 2001 write-downs = $736 Cumulative tech/telecom write-downs during 2001 =(517)/(1)(2)/ ----- Remaining tech/telecom balance = $219/(3)/ ===== Write-downs as a % of pre-write-down exposure = 70% ===== (1) $319 million of which was recorded in Q3 (2) $104 million of these charges reflects reversals of prior accounting mark-ups (3) Total direct investing tech/telecom balances (including publicly traded equities, mezzanine securities and legacy Wachovia investments) = $379 million 31 Composition of Losses Taken in the Principal Investing Portfolio WACHOVIA -------------------------------------------------------------------------------- ($ in Millions)
Cumulative Q3 2001 ---- ---- Direct Investments $459 (1) $701 (2) Funds 140 161 ---- ---- Total Gross Losses $599 (3) $862 (4) Direct Investments (99+00 Only) $365 $612 ==== ==== (99+00) as a % of Total Direct Investment Write-downs 80% 87% ==== ====
(1) $17 million of these charges reflect reversals of prior accounting mark-ups (2) $104 million of these charges reflect reversals of prior accounting mark-ups (3) Excludes $14 million of Q3 gains; net loss in Q3 = $585 million (4) Excludes $175 million of reported gains thru 9/30/01; cumulative net losses for 2001 = $686 million 32 First Union Capital Partners Direct Investing IRR (By Vintage Year) WACHOVIA -------------------------------------------------------------------------------- [CHART] (Thru 9/30/01) Inception Thru 1989 91 93 95 97 99 9/30/01 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----------- ---- 46% 10% 37% 27% 28% 31% 39% 63% 77% 43% Negative (1) 30% Portfolio Vintage Year (1) Actual IRR to be determined over the next several years 33 Cautionary Statement WACHOVIA -------------------------------------------------------------------------------- The foregoing supplemental materials may contain, among other things, certain forward-looking statements with respect to Wachovia Corporation ("Wachovia"), as well as the goals, plans, objectives, intentions, expectations, financial condition, results of operations, future performance and business of Wachovia, including, without limitation, (i) statements relating to certain of Wachovia's goals and expectations with respect to earnings, earnings per share, 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" "probably", "potentially", "projects" 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 Wachovia's control). The following factors, among others, could cause Wachovia's financial performance to differ materially from the goals, plans, objectives, intentions, and expectations expressed in such forward-looking statements: (1) the risk that the businesses of former First Union Corporation and former Wachovia Corporation in connection with their merger (the "Merger") will not be integrated successfully or such integration may be more difficult, time-consuming or costly than expected; (2) expected revenue synergies and cost savings from the Merger may not be fully realized or realized within the expected time frame; (3) revenues following the Merger may be lower than expected; (4) deposit attrition, operating costs, customer loss and business disruption following the Merger, including, without limitation, difficulties in maintaining relationships with employees, may be greater than expected; (5) the strength of the United States economy in general and the strength of the local economies in which Wachovia conducts operations 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 Wachovia's loan portfolio and allowance for loan losses; (6) 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; (7) inflation, interest rate, market and monetary fluctuations; (8) 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 Wachovia's capital markets and capital management activities, including, without limitation, its mergers and acquisition advisory business, equity and debt underwriting activities, private equity investment activities, derivative securities activities, investment and wealth management advisory businesses, and brokerage activities; (9) adverse changes in the financial performance and/or condition of Wachovia's borrowers which could impact the repayment of such borrowers' outstanding loans; and (10) the impact on Wachovia's businesses, as well as on the risks set forth above, of various domestic or international military or terrorist activities or conflicts. Additional information with respect to factors that may cause actual results to differ materially from those contemplated by such forward-looking statements is included in the reports filed by Wachovia with the Securities and Exchange Commission, including the Current Report on Form 8-K dated October 23, 2001. Wachovia cautions that the foregoing list of factors is not exclusive. All subsequent written and oral forward-looking statements concerning the Merger or other matters and attributable to Wachovia or any person acting on its behalf are expressly qualified in their entirety by the cautionary statements above. Wachovia does not undertake any obligation to update any forward-looking statement, whether written or oral. 34