-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GHwyG/XX6AV6oCftx0JISarv4UXwOZ3UdOh+yqpFxAwnL434uvzge94HGAZRr4bP W4XY8rgVpeHhsjJ8UtPV4g== 0000950168-01-500054.txt : 20010417 0000950168-01-500054.hdr.sgml : 20010417 ACCESSION NUMBER: 0000950168-01-500054 CONFORMED SUBMISSION TYPE: 425 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 20010416 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: WACHOVIA CORP/ NC CENTRAL INDEX KEY: 0000774203 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 561473727 STATE OF INCORPORATION: NC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 425 SEC ACT: SEC FILE NUMBER: 001-09021 FILM NUMBER: 1603567 BUSINESS ADDRESS: STREET 1: 100 N MAIN ST STREET 2: P O BOX 3099 CITY: WINSTON SALEM STATE: NC ZIP: 27101 BUSINESS PHONE: 3367705000 MAIL ADDRESS: STREET 1: 100 NORTH MAIN ST STREET 2: P O BOX 3099 CITY: WINSTON SALEM STATE: NC ZIP: 27101 FORMER COMPANY: FORMER CONFORMED NAME: FIRST WACHOVIA CORP DATE OF NAME CHANGE: 19910603 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: FIRST UNION CORP 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: 425 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 STREET 2: 301 S TRYON ST CITY: CHARLOTTE STATE: NC ZIP: 28288-0137 FORMER COMPANY: FORMER CONFORMED NAME: CAMERON FINANCIAL CORP DATE OF NAME CHANGE: 19750522 FORMER COMPANY: FORMER CONFORMED NAME: FIRST UNION NATIONAL BANCORP INC DATE OF NAME CHANGE: 19721115 425 1 form425_42725.txt FIRST UNION CORPORATION Filed by First Union Corporation Pursuant to Rule 425 under the Securities Act of 1933 and deemed filed pursuant to Rule 14a-12 under the Securities Exchange Act of 1934 Subject Company: Wachovia Corporation Commission File No. 1-9021 Date: April 16, 2001 This filing contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, (i) statements about the benefits of the merger between First Union Corporation and Wachovia Corporation, including future financial and operating results, cost savings, enhanced revenues, and accretion to reported earnings that may be realized from the merger; (ii) statements with respect to First Union's and Wachovia's plans, objectives, expectations and intentions and other statements that are not historical facts; and (iii) other statements identified by words such as "believes", "expects", "anticipates", "estimates", "intends", "plans", "targets", "projects" and similar expressions. These statements are based upon the current beliefs and expectations of First Union's and Wachovia's management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements: (1) the risk that the businesses of First Union and Wachovia 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 ability to obtain governmental approvals of the merger on the proposed terms and schedule; (6) the failure of First Union's and Wachovia's stockholders to approve the merger; (7) competitive pressures among depository and other financial institutions may increase significantly and have an effect on pricing, spending, third-party relationships and revenues; (8) the strength of the United States economy in general and the strength of the local economies in which the combined company will conduct 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 the combined company's loan portfolio and allowance for loan losses; (9) changes in the U.S. and foreign legal and regulatory framework; and (10) 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 the combined company's capital markets and asset management activities. Additional factors that could cause First Union's and Wachovia's results to differ materially from those described in the forward-looking statements can be found in First Union's and Wachovia's reports (such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K) filed with the Securities and Exchange Commission and available at the SEC's Internet site (http://www.sec.gov). All subsequent written and oral forward-looking statements concerning the proposed transaction or other matters attributable to First Union or Wachovia or any person acting on their behalf are expressly qualified in their entirety by the cautionary statements above. First Union and Wachovia do not undertake any obligation to update any forward-looking statement to reflect circumstances or events that occur after the date the forward-looking statements are made. The proposed transaction will be submitted to First Union's and Wachovia's stockholders for their consideration, and First Union and Wachovia will file a registration statement, a joint proxy statement/prospectus and other relevant documents concerning the proposed transaction with the SEC. Stockholders are urged to read the registration statement and the joint proxy statement/prospectus regarding the proposed transaction when it becomes available and any other relevant documents filed with the SEC, as well as any amendments or supplements to those documents, because they will contain important information. You will be able to obtain a free copy of the joint proxy statement/prospectus, as well as other filings containing information about First Union and Wachovia, at the SEC's Internet site (http://www.sec.gov). Copies of the joint proxy statement/prospectus and the SEC filings that will be incorporated by reference in the joint proxy statement/prospectus can also be obtained, without charge, by directing a request to First Union, Investor Relations, One First Union Center, Charlotte, North Carolina 28288-0206 (704-374-6782), or to Wachovia, Investor Relations, 100 North Main Street, Winston-Salem, North Carolina 27150 (888-492-6397). First Union and Wachovia, and their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from the stockholders of First Union and Wachovia in connection with the merger. Information about the directors and executive officers of First Union and their ownership of First Union common stock is set forth in the proxy statement, dated March 13, 2001, for First Union's 2001 annual meeting of stockholders, as filed with the SEC on a Schedule 14A. Information about the directors and executive officers of Wachovia and their ownership of Wachovia common stock is set forth in the proxy statement, dated March 19, 2001, for Wachovia's 2001 annual meeting of stockholders, as filed with the SEC on a Schedule 14A. Additional information regarding the interests of those participants may be obtained by reading the joint proxy statement/prospectus regarding the proposed transaction when it becomes available. ************************************************************************* THE FOLLOWING IS FIRST UNION'S EARNINGS RELEASE FOR THE FIRST QUARTER ENDED MARCH 31, 2001 [First Union Logo appears here] NEWS Monday Media Contact: April 16, 2001 Ginny Mackin 704-383-3715 Mary Eshet 704-383-7777 Investor Contact: Alice Lehman 704-374-4139 FIRST UNION REPORTS OPERATING EARNINGS OF $610 MILLION, OR 62 CENTS PER SHARE IN THE 1ST QUARTER OF 2001 - -------------------------------------------------------------------------------- FIRST QUARTER 2001 OVERVIEW o Reported cash operating earnings of 69 cents per share, or 62 cents on an operating basis, in line with market expectations. o Net charge-offs declined 16 percent from the first quarter of 2000, while nonperforming assets, excluding assets held for sale, increased 5 percent. o Expenses declined 10 percent from the first quarter of 2000, and were unchanged from year-end. o Deposits grew 3 percent from the first quarter of 2000, excluding divestitures. o Loans grew 6 percent from the first quarter of 2000, excluding divested businesses and securitizations. - -------------------------------------------------------------------------------- Earnings Highlights Three Months Ended March 31, 1Q01 ------------------ vs (In millions, except per share data) 2001 2000 1Q00 - -------------------------------------------------------------------------------- Earnings Operating earnings $ 610 838 (27)% Diluted earnings per share (Operating earnings) 0.62 0.85 (27) Net income (As reported) 584 840 (30) Diluted earnings per share (As reported) $ 0.59 0.85 (31)% - -------------------------------------------------------------------------------- Financial ratios (Operating earnings) Return on average stockholders' equity 15.64% 20.31 - Overhead efficiency ratio 65.18 62.31 - Net interest margin 3.42 3.69 - Fee income as % of total revenue 47.13 48.08 - Dividend payout ratio 38.71% 56.47 - - -------------------------------------------------------------------------------- Cash operating earnings Net income $ 684 932 (27)% Diluted earnings per share $ 0.69 0.95 (27)% Return on average tangible stockholders' equity 22.91% 34.03 - Overhead efficiency ratio 62.80% 59.65 - - -------------------------------------------------------------------------------- Asset quality Allowance as % of nonaccrual and restructured loans 143% 150 - Net charge-offs as % of average loans, net 0.53 0.57 - Nonperforming assets to loans, net, foreclosed properties and assets held for sale 1.30% 0.92 - - -------------------------------------------------------------------------------- -more- FIRST UNION REPORTS 1ST QUARTER EARNINGS/Page 2 - ---------------------------------------- CHARLOTTE, N.C. - First Union (NYSE:FTU) today reported diluted first quarter 2001 cash operating earnings of $684 million, or 69 cents per share, in a quarter highlighted by very strong expense control, loan and deposit growth (excluding divestitures), and slightly lower loan losses. First quarter 2001 operating earnings were $610 million, or 62 cents per share, and net income was $584 million, or 59 cents per share. The decline in earnings, as anticipated, reflected a decrease in principal investing revenues, the winding down of divested businesses and a difficult financial market environment. The cash operating return on average tangible stockholders' equity was 22.91 percent in the first quarter of 2001 and 34.03 percent in the first quarter of 2000. Cash operating earnings are earnings before goodwill and other intangible amortization. Based on first quarter 2001 operating earnings, First Union's return on average stockholders' equity (ROE) was 15.64 percent and 20.31 percent in the first quarter of 2000. "Our first quarter results were in line with market expectations. Beneath the numbers, what we see is some very good execution by our employees on controlling costs, managing risk and serving their customers," said Ken Thompson, First Union chairman and CEO. "The results are clear in improved customer satisfaction and retention. I'm particularly pleased with the continuing good loan and deposit growth that we're seeing in our General Bank. Given the exceptionally difficult market over the last quarter, we were satisfied with the performance in our Capital Management and Capital Markets businesses." Net Interest Income Net interest income on a tax-equivalent basis was $1.7 billion in the first quarter of 2001, a 13 percent decline from $2.0 billion in the first quarter of 2000, largely due to a reduction in earning assets related to the sale of loans and securities in connection with First Union's restructuring in 2000. The net interest margin was 3.42 percent in the first quarter of 2001 and 3.69 percent in the first quarter of 2000. Fee and Other Income On an operating basis, fee and other income in the first quarter of 2001 was $1.5 billion, down 16 percent from the first quarter of 2000, primarily attributable to declines of $93 million in commissions and $242 million in principal investing revenue. Results include a $75 million gain recorded in connection with the sale of Star Systems, Inc., an automated teller machine network in which First Union held an interest. On an operating basis, fee and other income as a percentage of total revenue was 47 percent in the first quarter of 2001 and 48 percent in the first quarter of 2000. Provision for Loan Losses The loan loss provision was $219 million in the first quarter of 2001, an increase of $27 million from the first quarter of 2000. The provision exceeded net charge-offs by $60 million. At March 31, 2001, the ratio of allowance to net loans increased to 1.43 percent from 1.30 percent at March 31, 2000. Noninterest Expense On an operating basis, noninterest expense was $2.1 billion in the first quarter of 2001, down 10 percent from the first quarter of 2000, reflecting solid expense control and lower variable compensation expense. -more- FIRST UNION REPORTS 1ST QUARTER EARNINGS/Page 3 - ---------------------------------------- Divestitures Update In the first quarter of 2001, the final 26 branches were sold as part of First Union's strategic repositioning announced in June 2000. This included $617 million in deposits and $115 million in loans in the first quarter of 2001. In addition, $3 billion of The Money Store home equity portfolio was securitized and sold in the first quarter of 2001. Restructuring and Other Charges and Gains The restructuring and other charges and gains in the first quarter of 2001 amounted to a pre-tax charge of $43 million ($26 million after-tax) or 3 cents per share. This included pre-tax charges of $116 million, which were offset by $73 million in gains on the branch sales mentioned above. Net Charge-offs and Nonperforming Assets Net charge-offs amounted to $159 million in the first quarter of 2001, a decrease of $30 million from the first quarter of 2000. This represented 0.53 percent of average net loans, down 4 basis points from the first quarter of 2000. At March 31, 2001, nonperforming assets were $1.7 billion, or 1.30 percent of net loans, foreclosed properties and assets held for sale, up 29 percent from March 31, 2000. Excluding assets held for sale, nonperforming assets rose by 5 percent. In line with previous guidance, the company said that it anticipates a rise in nonperforming assets in 2001 to mirror industry trends. First quarter 2001 nonperforming assets included $344 million of nonperforming assets classified as held for sale. Lines of Business - -------------------------------------------------------------------------------- General Bank Highlights Three Months Ended March 31, 1Q01 ------------------ vs (In millions) 2001 2000 1Q00 - -------------------------------------------------------------------------------- Total revenue $ 1,450 1,396 4 % Provision for loan losses 101 38 - Noninterest expense 908 925 (2) Operating earnings 292 291 - Average loans, net 63,596 56,491 13 Average core deposits 98,535 97,552 1 Economic capital $ 3,586 3,766 (5)% - -------------------------------------------------------------------------------- The General Bank has three major business lines: Consumer, Commercial and Small Business. Due to substantial improvement in customer service, General Bank revenue increased 4 percent from the first quarter of 2000 with strong growth in loans and in fee and other income. Fee and other income was led by improved service charge income and strong debit card revenues. The increased provision reflected a $29 million increase in Commercial and Small Business net charge-offs. The Consumer provision increased $34 million, including a $13 million market value adjustment on First Union Home Equity nonperforming loans moved to assets held for sale and other home equity charge-offs related to the normal aging of a growing loan portfolio. The impact of expense control initiatives was reflected in a 2 percent decline in noninterest expense from the first quarter of 2000. Loans increased 13 percent from the first quarter of 2000, with across-the-board strength in consumer lending, while commercial real estate and small business lending drove Commercial lending growth. Average core deposits grew 1 percent from the first quarter of 2000, excluding divestitures, primarily in interest checking, savings and money market accounts that have low funding costs. -more- FIRST UNION REPORTS 1ST QUARTER EARNINGS/Page 4 - ---------------------------------------- Overall customer satisfaction scores as measured by Gallup improved for the eighth consecutive quarter. Household retention also continued to improve. Online customer growth continued to be strong, reaching 2.6 million enrollments by March 31, 2001. This included 111,000 online wholesale enrollments. - -------------------------------------------------------------------------------- Capital Management Highlights Three Months Ended March 31, 1Q01 ------------------ vs (In millions) 2001 2000 1Q00 - -------------------------------------------------------------------------------- Total revenue $ 831 928 (10)% Provision for loan losses - - - Noninterest expense 658 708 (7) Operating earnings 113 145 (22) Average loans, net 4,535 4,026 13 Average core deposits 8,004 7,740 3 Economic capital $ 987 1,059 (7)% - -------------------------------------------------------------------------------- Capital Management includes Retail Brokerage Services, Asset Management, and Wealth and Trust Services. These businesses, with their diversified portfolio and multiple channels of distribution, performed solidly in the first quarter of 2001 despite an exceptionally difficult market environment. Capital Management's revenue declined 10 percent from a very strong first quarter of 2000, primarily reflecting lower brokerage fee income. Noninterest expense decreased 7 percent from the first quarter of 2000, primarily due to decreased incentives tied to revenue production. While fee income and transaction activity declined in a difficult market, Capital Management's balanced product mix (34 percent equity products, 28 percent fixed income products and 38 percent money market products) enabled First Union to serve client needs. In a declining market, assets under management were down 1 percent from year-end 2000 to $168 billion at March 31, 2001. Assets under management include mutual fund assets, which grew to a record $87 billion, up 2 percent from year-end 2000. Money market net fund sales in the first quarter of 2001 reached a record $5 billion. The brokerage sales force increased to nearly 7,800, mainly due to the addition of JWGenesis, a purchase acquisition that closed on January 1, 2001. This acquisition provided an additional independent distribution channel. The online brokerage channel grew 13 percent from year-end 2000, ending with 67,000 online enrollments at March 31, 2001. - -------------------------------------------------------------------------------- Capital Market Highlights Three Months Ended March 31, 1Q01 ------------------ vs (In millions) 2001 2000 1Q00 - -------------------------------------------------------------------------------- Total revenue $ 726 929 (22)% Provision for loan losses 70 89 (21) Noninterest expense 467 454 3 Operating earnings 150 278 (46) Average loans, net 42,642 41,560 3 Average core deposits 9,472 9,210 3 Economic capital $ 6,282 5,480 15 % - -------------------------------------------------------------------------------- -more- FIRST UNION REPORTS 1ST QUARTER EARNINGS/Page 5 - ---------------------------------------- Capital Markets encompasses Investment Banking and Corporate Banking businesses that offer a range of fixed income products, debt and equity products, structured products and advisory services for corporate and institutional clients. First quarter 2001 revenue declined 22 percent from the first quarter of 2000, primarily related to anticipated lower principal investing gains, which were down $242 million from an exceptionally strong first quarter of 2000. Fixed income fee and other income increased 90 percent from the first quarter of 2000, primarily driven by equity derivatives and fixed income sales and trading. The increase was offset by declines in the agency businesses, primarily loan syndications and asset securitization. Restructuring actions undertaken in 2000 to streamline and focus Capital Markets businesses showed solid results in the first quarter of 2001, with a modest 3 percent growth in noninterest expense from the first quarter of 2000. First Union (NYSE:FTU), with $253 billion in assets and stockholders' equity of $16 billion at March 31, 2001, is a leading provider of financial services to 15 million retail and corporate customers throughout the East Coast and the nation. The company operates full-service banking offices in 11 East Coast states and Washington, D.C., and full-service brokerage offices in 47 states. Online banking products and services can be accessed through www.firstunion.com. Earnings Conference Call First Union CFO Bob Kelly will review First Union's first quarter results in a pre-recorded conference call and audio webcast that will be available beginning at 8 a.m. today. Supplemental materials relating to the first quarter results are available on the Internet at www.ftuinvestor.com, and investors are encouraged to access such materials. In addition, he will be available for a live question-and-answer session on earnings results in a teleconference call at 1 p.m. today. Webcast Instructions: To gain access to the webcast, which will be "listen-only," go to www.ftuinvestor.com and click on the link First Union First Quarter Earnings Audio Webcast. In order to listen to the webcast, you will need to download Real Player Basic 8. Pre-Recorded Teleconference Instructions: At 8 a.m. today, the telephone number for the pre-recorded conference call is 800-294-9508 for U.S. callers or 402-220-3770 outside U.S. You will be asked to tell the answering coordinator your name and the name of your firm. Mention the conference Access Code: 33345. Live Teleconference Instructions: At 1 p.m. today, the telephone number for the live question-and-answer session on earnings results is 888-989-7593 for U.S. callers (or 712-257-2881 for international callers). You will be asked to tell the answering coordinator your name and the name of your firm. Mention the conference Access Code: 33345. Additional Information This news release, the pre-recorded conference call and live question-and-answer session may contain certain forward-looking statements with respect to the goals, plans, objectives, intentions, expectations, financial condition, results of operations, future performance and business of First Union, including, without limitation, (i) statements relating to certain of First Union's goals and expectations with respect to earnings, revenue, expenses, and the growth rate in such items, as well as other measures of economic performance, including statements relating to estimates of credit quality trends, and (ii) statements preceded by, followed by or that include the words "may", "could", "would", "should", "believes", "expects", "anticipates", "estimates", "intends", "plans", "targets" or similar expressions. These forward-looking statements involve certain risks and uncertainties that are subject to change based on various factors (many of which are beyond First Union's control). A discussion of various factors that could cause First Union's actual results or conditions to differ materially from the goals, plans, objectives, intentions, and expectations expressed in such forward-looking statements is included in First Union's most recent annual, quarterly and current reports filed with the Securities and Exchange Commission, including its Current Report on Form 8-K dated April 16, 2001. Some of the factors described in those reports, include, without limitation, factors relating to (1) the strength of the U.S. economy in general and the strength of the local economies in which First Union conducts operations, which may be different than expected resulting in, among other things, a deterioration in credit quality or a reduced demand for credit, including the resultant effect on First Union's loan portfolio and allowance for loan losses; (2) the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System; (3) adverse conditions in the stock market, the public debt market and other capital markets (including changes in interest rate conditions) and the impact of such conditions on First Union's capital markets and capital management activities; (4) the impact of changes in financial services' laws and regulations (including laws concerning taxes, banking, securities and insurance); and (5) the effect of corporate restructuring, acquisitions and/or dispositions on First Union. Forward-looking statements speak only as of the date they are made. First Union does not undertake any obligation to update any forward-looking statement to reflect circumstances or events that occur after the date the forward-looking statements are made. Shareholders are urged to read the joint proxy statement/prospectus regarding First Union's proposed transaction with Wachovia Corporation when it becomes available, because it will contain important information. Shareholders will be able to obtain a free copy of the joint proxy statement/prospectus, as well as other filings containing information about First Union and Wachovia, without charge, at the SEC's internet site (http://www.sec.gov). Copies of the joint proxy statement/prospectus and the SEC filings that will be incorporated by reference in the joint proxy statement/prospectus can also be obtained, without charge, by directing a request to First Union Corporation, Investor Relations, One First Union Center, Charlotte, North Carolina, 28288-0206 (704-374-6782) or to Wachovia Corporation, 100 North Main Street, Winston-Salem, North Carolina 27150 (888-492-6397). Information regarding the participants in the proxy solicitation and a description of their direct and indirect interest, by security holdings or otherwise, is contained in the materials filed with the SEC by each of First Union and Wachovia on April 16, 2001. -more-
PAGE 6 FIRST UNION CORPORATION FINANCIAL HIGHLIGHTS (Unaudited) - ---------------------------------------------------------------------------------------------------------------------------------- 2001 2000 --------- -------------------------------------------------- (Dollars in millions, except First Fourth Third Second First per share data) Quarter Quarter Quarter Quarter Quarter - ---------------------------------------------------------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS Operating Earnings Net interest income - tax-equivalent $ 1,734 1,757 1,860 1,930 1,989 Fee and other income 1,546 1,582 1,645 1,746 1,842 - ---------------------------------------------------------------------------------------------------------------------------------- Total revenue - tax-equivalent 3,280 3,339 3,505 3,676 3,831 Provision for loan losses 219 192 142 228 192 Noninterest expense 2,138 2,132 2,328 2,366 2,387 Income taxes - tax-equivalent 313 334 333 368 414 - ---------------------------------------------------------------------------------------------------------------------------------- Income before restructuring, merger- related and other charges and cumulative effect of a change in accounting principle (Operating earnings) 610 681 702 714 838 After-tax restructuring, merger-related and other charges (26) (36) 150 (2,913) 2 - ---------------------------------------------------------------------------------------------------------------------------------- Income (loss) before cumulative effect of a change in accounting principle 584 645 852 (2,199) 840 Cumulative effect of a change in the accounting for beneficial interests, net of tax - (46) - - - - ---------------------------------------------------------------------------------------------------------------------------------- Net income (loss) (As reported) $ 584 599 852 (2,199) 840 - ---------------------------------------------------------------------------------------------------------------------------------- DILUTED EARNINGS PER SHARE Income before restructuring, merger- related and other charges and cumulative effect of a change in accounting principle $ 0.62 0.69 0.71 0.73 0.85 Income (loss) before cumulative effect of a change in accounting principle 0.59 0.65 0.86 (2.27) 0.85 Net income (loss) $ 0.59 0.60 0.86 (2.27) 0.85 - ---------------------------------------------------------------------------------------------------------------------------------- PROFITABILITY (Operating earnings) Return on average stockholders' equity 15.64 % 15.36 15.76 17.74 20.31 Net interest margin 3.42 3.46 3.52 3.51 3.69 Fee and other income as % of total revenue 47.13 47.38 46.93 47.50 48.08 Overhead efficiency ratio 65.18 63.85 66.42 64.36 62.31 Effective income tax rate 31.54 % 31.21 30.43 32.45 31.81 - ---------------------------------------------------------------------------------------------------------------------------------- CASH OPERATING EARNINGS Net income $ 684 753 778 807 932 Diluted earnings per share $ 0.69 0.76 0.79 0.82 0.95 Return on average tangible stockholders' equity 22.91 % 21.55 22.15 30.18 34.03 Return on average stockholders' equity 17.52 17.00 17.47 20.04 22.59 Overhead efficiency ratio 62.80 % 61.46 64.17 61.64 59.65 Operating leverage $ (67) 31 (154) (136) (13) - ----------------------------------------------------------------------------------------------------------------------------------
PAGE 7 FIRST UNION CORPORATION OTHER FINANCIAL DATA (Unaudited) - ------------------------------------------------------------------------------------------------------------------------------------ 2001 2000 ------------ ------------------------------------------------- First Fourth Third Second First (Dollars in millions) Quarter Quarter Quarter Quarter Quarter - ----------------------------------------------------------------------------------------------------------------------------------- CAPITAL ADEQUACY(a) Tier I capital ratio 7.16 % 7.02 7.00 6.65 6.94 Total capital ratio 11.29 11.19 11.32 10.57 10.67 Leverage ratio 5.88 % 5.92 5.73 5.34 5.94 - ----------------------------------------------------------------------------------------------------------------------------------- ASSET QUALITY Allowance as % of loans, net 1.43 % 1.39 1.39 1.33 1.30 Allowance as % of nonperforming assets 132 135 181 193 139 Net charge-offs as % of average loans, net 0.53 0.64 0.46 0.69 0.57 Nonperforming assets to loans, net, foreclosed properties and assets held for sale 1.30 % 1.22 0.98 0.87 0.92 - ----------------------------------------------------------------------------------------------------------------------------------- OTHER DATA Employees (FTEs) 69,368 69,971 70,533 72,890 72,016 Branches 2,164 2,193 2,253 2,258 2,305 ATMs 3,676 3,772 3,831 3,832 3,786 Shares outstanding (In thousands) 981,268 979,963 986,004 986,394 984,148 Common stock price $ 33.00 27.81 32.19 25.00 37.25 Book value per common share $ 16.39 15.66 15.00 14.14 17.16 Common stock price to book value 201 % 178 215 177 217 Market capitalization $ 32,382 27,253 31,739 24,660 36,660 Dividends paid per common share $ 0.24 0.48 0.48 0.48 0.48 - --------------------------------------------------------------------------------------------------------- ------------------------ AVERAGE BALANCE SHEET DATA Commercial loans, net $ 77,270 76,253 75,380 75,951 73,939 Consumer loans, net 42,580 43,840 48,095 56,663 57,542 Loans, net 119,850 120,093 123,475 132,614 131,481 Earning assets 203,720 202,606 211,089 220,061 215,754 Total assets 245,469 239,375 246,818 255,583 248,290 Core deposits 118,192 118,944 118,074 118,256 118,072 Total deposits 137,282 138,329 143,112 141,204 140,421 Interest-bearing liabilities 183,995 181,832 190,146 196,954 191,680 Stockholders' equity $ 15,846 14,753 14,236 16,614 16,583 - ----------------------------------------------------------------------------------------------------------------------------------- PERIOD END BALANCE SHEET DATA Commercial loans, net $ 80,470 80,240 79,361 78,615 78,100 Consumer loans, net 42,383 43,520 44,058 49,744 57,703 Loans, net 122,853 123,760 123,419 128,359 135,803 Total assets 252,949 254,170 246,640 257,994 253,648 Core deposits 120,786 122,383 118,317 119,352 119,928 Total deposits 140,795 142,668 138,870 144,864 139,890 Stockholders' equity $ 16,081 15,347 14,795 13,951 16,884 - ----------------------------------------------------------------------------------------------------------------------------------- (a) The first quarter of 2001 is based on estimates.
PAGE 8 FIRST UNION CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited) - -------------------------------------------------------------------------------------------------------------------------- Three Months Ended March 31, 2001 --------------------------------------- Restructuring and Other Operating Charges/ As (In millions) Earnings Gains Reported - -------------------------------------------------------------------------------------------------------------------------- Net interest income $ 1,702 - 1,702 Provision for loan losses 219 - 219 - -------------------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 1,483 - 1,483 - -------------------------------------------------------------------------------------------------------------------------- Fee and other income Service charges and fees 468 - 468 Advisory, underwriting and other Capital Markets fees 198 - 198 Other income Security transactions - portfolio (16) - (16) Asset sales and securitization 12 (44) (32) Gain on sale of branches - 73 73 Other income 884 (1) 883 - -------------------------------------------------------------------------------------------------------------------------- Total fee and other income 1,546 28 1,574 - -------------------------------------------------------------------------------------------------------------------------- Noninterest expense Restructuring charges - 2 2 Other noninterest expense 2,138 69 2,207 - -------------------------------------------------------------------------------------------------------------------------- Total noninterest expense 2,138 71 2,209 - -------------------------------------------------------------------------------------------------------------------------- Income before income taxes (benefits) 891 (43) 848 Income taxes (benefits) 281 (17) 264 - -------------------------------------------------------------------------------------------------------------------------- Net income $ 610 (26) 584 - -------------------------------------------------------------------------------------------------------------------------- Diluted earnings per share $ 0.62 (0.03) 0.59 - --------------------------------------------------------------------------------------------------------------------------
PAGE 9 FIRST UNION CORPORATION CONSOLIDATED STATEMENTS OF OPERATING EARNINGS (a) (Unaudited) - ------------------------------------------------------------------------------------------------------------------------------------ 2001 2000 ------------ ------------------------------------------------- First Fourth Third Second First (In millions, except per share data) Quarter Quarter Quarter Quarter Quarter - ------------------------------------------------------------------------------------------------------------------------------------ INTEREST INCOME Interest and fees on loans $ 2,526 2,701 2,768 2,929 2,848 Interest and dividends on securities 925 939 975 1,023 966 Trading account interest 204 199 212 218 191 Other interest income 370 425 510 322 308 - ---------------------------------------------------------------------------------------------------------------------------------- Total interest income 4,025 4,264 4,465 4,492 4,313 - ---------------------------------------------------------------------------------------------------------------------------------- INTEREST EXPENSE Interest on deposits 1,253 1,367 1,422 1,285 1,195 Interest on short-term borrowings 493 538 609 750 639 Interest on long-term debt 577 627 600 552 513 - ---------------------------------------------------------------------------------------------------------------------------------- Total interest expense 2,323 2,532 2,631 2,587 2,347 - ---------------------------------------------------------------------------------------------------------------------------------- Net interest income 1,702 1,732 1,834 1,905 1,966 Provision for loan losses 219 192 142 228 192 - ---------------------------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 1,483 1,540 1,692 1,677 1,774 - ---------------------------------------------------------------------------------------------------------------------------------- FEE AND OTHER INCOME Service charges and fees 468 481 508 491 486 Commissions 375 383 365 375 468 Fiduciary and asset management fees 381 387 384 374 366 Advisory, underwriting and other Capital Markets fees 198 187 148 182 209 Principal investing (43) (43) 34 205 199 Other income 167 187 206 119 114 - ---------------------------------------------------------------------------------------------------------------------------------- Total fee and other income 1,546 1,582 1,645 1,746 1,842 - ---------------------------------------------------------------------------------------------------------------------------------- NONINTEREST EXPENSE Salaries and employee benefits 1,329 1,243 1,381 1,396 1,429 Occupancy 163 150 157 155 157 Equipment 205 221 213 210 214 Advertising 9 16 14 31 30 Communications and supplies 110 123 117 122 125 Professional and consulting fees 73 97 87 82 71 Goodwill and other intangible amortization 78 80 79 100 102 Sundry expense 171 202 280 270 259 - ---------------------------------------------------------------------------------------------------------------------------------- Total noninterest expense 2,138 2,132 2,328 2,366 2,387 - ---------------------------------------------------------------------------------------------------------------------------------- Income before income taxes 891 990 1,009 1,057 1,229 Income taxes 281 309 307 343 391 - ---------------------------------------------------------------------------------------------------------------------------------- Net operating earnings $ 610 681 702 714 838 - ---------------------------------------------------------------------------------------------------------------------------------- Diluted earnings per share $ 0.62 0.69 0.71 0.73 0.85 - ---------------------------------------------------------------------------------------------------------------------------------- (a) Operating earnings exclude restructuring, merger-related and other charges and gains and cumulative effect of a change in accounting principle.
PAGE 10 FIRST UNION CORPORATION CONSOLIDATED STATEMENTS OF INCOME (LOSS) (Unaudited) - ------------------------------------------------------------------------------------------------------------------------------------ 2001 2000 ------------ ------------------------------------------------- First Fourth Third Second First (In millions, except per share data) Quarter Quarter Quarter Quarter Quarter - ------------------------------------------------------------------------------------------------------------------------------------ INTEREST INCOME Interest and fees on loans $ 2,526 2,701 2,768 2,929 2,848 Interest and dividends on securities 925 939 975 1,023 966 Trading account interest 204 199 212 218 191 Other interest income 370 425 510 322 308 - ----------------------------------------------------------------------------------------------------------------------------------- Total interest income 4,025 4,264 4,465 4,492 4,313 - ----------------------------------------------------------------------------------------------------------------------------------- INTEREST EXPENSE Interest on deposits 1,253 1,367 1,422 1,285 1,195 Interest on short-term borrowings 493 538 609 750 639 Interest on long-term debt 577 627 600 552 513 - ----------------------------------------------------------------------------------------------------------------------------------- Total interest expense 2,323 2,532 2,631 2,587 2,347 - ----------------------------------------------------------------------------------------------------------------------------------- Net interest income 1,702 1,732 1,834 1,905 1,966 Provision for loan losses 219 192 322 1,030 192 - ----------------------------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 1,483 1,540 1,512 875 1,774 - ----------------------------------------------------------------------------------------------------------------------------------- FEE AND OTHER INCOME Service charges and fees 468 481 506 447 486 Commissions 375 383 365 375 468 Fiduciary and asset management fees 381 387 384 374 366 Advisory, underwriting and other Capital Markets fees 198 182 145 182 209 Principal investing (43) (43) 34 205 199 Other income 195 363 749 (649) 114 - ----------------------------------------------------------------------------------------------------------------------------------- Total fee and other income 1,574 1,753 2,183 934 1,842 - ----------------------------------------------------------------------------------------------------------------------------------- NONINTEREST EXPENSE Salaries and employee benefits 1,373 1,407 1,427 1,396 1,429 Occupancy 164 150 160 155 157 Equipment 211 233 213 210 214 Advertising 14 35 18 31 30 Communications and supplies 110 130 125 123 125 Professional and consulting fees 83 104 91 82 71 Goodwill and other intangible amortization 78 80 79 100 102 Restructuring and merger-related charges 2 33 52 2,110 (5) Sundry expense 174 205 283 296 259 - ----------------------------------------------------------------------------------------------------------------------------------- Total noninterest expense 2,209 2,377 2,448 4,503 2,382 - ----------------------------------------------------------------------------------------------------------------------------------- Income (loss) before income taxes (benefits) and cumulative effect of a change in accounting principle 848 916 1,247 (2,694) 1,234 Income taxes (benefits) 264 271 395 (495) 394 - ----------------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------ Income (loss) before cumulative effect of a change in accounting principle 584 645 852 (2,199) 840 Cumulative effect of a change in the accounting for beneficial interests, net of tax - (46) - - - - ----------------------------------------------------------------------------------------------------------------------------------- Net income (loss) $ 584 599 852 (2,199) 840 - ----------------------------------------------------------------------------------------------------------------------------------- PER SHARE DATA Basic Income (loss) before change in accounting principle $ 0.60 0.66 0.87 (2.27) 0.86 Net income (loss) 0.60 0.61 0.87 (2.27) 0.86 Diluted Income (loss) before change in accounting principle 0.59 0.65 0.86 (2.27) 0.85 Net income (loss) 0.59 0.60 0.86 (2.27) 0.85 Dividends paid per common share $ 0.24 0.48 0.48 0.48 0.48 AVERAGE SHARES (In thousands) Basic 967,671 969,097 971,453 969,707 972,174 Diluted 975,847 990,445 986,763 981,940 984,095 - -----------------------------------------------------------------------------------------------------------------------------------
PAGE 11 FIRST UNION CORPORATION CONSOLIDATED BALANCE SHEETS (Unaudited) - ------------------------------------------------------------------------------------------------------------------------------------ 2001 2000 -------------- ------------------------------------------------- First Fourth Third Second First (In millions, except per share data) Quarter Quarter Quarter Quarter Quarter - ------------------------------------------------------------------------------------------------------------------------------------ ASSETS Cash and due from banks $ 7,857 9,906 7,063 8,028 7,854 Interest-bearing bank balances 2,971 3,239 4,585 1,913 1,037 Federal funds sold and securities purchased under resale agreements 11,866 11,240 5,395 9,054 8,206 - ---------------------------------------------------------------------------------------------------------------------------------- Total cash and cash equivalents 22,694 24,385 17,043 18,995 17,097 - ---------------------------------------------------------------------------------------------------------------------------------- Trading account assets 20,431 21,630 17,417 18,237 17,076 Securities 51,528 49,246 52,065 55,203 52,089 Loans, net of unearned income 122,853 123,760 123,419 128,359 135,803 Allowance for loan losses (1,759) (1,722) (1,720) (1,706) (1,760) - ---------------------------------------------------------------------------------------------------------------------------------- Loans, net 121,094 122,038 121,699 126,653 134,043 - ---------------------------------------------------------------------------------------------------------------------------------- Premises and equipment 4,968 5,024 5,090 5,211 5,171 Due from customers on acceptances 894 874 968 839 842 Goodwill and other intangible assets 3,690 3,664 3,756 3,736 5,581 Other assets 27,650 27,309 28,602 29,120 21,749 - ---------------------------------------------------------------------------------------------------------------------------------- Total assets $ 252,949 254,170 246,640 257,994 253,648 - ---------------------------------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Deposits Noninterest-bearing deposits 28,582 30,315 28,501 30,229 29,885 Interest-bearing deposits 112,213 112,353 110,369 114,635 110,005 - ---------------------------------------------------------------------------------------------------------------------------------- Total deposits 140,795 142,668 138,870 144,864 139,890 Short-term borrowings 39,719 39,446 39,388 50,883 49,389 Bank acceptances outstanding 902 880 976 847 847 Trading account liabilities 8,130 7,475 5,138 4,541 4,605 Other liabilities 11,230 12,545 11,215 9,768 8,990 Long-term debt 36,092 35,809 36,258 33,140 33,043 - ---------------------------------------------------------------------------------------------------------------------------------- Total liabilities 236,868 238,823 231,845 244,043 236,764 - ---------------------------------------------------------------------------------------------------------------------------------- STOCKHOLDERS' EQUITY Preferred stock - - - - - Common stock, $3.33-1/3 par value; authorized 2 billion shares 3,271 3,267 3,287 3,288 3,280 Paid-in capital 6,307 6,272 6,211 6,066 6,021 Retained earnings 6,281 6,021 6,135 5,783 8,557 Accumulated other comprehensive income, net 222 (213) (838) (1,186) (974) - ---------------------------------------------------------------------------------------------------------------------------------- Total stockholders' equity 16,081 15,347 14,795 13,951 16,884 - ---------------------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 252,949 254,170 246,640 257,994 253,648 - ----------------------------------------------------------------------------------------------------------------------------------
************************************************************************* THE FOLLOWING IS FIRST UNION'S FIRST QUARTER 2001 SUPPLEMENTAL EARNINGS PACKAGE [FIRST UNION LOGO APPEARS HERE] FIRST QUARTER 2001 SUPPLEMENTAL EARNINGS PACKAGE (ALL COMPARISONS ARE WITH FOURTH QUARTER 2000 UNLESS OTHERWISE NOTED) TABLE OF CONTENTS Highlights of the Quarter.................................................2 Performance Review........................................................3 Earnings Summary..........................................................4 Net Interest Income.......................................................4 Fee and Other Income......................................................6 Noninterest Expense.......................................................7 Asset Quality.............................................................8 Loans Held For Sale.......................................................9 Restructuring and Divestitures...........................................10 Business Segment Results.................................................11 Key Definitions..........................................................12 General Bank.............................................................13 Capital Management.......................................................18 Capital Markets..........................................................22 Parent...................................................................25 ALL INFORMATION EXCLUDES RESTRUCTURING AND OTHER CHARGES/GAINS AND IS BEFORE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE EXCEPT WHERE SPECIFICALLY NOTED. - -------------------------------------------------------------------------------- PAGE-1 HIGHLIGHTS OF THE QUARTER - ------------------------- o Earnings: o Operating EPS of $0.62 per share ($0.69 on a cash basis). o Net income before restructuring and other charges/gains and an accounting change for 1Q01 was $610 million, down 10% from $681 million in 4Q00. Fully diluted EPS was down 10% from $0.69 per share to $0.62. o Reported net income for 1Q01 was $584 million, or $0.59 per share. This included $0.03 in net restructuring and other charges/gains. Reported net income in 4Q00 was $0.60 per share, which included $0.04 in net restructuring and other charges/gains, and a $0.05 cumulative effect of a change in accounting principle. o Expense growth was 0%. o Average diluted shares declined due to market value impact on share equivalents included in forward contracts. No impact on EPS. o Core businesses showed resilience in a difficult market: o General Bank deposits and loans up in seasonally slow quarter; customer service scores improved again. o Capital Management Wealth and Trust Services and Retail Brokerage Services revenue down slightly despite market turbulence. o Capital Markets revenues up in a difficult market despite a negative contribution from principal investing. o Credit: o Reserves for loan losses increased by $37 million. o Total NPAs rose 4%. Charge-offs were 0.53% of loans. o Restructuring program on schedule: o Completed previously announced sale of 26 branches resulting in a gain of $73 million pre-tax. o Securitized and sold $3.2 billion of The Money Store loans in Assets Held for Sale related to the restructuring program; remaining TMS loans in AHFS is $0.4 billion. Sold $150 million of commercial loans related to restructuring program in AHFS; remaining commercial balance is approximately $300 million. Total AHFS from strategic repositioning now $689 million, down from $4.3 billion in 4Q00. o SFAS 133: The impact of the adoption of SFAS 133 was immaterial to 1Q01 results. - -------------------------------------------------------------------------------- PAGE-2 [FIRST UNION LOGO APPEARS HERE] - -------------------------------------------------------------------------------- PERFORMANCE REVIEW - ------------------ Before Restructuring and Other Charges/Gains
- ---------------------------------------------------------------------------------------------------------------------------------- Operating Basis Performance Highlights 2001 2000 ------- ---------------------------------------------- 1Q01 First Fourth Third Second First vs (In millions, except per share data) Quarter Quarter Quarter Quarter Quarter 4Q00 - ---------------------------------------------------------------------------------------------------------------------------------- Operating earnings Net income $ 610 681 702 714 838 (10) % Diluted earnings per share $ 0.62 0.69 0.71 0.73 0.85 (10) Return on average assets 1.01 % 1.12 1.12 1.13 1.36 - Return on average stockholders' equity 15.64 15.36 15.76 17.74 20.31 - Overhead efficiency ratio 65.18 % 63.85 66.42 64.36 62.31 - Operating leverage $ (65) 30 (133) (134) (10) - % - ---------------------------------------------------------------------------------------------------------------------------------- Cash operating earnings Net income $ 684 753 778 807 932 (9) % Diluted earnings per share $ 0.69 0.76 0.79 0.82 0.95 (9) Return on average tangible assets 1.15 % 1.26 1.26 1.30 1.54 - Return on average tangible stockholders' equity 22.91 21.55 22.15 30.18 34.03 - Overhead efficiency ratio 62.80 % 61.46 64.17 61.64 59.65 - Operating leverage $ (67) 31 (154) (136) (13) - % - ---------------------------------------------------------------------------------------------------------------------------------- Other financial data Net interest margin 3.42 % 3.46 3.52 3.51 3.69 - % Fee income as % of total revenue 47.13 % 47.38 46.93 47.50 48.08 - Effective tax rate 31.54 % 31.21 30.43 32.45 31.81 - Period-end common stock price $ 33.00 27.81 32.19 25.00 37.25 19 % - ---------------------------------------------------------------------------------------------------------------------------------- Asset quality Net charge-offs as % of average loans, net 0.53 % 0.64 0.46 0.69 0.57 - Nonperforming assets to loans, net, Foreclosed properties and assets held for sale 1.30 % 1.22 0.98 0.87 0.92 - - ---------------------------------------------------------------------------------------------------------------------------------- Capital adequacy Tier 1 capital ratio (a) 7.16 7.02 7.00 6.65 6.94 - Total capital ratio (a) 11.29 11.19 11.32 10.57 10.67 - Average ratio (a) 5.88 % 5.92 5.73 5.34 5.94 - - ---------------------------------------------------------------------------------------------------------------------------------- Other Average diluted shares (In thousands) 975,847 990,445 986,763 981,940 984,095 (1) % Actual shares (In thousands) 981,268 979,963 986,004 986,394 984,148 - Dividends paid per common share $ 0.24 0.48 0.48 0.48 0.48 (50) Dividend payout ratio 38.71 % 69.57 67.42 65.75 56.47 - Book value per share $ 16.39 15.66 15.00 14.14 17.16 5 FTE employees 69,368 69,971 70,533 72,890 72,016 (1) % - ---------------------------------------------------------------------------------------------------------------------------------- (a) The first quarter of 2001 is based on estimates. - ----------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- PAGE-3 EARNINGS SUMMARY - ---------------- Before Restructuring and Other Charges/Gains
- ---------------------------------------------------------------------------------------------------------------------------------- Operating Earnings Summary 2001 2000 ------- ---------------------------------------------- 1Q01 First Fourth Third Second First vs (In millions, except per share data) Quarter Quarter Quarter Quarter Quarter 4Q00 - ---------------------------------------------------------------------------------------------------------------------------------- Net interest income (Tax-equivalent) $1,734 1,757 1,860 1,930 1,989 (1)% Fee and other income 1,546 1,582 1,645 1,746 1,842 (2) - ---------------------------------------------------------------------------------------------------------------------------------- Total revenue (Tax-equivalent) 3,280 3,339 3,505 3,676 3,831 (2) Provision for loan losses 219 192 142 228 192 14 Noninterest expense 2,138 2,132 2,328 2,366 2,387 - - ---------------------------------------------------------------------------------------------------------------------------------- Income before income taxes (Tax-equivalent) 923 1,015 1,035 1,082 1,252 (9) Income taxes 281 309 307 343 391 (9) Tax-equivalent adjustment 32 25 26 25 23 28 - ---------------------------------------------------------------------------------------------------------------------------------- Net income $ 610 681 702 714 838 (10)% Net income (Cash basis) $ 684 753 778 807 932 (9)% - ---------------------------------------------------------------------------------------------------------------------------------- Diluted earnings per share $ 0.62 0.69 0.71 0.73 0.85 (10)% Diluted earnings per share (Cash basis) $ 0.69 0.76 0.79 0.82 0.95 (9)% Return on average stockholders' equity 15.64% 15.36 15.76 17.74 20.31 - Return on average stockholders' equity (Cash basis) 22.91% 21.55 22.15 30.18 34.03 - - ----------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME - -------------------
- ---------------------------------------------------------------------------------------------------------------------------------- Interest Income Summary 2001 2000 ------- ---------------------------------------------- 1Q01 First Fourth Third Second First vs (In millions) Quarter Quarter Quarter Quarter Quarter 4Q00 - ---------------------------------------------------------------------------------------------------------------------------------- Average earning assets $203,720 202,606 211,089 220,061 215,754 1% Average interest-bearing liabilities $183,995 181,832 190,146 196,954 191,680 1% - ---------------------------------------------------------------------------------------------------------------------------------- Interest income (Tax-equivalent) $ 4,057 4,289 4,491 4,517 4,336 (5)% Interest expense 2,323 2,532 2,631 2,587 2,347 (8) - ---------------------------------------------------------------------------------------------------------------------------------- Net interest income (Tax-equivalent) $ 1,734 1,757 1,860 1,930 1,989 (1)% - ---------------------------------------------------------------------------------------------------------------------------------- Rate earned 8.03% 8.44 8.48 8.24 8.06 - Equivalent rate paid 4.61 4.98 4.96 4.73 4.37 - - ---------------------------------------------------------------------------------------------------------------------------------- Net interest margin 3.42% 3.46 3.52 3.51 3.69 - - ----------------------------------------------------------------------------------------------------------------------------------
KEY POINTS o Margin declined 4 basis points to 3.42%, due to growth in trading account balances, primarily in equity derivatives Net Interest Income (TE) decreased 1%, due in large part to the expiration of strategic off-balance sheet positions. Additionally, 4Q00 and 1Q01 branch divestitures reduced interest income by $15 million. Wider spreads resulting from the lower rate environment partially offset these factors. Net interest margin declined 4 bps to 3.42%. The margin decline was partially related to increased trading assets in the equity derivatives business. Off-balance-sheet derivatives contributed 14 bps to the margin, down from 15 bps in 4Q00. The impact of the 4Q00 expiration of strategic off-balance sheet positions was largely offset by new interest rate derivative positions. - -------------------------------------------------------------------------------- PAGE-4
- ---------------------------------------------------------------------------------------------------------------------------------- Average Balance Sheet Data 2001 2000 ------- ---------------------------------------------- 1Q01 First Fourth Third Second First vs (In millions) Quarter Quarter Quarter Quarter Quarter 4Q00 - ---------------------------------------------------------------------------------------------------------------------------------- Assets - ---------------------------------------------------------------------------------------------------------------------------------- Securities and trading assets $ 63,732 62,123 64,984 68,977 65,715 3% Commercial loans 77,270 76,253 75,380 75,951 73,939 1 Consumer loans 42,580 43,840 48,095 56,663 57,542 (3) - ---------------------------------------------------------------------------------------------------------------------------------- Total loans $119,850 120,093 123,475 132,614 131,481 -% - ---------------------------------------------------------------------------------------------------------------------------------- Other earning assets (a) 20,138 20,390 22,630 18,470 18,558 (1) Cash and other assets 41,749 36,769 35,729 35,522 32,536 14 - ---------------------------------------------------------------------------------------------------------------------------------- Total assets $245,469 239,375 246,818 255,583 248,290 3% - ---------------------------------------------------------------------------------------------------------------------------------- Liabilities and Stockholders' Equity - ---------------------------------------------------------------------------------------------------------------------------------- Core interest-bearing deposits 91,149 91,069 89,637 89,285 89,385 - Noninterest-bearing deposits 27,043 27,875 28,437 28,971 28,687 (3) - ---------------------------------------------------------------------------------------------------------------------------------- Total core deposits 118,192 118,944 118,074 118,256 118,072 (1) Foreign and other time deposits 19,090 19,385 25,038 22,948 22,349 (2) - ---------------------------------------------------------------------------------------------------------------------------------- Total deposits $137,282 138,329 143,112 141,204 140,421 (1)% Short-term borrowings 37,125 35,670 40,208 51,166 47,382 4 Long-term debt 36,631 35,708 35,263 33,555 32,564 3 Other liabilities 18,585 14,915 13,999 13,044 11,340 25 - ---------------------------------------------------------------------------------------------------------------------------------- Total liabilities 229,623 224,622 232,582 238,969 231,707 2 Stockholders' equity 15,846 14,753 14,236 16,614 16,583 7 - ---------------------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $245,469 239,375 246,818 255,583 248,290 3% - ---------------------------------------------------------------------------------------------------------------------------------- Includes interest-bearing bank balances, federal funds sold and securities purchased under resale agreements. - ----------------------------------------------------------------------------------------------------------------------------------
KEY POINTS o Loan growth of 2% excluding divestitures and securitizations o Solid core deposit growth given normal seasonality - up to 1% excluding divestitures Average earning assets increased 1%. Average loans were flat. Average commercial loans increased 1%, or 2% excluding a $475 million impact from the sale or divestiture of loans in 4Q00 and 1Q01. Average consumer loans declined 3%, but increased 2% excluding the impact of a late 4Q00 securitization of $1.2 billion in mortgages, the divestiture of an average $250 million in loans in 4Q00 and 1Q01, and planned runoff of the auto portfolio reduced loans an average of $425 million. Securities and trading assets increased 3%. Securities were flat. Securities included a net $93 million in nonperforming securities we acquired under a credit derivative. Trading account assets increased 15%, the result of growth in the equity derivatives business. Other earning assets were relatively flat. Average interest-bearing liabilities increased 1%. Average core deposits decreased 1%, but increased 1% excluding a $1.8 billion impact from the divestiture of deposits in 4Q00 and 1Q01. Results were solid given a normal seasonality in DDAs, with growth in low cost core deposits offsetting lower consumer CD balances. Other deposits decreased 2%, the result of lower foreign deposits. Total deposits declined 1%. Short-term borrowings increased 4% to support the increase in short-term assets. Long-term debt increased 3%. Retained earnings boosted equity by $1.1 billion or 7%. - -------------------------------------------------------------------------------- PAGE-5 FEE AND OTHER INCOME - --------------------
- ---------------------------------------------------------------------------------------------------------------------------------- Fee and Other Income 2001 2000 ------- ---------------------------------------------- 1Q01 First Fourth Third Second First vs (In millions) Quarter Quarter Quarter Quarter Quarter 4Q00 - ---------------------------------------------------------------------------------------------------------------------------------- Service charges and fees $ 468 481 508 491 486 (3)% Commissions 375 383 365 375 468 (2) Fiduciary and asset management fees 381 387 384 374 366 (2) Advisory, underwriting and other Capital Markets fees 198 187 148 182 209 6 Principal investing (43) (43) 34 205 199 - Other income 167 187 206 119 114 (11) - ---------------------------------------------------------------------------------------------------------------------------------- Total fee and other income $1,546 1,582 1,645 1,746 1,842 (2)% - ----------------------------------------------------------------------------------------------------------------------------------
KEY POINTS o Solid fiduciary, asset management and commissions performance given challenging market conditions o Capital Markets fees up on increased activity; principal investing losses same as 4Q00 o Other income down due to offsetting items, lower securitization/other gains vs. 4Q00 Fee and other income declined 2%, as a weak market environment affected most fee income lines. Fees represented 47% of total revenue in 1Q01 and 48% in 4Q00. Service Charges and Fees declined 3%, largely attributable to first quarter seasonal declines. Commissions, which include brokerage and insurance commission income (but not brokerage asset-based fees), held up well given the market environment but were down 2%. Note that JW Genesis commissions are reported on a net fee basis and therefore do not impact trends materially. Fiduciary and Asset Management fees also held up well, declining only 2% in a challenging market, reflecting our balanced mix of fixed income, value, and growth funds. For the quarter, the NASDAQ Composite was down 26% and the S&P 500 was down 12%. Advisory, underwriting and other Capital Markets fees increased 6%. The quarter was particularly strong in equity derivatives and fixed income sales and trading, offset by lower results in agency businesses. Asset securitization results were negatively impacted by $46 million in trading losses, partially offset by improved results in loan syndications, high yield, and equity capital markets. Principal Investing losses matched 4Q00, at ($43) million, as mark-to-market losses exceeded gains. Other Income declined 11%. 1Q01 included a $75 million gain on the exchange of our interest in the Star ATM network, offset by $19 million in affordable housing write-downs, investment security losses of $16 million, and $27 million in market valuation adjustments on loans in the held for sale portfolio. 4Q00 included $49 million of securitization gains and $31 million of other gains, offset by $64 million in affordable housing write-downs. - -------------------------------------------------------------------------------- PAGE-6 [FIRST UNION LOGO APPEARS HERE] - -------------------------------------------------------------------------------- NONINTEREST EXPENSE - -------------------
- ---------------------------------------------------------------------------------------------------------------------------------- Noninterest Expense 2001 2000 ------- ---------------------------------------------- 1Q01 First Fourth Third Second First vs (In millions) Quarter Quarter Quarter Quarter Quarter 4Q00 - ---------------------------------------------------------------------------------------------------------------------------------- Salaries and employee benefits $1,329 1,243 1,381 1,396 1,429 7% Occupancy 163 150 157 155 157 9 Equipment 205 221 213 210 214 (7) Advertising 9 16 14 31 30 (44) Communications and supplies 110 123 117 122 125 (11) Professional and consulting fees 73 97 87 82 71 (25) Goodwill and other intangible amortization 78 80 79 100 102 (3) Sundry expense 171 202 280 270 259 (15) - ---------------------------------------------------------------------------------------------------------------------------------- Total noninterest expense $2,138 2,132 2,328 2,366 2,387 -% - ---------------------------------------------------------------------------------------------------------------------------------- FTE employees 69,368 69,971 70,533 72,890 72,016 (1)% Overhead efficiency ratio (Cash basis) 62.80% 61.46 64.17 61.64 59.65 - - ----------------------------------------------------------------------------------------------------------------------------------
KEY POINTS o Total expenses were flat, the result of an intense focus on cost control o Personnel expense up due to 4Q00 reductions in incentives to reflect full year 2000 performance Noninterest expense was flat. Salaries and employee benefits expense rose 7%, due to 4Q00 adjustments to incentives to reflect full year 2000 performance. The increase was offset by declines in a number of other expense categories, the result of rigorous cost management. The quarter saw significant decreases in communications and supplies expense, professional and consulting expense, and sundry expense (primarily travel and entertainment). An increase in occupancy was offset by a decrease in equipment. - -------------------------------------------------------------------------------- PAGE-7 [FIRST UNION LOGO APPEARS HERE] - -------------------------------------------------------------------------------- ASSET QUALITY - -------------
- ---------------------------------------------------------------------------------------------------------------------------------- Asset Quality 2001 2000 ------- ---------------------------------------------- 1Q01 First Fourth Third Second First vs (In millions) Quarter Quarter Quarter Quarter Quarter 4Q00 - ---------------------------------------------------------------------------------------------------------------------------------- Nonperforming assets Loans $1,231 1,176 854 791 1,175 5% Other real estate 106 103 97 93 95 3 Loans in assets held for sale 344 334 349 331 30 3 - ---------------------------------------------------------------------------------------------------------------------------------- Total nonperforming assets $1,681 1,613 1,300 1,215 1,300 4% - ---------------------------------------------------------------------------------------------------------------------------------- as % of loans, net 1.09% 1.03 0.77 0.69 0.93 - - ---------------------------------------------------------------------------------------------------------------------------------- as % of loans, net, including assets held for sale 1.30% 1.22 0.98 0.87 0.92 - - ---------------------------------------------------------------------------------------------------------------------------------- Allowance for loan losses Balance, beginning of period $1,722 1,720 1,706 1,760 1,757 -% Provision for loan losses 219 192 322 1,030 192 14 Allowance relating to loans acquired, transferred to other assets or sold (23) 2 (166) (856) - - Loan losses, net (159) (192) (142) (228) (189) (17) - ---------------------------------------------------------------------------------------------------------------------------------- Balance, end of period $1,759 1,722 1,720 1,706 1,760 2% - ---------------------------------------------------------------------------------------------------------------------------------- as % of loans, net 1.43% 1.39 1.39 1.33 1.30 - as % of nonaccrual and restructured loans (a) 143 146 202 215 150 - as % of nonperforming assets (a) 132% 135 181 193 139 - - ---------------------------------------------------------------------------------------------------------------------------------- Loan losses, net $ 159 192 142 228 189 (17)% Commercial, as % of average commercial loans 0.56% 0.80 0.53 0.73 0.53 - Consumer, as % of average consumer loans 0.48 0.36 0.35 0.63 0.64 - Total, as % of average loans, net 0.53% 0.64 0.46 0.69 0.57 - - ---------------------------------------------------------------------------------------------------------------------------------- (a) These ratios do not include nonperforming loans included in other assets as held for sale. Loans 90 days past due were $220 million, $183 million, $145 million, $84 million and $134 million in the first quarter of 2001 and in the fourth, third, second and first quarters of 2000, respectively. - ----------------------------------------------------------------------------------------------------------------------------------
KEY POINTS o Net loan losses improved 17% to $159 million; NPAs rose modestly to 1.30% of total loans o Charge-offs and NPA guidance remains unchanged o Allowance increased $37 million to 1.43% o Delinquencies 90 days past due were $220 million vs $183 million at December 31 Net loan losses decreased $33 million, due to unusually high charge-offs in 4Q00. The charge-off ratio was 0.53% of average loans. Provision for loan losses increased $27 million. Provision exceeded charge-offs by $60 million, and includes $15 million in provision recorded in connection with the transfer of nonperforming loans to assets held for sale. Allowance for loan losses increased $37 million, to 1.43% of loans. The allowance to NPA ratio (excluding NPAs in loans held for sale) was relatively flat at 132%. Nonperforming assets, including NPAs in assets held for sale, increased $68 million or 4%. An increase in commercial nonperforming loans was the principal driver of this increase. Nonperforming loans include troubled debt restructurings. - -------------------------------------------------------------------------------- PAGE-8 [FIRST UNION LOGO APPEARS HERE] - --------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------- Nonperforming Assets (a) 2001 2000 ------- ---------------------------------------------- 1Q01 First Fourth Third Second First vs (In millions) Quarter Quarter Quarter Quarter Quarter 4Q00 - ---------------------------------------------------------------------------------------------------------------------------------- Balance, beginning of period $1,279 951 884 1,270 1,066 34% - ---------------------------------------------------------------------------------------------------------------------------------- Commercial loan activity New nonaccrual loans 251 481 217 242 303 (48) Advances 15 6 6 - - - Charge-offs (69) (112) (27) (93) (70) (38) Transfers (to) from assets held for sale - 11 (46) (223) - (100) Payments (59) (22) (29) (11) (5) - Sales - (15) - - - (100) Other (activity under $5 million) (53) (69) (93) (78) (40) (23) - ---------------------------------------------------------------------------------------------------------------------------------- Comomercial loan activity, net 85 280 28 (163) 188 (70) Consumer loan activity, net (27) 48 39 (223) 16 - - ---------------------------------------------------------------------------------------------------------------------------------- Change in nonperforming assets 58 328 67 (386) 204 (82) - ---------------------------------------------------------------------------------------------------------------------------------- Balance, end of period $1,337 1,279 951 884 1,270 5% - ---------------------------------------------------------------------------------------------------------------------------------- (a) Does not include nonperforming assets transferred to assets held for sale; which in the first quarter of 2001 and in the fourth, third, second and first quarters of 2000 were $344 million, $334 million, $349 million, $331 million and $30 million, respectively. - ----------------------------------------------------------------------------------------------------------------------------------
ASSETS HELD FOR SALE - --------------------
- -------------------------------------------------------------------------------------------------------------------- Assets Held for Sale 2001 2000 ------- ---------------------------------------------- First Fourth Third Second First (In millions) Quarter Quarter Quarter Quarter Quarter - -------------------------------------------------------------------------------------------------------------------- 2000 Strategic Repositioning Balance, beginning of period $ 4,263 4,983 6,326 - - Loans transferred to assets held for sale - - 719 7,182 - Allowance for loan losses related to loans transferred to assets held for sale - 2 (166) (856) - Lower of cost or market valuation adjustments (37) (111) - - - Loans sold (3,340) (289) (1,756) - - Other, net (a) (197) (322) (140) - - - -------------------------------------------------------------------------------------------------------------------- Balance, end of period 689 4,263 4,983 6,326 - - -------------------------------------------------------------------------------------------------------------------- Other Balance, beginning of period 3,883 4,108 4,310 4,875 4,866 Originations 4,521 2,701 2,495 1,568 1,781 Loans transferred to (from) assets held for sale 512 (556) (24) (515) (298) Lower of cost or market valuation adjustments (43) (33) (46) (53) (31) Loans sold (2,608) (2,204) (2,587) (1,408) (1,397) Other, net (a) (164) (133) (40) (157) (46) Balance, end of period 6,101 3,883 4,108 4,310 4,875 - -------------------------------------------------------------------------------------------------------------------- Total loans held for sale, end of period $6,790 8,146 9,091 10,636 4,875 - -------------------------------------------------------------------------------------------------------------------- (a) Other, net represents primarily loan payments. Nonperforming assets included in loans held for sale in the first quarter of 2001 and in the fourth, third, second and first quarters of 2000 were $344 million, $334 million, $349 million, $331 million and $30 million, respectively. - --------------------------------------------------------------------------------------------------------------------
KEY POINTS o Securitized and sold $3.2 billion of The Money Store loans, sold $157 million commercial loans from strategic repositioning portfolio; $689 million balance remaining o Growth in other assets held for sale (originations net of sales) primarily related to increased mortgage production due to lower rate environment - -------------------------------------------------------------------------------- PAGE-9 [FIRST UNION LOGO APPEARS HERE] - -------------------------------------------------------------------------------- Strategic Repositioning: During the quarter we securitized and sold $3.2 billion of The Money Store home equity loans from assets held for sale. We retained, in investment securities, $906 million in investment grade securities, $164 million in noninvestment grade securities, and recorded $34 million in residual interests. We also sold $157 million of commercial loans from assets held for sale. A balance of $689 million remains from the total restructuring, with The Money Store loans accounting for approximately $400 million. Payments reduced balances by approximately $200 million, primarily on The Money Store portfolio. Other: The increase in originations and loans sold related primarily to increased mortgage loan production due to the lower rate environment. Loans transferred into loans held for sale included $90 million of FUHEB NPAs and $21 million of related reserves to value the loans at LOCOM. The $21 million in reserves included $8 million in existing reserves and a $13 million 1Q01 provision. RESTRUCTURING AND DIVESTITURES
- -------------------------------------------------------------------------------------------------------------------- Restructuring Charges and Other Charges/Gains 2001 2000 ------- ---------------------------------------------- First Fourth Third Second First (In millions) Quarter Quarter Quarter Quarter Quarter - -------------------------------------------------------------------------------------------------------------------- Restructuring charges Employee termination benefits $ 2 10 27 135 - Occupancy - - 15 93 - Goodwill and other asset impairments (noncash) - - - 1,754 - Other asset impairments (1) (1) (16) 35 - Contract cancellations (1) (10) 4 80 - Other - 1 - 2 - - -------------------------------------------------------------------------------------------------------------------- Total strategic repositioning charges $ - - 30 2,099 - Reversal of March 1999 and other accruals (14) (1) (2) - (14) - -------------------------------------------------------------------------------------------------------------------- Total (14) (1) 28 2,099 (14) EREN acquisition and other merger-related charges 16 34 24 11 9 - -------------------------------------------------------------------------------------------------------------------- Total $ 2 33 52 2,110 (5) - -------------------------------------------------------------------------------------------------------------------- Other charges/gains Provision for loan losses - - 180 802 - Service charges and fees - - 2 44 - Other income (28) (171) (540) 768 - Other noninterest expense 69 212 68 27 - - -------------------------------------------------------------------------------------------------------------------- Total other charges/gains $ 41 41 (290) 1,641 - - -------------------------------------------------------------------------------------------------------------------- Total restructuring and other charges/gains 43 74 (238) 3,751 (5) Income tax (benefits) (17) (38) 88 (838) 3 - -------------------------------------------------------------------------------------------------------------------- Other-tax restructuring, merger-related and other charges/gains $ 26 36 (150) 2,913 (2) - --------------------------------------------------------------------------------------------------------------------
KEY POINTS o Closed sale of remaining 26 branches ($617 million in deposits, $115 million in loans) o Gains on branch sales totaled $73 million pre-tax In 1Q01, we substantially completed the goals of the restructuring program. The company recorded a net loss of $26 million in after-tax restructuring and other charges and gains. This loss reflects continuing activity associated with our 2000 strategic review of the company's business lines and the decisions to dispose of or discontinue certain lines of business. Significant items included the following: o Gain on sale of branches of $73 million o Other noninterest expense charges of $69 million o Market valuation adjustments on TMS loans of $44 million. - -------------------------------------------------------------------------------- PAGE-10 [FIRST UNION LOGO APPEARS HERE] - -------------------------------------------------------------------------------- BUSINESS SEGMENT RESULTS
Three Months Ended March 31, 2001 First Union Corporation --------------------------------------------------------------- Performance Summary General Capital Capital (In millions) Bank Management Markets Parent Consolidated - --------------------------------------------------------------------------------------------------------------------- Income statement data - --------------------- Net interest income $ 1,085 78 426 113 1,702 Fee and other income 340 765 312 129 1,546 Intersegment revenue 25 (12) (12) (1) - - --------------------------------------------------------------------------------------------------------------------- Total revenue 1,450 831 726 241 3,248 Provision for loan losses 101 - 70 48 219 Noninterest expense 908 658 467 105 2,138 Income tax expense 149 60 39 33 281 - --------------------------------------------------------------------------------------------------------------------- Operating earnings $ 292 113 150 55 610 - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- Performance and other data - -------------------------- Economic profit $ 218 83 (24) 94 371 Risk adjusted return on capital (RAROC) 36.62 % 45.96 10.46 35.35 24.05 Economic capital $ 3,586 987 6,282 1,651 12,506 Overhead efficiency ratio 61.41 % 79.12 60.84 18.91 62.80 Average loans, net $ 63,596 4,535 42,642 9,077 119,850 Average core deposits $ 98,535 8,004 9,472 2,181 118,192 - ---------------------------------------------------------------------------------------------------------------------
Business segment results are on an operating basis, and accordingly, they exclude restructuring and other charges and gains related to our strategic repositioning which occurred in June 2000. Additionally, we have made several changes, as outlined below, in our segment reporting beginning this quarter. Each of the four quarters of 2000 has been restated to reflect these changes. Segments and sub-segments have been realigned: Our business segments and sub-segments have been changed to provide information that is aligned with how we now manage our businesses. Intersegment revenues and servicing cost allocations have been established: 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. Improved allocation of capital: Revised studies have been completed to more accurately assess the risks inherent in each business unit, and capital has been assigned based upon that risk assessment. (See economic capital definition.) New financial metrics have been implemented: Business units are measured on several new financial metrics including Risk Adjusted Return On Capital (RAROC) and Economic Profit (see definitions below). Cost allocation methodologies have been enhanced: Activity-Based Costing studies have been completed on many business units to better align costs with products and their revenues. - -------------------------------------------------------------------------------- PAGE-11 [FIRST UNION LOGO APPEARS HERE] - -------------------------------------------------------------------------------- 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. First Union'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 a) intangibles amortization and b) 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. RAROC - Risk Adjusted Return On Capital. RAROC is calculated by dividing economic net income by economic capital. - -------------------------------------------------------------------------------- PAGE-12 [FIRST UNION LOGO APPEARS HERE] - -------------------------------------------------------------------------------- GENERAL BANK - ------------ This segment consists of the Consumer, Commercial, and Small Business operations.
2001 2000 General Bank --------- -------------------------------------------------- 1Q01 Performance Summary First Fourth Third Second First vs (In millions) Quarter Quarter Quarter Quarter Quarter 4Q00 - -------------------------------------------------------------------------------------------------------------------------------- Income statement data - --------------------- Net interest income $ 1,085 1,104 1,100 1,090 1,071 (2)% Fee and other income 340 351 347 295 299 (3) Intersegment revenue 25 25 24 25 26 - - -------------------------------------------------------------------------------------------------------------------------------- Total revenue 1,450 1,480 1,471 1,410 1,396 (2) Provision for loan losses 101 73 51 46 38 38 Noninterest expense 908 970 926 945 925 (6) Income tax expense 149 142 163 137 142 5 - -------------------------------------------------------------------------------------------------------------------------------- Operating earnings $ 292 295 331 282 291 (1)% - -------------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- Performance and other data - -------------------------- Economic profit $ 218 198 214 165 173 10 % Risk adjusted return on capital (RAROC) 36.62 % 33.44 33.97 29.01 30.55 - Economic capital $ 3,586 3,692 3,897 3,918 3,766 (3) Overhead efficiency ratio 61.41 % 63.99 61.56 65.51 64.78 - Average loans, net $ 63,596 61,735 60,029 58,105 56,491 3 Average core deposits $ 98,535 98,184 97,186 97,499 97,552 - % - --------------------------------------------------------------------------------------------------------------------------------
Key Points o Solid loan growth of 3% and modest deposit growth in a seasonally down quarter o Financial Centers recorded 8th consecutive quarterly increase in customer satisfaction measures o Customer attrition was 13% for 4Q00 vs. 13.6% for 3Q00 o Financial Center staffing levels continue to run close to 100% level
2001 2000 General Bank Key Metrics --------- -------------------------------------------------- 1Q01 First Fourth Third Second First vs Quarter Quarter Quarter Quarter Quarter 4Q00 - -------------------------------------------------------------------------------------------------------------------------------- Customer overall satisfaction score (a) 6.29 6.27 6.22 6.19 6.13 - % Online customers (In thousands) 2,640 2,367 2,149 1,868 1,583 12 Financial centers 2,164 2,193 2,253 2,258 2,305 (1) ATMs 3,676 3,772 3,831 3,832 3,786 (3) % - -------------------------------------------------------------------------------------------------------------------------------- (a) Gallup survey measured on a 1-7 scale; 6.4 = "best in class". - --------------------------------------------------------------------------------------------------------------------------------
Overall customer satisfaction score of 6.29 increased for the 8th consecutive quarter in 4Q00 and is on the cusp of "Best in Class." Online enrollments increased 12%. - -------------------------------------------------------------------------------- PAGE-13 [FIRST UNION LOGO APPEARS HERE] - -------------------------------------------------------------------------------- CONSUMER This sub-segment includes Retail Banking, First Union Mortgage Corp., First Union Home Equity Bank, Educaid, and other retail businesses.
2001 2000 Consumer --------- -------------------------------------------------- 1Q01 Performance Summary First Fourth Third Second First vs (In millions) Quarter Quarter Quarter Quarter Quarter 4Q00 - -------------------------------------------------------------------------------------------------------------------------------- Income statement data - --------------------- Net interest income $ 756 757 760 758 737 - % Fee and other income 259 268 252 232 218 (3) Intersegment revenue 12 12 12 13 13 - - -------------------------------------------------------------------------------------------------------------------------------- Total revenue 1,027 1,037 1,024 1,003 968 - Provision for loan losses 59 34 31 25 25 74 Noninterest expense 696 728 710 717 708 (4) Income tax expense 94 94 97 90 80 - - -------------------------------------------------------------------------------------------------------------------------------- Operating earnings $ 178 181 186 171 155 (2)% - -------------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- Performance and other data - -------------------------- Economic profit $ 146 134 132 114 103 9 % Risk adjusted return on capital (RAROC) 42.35 % 40.08 36.84 33.05 32.83 - Economic capital $ 1,955 1,914 2,129 2,188 2,007 2 Overhead efficiency ratio 66.60 % 69.01 68.11 70.26 71.83 - Average loans, net $ 33,300 32,136 30,765 29,324 27,779 4 Average core deposits $ 80,249 79,897 79,504 79,838 79,553 - % - --------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- PAGE-33 Net interest income was flat, as lower spreads offset loan and deposit growth. Loans increased 4%, due to strong volume and low runoff of the existing portfolio. Deposits increased due to growth and lower attrition in low cost interest checking and savings, offsetting seasonal DDA fluctuations and CD portfolio declines. Fee and Other Income declined 3%, due to the seasonality of ATM, debit card, and service charges. Expenses decreased 4%, due to better expense control. Staffing levels continue to run close to 100%. - -------------------------------------------------------------------------------- PAGE-14 [FIRST UNION LOGO APPEARS HERE] - -------------------------------------------------------------------------------- CONSUMER LOAN PRODUCTION
2001 2000 Consumer Loan Volume --------- -------------------------------------------------- 1Q01 First Fourth Third Second First vs (In millions) Quarter Quarter Quarter Quarter Quarter 4Q00 - -------------------------------------------------------------------------------------------------------------------------------- Consumer direct $ 1,210 1,246 1,320 1,548 1,301 (3) % Prime equity lines 1,984 1,785 1,653 1,852 1,530 11 First Union Home Equity 1,274 1,289 1,245 1,083 934 (1) First Union Mortgage Corporation 3,394 2,415 2,311 2,434 1,792 41 Student, card and other 728 360 392 185 447 - - -------------------------------------------------------------------------------------------------------------------------------- Total consumer loan volume $ 8,590 7,095 6,921 7,102 6,004 21 % - --------------------------------------------------------------------------------------------------------------------------------
Loan volume was up 21%, driven largely by increased refinancing volume in FUMC originations, continuing strong prime equity originations, seasonally strong student loan volume, and the start up of a new student loan referral program in 1Q01.
2001 2000 Consumer Average Loans --------- -------------------------------------------------- 1Q01 First Fourth Third Second First vs (In millions) Quarter Quarter Quarter Quarter Quarter 4Q00 - -------------------------------------------------------------------------------------------------------------------------------- Consumer direct $ 12,051 11,857 11,561 11,165 10,712 2 % Prime equity lines 9,372 8,946 8,422 8,197 7,799 5 First Union Home Equity 11,097 10,577 10,053 9,295 8,645 5 First Union Mortgage Corporation 439 401 377 368 367 9 Student, card and other 175 113 107 105 96 55 - -------------------------------------------------------------------------------------------------------------------------------- Consumer average loans $ 33,134 31,894 30,520 29,130 27,619 4 % - --------------------------------------------------------------------------------------------------------------------------------
Average loan outstandings increased 4%, attributable to solid volume and low runoff from the existing portfolio. - -------------------------------------------------------------------------------- PAGE-15 [FIRST UNION LOGO APPEARS HERE] - -------------------------------------------------------------------------------- COMMERCIAL This sub-segment includes middle-market Commercial, Commercial Real Estate and Government Banking.
- -------------------------------------------------------------------------------------------------------------------------------- 2001 2000 Commercial --------- -------------------------------------------------- 1Q01 Performance Summary First Fourth Third Second First vs (In millions) Quarter Quarter Quarter Quarter Quarter 4Q00 - -------------------------------------------------------------------------------------------------------------------------------- Income statement data - --------------------- Net interest income $ 170 177 170 169 174 (4)% Fee and other income 29 30 27 26 32 (3) Intersegment revenue 12 13 12 12 12 (8) - -------------------------------------------------------------------------------------------------------------------------------- Total revenue 211 220 209 207 218 (4) Provision for loan losses 21 30 16 18 9 (30) Noninterest expense 127 156 134 144 135 (19) Income tax expense 18 4 15 9 20 - - -------------------------------------------------------------------------------------------------------------------------------- Operating earnings $ 45 30 44 36 54 50 % - -------------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- Performance and other data - -------------------------- Economic profit $ 10 (5) - (5) 6 - % Risk adjusted return on capital (RAROC) 15.47 % 10.46 12.14 10.31 13.79 - Economic capital $ 1,114 1,247 1,227 1,219 1,249 (11) Overhead efficiency ratio 58.06 % 69.49 61.29 65.75 59.04 - Average loans, net $ 22,976 22,472 22,076 21,926 22,047 2 Average core deposits $ 9,601 9,267 8,708 8,767 9,184 4 % - --------------------------------------------------------------------------------------------------------------------------------
Net interest income decreased 4%, due primarily to spread compression in the falling interest rate environment. Loans increased 2%, with particular strength in Commercial and Commercial Real Estate. Deposits were up 4%, primarily in the Government business. Fee and Other Income declined 3%, due to seasonal declines in other income offset by across the board increases in Commercial, Commercial Real Estate, and Government businesses. Expenses decreased 19% attributable to strong expense control initiatives. We streamlined our commercial support functions and moved executive leadership closer to our customers. - -------------------------------------------------------------------------------- PAGE-16 [FIRST UNION LOGO APPEARS HERE] - -------------------------------------------------------------------------------- SMALL BUSINESS This sub-segment consists of Small Business Lending, Small Business Banking, and Small Business Capital (SBA).
- -------------------------------------------------------------------------------------------------------------------------------- 2001 2000 Small Business --------- ----------------------------------------------- 1Q01 Performance Summary First Fourth Third Second First vs (In millions) Quarter Quarter Quarter Quarter Quarter 4Q00 - -------------------------------------------------------------------------------------------------------------------------------- Income statement data - --------------------- Net interest income $ 159 170 170 163 160 (6)% Fee and other income 52 53 68 37 49 (2) Intersegment revenue 1 - - - 1 - - -------------------------------------------------------------------------------------------------------------------------------- Total revenue 212 223 238 200 210 (5) Provision for loan losses 21 9 4 3 4 - Noninterest expense 85 86 82 84 82 (1) Income tax expense 37 44 51 38 42 (16) - -------------------------------------------------------------------------------------------------------------------------------- Operating earnings $ 69 84 101 75 82 (18)% - -------------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- Performance and other data - -------------------------- Economic profit $ 62 69 82 56 64 (10)% Risk adjusted return on capital (RAROC) 60.52 % 63.41 72.20 56.30 62.70 - Economic capital $ 517 531 541 511 510 (3) Overhead efficiency ratio 39.65 % 38.04 33.73 41.48 38.53 - Average loans, net $ 7,320 7,127 7,188 6,855 6,665 3 Average core deposits $ 8,685 9,020 8,974 8,894 8,815 (4)% - --------------------------------------------------------------------------------------------------------------------------------
Net interest income decreased 6%, due primarily to lower spreads. Loans increased 3% as a result of growth in the Small Business Banking Division and Small Business Capital's 7(a) loans. Deposits declined 4%, primarily due to seasonality. Fee and Other Income decreased 2%, but was flat including referral fees. Expenses decreased 1% attributable to tighter expense control. - -------------------------------------------------------------------------------- PAGE-17 [FIRST UNION LOGO APPEARS HERE] - -------------------------------------------------------------------------------- CAPITAL MANAGEMENT - ------------------ This segment includes Asset Management, Retail Brokerage Services, and Wealth and Trust Services.
- -------------------------------------------------------------------------------------------------------------------------------- 2001 2000 Capital Management --------- -------------------------------------------------- 1Q01 Performance Summary First Fourth Third Second First vs (In millions) Quarter Quarter Quarter Quarter Quarter 4Q00 - -------------------------------------------------------------------------------------------------------------------------------- Income statement data - ---------------------- Net interest income $ 78 89 87 91 90 (12) % Fee and other income 765 777 761 752 851 (2) Intersegment revenue (12) (12) (13) (13) (13) - - -------------------------------------------------------------------------------------------------------------------------------- Total revenue 831 854 835 830 928 (3) Provision for loan losses - - - - - - Noninterest expense 658 650 647 619 708 1 Income tax expense 60 70 64 72 75 (14) - -------------------------------------------------------------------------------------------------------------------------------- Operating earnings $ 113 134 124 139 145 (16) % - -------------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- Performance and other data - -------------------------- Economic profit $ 83 103 94 108 112 (19)% Risk adjusted return on capital (RAROC) 45.96 % 54.39 50.08 56.91 54.57 - Economic capital $ 987 971 977 972 1,059 2 Overhead efficiency ratio 79.12 % 76.09 77.37 74.56 76.26 - Average loans, net $ 4,535 4,424 4,295 4.250 4,026 3 Average core deposits $ 8,004 7,879 7,935 7,888 7,740 2 % - --------------------------------------------------------------------------------------------------------------------------------
Key Points o Good revenue performance during a period of steeply declining markets o In Brokerage, higher asset-based fees offset lower brokerage commissions (Please note that JW Genesis commissions are reported on a net fee basis) o Asset Management, Wealth and Trust Services balanced portfolio offerings mitigated the impact of lower market valuations, mutual fund assets reached a record level due to money market inflows
2001 2000 Capital Management Key Metrics --------- -------------------------------------------------- 1Q01 First Fourth Third Second First vs (In millions) Quarter Quarter Quarter Quarter Quarter 4Q00 - -------------------------------------------------------------------------------------------------------------------------------- Trust assets $ 81,576 85,933 87,922 83,499 92,033 (5) % Mutual fund assets 86,767 84,797 85,223 82,131 82,967 2 - -------------------------------------------------------------------------------------------------------------------------------- Total assets under management $168,343 170,730 173,145 165,630 175,000 (1) % - -------------------------------------------------------------------------------------------------------------------------------- Gross fluctuating mutual fund sales $ 1,983 1,713 1,819 1,656 2,020 16 % - -------------------------------------------------------------------------------------------------------------------------------- Assets under care (Excluding AUM) $489,380 485,516 500,962 507,193 508,635 1 % - -------------------------------------------------------------------------------------------------------------------------------- Registered representatives (Actual) 7,784 7,459 7,342 7,091 6,881 4 Brokerage offices (Actual) 2,695 2,568 2,623 2,604 2,647 5 % - --------------------------------------------------------------------------------------------------------------------------------
Total AUM of $168 billion down 1% from 4Q00 reflecting o Trust Assets impacted by equity markets decline o Record Mutual Fund AUM driven by strong money market inflows o Registered Reps up net 325 due to consummation of JW Genesis deal January 1, 2001 - -------------------------------------------------------------------------------- PAGE-18 [FIRST UNION LOGO APPEARS HERE] - -------------------------------------------------------------------------------- ASSET MANAGEMENT This sub-segment consists of the mutual fund business (Evergreen Funds) and customized investment advisory services.
- -------------------------------------------------------------------------------------------------------------------------------- 2001 2000 Asset Management --------- -------------------------------------------------- 1Q01 Performance Summary First Fourth Third Second First vs (In millions) Quarter Quarter Quarter Quarter Quarter 4Q00 - -------------------------------------------------------------------------------------------------------------------------------- Income statement data - --------------------- Net interest income $ (11) (9) (8) (6) (5) (22)% Fee and other income 156 162 164 152 156 (4) Intersegment revenue - - - - - - - -------------------------------------------------------------------------------------------------------------------------------- Total revenue 145 153 156 146 151 (5) Provision for loan losses - - - - - - Noninterest expense 89 95 88 87 91 (6) Income tax expense 20 20 23 20 21 - - -------------------------------------------------------------------------------------------------------------------------------- Operating earnings $ 36 38 45 39 39 (5)% - -------------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- Performance and other data - -------------------------- Economic profit $ 33 35 41 35 36 (6)% Risk adjusted return on capital (RAROC) 121.77 % 121.95 142.18 128.70 131.45 - Economic capital $ 121 125 125 122 120 (3) Overhead efficiency ratio 61.62 % 61.87 56.49 59.37 60.43 - Average loans, net $ 1 - - - - - Average core deposits $ 5 - - - - - % - --------------------------------------------------------------------------------------------------------------------------------
Fee and Other Income decreased 4%, despite strong fund sales, due to a reduction in equity asset values emanating from the recent decline in market values. Expenses decreased 6%, due to continued emphasis on expense control.
- ---------------------------------------------------------------------------------------------------------------------------------- 2001 2000 Mutual Funds ---------------------- --------------------------------------------------------- 1Q01 First Quarter Fourth Quarter Third Second First vs ---------------------- ------------------- Quarter Quarter Quarter 4Q00 (In billions) Amount Fund Mix Amount Fund Mix - ---------------------------------------------------------------------------------------------------------------------------------- Assets Under Management Money market $ 53 61 % $ 47 55 % $ 44 41 41 13 % Equity 22 25 26 31 29 29 30 (15) Fixed income 11 13 11 13 11 11 11 - Annuity 1 1 1 1 1 1 1 - - ---------------------------------------------------------------------------------------------------------------------------------- Total mutual fund assets $ 87 100 % $ 85 100 % 85 82 83 2 % - ----------------------------------------------------------------------------------------------------------------------------------
Money market sales of $5 billion were up 118% due to a flight to quality in unstable market conditions. Despite the poor equity environment, gross fluctuating fund sales of $2 billion essentially matched redemptions. Overall, this resulted in the asset mix shifting significantly from equity assets to money market assets under management. - -------------------------------------------------------------------------------- PAGE-19 [FIRST UNION LOGO APPEARS HERE] - -------------------------------------------------------------------------------- RETAIL BROKERAGE SERVICES This sub-segment includes Retail Brokerage, Insurance and Asset Management Accounts (Retail Investment Group).
- -------------------------------------------------------------------------------------------------------------------------------- 2001 2000 Retail Brokerage Services --------- -------------------------------------------------- 1Q01 Performance Summary First Fourth Third Second First vs (In millions) Quarter Quarter Quarter Quarter Quarter 4Q00 - -------------------------------------------------------------------------------------------------------------------------------- Income statement data - --------------------- Net interest income $ 36 41 38 38 39 (12)% Fee and other income 492 491 480 485 581 - Intersegment revenue (11) (12) (12) (13) (13) 8 - -------------------------------------------------------------------------------------------------------------------------------- Total revenue 517 520 506 510 607 (1) Provision for loan losses - - - - - - Noninterest expense 451 442 446 424 512 (2) Income tax expense 23 27 21 29 32 (15) - -------------------------------------------------------------------------------------------------------------------------------- Operating earnings $ 43 51 39 57 63 (16)% - -------------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- Performance and other data - -------------------------- Economic profit $ 23 32 19 38 41 (28)% Risk adjusted return on capital (RAROC) 26.57 % 32.01 23.99 35.70 34.29 - Economic capital $ 650 640 646 645 739 2 Overhead efficiency ratio 87.39 % 84.95 88.26 82.95 84.21 - Average loans, net $ 1 - 1 - 1 - Average core deposits $ 104 79 70 74 116 32 % - --------------------------------------------------------------------------------------------------------------------------------
Net interest income declined 12%, due to a 14% reduction in margin loan receivables. Fee and Other Income was flat. Higher asset-based revenues offset a decline in brokerage commissions. Commission revenues included net revenues earned by JW Genesis, which did not materially affect quarterly comparisons. Expenses increased 2%, due primarily to 4Q00 adjustments to incentives to reflect full year 2000 performance.
- -------------------------------------------------------------------------------------------------------------- Retail Brokerage Metrics 2001 2000 ------- ---------------------------------------- 1Q01 First Fourth Third Second First vs (In millions) Quarter Quarter Quarter Quarter Quarter 4Q00 - -------------------------------------------------------------------------------------------------------------- Broker client assets $ 196,069 204,742 216,012 202,017 207,038 (4)% - -------------------------------------------------------------------------------------------------------------- Margin loans $ 3,060 3,556 4,013 3,613 4,012 (14)% - -------------------------------------------------------------------------------------------------------------- Asset management accounts Number of accounts (In thousands) 1,001 1,003 982 898 856 - % - -------------------------------------------------------------------------------------------------------------- Licensed sales force Full-service financial advisors 4,723 4,322 4,255 3,916 3,759 9 % Financial center series 6 3,061 3,137 3,087 3,175 3,122 (2) - -------------------------------------------------------------------------------------------------------------- Total sales force 7,784 7,459 7,342 7,091 6,881 4 % - --------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- PAGE-20 [FIRST UNION LOGO APPEARS HERE] - -------------------------------------------------------------------------------- WEALTH AND TRUST SERVICES This sub-segment includes the Private Client business, offering services to high net worth individuals, and Corporate and Institutional Trust.
- -------------------------------------------------------------------------------------------------------------------------------- 2001 2000 Wealth and Trust Services --------- -------------------------------------------------- 1Q01 Performance Summary First Fourth Third Second First vs (In millions) Quarter Quarter Quarter Quarter Quarter 4Q00 - -------------------------------------------------------------------------------------------------------------------------------- Income statement data - --------------------- Net interest income $ 52 55 56 57 55 (5) % Fee and other income 128 133 130 129 131 (4) Intersegment revenue (1) (1) (1) (1) (1) - - -------------------------------------------------------------------------------------------------------------------------------- Total revenue 179 187 185 185 185 (4) Provision for loan losses - - - - - - Noninterest expense 127 122 121 118 124 4 Income tax expense 18 21 22 23 20 (14) - -------------------------------------------------------------------------------------------------------------------------------- Operating earnings $ 34 44 42 44 41 (23) % - -------------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- Performance and other data - -------------------------- Economic profit $ 27 36 34 37 33 (25) % Risk adjusted return on capital (RAROC) 61.62 % 79.97 77.82 84.15 77.49 - Economic capital $ 218 209 208 207 205 4 Overhead efficiency ratio 70.46 % 64.94 65.45 63.47 66.71 - Average loans, net $ 4,533 4,423 4,295 4,249 4,026 2 Average core deposits $ 7,895 7,800 7,865 7,814 7,625 1 % - --------------------------------------------------------------------------------------------------------------------------------
Net interest income decreased 5% due to tighter spreads. However, loans and deposits were up 2% and 1%, respectively. Fee and Other Income decreased 4% due to declines in equity assets under management valuations. In spite of the market turbulence in the quarter, client retention and net asset flows remained stable. Expenses increased 4%, due to continued investment and refinement of our focused client service delivery model. CAPITAL MANAGEMENT OTHER Capital Management also includes 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. For 1Q01, brokerage revenue and associated expense eliminations were $10 million. - -------------------------------------------------------------------------------- PAGE-21 [FIRST UNION LOGO APPEARS HERE] - -------------------------------------------------------------------------------- CAPITAL MARKETS This segment includes Investment Banking and Corporate Banking.
2001 2000 Capital Markets --------- -------------------------------------------------- 1Q01 Performance Summary First Fourth Third Second First vs (In millions) Quarter Quarter Quarter Quarter Quarter 4Q00 - -------------------------------------------------------------------------------------------------------------------------------- Income statement data - --------------------- Net interest income $ 426 410 393 371 397 4 % Fee and other income 312 267 362 533 544 17 Intersegment revenue (12) (13) (12) (12) (12) 8 - -------------------------------------------------------------------------------------------------------------------------------- Total revenue 726 664 743 892 929 9 Provision for loan losses 70 124 83 126 89 (44) Noninterest expense 467 429 529 479 454 9 Income tax expense 39 (50) 19 72 108 - - -------------------------------------------------------------------------------------------------------------------------------- Operating earnings $ 150 161 112 215 278 (7) % - -------------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- Performance and other data - -------------------------- Economic profit $ (24) 19 (52) 87 141 - % Risk adjusted return on capital (RAROC) 10.46 % 13.22 8.67 17.96 22.33 - Economic capital $ 6,282 6,252 6,127 5,871 5,480 - Overhead efficiency ratio 60.84 % 53.38 67.30 51.13 46.83 - Average loans, net $ 42,642 42,325 42,452 43,069 41,560 1 Average core deposits $ 9,472 9,251 9,099 8,928 9,210 2 % - --------------------------------------------------------------------------------------------------------------------------------
Key Points o Fee income increased 17% primarily due to strong results in Fixed Income from strong syndicate deal flow, improved trading results, and increased revenue in equity derivatives o Decline in affordable housing write-downs was offset by asset securitization trading losses o Increase in expenses due to 4Q00 incentive accrual adjustments; excluding incentives, expenses unchanged reflecting efforts in 2000 - -------------------------------------------------------------------------------- PAGE-22 [FIRST UNION LOGO APPEARS HERE] - -------------------------------------------------------------------------------- CORPORATE BANKING This sub-segment includes Large Corporate Lending, Commercial Leasing and Rail, and International operations.
2001 2000 Corporate Banking --------- -------------------------------------------------- 1Q01 Performance Summary First Fourth Third Second First vs (In millions) Quarter Quarter Quarter Quarter Quarter 4Q00 - -------------------------------------------------------------------------------------------------------------------------------- Income statement data - --------------------- Net interest income $ 343 348 342 327 333 (1) % Fee and other income 165 167 160 156 162 (1) Intersegment revenue (8) (9) (10) (10) (9) 11 - -------------------------------------------------------------------------------------------------------------------------------- Total revenue 500 506 492 473 486 (1) Provision for loan losses 71 123 80 114 56 (42) Noninterest expense 239 222 260 224 222 8 Income tax expense 65 55 52 46 71 18 - -------------------------------------------------------------------------------------------------------------------------------- Operating earnings $ 125 106 100 89 137 18 % - -------------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- Performance and other data - -------------------------- Economic profit $ 37 46 15 27 46 (20) % Risk adjusted return on capital (RAROC) 16.25 % 17.10 13.75 15.16 17.56 - Economic capital $ 3,530 3,607 3,529 3,487 3,335 (2) Overhead efficiency ratio 47.47 % 43.83 52.95 47.46 45.64 - Average loans, net $ 36,867 35,771 35,895 36,362 34,632 3 Average core deposits $ 7,470 7,385 7,362 7,303 7,648 1 % - --------------------------------------------------------------------------------------------------------------------------------
Net interest income decreased 1%, primarily the result of lower purchased deposit volume and slightly lower spreads. Loans increased 3% and core deposits were up 1%. Fee and Other Income decreased 1%, with better results in Leasing and International offset by lower Corporate Lending results. Expenses increased 8%, due in part to a 4Q00 management decision to reduce incentives as a result of the business unit not achieving projected profitability targets. Cost allocations were also increased related to cash management fees.
- -------------------------------------------------------------------------------------------------------------- Corporate Banking Fees 2001 2000 ------- ---------------------------------------- 1Q01 First Fourth Third Second First vs (In millions) Quarter Quarter Quarter Quarter Quarter 4Q00 - -------------------------------------------------------------------------------------------------------------- Lending $ 58 70 62 34 60 (17)% Leasing 45 37 35 63 45 22 International 62 60 63 59 57 3 - -------------------------------------------------------------------------------------------------------------- Corporate banking fees $ 165 167 160 156 162 (1)% - --------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- PAGE-23 [FIRST UNION LOGO APPEARS HERE] - -------------------------------------------------------------------------------- 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.
2001 2000 Investment Banking --------- -------------------------------------------------- 1Q01 Performance Summary First Fourth Third Second First vs (In millions) Quarter Quarter Quarter Quarter Quarter 4Q00 - -------------------------------------------------------------------------------------------------------------------------------- Income statement data - --------------------- Net interest income $ 83 62 51 44 64 34 % Fee and other income 147 100 202 377 382 47 Intersegment revenue (4) (4) (2) (2) (3) - - -------------------------------------------------------------------------------------------------------------------------------- Total revenue 226 158 251 419 443 43 Provision for loan losses (1) 1 3 12 33 - Noninterest expense 228 207 269 255 232 10 Income tax expense (26) (105) (33) 26 37 75 - -------------------------------------------------------------------------------------------------------------------------------- Operating earnings $ 25 55 12 126 141 (55) % - -------------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- Performance and other data - -------------------------- Economic profit $ (61) (27) (67) 60 95 - % Risk adjusted return on capital (RAROC) 3.03 % 7.92 1.76 22.06 29.73 - Economic capital $ 2,752 2,645 2,598 2,384 2,145 4 Overhead efficiency ratio 86.07 % 69.59 91.32 54.87 48.04 - Average loans, net $ 5,775 6,554 6,557 6,707 6,928 (12) Average core deposits $ 2,002 1,866 1,737 1,625 1,562 7 % - --------------------------------------------------------------------------------------------------------------------------------
Net interest income increased 34%, due to higher spreads in fixed income sales and trading resulting from the fed funds rate drop this quarter. Loans decreased 12%, while deposits were up 7%. Fee and Other Income increased 47% on the strong performance of the Fixed Income division, with revenue growth of $68 million. The increase was largely driven by fixed income sales and trading and equity derivatives. Results in agency businesses were mixed, as Asset Securitization and Warehouse Lending were negatively impacted by $46 million in trading losses. However, results in Loan Syndications, High Yield, and Equity Capital markets improved, while M&A was down as the fourth quarter is typically strong. Principal investing results matched 4Q00, at $(43) million, due to continued market weakness. Lower affordable housing investment write-downs of $(19) million reflect the seasonal nature of the business. Note that tax credits associated with affordable housing of $19 million in 1Q01 and $64 million in 4Q00 ($30 million and $92 million pre-tax equivalent, respectively) appear as a tax benefits below the line. Expenses increased 10%, due primarily to a 4Q00 management decision to reduce incentives as a result of the business unit not achieving projected profitability targets. - -------------------------------------------------------------------------------- PAGE-24 [FIRST UNION LOGO APPEARS HERE] - --------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------- Investment Banking Fees 2001 2000 ------- ---------------------------------------------- 1Q01 First Fourth Third Second First vs (In millions) Quarter Quarter Quarter Quarter Quarter 4Q00 - ---------------------------------------------------------------------------------------------------------------------------------- Agency $ 44 120 86 116 111 (63)% Principal investing (43) (43) 34 205 199 - Fixed income 165 87 93 74 88 90 Affordable housing (AH) (19) (64) (11) (18) (16) (70) - ---------------------------------------------------------------------------------------------------------------------------------- Investment banking fees $ 147 100 202 377 382 47% - ---------------------------------------------------------------------------------------------------------------------------------- Memoranda Pre-tax value of AH tax credits 30 92 31 32 30 (67)% - ---------------------------------------------------------------------------------------------------------------------------------- Adjusted investment banking fees $ 177 192 233 409 412 (8) - ---------------------------------------------------------------------------------------------------------------------------------- Trading profits (included above) $ 83 57 70 73 98 46% - ----------------------------------------------------------------------------------------------------------------------------------
PARENT ------ This sub-segment includes the Central Money Book, Investment Portfolio, some Consumer Real Estate and Mortgage Business, Divested Businesses and goodwill amortization.
2001 2000 Parent --------- -------------------------------------------------- 1Q01 Performance Summary First Fourth Third Second First vs (In millions) Quarter Quarter Quarter Quarter Quarter 4Q00 - -------------------------------------------------------------------------------------------------------------------------------- Income statement data - --------------------- Net interest income $ 113 129 254 353 408 (12) % Fee and other income 129 187 175 166 148 (31) Intersegment revenue (1) - 1 - (1) - - -------------------------------------------------------------------------------------------------------------------------------- Total revenue 241 316 430 519 555 (24) Provision for loan losses 48 (5) 8 56 65 - Noninterest expense 105 83 226 323 300 27 Income tax expense 33 147 61 62 66 (78) - -------------------------------------------------------------------------------------------------------------------------------- Operating earnings $ 55 91 135 78 124 (40) % - -------------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- Performance and other data - -------------------------- Economic profit $ 94 90 137 89 154 4 % Risk adjusted return on capital (RAROC) 35.35 % 34.40 40.97 25.16 40.63 - Economic capital $ 1,651 1,590 1,881 2,708 2,174 4 Overhead efficiency ratio 18.91 % 9.91 40.20 48.72 40.21 - Average loans, net $ 9,077 11,609 16,699 27,190 29,404 (22) Average core deposits $ 2,181 3,630 3,854 3,941 3,570 (40) % - --------------------------------------------------------------------------------------------------------------------------------
Key Points Segment results include gain of $75 million on interest in Star Systems and $45 million in provision in excess of business unit charge-offs and provision for loans transferred to held for sale Net interest income declined 12%, as higher spreads from treasury management due to the lower rate environment were offset by lower interest income from businesses in process of divestiture. Loans decreased 22%, due to the $1.2 billion mortgage securitization in 4Q00, branch divestitures and auto finance runoff. Deposits decreased 40% due to the branch divestitures. Fee and Other Income fell 31%, the result of the branch divestitures, 4Q00 securitization gains of $49 million, and other 4Q00 gains of $31 million. Expenses increased 27%, largely due to 4Q00 adjustments to incentives to reflect full year 2000 performance. - -------------------------------------------------------------------------------- PAGE-25 [FIRST UNION LOGO APPEARS HERE] - -------------------------------------------------------------------------------- FIRSTUNION.COM
- ---------------------------------------------------------------------------------------------------------------------------------- firstunion.com 2001 2000 ------- ---------------------------------------------- 1Q01 First Fourth Third Second First vs (In thousands) Quarter Quarter Quarter Quarter Quarter 4Q00 - ---------------------------------------------------------------------------------------------------------------------------------- Online customers Retail 2,529 2,276 2,075 1,813 1,541 11% Wholesale 111 91 74 55 42 22 - ---------------------------------------------------------------------------------------------------------------------------------- Total customers online 2,640 2,367 2,149 1,868 1,583 12 Retail enrollments per quarter 293 230 290 292 291 27 - ---------------------------------------------------------------------------------------------------------------------------------- Dollar value of transactions (in billions) $ 4.4 2.2 2.2 2.3 2.3 100% - ---------------------------------------------------------------------------------------------------------------------------------- Non-financial transactions (in millions) $ 24.9 23.2 20.2 19.4 17.3 7% - ----------------------------------------------------------------------------------------------------------------------------------
Online enrollments increased 12% from 4Q00 to 2.6 million. There were 293,000 new enrollments in 1Q01, up 27% from 4Q00. Dollar value of transactions initiated through online banking (billpay and transfers) was $4.4 billion, up from 4Q00 due to the inclusion of Fed Funds and Online FX transactions. FIRST UNION DIRECT
- ---------------------------------------------------------------------------------------------------------------------------------- First Union Direct Metrics 2001 2000 ------- ---------------------------------------------- 1Q01 First Fourth Third Second First vs (In millions) Quarter Quarter Quarter Quarter Quarter 4Q00 - ---------------------------------------------------------------------------------------------------------------------------------- Customer calls to Person 9.5 9.0 7.0 10.0 10.0 6% Voice response unit 24.5 24.2 23.0 23.0 24.0 1 - ---------------------------------------------------------------------------------------------------------------------------------- Total calls 34.0 33.2 30.0 33.0 34.0 2% Calls handled in 30 seconds or less 68% 73 79 87 80 - - ----------------------------------------------------------------------------------------------------------------------------------
This Supplemental Earnings Package may contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, such as statements of the Corporation's plans, goals, objectives, expectations, projections, targets, estimates and intentions. These forward-looking statements involve significant risks and uncertainties and are subject to change based on various factors (many of which are beyond the Corporation's control). Factors that could cause the Corporation's actual results to differ materially from such forward-looking statements are set forth in the Corporation's most recent Annual Report on Form 10-K, Current Reports on Form 8-K, including its Current Report on Form 8-K dated April 16, 2001, and Quarterly Reports on Form 10-Q. Shareholders are urged to read the joint proxy statement/prospectus regarding First Union's proposed transaction with Wachovia Corporation when it becomes available, because it will contain important information. Shareholders will be able to obtain a free copy of the joint proxy statement/prospectus, as well as other filings containing information about First Union and Wachovia, without charge, at the SEC's internet site (http://www.sec.gov). Copies of the joint proxy statement/prospectus and the SEC filings that will be incorporated by reference in the joint proxy statement/prospectus can also be obtained, without charge, by directing a request to First Union Corporation, Investor Relations, One First Union Center, Charlotte, North Carolina, 28288-0206 (704-374-6782) or to Wachovia Corporation, 100 North Main Street, Winston-Salem, North Carolina 27150 (888-492-6397). Information regarding the participants in the proxy solicitation and a description of their direct and indirect interest, by security holdings or otherwise, is contained in the materials filed with the SEC by each of First Union and Wachovia on April 16, 2001. - -------------------------------------------------------------------------------- PAGE-26 ************************************************************************* THE FOLLOWING IS FIRST UNION'S SLIDE PRESENTATION RELATING TO ITS FIRST QUARTER 2001 EARNINGS RELEASE [FIRST UNION LOGO APPEARS HERE] 1st Quarter 2001 Earnings Review April 16th, 2001 Cautionary Statement A number of statements we will be making in our presentation and in the accompanying slides will be "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, such as statements of the Corporation's plans, goals, objectives, expectations, projections, targets, estimates and intentions. These forward-looking statements involve significant risks and uncertainties and are subject to change based on various factors (many of which are beyond the Corporation's control). Factors that could cause the Corporation's actual results to differ materially from such forward-looking statements are set forth in the Corporation's most recent Annual Report on Form 10-K, Current Reports on Form 8-K, including its Current Report on Form 8-K dated April 16, 2001, and Quarterly Reports on Form 10-Q. Shareholders are urged to read the joint proxy statement/prospectus regarding First Union's proposed transaction with Wachovia Corporation when it becomes available, because it will contain important information. Shareholders will be able to obtain a free copy of the joint proxy statement/prospectus, as well as other filings containing information about First Union and Wachovia, without charge, at the SEC's internet site (http://www.sec.gov). Copies of the joint proxy statement/prospectus and the SEC filings that will be incorporated by reference in the joint proxy statement/prospectus can also be obtained, without charge, by directing a request to First Union Corporation, Investor Relations, One First Union Center, Charlotte, North Carolina, 28288-0206 (704-374-6782) or to Wachovia Corporation, 100 North Main Street, Winston-Salem, North Carolina 27150 (888-492-6397). Information regarding the participants in the proxy solicitation and a description of their direct and indirect interest, by security holdings or otherwise, is contained in the materials filed with the SEC by each of First Union and Wachovia on April 16, 2001. [FIRST UNION LOGO APPEARS HERE] First Quarter 2001 Financial Highlights - -------------------------------------------------------------------------------- Versus Q4 2000 o Met market expectations for EPS of $.69 per share cash operating basis or $.62 per share operating basis o Core businesses showed strength in a difficult market o Reserves for loan losses increased by $37 million o Charge-offs declined to .53% of loans from .64% o Total NPAs rose 4% o Sales reduced assets held for sale from the strategic repositioning to $689 million from $4.3 billion o Expense growth of 0% 2 [FIRST UNION LOGO APPEARS HERE] Summary Operating Results ================================================================================
- ------------------------------------------------------------------------------------------------------------- 2001 2000 Operating Earnings Summary ------- ------------------------------------- 1Q01 First Fourth Third Second First vs (In millions, except per share data) Quarter Quarter Quarter Quarter Quarter 4Q00 - ------------------------------------------------------------------------------------------------------------- Net interest income (Tax-equivalent) $ 1,734 1,757 1,860 1,930 1,989 (1)% Fee and other income 1,546 1,582 1,645 1,746 1,842 (2) - ------------------------------------------------------------------------------------------------------------- Total revenue (Tax-equivalent) 3,280 3,339 3,505 3,676 3,831 (2) Provision for loan losses 219 192 142 228 192 14 Noninterest expense 2,138 2,132 2,328 2,366 2,387 - - ------------------------------------------------------------------------------------------------------------- Income before income taxes (Tax-equivalent) 923 1,015 1,035 1,082 1,252 (9) Income taxes 281 309 307 343 391 (9) Tax-equivalent adjustment 32 25 26 25 23 28 - ------------------------------------------------------------------------------------------------------------- Net income $ 610 681 702 714 838 (10)% Net income (Cash basis) $ 684 753 778 807 932 (9)% - ------------------------------------------------------------------------------------------------------------- Diluted earnings per share $ 0.62 0.69 0.71 0.73 0.85 (10)% Diluted earnings per share (Cash basis) $ 0.69 0.76 0.79 0.82 0.95 (9)% Return on average stockholders' equity 15.64% 15.36 15.76 17.74 20.31 - Return on average stockholders' equity (Cash basis) 22.91% 21.55 22.15 30.18 34.03 - - -------------------------------------------------------------------------------------------------------------
Key Points o Net interest income declined slightly, as anticipated. The decrease was principally the result of the expiration of strategic off-balance sheet positions and branch divestitures; partially offset by wider spreads in a lower rate environment o Very strong expense control o Loan loss provision of $219 million exceeds charge-offs by $60 million and includes provisions of $15 million related to loans moved to assets held for sale 3 [FIRST UNION LOGO APPEARS HERE] Key Financial Measures - --------------------------------------------------------------------------------
2001 2000 Operating Basis Performance Highlights ------- ------------------------------------- 1Q01 First Fourth Third Second First vs (In millions, except per share data) Quarter Quarter Quarter Quarter Quarter 4Q00 - ------------------------------------------------------------------------------------------------------------- Cash operating earnings Net income $ 684 753 778 807 932 (9)% Diluted earnings per share $ 0.69 0.76 0.79 0.82 0.95 (9) Return on average tangible assets 1.15% 1.26 1.26 1.30 1.54 - Return on average tangible stockholders' equity 22.91 21.55 22.15 30.18 34.03 - Overhead efficiency ratio 62.80% 61.46 64.17 61.64 59.65 - Operating leverage $ (67) 31 (154) (136) (13) -% - ------------------------------------------------------------------------------------------------------------- Other financial data Fee income as % of total revenue 47.13% 47.38 46.93 47.50 48.08 - Average diluted shares (In thousands) 975,847 990,445 986,763 981,940 984,095 (1)% Actual shares (In thousands) 981,268 979,963 986,004 986,394 984,148 - Dividends paid per common share $ 0.24 0.48 0.48 0.48 0.48 (50) Dividend payout ratio 38.71% 69.57 67.42 65.75 56.47 - Book value per share $ 16.39 15.66 15.00 14.14 17.16 5% Tier 1 capital ratio (a) 7.16% 7.02 7.00 6.65 6.94 - Total capital ratio (a) 11.29 11.19 11.32 10.57 10.67 - Leverage ratio (a) 5.88% 5.92 5.73 5.34 5.94 - - ------------------------------------------------------------------------------------------------------------- Other FTE employees 69,368 69,971 70,533 72,890 72,016 (1)% - ------------------------------------------------------------------------------------------------------------- (a) The first quarter of 2001 is based on estimates. - -------------------------------------------------------------------------------------------------------------
Key Points o Average diltued shares declined due to market value impact on share equivalents including forward contracts. No impact on EPS o Tier 1 capital ratio continued to improve 4 [FIRST UNION LOGO APPEARS HERE] Net Interest Income - --------------------------------------------------------------------------------
================================================================================================================================ - -------------------------------------------------------------------------------------------------------------------------------- 2001 2000 Interest Income Summary --------- -------------------------------------------------- 1Q01 First Fourth Third Second First vs (In millions) Quarter Quarter Quarter Quarter Quarter 4Q00 - -------------------------------------------------------------------------------------------------------------------------------- Average earning assets $203,720 202,606 211,089 220,061 215,754 1 % Average interest-bearing liabilities $183,995 181,832 190,146 196,954 191,680 1 % - -------------------------------------------------------------------------------------------------------------------------------- Interest income (Tax-equivalent) $ 4,057 4,289 4,491 4,517 4,336 (5)% Interest expense 2,323 2,532 2,631 2,587 2,347 (8) - -------------------------------------------------------------------------------------------------------------------------------- Net interest income (Tax-equivalent) $ 1,734 1,757 1,860 1,930 1,989 (1)% - -------------------------------------------------------------------------------------------------------------------------------- Rate earned 8.03 % 8.44 8.48 8.24 8.06 - Equivalent rate paid 4.61 4.98 4.96 4.73 4.37 - - -------------------------------------------------------------------------------------------------------------------------------- Net interest margin 3.42 % 3.96 3.52 3.51 3.69 - - --------------------------------------------------------------------------------------------------------------------------------
Key Points o Margin declined 4 basis points to 3.42%, due to growth in trading account balances, primarily in equity derivatives 5 [FIRST UNION LOGO APPEARS HERE] Fee and Other Income ================================================================================
- ------------------------------------------------------------------------------------------------------------- 2001 2000 Fee and Other Income ------- ------------------------------------- 1Q01 First Fourth Third Second First vs (In millions) Quarter Quarter Quarter Quarter Quarter 4Q00 - ------------------------------------------------------------------------------------------------------------- Service charges and fees $ 468 481 508 491 486 (3)% Commissions 375 383 365 375 468 (2) Fiduciary and asset management fees 381 387 384 374 366 (2) Advisory, underwriting and other Capital Markets fees 198 187 148 182 209 6 Principal investing (43) (43) 34 205 199 - Other income 167 187 206 119 114 (11) - ------------------------------------------------------------------------------------------------------------- Total fee and other income $ 1,546 1,582 1,645 1,746 1,842 (2)% - -------------------------------------------------------------------------------------------------------------
Key Points o Solid fiduciary, asset management and commissions performance given challenging market conditions o Capital Markets fees up on increased activity; principal investing losses same as 4Q00 o Other income down due to offsetting items, lower securitization/other gains vs. 4Q00 6 [FIRST UNION LOGO APPEARS HERE] Noninterest Expense ================================================================================
- ------------------------------------------------------------------------------------------------------------- 2001 2000 Noninterest Expense ------- ------------------------------------- 1Q01 First Fourth Third Second First vs (In millions) Quarter Quarter Quarter Quarter Quarter 4Q00 - ------------------------------------------------------------------------------------------------------------- Salaries and employee benefits $ 1,329 1,243 1,381 1,396 1,429 7 % Occupancy 163 150 157 155 157 9 Equipment 205 221 213 210 214 (7) Advertising 9 16 14 31 30 (44) Communications and supplies 110 123 117 122 125 (11) Professional and consulting fees 73 97 87 82 71 (25) Goodwill and other intangible amortization 78 80 79 100 102 (3) Sundry expense 171 202 280 270 259 (15) - ------------------------------------------------------------------------------------------------------------- Total noninterest expense $ 2,138 2,132 2,328 2,366 2,387 - % - ------------------------------------------------------------------------------------------------------------- FTE employees 69,368 69,971 70,533 72,890 72,016 (1)% Overhead efficiency ratio (Cash basis) 62.80 % 61.46 64.17 61.64 59.65 - - -------------------------------------------------------------------------------------------------------------
Key Points o Total expenses were flat, the result of an intense focus on cost control o Personnel expense up due to 4Q00 reductions in incentives to reflect full year 2000 performance 7 [FIRST UNION LOGO APPEARS HERE] Consolidated Results
==================================================================================================================== - -------------------------------------------------------------------------------------------------------------------- Three Months Ended March 31, 2001 First Union Corporation -------------------------------------------------------------- Performance Summary General Capital Capital (In millions) Bank Management Markets Parent Consolidated - -------------------------------------------------------------------------------------------------------------------- Income statement data - --------------------- Net interest income $ 1,085 78 426 113 1,702 Fee and other income 340 765 312 129 1,546 Intersegment revenue 25 (12) (12) (1) - - --------------------------------------------------------------------------------------------------------------------- Total revenue 1,450 831 726 241 3,248 Provision for loan losses 101 - 70 48 219 Noninterest expense 908 658 467 105 2,138 Income tax expense 149 60 39 33 281 - --------------------------------------------------------------------------------------------------------------------- Operating earnings $ 292 113 150 55 610 - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- Performance and other data - -------------------------- Economic profit $ 218 83 (24) 94 371 Risk adjusted return on capital (RAROC) 36.62 % 45.96 10.46 35.35 24.05 Economic capital $ 3,586 987 6,282 1,651 12,506 Overhead efficiency ratio 61.41 % 79.12 60.84 18.91 62.80 Average loans, net $ 63,596 4,535 42,642 9,077 119,850 Average core deposits $ 98,535 8,004 9,472 2,181 118,192 - ---------------------------------------------------------------------------------------------------------------------
Key Points o Earnings/Profit: General Bank earned almost half of operating earnings and almost 60% of economic profit o RAROC: Capital Management reported very strong return, with Capital Markets almost covering its 12% cost of capital o Efficiency Ratio: General Bank may offer opportunity to improve over time. Capital Management reasonable 8 [FIRST UNION LOGO APPEARS HERE] General Bank
================================================================================================================================ - -------------------------------------------------------------------------------------------------------------------------------- 2001 2000 General Bank --------- -------------------------------------------------- 1Q01 Performance Summary First Fourth Third Second First vs (In millions) Quarter Quarter Quarter Quarter Quarter 4Q00 - -------------------------------------------------------------------------------------------------------------------------------- Income statement data - --------------------- Net interest income $ 1,085 1,104 1,100 1,090 1,071 (2)% Fee and other income 340 351 347 295 299 (3) Intersegment revenue 25 25 24 25 26 - - -------------------------------------------------------------------------------------------------------------------------------- Total revenue 1,450 1,480 1,471 1,410 1,396 (2) Provision for loan losses 101 73 51 46 38 38 Noninterest expense 908 970 926 945 925 (6) Income tax expense 149 142 163 137 142 5 - -------------------------------------------------------------------------------------------------------------------------------- Operating earnings $ 292 295 331 282 291 (1)% - -------------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- Performance and other data - -------------------------- Economic profit $ 218 198 214 165 173 10 % Risk adjusted return on capital (RAROC) 36.62 % 33.44 33.97 29.01 30.55 - Economic capital $ 3,586 3,692 3,897 3,918 3,766 (3) Overhead efficiency ratio 61.41 % 63.99 61.56 65.51 64.78 - Average loans, net $ 63,596 61,735 60,029 58,105 56,491 3 Average core deposits $ 98,535 98,184 97,186 97,499 97,552 - % - --------------------------------------------------------------------------------------------------------------------------------
Key Points o Solid loan growth of 3% and modest deposit growth in a seasonally down quarter 9 [FIRST UNION LOGO APPEARS HERE] General Bank Key Operating Measures
================================================================================================================================ - -------------------------------------------------------------------------------------------------------------------------------- 2001 2000 General Bank Key Metrics --------- -------------------------------------------------- 1Q01 First Fourth Third Second First vs Quarter Quarter Quarter Quarter Quarter 4Q00 - -------------------------------------------------------------------------------------------------------------------------------- Customer overall satisfaction score (a) 6.29 6.27 6.22 6.19 6.13 - % Online customers (In thousands) 2,640 2,367 2,149 1,868 1,583 12 Financial centers 2,164 2,193 2,253 2,258 2,305 (1) ATMs 3,676 3,772 3,831 3,832 3,786 (3)% - -------------------------------------------------------------------------------------------------------------------------------- (a) Gallup survey measured on a 1-7 scale; 6.4 = "best in class". - --------------------------------------------------------------------------------------------------------------------------------
Key Points o Financial Centers recorded 8th consecutive quarterly increase in customer satisfaction measures o Customers attrition was 13% for 4Q00 vs. 13.6% for 3Q00 o Financial Center staffing levels continue to run close to 100% level 10 Capital Management [FIRST UNION LOGO APPEARS HERE] - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------- 2001 2000 Capital Management --------- -------------------------------------------------- 1Q01 Performance Summary First Fourth Third Second First vs (In millions) Quarter Quarter Quarter Quarter Quarter 4Q00 - -------------------------------------------------------------------------------------------------------------------------------- Income statement data - --------------------- Net interest income $ 78 89 87 91 90 (12) % Fee and other income 765 777 761 752 851 (2) Intersegment revenue (12) (12) (13) (13) (13) - - -------------------------------------------------------------------------------------------------------------------------------- Total revenue 831 854 835 830 928 (3) Provision for loan losses - - - - - - Noninterest expense 658 650 647 619 708 1 Income tax expense 60 70 64 72 75 (14) - -------------------------------------------------------------------------------------------------------------------------------- Operating earnings $ 113 134 124 139 145 (16) % - -------------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- Performance and other data - -------------------------- Economic profit $ 83 103 94 108 112 (19) % Risk adjusted return on capital (RAROC) 45.96 % 54.39 50.08 56.91 54.57 - Economic capital $ 987 971 977 972 1,059 2 Overhead efficiency ratio 79.12 % 76.09 77.37 74.56 76.26 - Average loans, net $ 4,535 4,424 4,295 4,250 4,026 3 Average core deposits $ 8,004 7,879 7,935 7,888 7,740 2 % - --------------------------------------------------------------------------------------------------------------------------------
Key Points o Good revenue performance during a period of steeply declining markets o In Brokerage, higher asset-based fees offset lower brokerage commissions (Please note that JW Genesis commissions are reported on a net fee basis) 11 [FIRST UNION LOGO GOES HERE] Capital Management Key Operating Measures
- -------------------------------------------------------------------------------------------------------------------------------- 2001 2000 Capital Management Key Metrics --------- -------------------------------------------------- 1Q01 First Fourth Third Second First vs (In millions) Quarter Quarter Quarter Quarter Quarter 4Q00 - -------------------------------------------------------------------------------------------------------------------------------- Trust assets $ 81,576 85,933 87,922 83,499 92,033 (5)% Mutual fund assets 86,767 84,797 85,223 82,131 82,967 2 - -------------------------------------------------------------------------------------------------------------------------------- Total assets under management $168,343 170,730 173,145 165,630 175,000 (1) - -------------------------------------------------------------------------------------------------------------------------------- Gross fluctuating mutual fund sales $ 1,983 1,713 1,819 1,656 2,020 16 % - -------------------------------------------------------------------------------------------------------------------------------- Assets under care (Excluding AUM) $489,380 485,516 500,962 507,193 508,635 1 - -------------------------------------------------------------------------------------------------------------------------------- Registered representatives (Actual) 7,784 7,459 7,342 7,091 6,881 4 Brokerage offices (Actual) 2,695 2,568 2,623 2,604 2,647 5 % - --------------------------------------------------------------------------------------------------------------------------------
Key Metrics o Registered reps increased due to acquisition of JW Genesis o Asset Management, Wealth and Trust Services balanced portfolio offerings mitigated the impact of lower market valuations; mutual fund assets reached a record level due to money market inflows 12 [FIRST UNION LOGO GOES HERE] Capital Markets - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------- 2001 2000 Capital Markets --------- -------------------------------------------------- 1Q01 Performance Summary First Fourth Third Second First vs (In millions) Quarter Quarter Quarter Quarter Quarter 4Q00 - -------------------------------------------------------------------------------------------------------------------------------- Income statement data Net interest income $ 426 410 393 371 397 4 % Fee and other income 312 267 362 533 544 17 Intersegment revenue (12) (13) (12) (12) (12) 8 - -------------------------------------------------------------------------------------------------------------------------------- Total revenue 726 664 743 892 929 9 Provision for loan losses 70 124 83 126 89 (44) Noninterest expense 467 429 529 479 454 9 Income tax expense 39 (50) 19 72 108 - - -------------------------------------------------------------------------------------------------------------------------------- Operating earnings $ 150 161 112 215 278 (7)% - -------------------------------------------------------------------------------------------------------------------------------- Performance and other data Economic profit $ (24) 19 (52) 87 141 - % Risk adjusted return on capital (RAROC) 10.46% 13.22 8.67 17.96 22.33 - Economic Capital $ 6,282 6,252 6,127 5,871 5,480 - Overhead efficiency ratio 60.84% 53.38 67.30 51.13 46.83 - Average loans, net $ 42,642 42,325 42,452 43,069 41,560 1 Average core deposits $ 9,472 9,251 9,099 8,928 9,210 2 % - --------------------------------------------------------------------------------------------------------------------------------
Key Points o Fee income increased 17% primarily due to strong results in Fixed Income from strong syndicate deal flow, improved trading results, and increased revenue in equity derivatives o Decline in affordable housing write-downs was offset by asset securitization trading losses o Increase in expenses due to 4Q00 incentive accrual adjustments; excluding incentives, expenses unchanged reflecting efforts in 2000 13 [FIRST UNION LOGO APPEARS HERE] Loan and Deposit Growth - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------- 2001 2000 --------- -------------------------------------------------- 1Q01 Average Balance Sheet Data First Fourth Third Second First vs (In millions) Quarter Quarter Quarter Quarter Quarter 4Q00 - -------------------------------------------------------------------------------------------------------------------------------- Commercial loans 77,270 76,253 75,380 75,951 73,939 1 Consumer loans 42,580 43,840 48,095 56,663 57,542 (3) - -------------------------------------------------------------------------------------------------------------------------------- Total loans $ 119,850 120,093 123,475 132,614 131,481 - % - -------------------------------------------------------------------------------------------------------------------------------- Core interest-bearing deposits 91,149 91,069 89,637 89,285 89,385 - Noninterest-bearing deposits 27,043 27,875 28,437 28,971 28,687 (3) - -------------------------------------------------------------------------------------------------------------------------------- Total core deposits 118,192 118,944 118,074 118,256 118,072 (1) Foreign and other time deposits 19,090 19,385 25,038 22,948 22,349 (2) - -------------------------------------------------------------------------------------------------------------------------------- Total deposits $ 137,282 138,329 143,112 141,204 140,421 (1) % - --------------------------------------------------------------------------------------------------------------------------------
Key Points o Loan growth of 2% excluding divestitures and securitizations o Solid core deposit growth given normal seasonality - up 1% excluding divestitures 14 Restructuring Update [FIRST UNION LOGO APPEARS HERE] - --------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------- 2001 2000 --------- -------------------------------------------------- Restructuring Charges and Other Charges/Gains First Fourth Third Second First (In millions) Quarter Quarter Quarter Quarter Quarter - ---------------------------------------------------------------------------------------------------------------------- Restructuring charges - ---------------------------------------------------------------------------------------------------------------------- Total strategic repositioning charges $ - - 30 2,099 - Reversal of March 1999 and other accruals (14) (1) (2) - (14) - ---------------------------------------------------------------------------------------------------------------------- Total (14) (1) 28 2,099 (14) EVEREN acquisition and other merger-related charges 16 34 24 11 9 - ---------------------------------------------------------------------------------------------------------------------- Total $ 2 33 52 2,110 (5) - ---------------------------------------------------------------------------------------------------------------------- Other charges/gains Provision for loan losses - - 180 802 - Service charges and fees - - 2 44 - Other income (28) (171) (540) 768 - Other noninterest expense 69 212 68 27 - - ---------------------------------------------------------------------------------------------------------------------- Total other charges/gains $ 41 41 (290) 1,641 - - ---------------------------------------------------------------------------------------------------------------------- Total restructuring and other charges/gains 43 74 (238) 3,751 (5) Income tax (benefits) (17) (38) 88 (838) 3 - ---------------------------------------------------------------------------------------------------------------------- After-tax restructuring, merger-related and other charge/gains $ 26 36 (150) 2,913 (2) - ----------------------------------------------------------------------------------------------------------------------
Key Points o Closed sale of remaining 26 branches ($617 million in deposits, $115 million in loans) o Gains on branch sales totaled $73 million pre-tax 15 [FIRST UNION LOGO APPEARS HERE] Asset Quality - --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------- 2001 2000 Asset Quality ------- ------------------------------------- 1Q01 First Fourth Third Second First vs (In millions) Quarter Quarter Quarter Quarter Quarter 4Q00 - ------------------------------------------------------------------------------------------------------------- Nonperforming assets Loans $ 1,231 1,176 854 791 1,175 5 % Other real estate 106 103 97 93 95 3 Loans in assets held for sale 344 334 349 331 30 3 - ------------------------------------------------------------------------------------------------------------- Total nonperforming assets $ 1,681 1,613 1,300 1,215 1,300 4 % - ------------------------------------------------------------------------------------------------------------- as % of loans, net 1.09% 1.03 0.77 0.69 0.93 - - ------------------------------------------------------------------------------------------------------------- as % of loans, net, including assets held for sale 1.30% 1.22 0.98 0.87 0.92 - - ------------------------------------------------------------------------------------------------------------- Allowance for loan losses - ------------------------------------------------------------------------------------------------------------- Balance, end of period $ 1,759 1,722 1,720 1,706 1,760 2 % - ------------------------------------------------------------------------------------------------------------- as % of loans, net 1.43% 1.39 1.39 1.33 1.30 - as % of nonaccrual and restructured loans (a) 143 146 202 215 150 - as % of nonperforming assets (a) 132% 135 181 193 139 - - ------------------------------------------------------------------------------------------------------------- Loans losses, net $ 159 192 142 228 189 (17)% Commercial, as % of average commercial loans 0.56% 0.80 0.53 0.73 0.53 - Consumer, as % of average consumer loans 0.48 0.36 0.35 0.63 0.64 - Total, as % of average loans, net 0.53% 0.64 0.46 0.69 0.57 - - ------------------------------------------------------------------------------------------------------------- (a) These ratios do not include nonperforming loans included in other assets as held for sale. Loans 90 days past due were $220 million, $183 million, $145 million, $84 million and $134 million in the first quarter of 2001 and in the fourth, third, second and first quarters of 2000, respectively. - -------------------------------------------------------------------------------------------------------------
Key Points o Net loan losses improved 17% to $159 million; NPAs rose modestly to 1.30% of total loans o Charge-offs and NPA guidance remains unchanged o Allowance increased $37 million to 1.43% o Delinquencies 90 days past due were $220 million vs. $183 million at December 31 16 [FIRST UNION LOGO APPEARS HERE] Nonperforming Assets - --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------- 2001 2000 Nonperforming Assets (a) ------- ------------------------------------- 1Q01 First Fourth Third Second First vs (In millions) Quarter Quarter Quarter Quarter Quarter 4Q00 - ------------------------------------------------------------------------------------------------------------- Balance, beginning of period $ 1,279 951 884 1,270 1,066 34 % - ------------------------------------------------------------------------------------------------------------- Commercial loan activity New nonaccrual loans 251 481 217 242 303 (48) Advances 15 6 6 - - - Charge-offs (69) (112) (27) (93) (70) (38) Transfers to assets held for sale, net - 11 (46) (223) - (100) Payments (59) (22) (29) (11) (5) - Sales - (15) - - - (100) Other (activity under $5 million) (53) (69) (93) (78) (40) (23) - ------------------------------------------------------------------------------------------------------------- Commercial loan activity, net 85 280 28 (163) 188 (70) Consumer loan activity, net (27) 48 39 (223) 16 - - ------------------------------------------------------------------------------------------------------------- Change in nonperforming assets 58 328 67 (386) 204 (82) - ------------------------------------------------------------------------------------------------------------- Balance, end of period $ 1,337 1,279 951 884 1,270 5 % - ------------------------------------------------------------------------------------------------------------- (a) Does not include nonperforming assets transferred to assets held for sale; which in the first quarter of 2001 and in the fourth, third, second and first quarters of 2000 were $344 million, $334 million, $349 million $331 million and $30 million, respectively. - -------------------------------------------------------------------------------------------------------------
17 [FIRST UNION LOGO APPEARS HERE] Assets Held for Sale - --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------- 2001 2000 Assets Held for Sale --------- -------------------------------------------------- First Fourth Third Second First (In millions) Quarter Quarter Quarter Quarter Quarter - --------------------------------------------------------------------------------------------------------------------- 2000 Strategic Repositioning - ---------------------------- Balance, beginning of period $ 4,263 4,983 6,326 - - Loans transferred to assets held for sale - - 719 7,182 - Allowance for loan losses related to loans transferred to assets held for sale - 2 (166) (856) - Lower of cost or market valuation adjustments (37) (111) - - - Loans sold (3,340) (289) (1,756) - - Other, net (a) (197) (322) (140) - - - --------------------------------------------------------------------------------------------------------------------- Balance, end of period 689 4,263 4,983 6,326 - - --------------------------------------------------------------------------------------------------------------------- Other Balance, end of period 6,101 3,883 4,108 4,310 4,875 - --------------------------------------------------------------------------------------------------------------------- Total loans held for sale, end of period $ 6,790 8,146 9,091 10,636 4,875 - --------------------------------------------------------------------------------------------------------------------- (a) Other, net represents primarily loan payments. Nonperforming assets included in loans held for sale in the first quarter of 2001 and in the fourth, third, second and first quarters of 2000 were $344 million, $334 million, $349 million, $331 million and $30 million, respectively. - ---------------------------------------------------------------------------------------------------------------------
Key Points o Securitized and sold $3.2 billion of The Money Store loans, sold $157 million commercial loans from strategic repositioning portfolio; $689 million balance remaining o Growth in assets held for sale (originations/transfers net of sales) primarily related to increased mortgage production due to lower rate environment 18 [FIRST UNION LOGO APPEARS HERE] 1st Quarter Summary - -------------------------------------------------------------------------------- o Delivered cash operating earnings of 69(cents)per share o Allowance improved o Total NPAs up a manageable 4% o Charge-offs down o Strong expense control evident o Restructuring on track 19 ************************************************************************* THE FOLLOWING IS A TRANSCRIPT OF FIRST UNION'S PRE-RECORDED EARNINGS CONFERENCE CALL RELATING TO ITS FIRST QUARTER 2001 EARNINGS RELEASE >>ALICE: GOOD MORNING. THANKS FOR JOINING OUR CALL. THIS IS ALICE LEHMAN, MANAGING DIRECTOR OF INVESTOR COMMUNITY AND CORPORATE COMMUNICATIONS FOR FIRST UNION. BOB KELLY, OUR CFO, WILL REVIEW FIRST QUARTER RESULTS AND THEN AT 1:00 P.M., WE'LL HOST A LIVE Q&A TO TAKE YOUR QUESTIONS. BEFORE WE START, THERE ARE A FEW HOUSEKEEPING DETAILS THAT I NEED TO ADDRESS. FIRST, LET ME REMIND YOU THAT ANY FORWARD-LOOKING STATEMENTS MADE DURING THIS PRESENTATION ARE SUBJECT TO RISKS AND UNCERTAINTIES, AND FACTORS THAT COULD CAUSE OUR RESULTS TO DIFFER MATERIALLY FROM ANY FORWARD-LOOKING STATEMENTS THAT ARE SET FORTH IN OUR PUBLIC REPORTS FILED WITH THE SEC, INCLUDING OUR CURRENT REPORT ON FORM 8-K, DATED APRIL 16th, 2001. SECOND, THE TAPED REPLAY OF THIS CALL WILL BE AVAILABLE UNTIL 5:00 P.M. ON APRIL 23rd. NOW, LET ME TURN IT OVER TO BOB. >>BOB: THANKS, ALICE, AND THANKS, EVERYONE, FOR JOINING US THIS MORNING. AS ALICE SAID, YOU SHOULD HAVE RECEIVED YOUR EARNINGS NEWS RELEASE BY NOW, SO YOU KNOW WE'RE RIGHT IN LINE WITH THE MARKET EXPECTATIONS. FIRST QUARTER CASH OPERATING EARNINGS WERE 69 CENTS A SHARE, AND OPERATING EARNINGS WERE 62 CENTS A SHARE. NOW, BEFORE I GET INTO THE DETAILS, I WOULD LIKE TO POINT OUT A FEW HIGHLIGHTS OF THE QUARTER THAT MAY NOT BE TOTALLY APPARENT FROM A QUICK LOOK AT THE NUMBERS. AS YOU KNOW, WE SPENT A LOT OF TIME OVER THE PAST YEAR RESTRUCTURING TO HONE OUR BUSINESS MODEL. WE'VE INSTILLED A NEW FINANCIAL DISCIPLINE AND TRANSPARENCY IN THE WAY WE REPORT OUR NUMBERS, AND THIS QUARTER, WE'VE CONTINUED TO DO SO. WE'VE RADICALLY IMPROVED OUR SEGMENT DISCLOSURE, AND WE'VE ALSO SIMPLIFIED OUR NORMAL TABLES TO MAKE THEM EASIER FOR TO YOU READ, AND I HOPE YOU FIND THAT USEFUL. WHAT THE NUMBERS CAN'T TELL YOU, HOWEVER, IS JUST HOW WELL OUR EMPLOYEES PERFORMED IN CARING FOR THE CUSTOMERS IN VERY DIFFICULT MARKETS. OR, INDEED, THE GREAT PROGRESS WE MADE IN VIRTUALLY ALL AREAS IN EXPENSE CONTROL. WE'VE ALSO, I THINK, DONE A GREAT JOB IN TIGHTLY MONITORING ALL ASPECTS OF RISK MANAGEMENT THROUGHOUT THE COMPANY. AS YOU KNOW, WE'RE WINDING DOWN DIVESTED BUSINESS UNITS AND WE'VE SECURITIZED AND SOLD A LOT OF LOW-YIELDING ASSETS, AND OF COURSE, WE'RE IN A DRAMATICALLY LESS VIBRANT MARKET FOR BOTH THE CAPITAL MANAGEMENT AND OUR CAPITAL MARKETS BUSINESS. HAVING SAID THAT, THOUGH, THE VALUE OF DIVERSIFICATION PAYS OFF. WHEN YOU LOOK AT ALL OF OUR BUSINESS UNITS IN TOTAL, WE THINK IT WAS A GOOD QUARTER. WE'RE VERY PLEASED WITH WHAT WE'RE SEEING IN THIS ENVIRONMENT WITH OUR GENERAL BANK. YOU NOTE THAT LOANS GREW A VERY SOLID 3% ON AN ANNUALIZED BASIS AND DEPOSITS GREW ABOUT 1% IN A SEASONALLY DOWN QUARTER, SO WE'RE VERY ENCOURAGED BY THAT. WE'RE ALSO QUITE SATISFIED WITH THE RESULTS IN CAPITAL MARKETS AND CAPITAL MANAGEMENT GIVEN THIS EXCEPTIONALLY DIFFICULT MARKET. THE GENERAL BANK, IN PARTICULAR, HAS BEEN VERY FOCUSED ON ITS CUSTOMERS, AS YOU KNOW, AND WE'VE MADE SUBSTANTIAL PROGRESS IN SERVICE QUALITY RATINGS. IN FACT, THESE RATINGS, DONE BY THE GALLUP ORGANIZATION, HAVE NOW RISEN FOR EIGHT CONSECUTIVE QUARTERS AND WE'RE CLOSING IN ON A, QUOTE, BEST IN CLASS RANKING WITH A FIRST QUARTER SCORE OF 6.29 IN OVERALL CUSTOMER SATISFACTION, SO WE'RE REALLY PLEASED WITH THAT. AT THE SAME TIME, WE'VE HAD AN INCREDIBLY MORE INTENSE FOCUS ON EXPENSES, WHICH, OVERALL, WERE UNCHANGED FROM THE FOURTH QUARTER AND DOWN 6% IN THE GENERAL BANK. I HOPE YOU FEEL GOOD ABOUT COST CONTROL IN OUR BUSINESS LINES, BECAUSE WE'RE REALLY PROUD OF IT. THIS COST CONTROL EFFORT IS NOT -- AND THIS IS IMPORTANT -- HAS NOT COME AT THE EXPENSE OF CUSTOMER SERVICE. IN FACT, WE'RE NEARLY AT 100% STAFFING IN ALL OUR RETAIL FINANCIAL CENTERS, AND WE HAVE PLANS TO ADD MORE SMALL BUSINESS BANKERS AND REMOTE BUSINESS BANKERS. THIS IS ABOUT BECOMING MORE EFFICIENT AND SERVING OUR CUSTOMERS BETTER. IN ADDITION, CREDIT QUALITY IS A PRETTY GOOD STORY FOR US THIS QUARTER. WE ADDED ABOUT 37 MILLION TO LOAN LOSS RESERVES AND NET CHARGE-OFFS TO CLIENTS GREW 53 BASIS POINTS OF LOANS FROM 64 BASIS POINTS ON A LINK QUARTER BASIS. TOTAL NPAs ROSE A MANAGEABLE 4% ON A LINKED QUARTER BASIS. AGAIN, WE CONTINUE TO ANTICIPATE NON-PERFORMING ASSETS WILL RISE THROUGHOUT THIS YEAR, THOUGH, NOT AT THE PACE THAT WE SAW AT THE END OF LAST YEAR. ASSETS HELD FOR SALE RELATED TO OUR REPOSITIONING DECLINED TO ONLY $689 MILLION FROM $4.3 BILLION AT DECEMBER 31. AS WE SOLD $3.2 BILLION OF MONEY STORE LOANS AND $157 MILLION OF COMMERCIAL LOANS. IN SHORT, WE'RE CONTINUING TO MAKE PROGRESS. WE'RE PLEASED WITH THIS QUARTER'S PERFORMANCE IN A VERY DIFFICULT FINANCIAL MARKET. WE BELIEVE WE HAVE A GREAT FRANCHISE, WHICH IS NOW BECOMING VERY DISCIPLINED AND TIGHTLY FOCUSED ON ACHIEVING OUR GROWTH PLANS. NOW, LET'S TAKE A CLOSER LOOK AT THE NUMBERS. I RECOMMEND WE GO DIRECTLY TO PAGE 3, BECAUSE WE'VE ALREADY COVERED THE HIGHLIGHTS IN THE PREVIOUS COUPLE OF MINUTES. PAGE 3 IS THE OPERATING EARNINGS SUMMARY, WHICH, I THINK, YOU PROBABLY ALL HAVE IN FRONT OF YOU. NET INTEREST INCOME WAS A GREAT STORY, $1.734 BILLION. VIRTUALLY FLAT WITH THE FIRST QUARTER, IN SPITE OF THE FACT THAT WE DON'T HAVE BALANCE SHEET MANAGEMENT ACTIVITIES IN THE FIRST QUARTER, SO THAT WAS A POSITIVE STORY. PROVISION FOR LOAN LOSSES, OF COURSE, THE 219 MILLION INCLUDES, IN ADDITION TO THE ALLOWANCE, AND, OVERALL, IT EXCEEDS CHARGE-OFFS BY 60 MILLION, AND INCLUDES PROVISIONS OF 15 MILLION RELATED TO LOANS MOVED TO ASET HELD FOR SALE, AND OF COURSE, AT THE BOTTOM OF THE PAGE CIRCLED YOU CAN SEE, OUR DILUTED EARNINGS PER SHARE ON CASH BASIS IS 69 CENTS. THERE'S ONLY A FEW THINGS I'D POINT OUT ON PAGE 4, WHICH IS OUR KEY FINANCIAL MEASURES. FIRSTLY, OUR AVERAGE DILUTED SHARES DECLINED SOMEWHAT ON A LINKED QUARTER BASIS TO 975,800,000. THAT WASN'T DUE TO A BUYBACK OR REPURCHASE OR ANYTHING LIKE THAT. IT WAS SIMPLY -- IT WAS SIMPLY DUE TO THE MARKET VALUE ACCOUNTING IMPACT ON SHARE EQUIVALENCE INCLUDED IN OUR FORWARD CONTRACTS, AND THAT IS RESTATED IN OUR EARNINGS, AS WELL, SO THERE'S NO IMPACT ON OUR EPS. AND YOU CAN SEE OUR TIER ONE CAPITAL RATIO CONTINUES TO IMPROVE AS EXPECTED. MOVING ON TO NET INTEREST INCOME, OUR MARGIN CAME IN AT 3.42, AND THAT WOULD CERTAINLY BE WHAT I THINK MOST OF YOU WERE EXPECTING. AS WE SAID IN THE FOURTH QUARTER, OUR ANTICIPATION IS THAT MARGINS WOULD BE A TINY BIT LOWER THAN IN THE FOURTH QUARTER, AND THEN BUILDING DURING THE COURSE OF THE YEAR, SO THAT OVERALL WE WOULD HAVE EXPECTED MARGINS TO BE PRETTY FLAT YEAR OVER YEAR, SO NO SURPRISES THERE. PAGE 6 IS OUR FEE AND OTHER INCOME. FIRSTLY, I RECOMMEND THAT YOU TAKE A LOOK AT THE THIRD LINE DOWN WHICH IS FIDUCIARY AND ASSET MANAGEMENT FEES. VERY SOLID QUARTER OVERALL, GIVEN A TOUGH QUARTER. ADVISORY, UNDERWRITING AND CAPITAL MARKET FEES UP TO $198 MILLION, WHICH IS REFLECTIVE IN INCREASED ACTIVITY, ALSO A POSITIVE STORY. PRINCIPAL INVESTING, JUST LIKE THE FOURTH QUARTER, COINCIDENTALLY, WE TOOK $43 MILLION IN WRITEDOWNS, WHICH, I THINK, AGAIN, SPEAKS TO THE STRENGTH OF THE CORE EARNINGS OF THE COMPANY, AND OTHER INCOME WAS DOWN SLIGHTLY AT $167 MILLION. THERE ARE OFFSETTING ITEMS IN THERE, BUT IT'S ESSENTIALLY DUE TO LOWER SECURITIZATION/OTHER GAINS VERSUS THE FOURTH QUARTER. MOVING ON TO PAGE 7 IS OUR SALARY AND EMPLOYEE BENEFITS, AND THE FIRST LINE OF NON-INTEREST EXPENSE. YOU CAN SEE WE'RE AT $1.329 BILLION, AN INCREASE OF 7% OVER THE FOURTH QUARTER, BUT THAT IS SOLELY BECAUSE OF THE RIGHT SIZING OF OUR INCENTIVE COMPENSATION DURING THE FOURTH QUARTER. AND IF YOU TAKE A LOOK AT OUR OVERALL NON-INTEREST EXPENSES, 2.138, THAT IS ACTUALLY ONLY UP $6 MILLION OVER THE FOURTH QUARTER. SOMETHING WE'RE QUITE PROUD OF, AND IF YOU JUST SCAN THROUGH THE LINES, VIRTUALLY EVERY OTHER LINE ON THE SCHEDULE IS DOWN ON A LINKED QUARTER BASIS. OUR PEOPLE ARE REALLY DELIVERING ON OUR GRADUAL SHIFT TOWARD AN EXPENSE MANAGING CULTURE. PAGE 8 IS OUR CONSOLIDATED RESULTS. YOU'VE NOT SEEN A SCHEDULE LIKE THIS BEFORE. THIS IS NEW FOR US, FOR REPORTING, AS I THINK YOU KNOW, AND IT'S ALSO NEW FOR OUR BANK, AND WE'VE BEEN DOING THIS FOR, INTERNALLY, FOR ABOUT 4, 5 MONTHS, AND NOW WE ARE READY TO DISCLOSE IT EXTERNALLY. IF YOU LOOK ACROSS THE TOP, YOU CAN SEE THAT THIS IS SOLELY OUR NUMBERS FOR THE FIRST THREE MONTHS ENDING MARCH 31, 2001, AND WE SPLIT IT OUT BY FOUR SEGMENTS, ESSENTIALLY, OF WHICH ONLY THREE ARE BUSINESS SEGMENTS, i.e., THE GENERAL BANK, CAPITAL MANAGEMENT, CAPITAL MARKETS, AND WE HAVE A RELATIVELY SMALL PARENT COMPANY COLUMN, WHICH INCLUDES OUR ALCO AND SECURITIES ACTIVITIES, AS WELL AS DIVESTED BUSINESSES. YOU CAN SEE TO THE FAR RIGHT, OUR CONSOLIDATED EARNINGS SHOWS 610, AS REPORTED. YOU CAN SEE THAT THE GENERAL BANK, AT $292 MILLION FOR THE QUARTER ACCOUNTED FOR ALMOST HALF OF OUR OPERATING EARNINGS, AND IF YOU LOOK DOWN TO THE NEXT LINE, WHICH IS ECONOMIC PROFIT, WHICH, AGAIN, IS A NEW REPORTING, GENERAL BANK HAD JUST A GREAT QUARTER, AND THEY REPORTED ALMOST 60% OF ECONOMIC PROFIT. AND YOU CAN SEE OUR ECONOMIC PROFIT IN DOLLAR TERMS WAS $371 MILLION, i.e., THAT'S THE AMOUNT OF DOLLARS WE EARNED OVER OUR 12% HURDLE RATE. CAPITAL MARKETS HAD A SMALL NEGATIVE ECONOMIC PROFIT. RAROC IN THE GENERAL BANK WAS EXCELLENT AT 36%, BUT CAPITAL MANAGEMENT WAS EXCELLENT AT 46% ALMOST, 45.96, AND OUR CAPITAL MARKETS ALMOST COVERED ITS COST OF CAPITAL AT 10.46%. FINALLY, I'D NOTE THAT IN THE THIRD, LAST LINE, THE OVERHEAD EFFICIENCY RATIO, THE GENERAL BANKS CAME IN AT 61.41, AND THIS MAY BE AN OPPORTUNITY TO IMPROVE OVER TIME. THERE ARE COST ALLOCATIONS, AS WELL -- ISSUES, AS WELL, THAT WE MAY HAVE TO LOOK AT, AS WELL, BUT THAT WILL BE SOMETHING THAT WE CAN WORK ON, AND THE CAPITAL MANAGEMENT EFFICIENTLY RATIO OF 79.12 IS ROUGHLY IN THE RANGE, I THINK, THAT YOU WOULD EXPECT TO SEE OF MAYBE 75 TO 80%. GOING ON TO PAGE 9, AS WE DRILL DOWN AND LOOK AT EACH ONE OF OUR BUSINESSES, WE'VE RESTATED FOR YOU OR WE'VE DISCLOSED FOR YOU THE EARNINGS USING THIS NEW REPORTING METHODOLOGY ON A FIVE QUARTER BASIS, THE EXISTING QUARTER, PLUS FOUR TRAILING. WE HOPE YOU FIND THAT USEFUL, AND AS YOU CAN SEE, WE'RE AT 292, AS MENTIONED, AND THAT'S DOWN 1% VERSUS THE FOURTH QUARTER, AND BASICALLY FLAT WITH FIRST QUARTER LAST YEAR. WHICH WE CONSIDER TO BE A GOOD RESULT, ESPECIALLY GIVEN THE INCREASE IN PROVISION FOR LOAN LOSSES. IN TERMS OF OTHER DATA, YOU CAN NOTE THAT THE ECONOMIC PROFIT WAS ACTUALLY UP 10% VERSUS THE FOURTH QUARTER, WHICH IS GREAT, AND THE AVERAGE LOANS ON A NET BASIS WAS A GOOD STORY, AS WELL. WE HAD SOLID GROWTH OF 3%, AND MODEST DEPOSIT GROWTH ON A SEASONALLY DOWN QUARTER. PAGE 10 RELATES TO THE KEY OPERATING MEASURES FOR THE GENERAL BANK. OVERALL CUSTOMER SATISFACTION, AS WE NOTED IN MY OPENING REMARKS, IS AT 6.29%, AND ON-LINE CUSTOMERS IS NOW SLIGHTLY OVER 2.6 MILLION. AGAIN, WE CONTINUE TO SHIFT CUSTOMERS TO THE WEB, WHICH IS GREAT FOR CUSTOMERS AND HELPS IMPROVE CUSTOMER SERVICE IN A MULTICHANNEL ENVIRONMENT. PAGE 11 IS THE CAPITAL MANAGEMENT GROUP. AGAIN, WITH FOUR QUARTERS RESTATED COMPARISON. TOTAL REVENUE WAS $831 MILLION, WHICH IS, I THINK, A PRETTY GOOD PERFORMANCE GIVEN THE PERIOD OF DEEPLY DECLINING MARKETS THAT WE'VE BEEN IN. I'D ALSO NOTE THAT THE J.W. GENESIS COMMISSIONS THAT WE'VE REPORTED WE'D BE MAKING AND CONSOLIDATING POST-ACQUISITION ARE REPORTED ON A NET BASIS, WHICH OUR ACCOUNTANTS AND AUDITORS FEEL IS THE APPROPRIATE WAY TO DO IT. OVERALL, THE OPERATING EARNINGS WERE $113 MILLION, AND YOU'LL ALSO NOTE ON THE LAST LINE, OUR AVERAGE CORE DEPOSITS WERE ACTUALLY UP SLIGHTLY AT $8 BILLION. PAGE 12 IS OUR KEY OPERATING MEASURES. GOOD STORY IN MUTUAL FUNDS. OVERALL, WE CONTINUE TO GARNER ASSETS, AND AS YOU WOULD EXPECT, LIKE THE REST OF THE INDUSTRY, IT'S MAINLY IN THE MONEY MARKET SIDE, AND WHERE THE GROWTH IS COMING FROM, BUT I VIEW THAT AS AN OPPORTUNITY TO UPSELL ONCE THE MARKET IS STABILIZED AND PEOPLE ARE COMFORTABLE AGAIN ABOUT GETTING INTO LONGER-DATED ASSETS. OUR REGISTERED REPRESENTATIVES WERE 7,784, WHICH IS UP 4% FROM THE FOURTH QUARTER. THAT'S BECAUSE, OF COURSE, J.W. GENESIS. OUR BROKERAGE OFFICES ALSO INCREASED 5% TO 2,695. PAGE 13 IS OUR CAPITAL MARKETS GROUP. THERE'S QUITE A BIT OF INFORMATION HERE. FEE AND OTHER INCOME INCREASED 17%. THAT'S SOMETHING WE'RE PROUD OF, PRIMARILY DUE TO STRONG RESULTS IN FIXED INCOME. COMBINED WITH STRONG SYNDICATE DEAL FLOW, INCREASED TRADING RESULTS AND INCREASED REVENUE AND EQUITY DERIVATIVES, SO VERY STRONG QUARTER IN TRADING. THERE WAS A DECLINE IN AFFORDABLE HOUSING WRITEDOWNS, AND THEY WERE OFFSET BY ASSET SECURITIZATION TRADING LOSSES. THE INCREASE IN EXPENSES WERE DUE TO Q4 INCENTIVE ACCRUAL ADJUSTMENTS, AND EXCLUDING INCENTIVE EXPENSES WERE UNCHANGED REFLECTING THE STRONG EFFORTS WE PUT IN PLACE IN 2000. I WON'T TALK TO THE LOAN DEPOSIT GROWTH SLIDE, AND LET'S MOVE ON TO 15, WHERE WE SPLIT OUT OUR RESTRUCTURING, AND UPDATE THAT FOR YOU, AND AS WE HAD ANTICIPATED AND DISCLOSED, WE CLOSE ON THE SALE OF OUR REMAINING 26 BRANCHES, WHICH HAD DEPOSITS OF $617 MILLION AND $115 MILLION IN LOANS, AND THE GAINS ON THE BRANCH SALES TOTALED 73 MILLION ON A PRE-TAX BASIS. PAGE 16 IS ASSET QUALITY. NON-PERFORMING ASSETS INCREASED SLIGHTLY AS A PERCENTAGE OF LOANS TO 1.3%. NET LOAN LOSSES DECLINED TO $159 MILLION VERSUS 192 IN THE FOURTH QUARTER, AND LOAN LOSSES, AS A PERCENTAGE OF TOTAL LOANS, WERE DOWN TO .53%, OR 53 BASIS POINTS, VIS-A-VIS FOURTH QUARTER, OR 64 BASIS POINTS. AND I WOULDN'T SAY THAT WE WOULD CHANGE OUR GUIDANCE AT THIS POINT, THOUGH IN TERMS OF WHAT WE'RE EXPECTING IN CHARGE-OFFS FOR THE REST OF THE YEAR. THE ECONOMIC ENVIRONMENT IS STILL DIFFICULT, AND WE WOULD MAINTAIN OUR GUIDANCE OF 60 TO 80 BASIS POINTS. IT'S STILL EARLY IN THE YEAR. PAGE 17 IS A SCHEDULE ON NON-PERFORMING ASSETS THAT A NUMBER OF YOU ARE INTERESTED IN, AND I WON'T GO THROUGH THAT AT THIS POINT, AND PAGE 18 IS OUR ASSETS HELD FOR SALE, AND OUR FOLKS HAVE BEEN WORKING REALLY HARD IN GETTING THIS NUMBER DOWN, AND WE TOLD YOU WE WERE GOING TO DO THAT, AND WE'RE DELIVERING. LOANS SOLD WERE $3.3 BILLION, SOLD AND SECURITIZED, SO THAT'S 3.2 BILLION IN MONEY STORE LOANS AND WE SOLD $157 MILLION IN COMMERCIAL LOANS. SO WE HAVE $689 MILLION REMAINING. SO THAT'S BEEN, IN MY OPINION, A GREAT RESULT OVER THE PAST THREE QUARTERS. WE PUT, OBVIOUSLY, A LOT OF ASSETS IN THIS ACCOUNT, AND WE HAVE THEM VIRTUALLY OUT NOW AT THIS POINT. THE OTHER THING I'D NOTE IS THE GROWTH IN ASSETS HELD FOR SALE. AND, GENERALLY, WHICH IS PRIMARILY REDUCED TO INCREASE MORTGAGE PRODUCTION DUE TO A LOWER INTEREST RATE ENVIRONMENT, SO I THINK THAT'S GOOD NEWS, AS WELL. AND IN TERMS OF THE SUMMARY, WE DELIVERED ON CASH EARNINGS OF 69 OR 62 CENTS ON OUR TRADITIONAL BASIS. THE ALLOWANCE WAS IMPROVED. NPAs WERE UP A MANAGEABLE 4%. CHARGE-OFFS WERE DOWN, STRONG EXPENSE CONTROL IS OBVIOUSLY EVIDENT THROUGHOUT THE COMPANY, AND OUR RESTRUCTURING'S ON TRACK, AND WE'RE MAKING PROGRESS ON THAT. SO JUST A REMINDER FROM WHAT ALICE SAID, WE'RE GOING TO HAVE A LIVE Q&A CONFERENCE AT 1:00 P.M. EASTERN TIME. I LOOK FORWARD TO TAKING ANY QUESTIONS YOU MIGHT HAVE, AND I'D LIKE TO THANK YOU VERY MUCH FOR CALLING IN. THANK YOU. -----END PRIVACY-ENHANCED MESSAGE-----