Exhibit 99(b)
Wachovia
THIRD QUARTER 2001
SUPPLEMENTAL EARNINGS PACKAGE
(ALL COMPARISONS ARE WITH SECOND QUARTER 2001 UNLESS OTHERWISE NOTED)
TABLE OF CONTENTS
HIGHLIGHTS OF THE QUARTER ................................................. 1
PERFORMANCE REVIEW ........................................................ 3
EARNINGS SUMMARY .......................................................... 4
NET INTEREST INCOME ....................................................... 4
FEE AND OTHER INCOME ...................................................... 6
NONINTEREST EXPENSE ....................................................... 7
ASSET QUALITY ............................................................. 8
NONPERFORMING LOANS ....................................................... 9
LOANS HELD FOR SALE........................................................ 10
FIRST UNION/WACHOVIA MERGER INTEGRATION UPDATE ............................ 12
BUSINESS SEGMENT RESULTS .................................................. 15
GENERAL BANK .............................................................. 17
CAPITAL MANAGEMENT ........................................................ 21
WEALTH MANAGEMENT ......................................................... 24
CORPORATE AND INVESTMENT BANKING .......................................... 25
PARENT .................................................................... 28
ALL INFORMATION EXCLUDES MERGER-RELATED, RESTRUCTURING AND OTHER CHARGES/GAINS
AND IS BEFORE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE EXCEPT WHERE
SPECIFICALLY NOTED. ALL CONTRIBUTIONS ATTRIBUTED TO WACHOVIA IN 3Q01 ARE
ESTIMATES, WHETHER OR NOT EXPLICITLY STATED AS SUCH.
Wachovia
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HIGHLIGHTS OF THE QUARTER
-------------------------
Earnings Summary
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Earnings Summary Third Quarter 2001
------------------------------
After-Tax
Earnings
(In millions) (Loss) EPS
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Core cash operating earnings $ 775 0.70
Deposit base intangible amortization (Includes higher run-rate amortization for one month only) (37) (0.03)(a)
Goodwill amortization (related to former First Union, only until December 31, 2001) (60) (0.06)
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Core operating earnings 678 0.61
Write-downs on principal investing portfolio (380) (0.34)
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Operating earnings 298 0.27
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Merger-related, restructuring and other charges/gains
Merger-related and restructuring charges (57) (0.05)
Credit related charges (572) (0.53)
Other charges, net (3) -
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Total merger-related, restructuring and other charges/gains (632) (0.58)
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Net loss (GAAP) $ (334) (0.31)
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(a) Estimated full quarter amortization is $0.07- 0.12 per share; the
deposit base intangible valuation is preliminary and will be finalized in 4Q01.
. Core cash operating earnings of $.70 per share and core operating earnings
of $.61 per share.
. In 2Q01, cash operating earnings were $723 million, or $0.73 per share;
operating earnings were $649 million, or $0.66 per share; and reported
earnings were $633 million, or $0.64 per share.
SEPTEMBER 11 IMPACT
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Estimated Lost Revenue and Losses Related to September 11th After- Tax
(In millions) Loss EPS
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Losses related to World Trade Center trust operations $ 13 0.01
Corporate and Investment Banking
Estimated losses due to widening spreads on trading portfolio 14 0.01
Lost revenues due to market disruption 20 0.02
Capital Management
Four-day market closure effect on brokerage services 8 0.01
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Total estimated lost revenue and losses related to September 11th $ 55 0.05
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. Earnings were also affected by estimated after-tax costs of $55 million or
$.05 per share, resulting from the market disruption during the week of the
September 11th tragedy. The businesses impacted, due to the closure of the
equity markets for four days as well as the sharp decline in the equity
valuations upon the reopening of the market, were brokerage, asset
management, trading and fixed income sales and trading.
MERGER-RELATED IMPACTS
. The dilution that resulted from issuing new shares in connection with the
merger amounted to $.01 - $.02 per share. Earnings were further affected by
an additional one month of preliminary deposit base intangible amortization
amounting to $24 million after-tax or $.02 per share. Estimated
full-quarter deposit base amortization is $0.07-$0.12 per share and will be
finalized in 4Q01.
. Average diluted shares increased 127 million, primarily due to the impact
on average shares of one month of new shares related to the Wachovia
merger. Shares issued in the merger amounted to 407 million. Ten million
shares were repurchased through the settlement of an equity forward
contract totaling $500 million and 16.5 million shares owned by the former
Wachovia were retired at the consummation of the merger. There were no open
market share repurchases in the quarter. At quarter-end, shares subject to
forward contracts were 38 million with a weighted average price of $34.94.
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FINANCIAL HIGHLIGHTS
. General Bank revenues grew 13% vs. 2Q01, while expenses increased 9%.
General Bank growth in loan outstandings remained strong and low cost core
deposits continued to increase, up 18%; 4% within the former First Union
franchise. Former First Union customer satisfaction scores up for 10th
consecutive quarter and former Wachovia Mystery Customer Profile up for 6th
consecutive quarter.
. Capital Management revenues decreased 5% as a result of generally lower
brokerage trading volume, the four-day market closure and lower asset
management fees earned as a result of lower equity market valuations and a
continued shift in asset allocations toward money market funds. Assets
under management grew 31% to $226 billion reflecting strong organic net
funds inflows and the contribution of $47 billion in AUM from the former
Wachovia. Mutual fund and annuity sales remained strong in the quarter.
. Wealth Management revenues increased 27% aided by stronger service charges
and insurance commissions. Results are indicative of strong client
relationships and advisor retention.
. Corporate and Investment Banking recorded write-downs of $585 million in
principal investing reflecting the significant decline in the equity
markets and reduced liquidity for non-public investments. Strong cost
control reduced expenses by 4%.
CAPITAL
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Tier 1 Capital
Tier 1
----------------------------
(In millions) Capital Ratio
-------------------------------------------------------------------------------------------------------------
First Union as reported June 30, 2001 $ 14,631 7.37 %
Impact of merger with Wachovia (-34 bps due to fair value adjustments) 5,537 2.01
Retirement of First Union stock (568) (0.21)
Settlement of equity forward contract (previously scheduled for Q4) (547) (0.20)
Principal investing write-down (380) (0.14)
Credit actions (572) (0.21)
Dividend (237) (0.09)
Core operating earnings 678 0.25
Merger-related, restructuring and other charges, net (60) (0.02)
Increase in risk weighted assets - (2.06)
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As of September 30, 2001 (estimated) $ 18,482 6.70 %
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. Tier 1 capital was reduced by 3Q01 actions, including the early settlement
of a $500 million equity forward contract, the retirement of 16.5 million
First Union shares held by the former Wachovia, as well as the effect of
the principal investing write-downs and the credit actions taken at the end
of the quarter. We expect Tier 1 capital to resume its growth in 4Q01 and
in subsequent quarters.
. Total capital ratio declined to 10.74% from 11.45% while the leverage ratio
increased to 7.24% from 6.00%. Total capital is not affected by the cost of
the above credit actions. The leverage ratio reflects the higher level of
combined on-balance sheet assets for only one month of the quarter.
CREDIT
. Net charge-offs were .73% in 3Q01 bringing the year-to-date charge-off
ratio to .60%. Recorded provision of $880 million in excess of net
charge-offs, of which $230 million related to write-downs recorded on loans
sold or transferred to assets held for sale.
. Total nonperforming assets including assets held for sale declined 4% from
a 2Q01 pro forma combined balance of $1.98 billion. Allowance as a
percentage of loans improved to 1.79%, primarily due to the addition of
$523 million in reserves from a pro forma combined June 30 level of $2.516
billion.
4Q 2001 Outlook
. Continuing focus on customer service, expense control and merger
integration
. Charge-off guidance of 55-65 bps for the year 2001 continues to be
appropriate
. Core cash operating earnings per share in line with 2Q01-3Q01 levels
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PERFORMANCE REVIEW
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Before Merger-Related, Restructuring and Other Charges/Gains
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Operating Basis Performance Highlights 2001 2000
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Third Second First Fourth Third
(In millions, except per share data) Quarter Quarter Quarter Quarter Quarter
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Cash operating earnings (a)
Net income $ 395 723 684 753 778
Diluted earnings per common share $ 0.36 0.73 0.69 0.76 0.79
Return on average tangible assets 0.60 % 1.19 1.15 1.26 1.26
Return on average tangible common
stockholders' equity 11.36 23.35 22.91 21.55 22.15
Overhead efficiency ratio 72.86 % 62.06 62.80 61.46 64.17
Operating leverage $ (462) 59 (67) 31 (154)
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Operating earnings (b)
Net income $ 298 649 610 681 702
Diluted earnings per common share $ 0.27 0.66 0.62 0.69 0.71
Return on average assets 0.44 % 1.05 1.01 1.12 1.12
Return on average common stockholders' equity 5.77 16.19 15.64 15.36 15.76
Overhead efficiency ratio 76.74 % 64.34 65.18 63.85 66.42
Operating leverage $ (502) 60 (65) 30 (133)
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Other financial data
Net interest margin 3.58 % 3.41 3.42 3.46 3.52
Fee and other income as % of total revenue 34.42 48.32 47.13 47.38 46.93
Effective income tax rate 27.67 % 31.54 31.54 31.21 30.43
Period-end common stock price $ 31.00 34.94 33.00 27.81 32.19
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Asset quality
Net charge-offs as % of average loans, net 0.73 % 0.52 0.53 0.64 0.46
Nonperforming assets to loans, net,
foreclosed properties and assets held for sale 1.08 % 1.23 1.30 1.22 0.98
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Capital adequacy
Tier 1 capital ratio (c) 6.70 % 7.37 7.18 7.02 7.00
Total capital ratio (c) 10.74 11.45 11.33 11.19 11.32
Leverage ratio (c) 7.24 % 6.00 5.88 5.92 5.73
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Other
Average diluted common shares (In thousands) 1,105,270 978,185 975,847 990,445 986,763
Actual common shares (In thousands) 1,360,996 979,205 981,268 979,963 986,004
Dividends paid per common share $ 0.24 0.24 0.24 0.48 0.48
Dividend payout ratio 89.45 % 36.36 38.71 69.57 67.42
Book value per common share $ 20.94 16.49 16.39 15.66 15.00
FTE employees 84,719 67,420 69,362 70,639 70,533
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Operating Basis Performance Highlights 3 Q 01 Estimated
vs Contribution From
(In millions, except per share data) 2 Q 01 WB FTU
----------------------------------------------------------------------------- -------------------------
Cash operating earnings (a)
Net income (45) % 17 (62) %
Diluted earnings per common share (51) 11 (62)
Return on average tangible assets - - -
Return on average tangible common
stockholders' equity - - -
Overhead efficiency ratio - - -
Operating leverage nm % - - %
----------------------------------------------------------------------------- -------------------------
Operating earnings (b)
Net income (54) % 15 (69) %
Diluted earnings per common share (59) 9 (68)
Return on average assets - - -
Return on average common stockholders' equity - - -
Overhead efficiency ratio - - -
Operating leverage nm % - - %
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Other financial data
Net interest margin - - -
Fee and other income as % of total revenue - - -
Effective income tax rate - - -
Period-end common stock price (11) % - - %
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Asset quality
Net charge-offs as % of average loans, net - - -
Nonperforming assets to loans, net,
foreclosed properties and assets held for sale - - -
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Capital adequacy
Tier 1 capital ratio (c) - - -
Total capital ratio (c) - - -
Leverage ratio (c) - - -
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Other
Average diluted common shares (In thousands) 13 % 13 - %
Actual common shares (In thousands) 39 40 (1)
Dividends paid per common share - - -
Dividend payout ratio - - -
Book value per common share 27 - -
FTE employees 26 % 30 (4) %
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(a) Cash operating earnings are reported net income excluding after-tax net
merger-related, restructuring and other charges and gains, and exclude deposit
base intangible and goodwill amortization.
(b) Operating earnings are reported net income excluding after-tax net
merger-related, restructuring and other charges and gains, and include deposit
base intangible and goodwill amortization.
(c) The third quarter of 2001 is based on estimates.
Operating earnings and cash operating earnings exclude merger-related,
restructuring and other charges of $632 million after-tax. These after-tax
charges include $57 million ($0.05 per share) of merger-related and
restructuring charges related to former Wachovia; $215 million of provision
($0.20 per share) representing the impact of integrating the two loan portfolios
and of moving $1.5 billion of higher risk loans to assets held for sale; $357
million of provision ($0.33 per share) to increase the loan loss allowance in
the face of a weaker economy.
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Wachovia
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EARNINGS SUMMARY
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Before Restructuring and Other Charges/Gains
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Operating Earnings Summary 2001
---------------------------------------------
Third Second First
(In millions, except per share data) Quarter(a) Quarter Quarter
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Net interest income (Tax-equivalent) $ 1,974 1,742 1,734
Fee and other income 1,036 1,629 1,546
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Total revenue (Tax-equivalent) 3,010 3,371 3,280
Provision for loan losses 244 223 219
Noninterest expense 2,310 2,169 2,138
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Income before income taxes (Tax-equivalent) 456 979 923
Income taxes (Tax-equivalent) 158 330 313
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Net income $ 298 649 610
Net income (Cash basis) $ 395 723 684
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Diluted earnings per common share $ 0.27 0.66 0.62
Diluted earnings per common share (Cash basis) $ 0.36 0.73 0.69
Return on average common stockholders' equity 5.77 % 16.19 15.64
Return on average tangible common
stockholders' equity (Cash basis) 11.36 % 23.35 22.91
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(a) Results include one month of the former Wachovia.
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Operating Earnings Summary 2000 3 Q 01 Estimated
---------------------------
Fourth Third vs Contribution From
(In millions, except per share data) Quarter Quarter 2 Q 01 WB FTU
--------------------------------------------------------------------------------------------------------- -----------------------
Net interest income (Tax-equivalent) 1,757 1,860 13 % 12 1 %
Fee and other income 1,582 1,645 (36) 8 (44)
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Total revenue (Tax-equivalent) 3,339 3,505 (11) 10 (21)
Provision for loan losses 192 142 9 6 3
Noninterest expense 2,132 2,328 7 9 (2)
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Income before income taxes (Tax-equivalent) 1,015 1,035 (53) 12 (65)
Income taxes (Tax-equivalent) 334 333 (52) 7 (59)
--------------------------------------------------------------------------------------------------------- -----------------------
Net income 681 702 (54)% 15 (69)%
Net income (Cash basis) 753 778 (45) % 17 (62)%
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Diluted earnings per common share 0.69 0.71 (59) % 9 (68)%
Diluted earnings per common share (Cash basis) 0.76 0.79 (51) % 11 (62)%
Return on average common stockholders' equity 15.36 15.76 - - -
Return on average tangible common
stockholders' equity (Cash basis) 21.55 22.15 - - -
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(a) Results include one month of the former Wachovia.
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NET INTEREST INCOME
-------------------
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Interest Income Summary 2001 2000
----------------------------------------------- ------------------------------
Third Second First Fourth Third
(In millions) Quarter Quarter Quarter Quarter Quarter
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Average earning assets $ 219,672 204,673 203,720 202,606 211,089
Average interest-bearing liabilities 198,322 185,224 183,995 181,832 190,146
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Interest income (Tax-equivalent) 3,988 3,851 4,057 4,289 4,491
Interest expense 2,014 2,109 2,323 2,532 2,631
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Net interest income (Tax-equivalent) $ 1,974 1,742 1,734 1,757 1,860
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Rate earned 7.23 % 7.54 8.03 8.44 8.48
Equivalent rate paid 3.65 4.13 4.61 4.98 4.96
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Net interest margin 3.58 % 3.41 3.42 3.46 3.52
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Interest Income Summary 3 Q 01 Estimated
vs Contribution From
(In millions) 2 Q 01 WB FTU
------------------------------------------------------------------- -------------------------
Average earning assets 7 % 9 (2)%
Average interest-bearing liabilities 7 9 (2)
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Interest income (Tax-equivalent) 4 9 (5)
Interest expense (5) 6 (11)
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-------------------------
Net interest income (Tax-equivalent) 13 % 12 1 %
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Rate earned - - -
Equivalent rate paid - - -
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Net interest margin - - -
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Key Points
. Approximately two thirds of the higher margin related to improvement at
former First Union and one third to the addition of the former Wachovia
Net Interest Income increased 13%, with 12% due to the merger with former
Wachovia. Results also benefited from the lower interest rate environment.
Net interest margin increased 17 bps to 3.58%, primarily due to higher
spreads related to the declining rate environment. Additionally, the
margin increase was due to a reduction in low-spread assets and a
higher margin at former Wachovia.
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Average Balance Sheet Data 2001 2000
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Third Second First Fourth Third
(In millions) Quarter Quarter Quarter Quarter Quarter
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Assets
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Securities and trading assets $ 65,193 63,896 63,732 62,123 64,984
Commercial loans 83,633 76,378 77,270 76,253 75,380
Consumer loans 49,393 42,834 42,580 43,840 48,095
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Total loans 133,026 119,212 119,850 120,093 123,475
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Other earning assets (a) 21,453 21,565 20,138 20,390 22,630
Cash and other assets 47,694 42,581 41,749 36,769 35,729
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Total assets $ 267,366 247,254 245,469 239,375 246,818
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Liabilities and Stockholders' Equity
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Core interest-bearing deposits 102,285 91,654 91,149 91,069 89,637
Noninterest-bearing deposits 29,918 27,381 27,043 27,875 28,437
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Total core deposits 132,203 119,035 118,192 118,944 118,074
Foreign and other time deposits 18,015 17,944 19,090 19,385 25,038
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Total deposits 150,218 136,979 137,282 138,329 143,112
Short-term borrowings 39,802 39,372 37,125 35,670 40,208
Long-term debt 38,220 36,254 36,631 35,708 35,263
Other liabilities 18,796 18,623 18,585 14,915 13,999
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Total liabilities 247,036 231,228 229,623 224,622 232,582
Stockholders' equity 20,330 16,026 15,846 14,753 14,236
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Total liabilities and stockholders' equity $ 267,366 247,254 245,469 239,375 246,818
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(a) Includes loans held for sale, interest-bearing bank balances, federal funds
sold and securities purchased under resale agreements.
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Wachovia
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Average Balance Sheet Data 3 Q 01 Estimated
vs Contribution From
(In millions) 2 Q 01 WB FTU
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Assets
------------------------------------------------------------------------- ------------------------
Securities and trading assets 2 % - - %
Commercial loans 9 13 (4)
Consumer loans 15 14 1
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Total loans 12 14 (2)
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Other earning assets (a) (1) - -
Cash and other assets 12 - -
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Total assets 8 % - - %
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Liabilities and Stockholders' Equity
------------------------------------------------------------------------- ------------------------
Core interest-bearing deposits 12 11 1
Noninterest-bearing deposits 9 10 (1)
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Total core deposits 11 11 -
Foreign and other time deposits - 6 (6)
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Total deposits 10 10 -
Short-term borrowings 1 - -
Long-term debt 5 - -
Other liabilities 1 - -
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Total liabilities 7 - -
Stockholders' equity 27 - -
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Total liabilities and stockholders' equity 8 % - - %
------------------------------------------------------------------------- ------------------------
(a) Includes loans held for sale, interest-bearing bank balances, federal funds
sold and securities purchased under resale agreements.
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Average earning assets increased 7%, of which an estimated 9% was contributed by
former Wachovia. The increase was due to the contribution of both consumer and
commercial loans following the merger with Wachovia, offset by the strategic
reduction of lower yielding loans from the commercial loan portfolio.
Average loans increased 12%, due to the estimated contribution of 14% by
former Wachovia. Average commercial loans were up 9%, as former Wachovia
contributed an estimated 13%. The growth was offset by a 4% decrease in
former First Union commercial loans, primarily in commercial and
commercial mortgage loans.
Average consumer loans increased 15%, due to former Wachovia's estimated
contribution of 14% as well as increases in installment loans and second
mortgage loans.
Securities and trading assets increased 2%. Trading account assets were up
4% while securities increased 1%. Other earning assets decreased 1% due to
a strategic reduction of home equity securitizations.
Average interest-bearing liabilities increased 7%, of which former Wachovia
contributed an estimated 9%.
Average core deposits increased 11%. Former Wachovia contributed all of
the increase. Otherwise, core deposits were flat compared to the seasonal
spikes in noninterest-bearing deposits seen in 2Q01 when consumers
accumulate tax payments. Money market and interest checking continued to
be strong but were offset by declines in time deposits as a result of the
declining rate environment. Due to continued sales and retention efforts,
low cost core deposits, which exclude CAP-FDIC and time deposits balances,
increased 15%, of which former Wachovia contributed an estimated 13%.
Other deposits were flat, with former Wachovia contributing an estimated
6% increase. However, both foreign and other time deposits were reduced
due to a shift to lower cost wholesale funding sources.
Liquidity improved as growth in cash and cash equivalents of $789 million
outpaced growth of $430 million in short-term borrowings and $71 million
in other deposits. Long-term debt increased 5%.
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FEE AND OTHER INCOME
--------------------
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Fee and Other Income 2001 2000
--------------------------------------------- ---------------------------
Third Second First Fourth Third
(In millions) Quarter Quarter Quarter Quarter Quarter
---------------------------------------------------------------------------------------------------------------------------------
Service charges and fees $ 541 486 468 481 508
Commissions 356 389 375 383 365
Fiduciary and asset management fees 400 384 381 387 384
Advisory, underwriting and other
investment banking fees 177 238 198 187 148
Principal investing (585) (58) (43) (43) 34
Other income 147 190 167 187 206
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Total fee and other income $ 1,036 1,629 1,546 1,582 1,645
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Wachovia
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Fee and Other Income 3 Q 01 Estimated
vs Contribution From
(In millions) 2 Q 01 WB FTU
------------------------------------------------------------------- -----------------------
Service charges and fees 11 % 12 (1) %
Commissions (8) 4 (12)
Fiduciary and asset management fees 4 7 (3)
Advisory, underwriting and other
investment banking fees (26) 4 (30)
Principal investing nm - -
Other income (23) 11 (34)
------------------------------------------------------------------- -----------------------
Total fee and other income (36) % 8 (44) %
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Key Point
. $1.6 billion in fees earned excluding principal investing write-downs
. Solid sales of annuities, fluctuating funds and money market funds dampened by
lower equity valuations and mix change
. Strong mortgage and home equity-related income helped to offset securities
losses of approximately $35 million
Fee and other income excluding principal investing was $1.6 billion in an
extremely tough environment. Total fee income decreased 36% after $585 million
in write-downs on the principal investing portfolio. Sustained weakness in the
capital markets confined fee growth in the former First Union to traditional
banking, and risk management activities. Fees were 34% of total revenue in 3Q01
compared with 48% in 2Q01.
Service charges and fees grew 11% from the expanded franchise. While deposit
service fees rose 12% as lower interest rates encouraged commercial customers to
shift to structured fee payments, lower ATM and debit card transaction volume in
the wake of the September 11th tragedy dampened results. Further, linked quarter
results were negatively affected by seasonally higher volumes in the second
quarter of 2001.
Commissions were down 8%, consistent with suppressed industry activity. The
weakness was due to a poor trading environment and the loss of four trading days
following the World Trade Center tragedy. Management estimates that the market
interruption equated to $25 million in lost commissions. Annuity sales results,
however, hit a record, with volume of over $1.2 billion.
Fiduciary and asset management fees rose 4%. The incremental contribution of the
former Wachovia was softened by lower equity values which reduced asset
management fees and encouraged a further shift toward lower-yielding money
market funds. Money market flows were strong, and mutual fund assets reached a
record $102 billion.
Advisory, underwriting and other investment banking fees decreased 26% as key
segments of the capital markets were effectively closed for four days following
September 11th. Growth in leveraged finance, risk management and high yield was
offset by minimal deal flow in agency businesses and the effect of widening
spreads on commercial real estate finance.
Principal investing recorded a loss of $585 million, due to charges taken
against private equity investments in the quarter. Charges are largely
attributable to 1999 and 2000 vintage investments in the telecom and technology
sectors. The charges equated to a 25% write-down of private equity investments,
or 20% on the total principal investment portfolio. Cumulative net losses in
principal investing were $101 million in the first half of 2001.
Other income was down $43 million. In aggregate, net securities and
securitization gains were $21 million lower on a linked quarter basis. The third
quarter includes a net loss on securities available for sale of $35 million. The
third quarter also includes a loss of $6 million on assets held for sale,
compared with a $7 million gain in the previous quarter. Revenue from
securitizations amounted to $89 million, up 39% from 2Q01. Of this, mortgage
income related to deliveries and flow servicing was $48 million compared with
$42 million in 2Q01. Gains on prime equity and SBA securitizations were $32
million, compared with $21 million in 2Q01.
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NONINTEREST EXPENSE
-------------------
------------------------------------------------------ ----------------------------------------- ----------------------------
Noninterest Expense 2001 2000
----------------------------------------- ---------------------------
Third Second First Fourth Third
(In millions) Quarter Quarter Quarter Quarter Quarter
---------------------------------------------------------------------------------------------------------------------------------
Salaries and employee benefits $ 1,374 1,363 1,329 1,243 1,381
Occupancy 176 155 163 150 157
Equipment 214 198 205 221 213
Advertising 15 11 9 16 14
Communications and supplies 117 111 110 123 117
Professional and consulting fees 79 69 73 97 87
Goodwill and other intangible amortization 117 77 78 80 79
Sundry expense 218 185 171 202 280
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Total noninterest expense $ 2,310 2,169 2,138 2,132 2,328
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FTE employees 84,719 67,420 69,362 70,639 70,533
Overhead efficiency ratio (Cash basis) 72.86 % 62.06 62.80 61.46 64.17
---------------------------------------------------------------------------------------------------------------------------------
Wachovia
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Noninterest Expense 3 Q 01 Estimated
vs Contribution From
(In millions) 2 Q 01 WB FTU
--------------------------------------------------------------------- ------------------------
Salaries and employee benefits 1 % 8 (7) %
Occupancy 14 9 5
Equipment 8 10 (2)
Advertising 36 36 -
Communications and supplies 5 9 (4)
Professional and consulting fees 14 12 2
Goodwill and other intangible amortization 52 51 1
Sundry expense 18 2 16
--------------------------------------------------------------------- ------------------------
Total noninterest expense 7 % 9 (2) %
--------------------------------------------------------------------- ------------------------
FTE employees 26 % 30 (4) %
Overhead efficiency ratio (Cash basis) - - -
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Key Points
. Former First Union cash expenses (i.e. excluding amortization) down 3% to
$2.029 billion
. Increased deposit base intangible amortization as a result of the merger
. Sundry expense includes $13 million of losses associated with operations at
the World Trade Center
Noninterest expense increased $141 million, or 7%, due solely to the addition of
one month's expenses from the former Wachovia. Total noninterest expense at the
former First Union was down 2% due to continued stringent cost management.
Salaries and employee benefits expenses were limited to 1% growth despite higher
FTEs.
Increases in occupancy and equipment expense relate to expanded physical
presence of the new Wachovia. Goodwill and other intangible amortization was
higher entirely as a result of $39 million of additional deposit base intangible
(DBI) amortization associated with the merger.
Sundry expense increased $33 million, including $13 million in losses at the
World Trade Center.
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ASSET QUALITY
-------------
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Asset Quality 2001 2000
----------------------------------------- -----------------------
Third Second First Fourth Third
(In millions) Quarter Quarter Quarter Quarter Quarter
-----------------------------------------------------------------------------------------------------------------------------------
Nonperforming assets
Nonaccrual loans $ 1,506 1,223 1,231 1,176 854
Foreclosed properties 126 104 106 103 97
-----------------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $ 1,632 1,327 1,337 1,279 951
-----------------------------------------------------------------------------------------------------------------------------------
as % of loans, net and foreclosed properties 0.96 % 1.08 1.09 1.03 0.77
-----------------------------------------------------------------------------------------------------------------------------------
Nonperforming loans in assets held for sale $ 273 250 344 334 349
-----------------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets in loans
and in assets held for sale $ 1,905 1,577 1,681 1,613 1,300
-----------------------------------------------------------------------------------------------------------------------------------
as % of loans, net, foreclosed properties and
loans in other assets as held for sale 1.08 % 1.23 1.30 1.22 0.98
-----------------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses
Balance, beginning of period $ 1,760 1,759 1,722 1,720 1,706
Former Wachovia balance, September 1, 2001 766 - - - -
Loan losses, net (243) (157) (159) (192) (142)
Allowance relating to loans transferred or sold (368) (65) (23) 2 (166)
Provision for loan losses related to loans transferred 230 36 15 - 120
Provision for loan losses 894 187 204 192 202
------------------------------------------------------------------------------------------------------------------------------------
Balance, end of period $ 3,039 1,760 1,759 1,722 1,720
------------------------------------------------------------------------------------------------------------------------------------
as % of loans, net 1.79 % 1.44 1.43 1.39 1.39
as % of nonaccrual and restructured loans (a) 202 144 143 146 202
as % of nonperforming assets (a) 186 % 133 132 135 181
------------------------------------------------------------------------------------------------------------------------------------
Loan losses, net $ 243 157 159 192 142
Commercial, as % of average commercial loans 0.85 % 0.55 0.56 0.80 0.53
Consumer, as % of average consumer loans 0.53 0.48 0.48 0.36 0.35
Total, as % of average loans, net 0.73 % 0.52 0.53 0.64 0.46
------------------------------------------------------------------------------------------------------------------------------------
(a) These ratios do not include nonperforming loans included in other assets
as held for sale. Loans 90 days past due were $310 million, $213 million,
$220 million, $183 million and $145 million in the third, second and first
quarters of 2001 and in the fourth and third quarters of 2000,
respectively.
-------------------------------------------------------------------------------- -------------------------
Wachovia
-------------------------------------------------------------------------------- -------------------------
Asset Quality 3 Q 01 Estimated
vs Contribution From
(In millions) 2 Q 01 WB FTU
-------------------------------------------------------------------------------- -------------------------
Nonperforming assets
Nonaccrual loans 23 % 21 2 %
Foreclosed properties 21 28 (7)
-------------------------------------------------------------------------------- -------------------------
Total nonperforming assets 23 % 7 16 %
-------------------------------------------------------------------------------- -------------------------
as % of loans, net and foreclosed properties - - -
-------------------------------------------------------------------------------- -------------------------
Nonperforming loans in assets held for sale 9 31 (22)
-------------------------------------------------------------------------------- -------------------------
Total nonperforming assets in loans
and in assets held for sale 21 % 23 (2) %
-------------------------------------------------------------------------------- -------------------------
as % of loans, net, foreclosed properties and
loans in other assets as held for sale - - -
-------------------------------------------------------------------------------- -------------------------
Allowance for loan losses
Balance, beginning of period - % - - %
Former Wachovia balance, September 1, 2001 - - -
Loan losses, net 55 8 47
Allowance relating to loans transferred or sold nm - -
Provision for loan losses related to loans transferred nm - -
Provision for loan losses nm - -
-------------------------------------------------------------------------------- -------------------------
Balance, end of period 73 % 45 28 %
-------------------------------------------------------------------------------- -------------------------
as % of loans, net - - -
as % of nonaccrual and restructured loans (a) - - -
as % of nonperforming assets (a) - - -
-------------------------------------------------------------------------------- -------------------------
Loan losses, net 55 % 8 47 %
Commercial, as % of average commercial loans - - -
Consumer, as % of average consumer loans - - -
Total, as % of average loans, net - - -
-------------------------------------------------------------------------------- -------------------------
(a) These ratios do not include nonperforming loans included in other assets
as held for sale. Loans 90 days past due were $310 million, $213 million,
$220 million, $183 million and $145 million in the third, second and first
quarters of 2001 and in the fourth and third quarters of 2000,
respectively.
------------------------------------------------------------------------------------------------------------
Key Points
. NPAs declined to $1.9 billion from a June pro forma combined amount of
$1.978 billion, reflecting a decrease of 4% Former Wachovia NPAs were $401
million as of June 30, 2001
. Allowance increased by $523 million over combined pro forma June 30, 2001
balance, resulting in 1.79% of loans and 202% of NPLs
. Provision for loan losses exceeded net charge-offs by $880 million, $230
million related to loans tranferred to AHFS
. Delinquencies 90 days past due were $310 million
Net loan losses rose $86 million to $243 million increasing the charge-off ratio
to 0.73% from 0.52% in 2Q01. Gross charge-offs were $274 million offset by $31
million in recoveries.
Provision for loan losses exceeded net charge-offs by $880 million for the
quarter, $230 million of which represents the provision related to $1.5 billion
of loans transferred to assets held for sale. The $651 million incremental
provision is to provide for deterioration in the credit environment in the third
quarter, for the company's initial estimate of the impact of the September 11th
tragedy and for the impact of integrating the two loan portfolios as a result of
the merger.
Additionally, $138 million moved directly from the allowance in connection with
loans sold or transferred to assets held for sale. Including $9 million in
increased reserves at the former Wachovia in July and August; the resulting net
increase in the allowance was $523 million from the combined pro forma allowance
reported as of June 30, 2001.
Allowance for loan losses increased $523 million from a combined pro forma basis
to $3.039 billion, or 1.79% of loans compared with 1.44% in 2Q01. The allowance
to nonperforming loans ratio rose to 202% while the allowance to nonperforming
assets ratio (excluding NPAs in assets held for sale) was also up significantly
to 186% from the prior quarter's 133%.
--------------------------------------------------------------------------------
Page - 8
Wachovia
--------------------------------------------------------------------------------
Relating to the previously estimated $450 million increase to allowance, the
company took the following actions: Provision expense $230 million to reflect
the impact of loans transferred to held for sale or sold, $100 million increase
in the reserve related to the integration of the two loan portfolios and a $102
million purchase accounting adjustment related to former Wachovia loans moved to
assets held for sale or sold.
Former Wachovia pre-closing credit actions amounted to $104 million, primarily
representing write-downs on loans sold or moved to loans held for sale. In a
continuation of our proactive approach to risk management, $401 million in loans
were either sold or moved to AHFS. Of these loans, approximately $234 million
were performing loans and $167 million were nonperforming. $120 million of the
$167 million of nonperforming loans were written down and moved to AHFS at a
value of $70 million. Prior to consummation of the merger on September 1, 2001,
$176 million of these performing loans and $47 million of these nonperforming
loans were sold.
Effective with the merger, $626 million in loans were identified for disposition
and moved to loans held for sale. Of these loans, $596 million were performing
and only $30 million nonperforming. Write-downs amounting to $102 million were
taken as purchase accounting adjustments on these assets.
NONPERFORMING LOANS
-------------------
-----------------------------------------------------------------------------------------------------------------------------------
Nonperforming Loans (a) 2001 2000
--------------------------------------- ----------------------------
Third Second First Fourth Third
(In millions) Quarter Quarter Quarter Quarter Quarter
-----------------------------------------------------------------------------------------------------------------------------------
Balance, beginning of period $ 1,223 1,231 1,176 854 791
-----------------------------------------------------------------------------------------------------------------------------------
Commercial nonaccrual loan activity
Commercial nonaccrual loans, beginning of period 1,088 1,026 939 654 621
Former Wachovia balance, September 1, 2001 209 - - - -
-----------------------------------------------------------------------------------------------------------------------------------
New nonaccrual loans and advances 376 361 314 532 280
Charge-offs (193) (125) (125) (166) (111)
Transfers (to) from assets held for sale (20) - - 11 (46)
Transfers (to) from other real estate owned (5) - - - -
Sales (36) (50) - (15) -
Other, principally payments (103) (124) (102) (77) (90)
-----------------------------------------------------------------------------------------------------------------------------------
Net commercial nonaccrual loan activity 19 62 87 285 33
-----------------------------------------------------------------------------------------------------------------------------------
Commercial nonaccrual loans, end of period 1,316 1,088 1,026 939 654
-----------------------------------------------------------------------------------------------------------------------------------
Consumer nonaccrual loan activity
Consumer nonaccrual loans, beginning of period 135 205 237 200 170
Former Wachovia balance, September 1, 2001 33 - - - -
-----------------------------------------------------------------------------------------------------------------------------------
Transfers (to) from assets held for sale (53) (123) (90) - -
Other, net 75 53 58 37 30
-----------------------------------------------------------------------------------------------------------------------------------
Net consumer nonaccrual loan activity 22 (70) (32) 37 30
-----------------------------------------------------------------------------------------------------------------------------------
Consumer nonaccrual loans, end of period 190 135 205 237 200
-----------------------------------------------------------------------------------------------------------------------------------
Balance, end of period $ 1,506 1,223 1,231 1,176 854
-----------------------------------------------------------------------------------------------------------------------------------
(a) Excludes nonperforming loans included in assets held for sale, which in
the third, second and first quarters of 2001 and in the fourth and third
quarters of 2000 were $273 million, $250 million, $344 million, $334 million and
$349 million, respectively, and foreclosed properties.
-----------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------ -------------------------
Nonperforming Loans (a) 3 Q 01 Estimated
vs Contribution From
(In millions) 2 Q 01 WB FTU
------------------------------------------------------------------------------ -------------------------
Balance, beginning of period (1) % (8) 8 %
------------------------------------------------------------------------------ -------------------------
Commercial nonaccrual loan activity
Commercial nonaccrual loans, beginning of period 6 - -
Former Wachovia balance, September 1, 2001 - - -
------------------------------------------------------------------------------ -------------------------
New nonaccrual loans and advances 4 - -
Charge-offs 54 - -
Transfers (to) from assets held for sale - - -
Transfers (to) from other real estate owned - - -
Sales (28) - -
Other, principally payments (17) - -
----------------------------------------------------------------------------------------------------------
Net commercial nonaccrual loan activity nm - -
------------------------------------------------------------------------------ -------------------------
Commercial nonaccrual loans, end of period 21 nm nm
------------------------------------------------------------------------------ -------------------------
Consumer nonaccrual loan activity
Consumer nonaccrual loans, beginning of period (34) - -
Former Wachovia balance, September 1, 2001 - - -
------------------------------------------------------------------------------ -------------------------
Transfers (to) from assets held for sale (57) - -
Other, net 42 - -
------------------------------------------------------------------------------ -------------------------
Net consumer nonaccrual loan activity nm - -
------------------------------------------------------------------------------ -------------------------
Consumer nonaccrual loans, end of period 41 nm nm
------------------------------------------------------------------------------ -------------------------
Balance, end of period 23 % 15 8 %
----------------------------------------------------------------------------------------------------------
(a) Excludes nonperforming loans included in assets held for sale, which in
the third, second and first quarters of 2001 and in the fourth and third
quarters of 2000 were $273 million, $250 million, $344 million, $334 million and
$349 million, respectively, and foreclosed properties.
----------------------------------------------------------------------------------------------------------
Key Points
. New nonaccrual loans relatively flat despite increased levels associated
with addition of former Wachovia portfolio
. Transferred to assets held for sale or sold $114 million of nonperforming
loans ($20 + $5 + $36 + $53)
Nonperforming loans in the loan portfolio at quarter-end were $1.5 billion, a
23% increase on a linked quarter basis. Excluding the addition of $242 million
of former Wachovia nonperforming loans, NPLs would have been up $41 million or
3%. NPLs for the combined company declined by $96 million or 6% from a June 30,
pro forma combined level and including NPLs in assets held for sale, were down
$73 million, or 4%.
New nonaccrual commercial loan balances were basically flat at $376 million
compared to the prior quarter's $361 million. In the quarter, $35 million (gross
of write-downs and other adjustments) in nonperforming commercial loans and $53
million in nonperforming consumer loans were transferred to assets held for
sale, while $15 million in NPLs previously in assets held for sale were moved
back in to the loan book. Additionally, $36 million of nonperforming commercial
loans were sold out of the loan portfolio. Payments reduced nonperforming
commercial loan balances by $103 million.
--------------------------------------------------------------------------------
Page - 9
Wachovia
--------------------------------------------------------------------------------
Former Wachovia nonperforming assets pre-merger: The following provides
nonperforming loan information on former Wachovia for the two months ended
August 31, 2001.
---------------------------------------------------------------------------------------------------------------------
Former Wachovia Nonperforming Loans (a) 2001
-------------------
Two Months Ended
(In millions) August 31,
---------------------------------------------------------------------------------------------------------------------
Balance, June 30, 2001 $ 379
---------------------------------------------------------------------------------------------------------------------
New nonaccrual loans and advances 73
Charge-offs (23)
Transfers (to) from assets held for sale (120)
Sales (47)
Other, principally payments (20)
---------------------------------------------------------------------------------------------------------------------
Change in nonperforming loans (137)
---------------------------------------------------------------------------------------------------------------------
Balance, August 31, 2001 $ 242
---------------------------------------------------------------------------------------------------------------------
(a) Excludes nonperforming loans included in assets held for sale, foreclosed
properties and restructured loans.
---------------------------------------------------------------------------------------------------------------------
LOANS HELD FOR SALE
-----------------------------------------------------------------------------------------------------------------------------------
Loans Held for Sale (a) 2001
--------------------------------------------
Third Second First
(In millions) Quarter Quarter Quarter
-----------------------------------------------------------------------------------------------------------------------------------
Balance, beginning of period $ 5,963 6,790 8,146
Former Wachovia balance as of September 1, 2001 (b) 297 - -
Originations 4,955 5,279 4,773
Performing loans transferred to (from) assets held for sale, net 1,351 (189) 192
Nonperforming loans transferred to (from) assets held for sale, net 79 128 90
Allowance for loan losses related to loans transferred to
assets held for sale (c) (262) (40) (23)
Lower of cost or market valuation adjustments (15) (35) (80)
Performing loans sold (5,177) (5,535) (5,910)
Nonperforming loans sold (88) (130) (45)
Other, net (d) (266) (305) (353)
-----------------------------------------------------------------------------------------------------------------------------------
Balance, end of period (e) $ 6,837 5,963 6,790
-----------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
Loans Held for Sale (a) 2000
---------------------------------
Fourth Third
(In millions) Quarter Quarter
------------------------------------------------------------------------------------------------------------------
Balance, beginning of period 9,091 10,636
Former Wachovia balance as of September 1, 2001 (b) - -
Originations 2,701 2,495
Performing loans transferred to (from) assets held for sale, net (556) 658
Nonperforming loans transferred to (from) assets held for sale, net - 37
Allowance for loan losses related to loans transferred to
assets held for sale (c) 2 (166)
Lower of cost or market valuation adjustments (144) (46)
Performing loans sold (2,402) (4,325)
Nonperforming loans sold (91) (18)
Other, net (d) (455) (180)
------------------------------------------------------------------------------------------------------------------
Balance, end of period (e) 8,146 9,091
------------------------------------------------------------------------------------------------------------------
(a) All activity reflects two months of former First Union and one month of the
combined organization, and excludes other real estate owned.
(b) Beginning balance and transfers of former Wachovia loans to assets held for
sale are shown net of $82 million allowance for loan losses on these loans and
$102 million purchase accounting adjustment.
(c) Excludes $82 million of allowance associated with former Wachovia loans and
$24 million of allowance and provision associated with loans sold directly out
of the loan portfolio.
(d) Other, net represents primarily loan payments.
(e) Former First Union nonperforming loans included in assets held for sale in
the third, second and first quarters of 2001 and in the fourth and third
quarters of 2000 were $195 million, $250 million, $344 million, $334 million and
$349 million, respectively. The former Wachovia balance as of September 30,
2001, included nonperforming loans of $78 million.
--------------------------------------------------------------------------------
Key Points
. Proactively moved $1.5 billion of overlapping and higher risk loans to held
for sale including $626 million of former Wachovia loans; $1.4 billion were
performing loans
. Cost totaled $332 million - $230 million provision, $102 million in purchase
accounting adjustments; additionally utilized existing reserves of $138
million
. Sold $5.2 billion of performing and $88 million of nonperforming loans
In 3Q01, $1.5 billion of loans were transferred to assets held for sale (prior
to the effect of LOCOM write-downs and purchase accounting adjustments). $1.4
billion of these non-flow loans were performing and $113 million were
nonperforming. The loans represent areas of perceived higher risk and were
primarily in the textile, technology/telecom, commercial real estate and
asbestos-related sectors.
Of the total $262 million allowance that was associated with the loans, $51
million represented existing reserves and $211 million represented 3Q01
additional provision to adjust the loans to market value.
We sold $17 million of commercial loans and $5.3 billion of consumer loans,
primarily mortgages delivered to agencies out of the loans held for sale
portfolio. $5 billion of the consumer loan sales represented flow business.
--------------------------------------------------------------------------------
Page - 10
Vachovia
--------------------------------------------------------------------------------
The following table provides additional detail related to direct loan sale
activity and the types of loans transferred to assets held for sale.
-----------------------------------------------------------------------------------------------------------------------------------
Third Quarter 2001 Loans
Sold Out of Loan Book or
Transferred To Held For Sale Balance Direct
---------------------------------------------
Non- Allowance Provision to
(In millions) performing Performing Total Reduction Adjust Value
-----------------------------------------------------------------------------------------------------------------------------------
Commercial loans $ 36 77 113 4 19
Consumer loans - - - - -
-----------------------------------------------------------------------------------------------------------------------------------
Loans sold from loan book 36 77 113 4 19
-----------------------------------------------------------------------------------------------------------------------------------
Commercial loans 60 1,367 1,427 126 197
Consumer loans 53 - 53 8 14
-----------------------------------------------------------------------------------------------------------------------------------
Loans transferred to held for sale 113 1,367 1,480 (a) 134 211
-----------------------------------------------------------------------------------------------------------------------------------
Total $ 138 230
-----------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
Third Quarter 2001 Loans
Sold Out of Loan Book or
Transferred To Held For Sale Purchase Inflow as Assets Held For Sale
------------------------------------------------
Accounting Non-
(In millions) Adjustments performing Performing Total
-------------------------------------------------------------------------------------------------------------------------
Commercial loans -
Consumer loans -
-------------------------------------------------------------------------------------------------------------------------
Loans sold from loan book -
-------------------------------------------------------------------------------------------------------------------------
Commercial loans 102 38 964 1,002
Consumer loans - 31 - 31
-------------------------------------------------------------------------------------------------------------------------
Loans transferred to held for sale 102 69 964 1,033
-------------------------------------------------------------------------------------------------------------------------
Total 102
-------------------------------------------------------------------------------------------------------------------------
(a) Includes former Wachovia loans prior to allowance and purchase accounting
adjustments amounting to $82 million and $102 million, respectively.
-------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Page - 11
Wachovia
--------------------------------------------------------------------------------
FIRST UNION/WACHOVIA MERGER INTEGRATION UPDATE
----------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
Merger Integration Metrics Target Goal
--------------------------------------------------------
2002 2003 2004
-----------------------------------------------------------------------------------------------------------------------------------
Customer satisfaction scores TBD 2Q02
New/Lost ratio (a) TBD 2Q02
-----------------------------------------------------------------------------------------------------------------------------------
3Q Cumulative % of
2001 Total Estimate Goal
-----------------------------------------------------------------------------------------------------------------------------------
Expense efficiencies (b) (In millions) $ 12 $ 24 3 % $ 890
One-time charges (In millions) $ 147 $ 147 10 $ 1,525 (d)
Position reductions(c) 863 1,315 19 7,000
Branch consolidations - - - % 250-300
-----------------------------------------------------------------------------------------------------------------------------------
(a) New core customers gained divided by core customers lost. Core customers
exclude single-service credit card, mortgage and trust customers and out of
footprint customers. (b) Expense efficiencies calculated from annualized pro
forma 4Q00 base (excluding commissions, incentives, amortization and
restructuring or merger costs). (c) Represents change in FTE position from pro
forma combined December 31, 2000, base of 84,776 and excludes divested
businesses and the impact of strategic repositioning. (d) Includes $75 million
of unanticipated costs associated with hostile takeover attempt.
-----------------------------------------------------------------------------------------------------------------------------------
Key Points
. Will report consolidated customer satisfaction scores and customer
attrition beginning 2Q02; will provide target goals at that time
. Completed re-due diligence effort supports expense efficiencies and
one-time costs
. Position reduction of 1,315 largely related to hiring freeze
. Data centers decided
. Non-customer ATM fees waived for former WB and FTU customers in combined
network
. System Selection Process: 800 applications analyzed and final decisions
completed October 17
. Top 3 tiers of leadership (approximately 1,100 executives) decisioned and
in position by October 30
. Expense policy integration; new policies in place by end of October,
implementation November 1
. Original estimate of $1.45 billion in one-time charges increased by $75
million to cover unanticipated costs associated with hostile takeover
attempt
ESTIMATED MERGER CHARGES
In connection with the merger, we will record certain merger-related and
restructuring charges. These charges will be reflected in the combined company's
income statement. In addition, we recorded purchase accounting adjustments as of
September 1, 2001, to reflect former Wachovia's assets and liabilities at their
respective fair values and to reflect certain exit costs related to the former
Wachovia. The purchase accounting adjustments are preliminary and subject to
refinement.
At the time of the merger announcement, management indicated that the company
would incur an estimated $1.45 billion of merger costs. This amount included the
merger-related and restructuring charges reflected in the income statement as
well as the purchase accounting adjustment for certain exit costs.
--------------------------------------------------------------------------------
Page - 12
Wachovia
--------------------------------------------------------------------------------
The following chart details the company's progress compared with the estimated
merger charges after adjusting for $75 million in additional charges incurred by
both former Wachovia and First Union in conjunction with a hostile takeover bid.
---------------------------------------------------------------------------------------------------------------------------------
Estimated Merger Charges Merger- Exit Cost
Related/ Purchase
Restructuring Accounting
(In millions) Charges Adjustments (a) Total
---------------------------------------------------------------------------------------------------------------------------------
April 16, 2001 estimated charges $ 750 700 1,450
---------------------------------------------------------------------------------------------------------------------------------
Additional charges relating to hostile bid 75
---------------------------------------------------------------------------------------------------------------------------------
Adjusted total estimate $ 750 700 1,525
---------------------------------------------------------------------------------------------------------------------------------
Total actual charges
Third quarter 2001 $ 82 65 147
Total cumulative charges $ 82 65 147
---------------------------------------------------------------------------------------------------------------------------------
(a) These adjustments represent incremental costs related to combining the two
companies and are specifically attributable to the former Wachovia. Examples
include employee termination costs, contract cancellations including leases and
closing redundant former Wachovia facilities. These adjustments flow through
goodwill.
Merger-Related and Other Restructuring Charges/Gains
--------------------------------------------------------------------------------------------------------------------------------
Merger-Related, Restructuring and Other Charges/Gains (Income Statement Impact) 2001
-----------------------
Third
(In millions) Quarter
--------------------------------------------------------------------------------------------------------------------------------
Merger-related and restructuring charges
Personnel and employee termination benefits $ 43
Occupancy and equipment -
Contract cancellations and system conversions -
Other 39
--------------------------------------------------------------------------------------------------------------------------------
Total First Union/Wachovia merger-related and restructuring charges 82
--------------------------------------------------------------------------------------------------------------------------------
Merger-related charges from previously announced mergers 3
-------------------------------------------------------------------------------------------------------------------------------
Total merger-related and restructuring charges 85
--------------------------------------------------------------------------------------------------------------------------------
Other charges/gains
Provision for loan losses (a) 880
Other charges, net 4
--------------------------------------------------------------------------------------------------------------------------------
Total other charges/gains 884
--------------------------------------------------------------------------------------------------------------------------------
Total merger-related, restructuring and other charges/gains 969
Income tax benefits (337)
--------------------------------------------------------------------------------------------------------------------------------
After-tax merger-related, restructuring and other charges/gains $ 632
--------------------------------------------------------------------------------------------------------------------------------
(a) The incremental provision includes $330 million related to credit actions of
combining the two loan portfolios, which was not included in the original
estimate of one-time charges amounting to $1.45 billion and will be excluded
from the cumulative amount of reported First Union/Wachovia one-time charges.
--------------------------------------------------------------------------------------------------------------------------------
In the quarter, the company recorded $85 million in merger-related,
restructuring charges and other charges/gains primarily related to personnel and
employee termination benefits as well as advertising and other charges. $82
million of these charges were related to the merger with the remainder relating
to other smaller acquisitions.
--------------------------------------------------------------------------------
Page - 13
WACHOVIA
--------------------------------------------------------------------------------
GOODWILL AND OTHER INTANGIBLES
---------------------------------------------------------------------------------------------------------------------------
Goodwill and Other Intangibles Created 2001
-----------------------
by the First Union/Wachovia Merger Third
(In millions) Quarter
---------------------------------------------------------------------------------------------------------------------------
Purchase price less former Wachovia ending tangible
stockholders' equity as of September 1, 2001 $ 7,466
---------------------------------------------------------------------------------------------------------------------------
Preliminary fair value purchase accounting adjustments (a)
Financial assets 747
Premises and equipment 146
Employee benefit plans 276
Financial liabilities (13)
Other (153)
---------------------------------------------------------------------------------------------------------------------------
Total fair value purchase accounting adjustments 1,003
---------------------------------------------------------------------------------------------------------------------------
Preliminary exit cost purchase accounting adjustments (b)
Personnel and employee termination benefits 43
Occupancy and equipment -
Contract cancellations -
Other 22
---------------------------------------------------------------------------------------------------------------------------
Total exit cost purchase accounting adjustments (One-time costs) 65
---------------------------------------------------------------------------------------------------------------------------
Total purchase intangibles 8,534
Preliminary deposit base intangible (net of income taxes) 1,465
---------------------------------------------------------------------------------------------------------------------------
Preliminary goodwill $ 7,069
---------------------------------------------------------------------------------------------------------------------------
(a) These adjustments represent preliminary fair value adjustments in compliance with business combination accounting
standards and adjust assets and liabilities of the former Wachovia to their fair value as of September 1, 2001.
(b) These adjustments represent incremental costs relating to combining the two organizations which are specifically
related to the former Wachovia.
---------------------------------------------------------------------------------------------------------------------------
Key Points
. Reported $1 billion in preliminary fair value purchase accounting
adjustments in order to record former Wachovia's assets and liabilities at
their respective fair values
. In the quarter, recorded $65 million in exit cost charges, primarily
personnel-related
The company recorded purchase accounting adjustments resulting in a net
write-down of $1 billion. These adjustments were made to record the assets and
liabilities of former Wachovia at their respective fair values. Additionally, in
3Q01, the company recorded $65 million in exit cost purchase accounting
adjustments, which represent costs associated specifically with the former
Wachovia such as lease cancellations, equipment sales or write-offs, and
employee termination benefits.
--------------------------------------------------------------------------------
Page - 14
WACHOVIA
--------------------------------------------------------------------------------
BUSINESS SEGMENT RESULTS
-----------------------------------------------------------------------------------------------------------------------------------
Wachovia Corporation Three Months Ended September 30, 2001
-----------------------------------------------------------------------------
Performance Summary General Capital Wealth
(In millions) Bank Management Management
-----------------------------------------------------------------------------------------------------------------------------------
Income statement data
Net interest income (Tax-equivalent) $ 1,280 33 61
Fee and other income 444 655 100
Intersegment revenue 30 (12) -
-----------------------------------------------------------------------------------------------------------------------------------
Total revenue (Tax-equivalent) 1,754 676 161
Provision for loan losses 98 - 2
Noninterest expense 1,023 573 115
Income taxes (Tax-equivalent) 222 36 15
-----------------------------------------------------------------------------------------------------------------------------------
Operating earnings $ 411 67 29
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Economic profit $ 285 42 21
Risk adjusted return on capital (RAROC) 37.31 % 31.54 46.57
Economic capital $ 4,465 848 236
Cash overhead efficiency ratio 57.77 % 84.72 71.08
Average loans, net $ 76,590 269 5,680
Average core deposits $ 110,755 1,535 7,328
-----------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
Wachovia Corporation
-----------------------------------------------------
Performance Summary Corporate and
(In millions) Investment Banking Parent Consolidated
-------------------------------------------------------------------------------------------------------
Income statement data
Net interest income (Tax-equivalent) 498 102 1,974
Fee and other income (250) 87 1,036
Intersegment revenue (15) (3) -
-------------------------------------------------------------------------------------------------------
Total revenue (Tax-equivalent) 233 186 3,010
Provision for loan losses 126 18 244
Noninterest expense 479 120 2,310
Income taxes (Tax-equivalent) (165) 50 158
-------------------------------------------------------------------------------------------------------
Operating earnings (207) (2) 298
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
Performance and other data
Economic profit (356) 44 36
Risk adjusted return on capital (RAROC) (10.58) 23.29 13.05
Economic capital 6,267 1,576 13,392
Cash overhead efficiency ratio nm 11.51 72.86
Average loans, net 42,076 8,411 133,026
Average core deposits 10,499 2,086 132,203
-------------------------------------------------------------------------------------------------------
Business segment results are presented on an operating basis, and accordingly,
they exclude merger and other related charges and gains. Third quarter results
at the segment and sub-segment level include three months of former First Union
and one month of former Wachovia.
In conjunction with the merger, we realigned our segment reporting to reflect
the business mix and management reporting structure of the new company. We now
report the results of four business segments, compared with three previously,
plus the Parent. The most significant change is the separation of Wealth
Management from Capital Management. The five trailing quarters at the segment
level and the three trailing quarters at the sub-segment level have been
restated to reflect these changes.
Management reporting methodologies have also been revised to reflect the new
company. This includes refinements in funds transfer pricing, economic capital,
expected losses, costs, and other balance sheet and income statement
allocations. Prior periods have not been restated to reflect these changes, as
segment level results of the former First Union would not differ materially as a
result of these changes.
--------------------------------------------------------------------------------
Page - 15
WACHOVIA
--------------------------------------------------------------------------------
Key Definitions
---------------
Activity-Based Costing - A method of determining product costs based upon
----------------------
detailed studies that align the cost of activities with the products those
activities support.
Cost of Capital -The cost of capital rate is the minimum rate of return that
---------------
must be earned so as not to dilute shareholder value. Wachovia's cost of capital
rate has been established using the capital asset pricing model (CAPM) and is
currently set at 12 percent. The cost of capital charge is determined by
multiplying the cost of capital rate times the amount of economic capital.
Economic Capital - Capital assigned based on a statistical assessment of the
----------------
credit, market and operating risks taken to generate profits in a particular
business unit and/or product.
Economic Net Income - GAAP net income adjusted for intangibles amortization and
-------------------
the after-tax impact of expected losses vs. GAAP loan loss provision.
Economic Profit - Economic net income less the cost of capital charge.
---------------
Expected Losses - A long-term measure of credit losses expected on a specific
---------------
loan or loan portfolio. The loss assigned is based upon studies that analyze the
average annual loss rate on groups of loans across multiple business cycles.
Intersegment revenues: Intersegment revenues (referral fees) are paid from the
----------------------
segment that "owns" a product to the segment that "sells" the product, and they
are based upon comparable fees paid in the market and/or upon negotiated amounts
which estimate the relative profitability value provided by the selling party.
Cost allocation transfers are made for servicing provided from one business
segment to another.
RAROC - Risk Adjusted Return On Capital. RAROC is calculated by dividing
-----
economic net income by economic capital.
--------------------------------------------------------------------------------
Page - 16
WACHOVIA
--------------------------------------------------------------------------------
GENERAL BANK
------------
This segment consists of the Retail & Small Business and Commercial operations.
-----------------------------------------------------------------------------------------------------------------------------------
General Bank 2001 2000
--------------------------------------------- --------------------------
Performance Summary Third Second First Fourth Third
(In millions) Quarter Quarter Quarter Quarter Quarter
-----------------------------------------------------------------------------------------------------------------------------------
Income statement data
Net interest income (Tax-equivalent) $ 1,280 1,140 1,085 1,104 1,106
Fee and other income 444 388 341 355 352
Intersegment revenue 30 27 25 25 24
-----------------------------------------------------------------------------------------------------------------------------------
Total revenue (Tax-equivalent) 1,754 1,555 1,451 1,484 1,482
Provision for loan losses 98 98 100 74 51
Noninterest expense 1,023 936 907 977 933
Income taxes (Tax-equivalent) 222 178 153 147 170
--------------- ------------ ------------ ------------ -----------
Operating earnings $ 411 343 291 286 328
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Economic profit $ 285 256 220 190 220
Risk adjusted return on capital (RAROC) 37.31 % 39.85 37.55 32.53 35.98
Economic capital $ 4,465 3,691 3,494 3,689 3,652
Cash overhead efficiency ratio 57.77 % 59.29 61.49 64.89 61.98
Average loans, net $ 76,590 65,462 63,213 61,735 60,029
Average core deposits $ 110,755 99,388 98,376 98,184 97,186
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------
General Bank
3Q01 Estimated
Performance Summary vs Contribution From
(In millions) 2Q01 WB FTU
-----------------------------------------------------
Income statement data
Net interest income (Tax-equivalent) 12 %
Fee and other income 14 12 2 %
Intersegment revenue 11
----------------------------------------------------------------------- ------------------------
Total revenue (Tax-equivalent) 13
Provision for loan losses -
Noninterest expense 9 11 (2) %
Income taxes (Tax-equivalent) 25
----------------------------------------------------------------------- --------------------
------------ ------------------------
Operating earnings 20 %
-------------------------------------------------------------------- ------------------------
---
---
----------------------------------------------------------------------- ------------------------
Performance and other data
Economic profit 11 %
Risk adjusted return on capital (RAROC) -
Economic capital 21
Cash overhead efficiency ratio -
Average loans, net 17 15 2 %
Average core deposits 11 % 11 - %
----------------------------------------------------------------------- ------------------------
Key Points
. Excluding former Wachovia, solid fee and other income growth was up 8%
annualized, and expenses declined 8% annualized
. Deposits up 11%, on strong growth of 4% of former First Union low cost core
deposits (DDA, interest checking, savings, money market accounts) reflecting
our pursuit of a more profitable deposit mix
. Cash overhead efficiency ratio below 60% for the second consecutive quarter
-----------------------------------------------------------------------------------------------------------------------------------
General Bank Key Metrics 2001 2000
--------------------------------------------- --------------------------
Third Second First Fourth Third
Quarter Quarter Quarter Quarter Quarter
-----------------------------------------------------------------------------------------------------------------------------------
Customer overall satisfaction score (a) 6.33 6.32 6.29 6.27 6.22
Mystery Customer Profile scores (b) 90.01 % 88.77 88.29 86.81 85.61
Online customers (In thousands) 3,810 2,903 2,640 2,367 2,149
Financial centers 2,795 2,162 2,164 2,193 2,253
ATMs 4,698 3,419 3,676 3,772 3,831
-----------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------- ------------------------
General Bank Key Metrics 3 Q 01 Estimated
vs Contribution From
2 Q 01 WB FTU
-------------------------------------------------------------------------- ------------------------
Customer overall satisfaction score (a) - % - - %
Mystery Customer Profile scores (b) - - -
Online customers (In thousands) 31 25 6
Financial centers 29 30 (1)
ATMs 37 % 40 (3) %
-------------------------------------------------------------------------- ------------------------
(a) Gallup survey measured for customers of former First Union only; on a 1-7 scale; 6.4 = "best in class".
(b) Customer Service Profile measured for customers of former Wachovia only; perfect score of 100%.
Overall customer satisfaction score for former First Union customers was 6.33,
which increased for the 10th consecutive quarter and is approaching the current
goal of 6.4. The Team Wachovia Mystery Customer Exceptional Service Program
score, a measurement of customer service for former Wachovia, was 90.01%, the
sixth consecutive quarter of improvement toward our goal of 92%. In 1Q02, the
company will begin utilizing the Gallup survey company-wide in order to measure
customer service satisfaction.
ATM count increased by 1,279 units, primary related to former Wachovia.
--------------------------------------------------------------------------------
Page - 17
RETAIL & SMALL BUSINESS
This sub-segment includes Retail Banking, Small Business Banking, First Union
Mortgage Corp., First Union Home Equity Bank, Educaid and other retail
businesses.
General Bank
---------------------------------------------------------------------------------------------------------- -----------------------
Retail and Small Business 2001 3 Q 01 Estimated
---------------------------------------------
Performance Summary Third Second First vs Contribution From
(In millions) Quarter Quarter Quarter 2 Q 01 WB FTU
---------------------------------------------------------------------------------------------------------- -----------------------
Income statement data
Net interest income (Tax-equivalent) $ 1,058 960 918 10 %
Fee and other income 403 357 314 13 12 1 %
Intersegment revenue 16 13 13 23
---------------------------------------------------------------------------------------------------------- -----------------------
Total revenue (Tax-equivalent) 1,477 1,330 1,245 11
Provision for loan losses 73 85 82 (14)
Noninterest expense 909 835 811 9 10 (1) %
Income taxes (Tax-equivalent) 174 140 121 24
--------------- ------------ ------------ ------------ -----------------------
Operating earnings $ 321 270 231 19 %
---------------------------------------------------------------------------------------------------------- -----------------------
---------------------------------------------------------------------------------------------------------- -----------------------
Performance and other data
Economic profit $ 240 221 192 9 %
Risk adjusted return on capital (RAROC) 42.39 % 44.72 42.59 -
Economic capital $ 3,132 2,709 2,550 16
Cash overhead efficiency ratio 61.01 % 61.80 64.06 -
Average loans, net $ 47,789 42,288 40,839 13 8 5 %
Average core deposits $ 99,969 89,795 89,259 11 % 11 - %
---------------------------------------------------------------------------------------------------------- -----------------------
Net interest income was up 10%, reflecting the addition of Wachovia's strong
banking system and continued strong loan production in financial centers despite
shrinking deposit margins. Loans increased 13%, due to strong growth in prime
equity lines, home equity and student loans. Of this increase, former Wachovia
contributed an estimated 8%. Average core deposits grew 11%, primarily due to
the contribution by former Wachovia. Low cost core deposits continued to
increase on the strength of money market and interest checking, offset by
run-off in CDs and CAP accounts.
Fee and other income grew 13%, primarily due to service charges and fees. While
former Wachovia contributed an estimated 12% of this increase, former First
Union results showed continued strength following record loan production in
2Q01. 3Q01 mortgage and home equity results included $21 million in gains on $4
billion in mortgage deliveries to agencies, $26 million in gains on flow
servicing sales, and $2 million on other sales. 2Q01 included $22 million in
gains on deliveries, $12 million in gains on flow servicing sales, and $9
million in other gains.
Expenses were up 9% driven by the incremental expense base of former Wachovia.
Solid expense control continued at former First Union and overall financial
center staffing levels remain close to 100%.
Page -18
RETAIL LOAN PRODUCTION
General Bank
-------------------------------------------------------------------------------------------------------- -------------------------
Retail Loan Volume 2001 3 Q 01 Estimated
-----------------------------------------------
Third Second First vs Contribution From
(In millions) Quarter Quarter Quarter 2 Q 01 WB FTU
-------------------------------------------------------------------------------------------------------- -------------------------
Consumer direct $ 1,339 1,755 1,210 (24) % - (24) %
Prime equity lines 2,579 2,483 1,984 4 - 4
First Union Home Equity 1,447 1,558 1,274 (7) - (7)
First Union Mortgage Corporation 4,279 4,685 3,394 (9) 9 (18)
Other 1,348 731 728 84 (9) 93
-------------------- ------------- -------------------------------- -------------------------
Total retail loan volume $ 10,992 11,212 8,590 (2) % 3 (5) %
-------------------------------------------------------------------------------------------------------- -------------------------
Loan volume was down 2%, due primarily to extremely strong performance in 2Q01.
Increases in PELs and the seasonal strength of Educaid were offset by declines
in First Union Mortgage and Consumer direct volume. Former Wachovia contributed
an estimated 3% increase.
--------------------------------------------------------------------------------------------------------- ------------------------
Retail Average Loans 2001 3 Q 01 Estimated
-----------------------------------------------
Third Second First vs Contribution From
(In millions) Quarter Quarter Quarter 2 Q 01 WB FTU
--------------------------------------------------------------------------------------------------------- ------------------------
Consumer direct $ 13,767 12,595 12,070 9 % 2 7 %
Prime equity lines 10,354 9,738 9,370 6 2 4
First Union Home Equity 12,013 11,383 11,097 6 - 6
First Union Mortgage Corporation 402 416 439 (3) - (3)
Other 11,253 8,156 7,863 38 38 -
-------------------- ------------------------
Retail average loans $ 47,789 42,288 40,839 13 % 8 5 %
--------------------------------------------------------------------------------------------------------- ------------------------
Average retail loan outstandings increased 13%, primarily in Consumer direct,
PELs and home equity loans. Former Wachovia contributed an estimated 8% of this
increase. Other retail loans, which include Small Business products, increased
38%.
Page -19
COMMERCIAL
This sub-segment includes middle-market Commercial, Commercial Real Estate and
Government Banking.
General Bank
--------------------------------------------------------------------------------------------------------- ------------------------
Commercial 2001 3 Q 01 Estimated
------------------------------------------
Performance Summary Third Second First vs Contribution From
(In millions) Quarter Quarter Quarter 2 Q 01 WB FTU
--------------------------------------------------------------------------------------------------------- ------------------------
Income statement data
Net interest income (Tax-equivalent) $ 222 180 167 23 %
Fee and other income 41 31 27 32 16 16 %
Intersegment revenue 14 14 12 -
--------------------------------------------------------------------------------------------------------- ------------------------
Total revenue (Tax-equivalent) 277 225 206 23
Provision for loan losses 25 13 18 92
Noninterest expense 114 101 96 13 15 (2) %
Income taxes (Tax-equivalent) 48 38 32 26
----------- ------------- ------------ ------------ ------------------------
Operating earnings $ 90 73 60 23 %
--------------------------------------------------------------------------------------------------------- ------------------------
--------------------------------------------------------------------------------------------------------- ------------------------
Performance and other data
Economic profit $ 45 35 28 29 %
Risk adjusted return on capital (RAROC) 25.38 % 26.41 23.93 -
Economic capital $ 1,333 982 944 36
Cash overhead efficiency ratio 40.59 % 44.44 46.05 -
Average loans, net $ 28,801 23,174 22,374 24 26 (2) %
Average core deposits $ 10,786 9,593 9,117 12 % 7 5 %
--------------------------------------------------------------------------------------------------------- ------------------------
Net interest income increased 23%, due to low cost core deposit growth. Average
loans were up 24%, due to the contribution of former Wachovia, estimated to be
26%. Deposits were up a solid 12%, driven by continued focus on attracting low
cost core deposits and a flight to safety. Former Wachovia contributed an
estimated 7% of this increase.
Fee and other income grew 32%, due to increased cash management service charges
(on lower compensating balances) as a result of a lower interest rate
environment. Management estimates that former Wachovia contributed 16% of this
increase.
Expenses increased 13% as a result of the merger. The continued focus on expense
control reduced expenses 2% at former First Union.
Page -20
CAPITAL MANAGEMENT
This segment includes Asset Management and Retail Brokerage Services.
Capital Management
-----------------------------------------------------------------------------------------------------------------------------------
Capital Management 2001 2000
--------------------------------------------- --------------------------
Performance Summary Third Second First Fourth Third
(In millions) Quarter Quarter Quarter Quarter Quarter
-----------------------------------------------------------------------------------------------------------------------------------
Income statement data
Net interest income (Tax-equivalent) $ 33 30 32 40 38
Fee and other income 655 693 685 692 681
Intersegment revenue (12) (12) (11) (12) (12)
-----------------------------------------------------------------------------------------------------------------------------------
Total revenue (Tax-equivalent) 676 711 706 720 707
Provision for loan losses - - - - -
Noninterest expense 573 583 575 574 576
Income taxes (Tax-equivalent) 36 44 45 49 44
--------------- ------------ ------------ ------------ -----------
Operating earnings $ 67 84 86 97 87
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Economic profit $ 42 59 62 72 61
Risk adjusted return on capital (RAROC) 31.54 % 41.26 42.34 46.09 40.91
Economic capital $ 848 817 823 836 844
Cash overhead efficiency ratio 84.72 % 82.04 81.37 79.65 81.40
Average loans, net $ 269 110 129 104 84
Average core deposits $ 1,535 1,609 1,827 2,142 2,356
-----------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------- ------------------------
Capital Management 3 Q 01 Estimated
Performance Summary vs Contribution From
(In millions) 2 Q 01 WB FTU
----------------------------------------------------------------------- ------------------------
Income statement data
Net interest income (Tax-equivalent) 10 %
Fee and other income (5) 3 (8) %
Intersegment revenue -
----------------------------------------------------------------------- ------------------------
Total revenue (Tax-equivalent) (5)
Provision for loan losses -
Noninterest expense (2) 4 (6) %
Income taxes (Tax-equivalent) (18)
-------------------------------------------------------------------- --------------------
Operating earnings (20) %
----------------------------------------------------------------------- ------------------------
----------------------------------------------------------------------- ------------------------
Performance and other data
Economic profit (29) %
Risk adjusted return on capital (RAROC) -
Economic capital 4
Cash overhead efficiency ratio -
Average loans, net nm 17 nm %
Average core deposits (5) % 1 (6) %
----------------------------------------------------------------------- ------------------------
Key Points
o Balanced model continues to provide solid performance in difficult market
conditions
o Strong product sales through multiple distribution channels
-- Record $1.2 billion total annuity sales, driven by $668 million in-bank
sales, up $91 million from 2Q01
-- Record $2.2 billion gross fluctuating mutual fund sales
o Continued focus on expense control evident
Capital Management
-----------------------------------------------------------------------------------------------------------------------------------
Capital Management Key Metrics 2001 2000
--------------------------------------------- --------------------------
Third Second First Fourth Third
(In millions) Quarter Quarter Quarter Quarter Quarter
-----------------------------------------------------------------------------------------------------------------------------------
Separate account assets $ 124,592 81,879 81,576 85,933 87,922
Mutual fund assets 101,749 90,279 86,767 84,797 85,223
-----------------------------------------------------------------------------------------------------------------------------------
Total assets under management (a) $ 226,341 172,158 168,343 170,730 173,145
-----------------------------------------------------------------------------------------------------------------------------------
Gross fluctuating mutual fund sales $ 2,213 1,981 1,983 1,762 1,819
-----------------------------------------------------------------------------------------------------------------------------------
Assets under care (Excluding AUM) (b) $ 488,537 499,847 489,380 485,516 500,962
-----------------------------------------------------------------------------------------------------------------------------------
Registered representatives (Actual) 8,139 7,706 7,784 7,459 7,342
Brokerage offices (Actual) 3,390 2,690 2,695 2,568 2,623
----------------------------------------------------------------------- ------------------------
Capital Management Key Metrics 3 Q 01 Estimated
vs Contribution From
(In millions) 2 Q 01 WB FTU
----------------------------------------------------------------------- ------------------------
Separate account assets 52 % 45 7 %
Mutual fund assets 13 11 1
----------------------------------------------------------------------- ------------------------
Total assets under management (a) 31 27 4
----------------------------------------------------------------------- ------------------------
Gross fluctuating mutual fund sales 12 2 10
-------------------------------------------------------------------- ----------
Assets under care (Excluding AUM) (b) (2) 4 (6)
----------------------------------------------------------------------- ------------------------
Registered representatives (Actual) 6 8 (2)
Brokerage offices (Actual) 26 % 26 - %
------------------------
(a) Includes $80 billion in assets managed for Wealth Management which are also reported in that segment.
(b) Includes $22 billion in assets held for Wealth Management which are also reported in that segment.
---------------------------------------------------------------------------------------------------------
Key Points
o 4% growth in assets under management produced by former First Union
o $47 billion added to assets under management by former Wachovia
o $102 billion in mutual funds with strong net fluctuating fund flows of $400
million driven by fixed income
Page -21
ASSET MANAGEMENT
This sub-segment consists of the mutual fund business, customized investment
advisory services and corporate and institutional trust services.
Capital Management
----------------------------------------------------------------------------------------------------------- ----------------------
Asset Management 2001 3 Q 01 Estimated
----------------------------------------
Performance Summary Third Second First vs Contribution From
(In millions) Quarter Quarter Quarter 2 Q 01 WB FTU
----------------------------------------------------------------------------------------------------------- ----------------------
Income statement data
Net interest income (Tax-equivalent) $ (6) (7) (5) (14) %
Fee and other income 210 213 214 (1) 3 (4) %
Intersegment revenue (1) - - -
----------------------------------------------------------------------------------------------------------- ----------------------
Total revenue (Tax-equivalent) 203 206 209 (1)
Provision for loan losses - - - -
Noninterest expense 150 144 141 4 2 2 %
Income taxes (Tax-equivalent) 19 20 24 (5)
--------- ------------- ------------ ------------ -------------------
Operating earnings $ 34 42 44 (19) %
----------------------------------------------------------------------------------------------------------- ----------------------
----------------------------------------------------------------------------------------------------------- ----------------------
Performance and other data
Economic profit $ 28 36 39 (22) %
Risk adjusted return on capital (RAROC) 66.70 % 91.23 99.65 -
Economic capital $ 204 182 180 12
Cash overhead efficiency ratio 74.12 % 69.55 67.51 -
Average loans, net $ 268 110 128 nm 16 nm %
Average core deposits $ 1,442 1,530 1,723 (6) % 1 (7) %
----------------------------------------------------------------------------------------------------------- ----------------------
Fee and other income remained relatively flat at $210 million, off 1% from the
prior quarter's $213 million. Former Wachovia added approximately $6 million of
fee income. Strong net fund flows largely offset the effects of the declining
market and the shift in asset mix to lower fee fund products. Management
estimates that events of September 11 reduced fee revenue by approximately $3
million.
Expenses were up 4% including a $4 million charge for losses related to the
World Trade Center tragedy. Otherwise, expenses, excluding an estimated 2%
increase related to former Wachovia, were flat as a focus on cost control
continued.
Capital Management
-----------------------------------------------------------------------------------------------------------------------------------
Mutual Funds 2001 3 Q 01
----------------------------------------------------------------------------------------
Third Quarter Second Quarter First Quarter vs
----------------------------------------------------------------------------------------
(In billions) Amount Fund Mix Amount Fund Mix Amount Fund Mix 2 Q 01
-----------------------------------------------------------------------------------------------------------------------------------
Assets under management
Money market $ 63 62 % $ 55 61 % $ 53 61 % 15 %
Equity 23 22 23 26 22 25 -
Fixed income 16 16 12 13 12 14 33
-----------------------------------------------------------------------------------------------------------------------------------
Total mutual fund assets $ 102 100 % $ 90 100 % $ 87 100 % 13 %
-----------------------------------------------------------------------------------------------------------------------------------
--------------------------- ------------------------
Mutual Funds Estimated
Contribution From
(In billions) WB FTU
--------------------------- ------------------------
Assets under management
Money market 7 8 %
Equity 13 (13)
Fixed income 25 8
---------------------------
Total mutual fund assets 11 2 %
--------------------------- ------------------------
. Despite the severe market decline, Capital Management was able to grow
client assets as investors acquired fixed income and money market funds.
Total mutual fund assets rose 13%, 2% without the assets of former
Wachovia.
. Growth in assets was led by record gross fluctuating fund sales of $2.2
billion, driven by strong fixed income sales. Net fluctuating fund sales
grew to $400 million, driven by record gross sales and lower redemptions.
Strong net money market fund sales continued during the quarter with $3.8
billion in sales.
. The fund mix continued its shift toward money market and fixed income funds
due to the strong sales in these products and the effects of declining
equity markets on equity fund values.
Page -22
Wachovia
--------------------------------------------------------------------------------
RETAIL BROKERAGE SERVICES
This sub-segment includes Retail Brokerage and Insurance Services.
----------------------------------------------------------------------------------------------------------- ----------------------
Retail Brokerage Services 2001 3 Q 01 Estimated
------------------------------------------
Performance Summary Third Second First vs Contribution From
(In millions) Quarter Quarter Quarter 2 Q 01 WB FTU
----------------------------------------------------------------------------------------------------------- ----------------------
Income statement data
Net interest income (Tax-equivalent) $ 38 35 36 9 %
Fee and other income 459 490 482 (6) 4 (10) %
Intersegment revenue (14) (11) (11) 27
----------------------------------------------------------------------------------------------------------- ----------------------
Total revenue (Tax-equivalent) 483 514 507 (6)
Provision for loan losses - - - -
Noninterest expense 435 449 444 (3) 5 (8) %
Income taxes (Tax-equivalent) 16 24 21 (33)
----------------------------------------------------------------------------------------------------------- ----------
Operating earnings $ 32 41 42 (22) %
----------------------------------------------------------------------------------------------------------- ----------------------
----------------------------------------------------------------------------------------------------------- ----------------------
Performance and other data
Economic profit $ 13 22 23 (41) %
Risk adjusted return on capital (RAROC) 19.81 % 26.18 26.27 -
Economic capital $ 647 638 645 1
Cash overhead efficiency ratio 89.76 % 87.66 87.39 -
Average loans, net $ 1 - 1 - - - %
Average core deposits $ 93 79 104 18 % 3 15 %
----------------------------------------------------------------------------------------------------------- ----------------------
Net interest income was up 9% driven by the addition of the former Wachovia
margin loan receivables.
Fee and other income was down $31 million, or 6%, as production declined due to
the four day market shutdown and further deterioration in market conditions
during the quarter. Record annuity sales help to offset reduced commission
volume. Management estimates that the events of September 11 reduced fee
revenues by approximately $25 million. Management estimates that former Wachovia
businesses added 4% to fee and other income.
Expenses declined by $14 million or 3% representing the continued focus on cost
control and lower production levels. Management estimates that former Wachovia
contributed approximately a 5% increase to expenses. Excluding former Wachovia
expenses, expenses would have declined by approximately 8%.
---------------------------------------------------------------------------------------------------------- -----------------------
Retail Brokerage Metrics 2001 3 Q 01 Estimated
-----------------------------------------
Third Second First vs Contribution From
(Dollars in millions) Quarter Quarter Quarter 2 Q 01 WB FTU
---------------------------------------------------------------------------------------------------------- -----------------------
Broker client assets $ 253,200 240,600 232,900 5 % 13 (8) %
Margin loans $ 3,192 3,060 3,060 4 18 (14)
---------------------------------------------------------------------------------------------------------- -----------------------
Licensed sales force
Full-service financial advisors 5,208 4,678 4,723 11 13 (2)
Financial center series 6 2,931 3,028 3,061 (3) - (3)
---------------------------------------------------------------------------------------------------------- -----------------------
Total sales force 8,139 7,706 7,784 6 % 8 (2) %
---------------------------------------------------------------------------------------------------------- -----------------------
Brokerage client assets grew 5%, as the addition of approximately $31 billion
offset the decline in assets due to lower equity values.
Capital Management Eliminations In addition to the above sub-segments, Capital
Management results include eliminations among business units. Certain brokerage
commissions earned on mutual fund sales by the First Union brokerage sales force
are eliminated and deferred in the consolidation of Capital Management reported
results. In 3Q01, brokerage revenue and associated expense eliminations were $10
million and had no material effect on earnings.
--------------------------------------------------------------------------------
Page-23
Wachovia
--------------------------------------------------------------------------------
WEALTH MANAGEMENT
-----------------
This segment includes Private Capital Management and Personal Trust.
-----------------------------------------------------------------------------------------------------------------------------------
Wealth Management 2001 2000 3 Q 01
---------------------------------------- ---------------------------
Performance Summary Third Second First Fourth Third vs
(In millions) Quarter Quarter Quarter Quarter Quarter 2 Q 01
-----------------------------------------------------------------------------------------------------------------------------------
Income statement data
Net interest income (Tax-equivalent) $ 61 48 46 47 47 27 %
Fee and other income 100 79 79 84 79 27
Intersegment revenue - - - - - -
-----------------------------------------------------------------------------------------------------------------------------------
Total revenue (Tax-equivalent) 161 127 125 131 126 27
Provision for loan losses 2 - - - - -
Noninterest expense 115 84 83 84 80 37
Income taxes (Tax-equivalent) 15 14 15 16 16 7
-----------------------------------------------------------------------------------------------------------------------------------
Operating earnings $ 29 29 27 31 30 - %
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Economic profit $ 21 22 21 25 24 (5) %
Risk adjusted return on capital (RAROC) 46.57 % 65.29 64.07 72.41 71.65 -
Economic capital $ 236 169 163 164 161 40
Cash overhead efficiency ratio 71.08 % 65.12 66.57 63.82 63.35 -
Average loans, net $ 5,680 4,449 4,368 4,319 4,211 28
Average core deposits $ 7,328 6,367 6,176 5,737 5,579 15 %
-----------------------------------------------------------------------------------------------------------------------------------
---------------------------------------- ------------------------
Wealth Management Estimated
Performance Summary Contribution From
(In millions) WB FTU
------------------------
Income statement data
Net interest income (Tax-equivalent)
Fee and other income 22 5 %
Intersegment revenue
---------------------------------------- ------------------------
Total revenue (Tax-equivalent)
Provision for loan losses
Noninterest expense 27 10 %
Income taxes (Tax-equivalent)
------------------------
Operating earnings
---------------------------------------- ------------------------
---------------------------------------- ------------------------
Performance and other data
Economic profit
Risk adjusted return on capital (RAROC)
Economic capital
Cash overhead efficiency ratio
Average loans, net 26 2 %
Average core deposits 15 - %
---------------------------------------- ------------------------
Key Points
o New segment created which includes personal trust, private client and
insurance
o Fee income stable in difficult markets and showed strength in service charges
and insurance commissions
Net interest income increased by 27% to $61 million as average loans were up 28%
over 2Q01. The increase was primarily attributable to former Wachovia business
lines. Average core deposits increased 15%, driven entirely by the addition of
former Wachovia balances.
Fee and other income also rose 27%, up $21 million in the quarter. Approximately
22% was attributable to former Wachovia businesses. Despite the market declines
following September 11, asset management fees were $79 million. Asset management
fees are generally priced within the first 10 days of the month, and as a
result, slightly lag changes in market valuations. Trust fees were flat from
2Q01 as stronger volume in estate, death settlement and hedge fund fees offset a
slight decline in monthly fees.
Expenses were up 37% primarily reflecting the expense base of former Wachovia.
Otherwise, expenses remained flat reflecting the continuing emphasis on expense
control.
---------------------------------------------------------------------------------------------------------------------------------
Wealth Management Key Metrics 2001 2000 3 Q 01
---------------------------------------- ---------------------------
Third Second First Fourth Third vs
(Dollars in millions) Quarter Quarter Quarter Quarter Quarter 2 Q 01
---------------------------------------------------------------------------------------------------------------------------------
Total assets under management (a) $ 80,100 48,100 47,900 52,500 53,200 67 %
PCM/PFA client relationships (Actual) 87,930 52,500 52,450 52,400 52,400 67
Wealth Management advisors (Actual) 936 552 558 556 540 70 %
---------------------------------------------------------------------------------------------------------------------------------
--------------------------------------- ------------------------
Wealth Management Key Metrics Estimated
Contribution From
(Dollars in millions) WB FTU
--------------------------------------- ------------------------
Total assets under management (a) 74 (7) %
PCM/PFA client relationships (Actual) 67 -
Wealth Management advisors (Actual) 70 - %
---------------------------------------
(a) These assets are managed by and reported in Capital Management.
-------------------------------------------------------------------
Key Points
o Customer retention in the integrated advisory model remains excellent
o Advisor retention remains strong and is bolstered with the addition of 100
new hires in the past six months
--------------------------------------------------------------------------------
Page-24
Wachovia
--------------------------------------------------------------------------------
CORPORATE AND INVESTMENT BANKING
--------------------------------
This segment includes Corporate Banking and Investment Banking.
-----------------------------------------------------------------------------------------------------------------------------------
Corporate and Investment Banking 2001 2000 3 Q 01
--------------------------------------------- ---------------------------
Performance Summary Third Second First Fourth Third vs
(In millions) Quarter Quarter Quarter Quarter Quarter 2 Q 01
-----------------------------------------------------------------------------------------------------------------------------------
Income statement data
Net interest income (Tax-equivalent) $ 498 468 445 440 417 6 %
Fee and other income (250) 334 314 268 362 nm
Intersegment revenue (15) (15) (12) (13) (12) -
-----------------------------------------------------------------------------------------------------------------------------------
Total revenue (Tax-equivalent) 233 787 747 695 767 (70)
Provision for loan losses 126 93 70 124 83 35
Noninterest expense 479 498 461 411 486 (4)
Income taxes (Tax-equivalent) (165) 43 53 (27) 47 nm
--------------- ------------ ------------ ------------ ------------ ------------
Operating earnings $ (207) 153 163 187 151 nm %
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Economic profit $ (356) (2) (6) 51 (9) nm %
Risk adjusted return on capital (RAROC) (10.58)% 11.89 11.60 15.31 11.44 -
Economic capital $ 6,267 6,012 6,182 6,162 6,048 4
Cash overhead efficiency ratio nm % 60.39 59.02 50.24 60.89 -
Average loans, net $ 42,076 41,145 42,751 41,770 42,017 2
Average core deposits $ 10,499 10,200 9,456 9,232 9,086 3 %
-----------------------------------------------------------------------------------------------------------------------------------
--------------------------------------- ------------------------
Corporate and Investment Banking Estimated
Performance Summary Contribution From
In millions) WB FTU
--------------------------------------- ------------------------
Income statement data
Net interest income (Tax-equivalent)
Fee and other income 7 nm %
Intersegment revenue
--------------------------------------- ------------------------
Total revenue (Tax-equivalent)
Provision for loan losses
Noninterest expense 6 (10) %
Income taxes (Tax-equivalent)
--------------------------------------- --------------------
Operating earnings
--------------------------------------- ------------------------
--------------------------------------- ------------------------
Performance and other data
Economic profit
Risk adjusted return on capital (RAROC)
Economic capital
Cash overhead efficiency ratio
Average loans, net 9 (7) %
Average core deposits 8 (5) %
--------------------------------------- ------------------------
Key Points
o Total revenues excluding principal investing were $826 million
o Provision increased primarily due to one large account
o Decreased expenses reflect lower incentive-based compensation and strong cost
controls
o Excluding former Wachovia, loans down 7% due to portfolio management actions
--------------------------------------------------------------------------------
Page-25
WACHOVIA
--------------------------------------------------------------------------------
CORPORATE BANKING
This sub-segment includes Large Corporate Lending, Commercial Leasing and Rail,
and International operations.
-------------------------------------------------------------------------------------------------------- -------------------------
Corporate Banking 2001 3 Q 01 Estimated
-----------------------------------------
Performance Summary Third Second First vs Contribution From
(In millions) Quarter Quarter Quarter 2 Q 01 WB FTU
-------------------------------------------------------------------------------------------------------- -------------------------
Income statement data
Net interest income (Tax-equivalent) $ 359 344 347 4 %
Fee and other income 182 176 167 3 7 (4) %
Intersegment revenue (10) (8) (8) 25
-------------------------------------------------------------------------------------------------------- -------------------------
Total revenue (Tax-equivalent) 531 512 506 4
Provision for loan losses 125 95 71 32
Noninterest expense 241 231 241 4 8 (4) %
Income taxes (Tax-equivalent) 56 64 67 (13)
---------------------------------------------------------------------------------------------------- ----------- -----------
Operating earnings $ 109 122 127 (11) %
-------------------------------------------------------------------------------------------------------- -------------------------
-------------------------------------------------------------------------------------------------------- -------------------------
Performance and other data
Economic profit $ 34 48 41 (29) %
Risk adjusted return on capital (RAROC) 15.47 % 17.61 16.64 -
Economic capital $ 3,859 3,483 3,551 11
Cash overhead efficiency ratio 45.07 % 45.07 47.39 -
Average loans, net $ 36,968 35,737 36,975 3 9 (6) %
Average core deposits $ 7,992 7,644 7,336 5 % 9 (4) %
-------------------------------------------------------------------------------------------------------- -------------------------
Net interest income rose 4%. Excluding the benefit of former Wachovia, net
interest income was reduced both by lower corporate banking loan demand and
lower yields on commercial leases. Average loans and deposits were up $1.2
billion and $348 million, respectively, as a result of the merger. Decreased
loan balances associated with the former First Union are indicative of reduced
demand for credit as well as our strategies for exiting unprofitable
relationships.
Fee and other income increased 3% as a result of the merger. Excluding the
impact of former Wachovia, fee and other income was flat with 2Q01, which
benefited from a $4 million gain on sale and higher leasing fees and rental
income.
Provision increased $30 million due to the addition of one large account.
Expenses increased 4% as a result of the merger with former Wachovia.
-------------------------------------------------------------------------------------------------------- -------------------------
Corporate Banking Fees 2001 3 Q 01 Estimated
------------------------------------------
Third Second First vs Contribution From
(In millions) Quarter Quarter Quarter 2 Q 01 WB FTU
-------------------------------------------------------------------------------------------------------- -------------------------
Lending $ 79 69 64 14 % 17 (3) %
Leasing 40 48 45 (17) 2 (19)
International 63 59 58 7 - 7
-------------------------------------------------------------------------------------------------------- --------------------------
Corporate banking fees $ 182 176 167 3 % 7 (4) %
-------------------------------------------------------------------------------------------------------- -------------------------
--------------------------------------------------------------------------------
Page - 26
WACHOVIA
--------------------------------------------------------------------------------
INVESTMENT BANKING
This sub-segment includes Principal Investing, Equity Capital Markets, Loan
Syndications, High Yield, M&A, Fixed Income Sales & Trading, Municipal Group,
Foreign Exchange, Derivatives, Equity Derivatives, Structured Products, Real
Estate Capital Markets and Asset Securitization.
------------------------------------------------------------------------------------------------------ -------------------------
Investment Banking 2001 3 Q 01 Estimated
----------------------------------------
Performance Summary Third Second First vs Contribution From
(In millions) Quarter Quarter Quarter 2 Q 01 WB FTU
------------------------------------------------------------------------------------------------------ -------------------------
Income statement data
Net interest income (Tax-equivalent) $ 139 124 98 12 %
Fee and other income (432) 158 147 nm 7 nm %
Intersegment revenue (5) (7) (4) (29)
------------------------------------------------------------------------------------------------------ -------------------------
Total revenue (Tax-equivalent) (298) 275 241 nm
Provision for loan losses 1 (2) (1) -
Noninterest expense 238 267 220 (11) 4 (15) %
Income taxes (Tax-equivalent) (221) (21) (14) nm
--------- ------------ ------------ --------------- -------------------------
Operating earnings $ (316) 31 36 nm %
------------------------------------------------------------------------------------------------------ -------------------------
------------------------------------------------------------------------------------------------------ -------------------------
Performance and other data
Economic profit $ (390) (50) (47) nm %
Risk adjusted return on capital (RAROC) (52.32) % 4.02 4.81 -
Economic capital $ 2,408 2,529 2,631 (5)
Cash overhead efficiency ratio (91.90) % 85.29 80.69 -
Average loans, net $ 5,108 5,408 5,776 (6) 6 (12) %
Average core deposits $ 2,507 2,556 2,120 (2) % 5 (7) %
------------------------------------------------------------------------------------------------------ -------------------------
Net interest income increased 12%, primarily due to wider spreads in fixed
income sales and trading, as well as equity and fixed income derivatives, driven
by the lower rate environment.
Fee and other income declined as a result of write-downs in principal investing,
exacerbated by systemic weakness in public financial markets from the slowing
economy. Excluding principal investing, fees were $153 million, down 29% from
the prior quarter, primarily related to reduced fee income caused by widening
credit spreads, reduced liquidity and reduced deal flow in investment banking
agency business.
Principal investing losses were $585 million, primarily due to write-downs in
private equity investments taken in the quarter. Charges are largely
attributable to 1999 and 2000 vintages and reflect the continued deterioration
of the telecom and technology sectors. Losses were $58 million in 2Q01. The
invested portfolio amounted to $2.5 billion at quarter-end, of which 1% were
public investments, 40% were private direct investments, 35% were fund
investments, and the remainder represented mezzanine investments. Losses equate
to write-downs of 25% on private equity investments and 20% on the total
principal investing portfolio.
Expenses decreased 11%, due to lower incentive-based payments, reduced volumes
and strong cost control.
------------------------------------------------------------------------------------------------------- -------------------------
Investment Banking Fees 2001 3 Q 01 Estimated
Third Second First vs Contribution From
(In millions) Quarter Quarter Quarter 2 Q 01 WB FTU
------------------------------------------------------------------------------------------------------- -------------------------
Agency $ 63 116 43 (46) % 3 (49) %
Principal investing (585) (58) (43) nm - nm
Fixed income 110 116 166 (5) 6 (11)
Affordable housing (AH) (20) (16) (19) 25 - 25
------------------------------------------------------------------------------------------------------- -------------------------
Investment banking fees $ (432) 158 147 nm % 7 nm %
------------------------------------------------------------------------------------------------------- -------------------------
Memoranda
Pre-tax value of AH tax credits $ 31 30 29 3 % - 3 %
--------------------------------------------------------------------------------------------------- ---------------------
Adjusted investment banking fees (401) 188 176 - 6 (6)
------------------------------------------------------------------------------------------------------- -------------------------
Trading profits (included above) $ 66 110 83 (40) % 5 (45) %
------------------------------------------------------------------------------------------------------- -------------------------
--------------------------------------------------------------------------------
Page - 27
WACHOVIA
--------------------------------------------------------------------------------
PARENT
------
This sub-segment includes the central money book, investment portfolio, some
consumer real estate and mortgage business, divested businesses, goodwill
amortization, and core deposit intangible amortization.
-----------------------------------------------------------------------------------------------------------------------------------
Parent 2001 2000 3 Q 01
--------------------------------------- ---------------------------
Performance Summary Third Second First Fourth Third vs
(In millions) Quarter Quarter Quarter Quarter Quarter 2 Q 01
-----------------------------------------------------------------------------------------------------------------------------------
Income statement data
Net interest income (Tax-equivalent) $ 102 56 126 126 252 82 %
Fee and other income 87 135 127 183 171 (36)
Intersegment revenue (3) - (2) - - -
-----------------------------------------------------------------------------------------------------------------------------------
Total revenue (Tax-equivalent) 186 191 251 309 423 (3)
Provision for loan losses 18 32 49 (6) 8 (44)
Noninterest expense 120 68 112 86 253 76
Income taxes (Tax-equivalent) 50 51 47 149 56 (2)
--------------------------------------------------------------------------------------------------------------------------------
Operating earnings $ (2) 40 43 80 106 nm %
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Economic profit $ 44 71 75 81 103 (38) %
Risk adjusted return on capital (RAROC) 23.29 % 30.54 28.65 32.88 33.51 -
Economic capital $ 1,576 1,505 1,837 1,531 1,878 5
Cash overhead efficiency ratio 11.51 % 4.51 22.61 11.41 48.46 -
Average loans, net $ 8,411 8,046 9,389 12,165 17,134 5
Average core deposits $ 2,086 1,471 2,357 3,649 3,867 42 %
-----------------------------------------------------------------------------------------------------------------------------------
----------------------------------------- ------------------------
Parent Estimated
Performance Summary Contribution From
(In millions) WB FTU
----------------------------------------- ------------------------
Income statement data
Net interest income (Tax-equivalent)
Fee and other income 16 (52) %
Intersegment revenue
----------------------------------------- ------------------------
Total revenue (Tax-equivalent)
Provision for loan losses
Noninterest expense 35 41 %
Income taxes (Tax-equivalent)
----------------------------------------- ------------------------
Operating earnings
----------------------------------------- ------------------------
Performance and other data
--------------------------
Economic profit
Risk adjusted return on capital (RAROC)
Economic capital
Cash overhead efficiency ratio
Average loans, net 33 (28) %
Average core deposits 17 25 %
----------------------------------------- ------------------------
Net interest income was up 82% due to reductions in corporate borrowing costs as
a result of the declining rate environment. Average loans increased 5%, due
primarily to the estimated 33% contribution from the merger with former
Wachovia. Average core deposits increased 42%, due primarily to balance sheet
management. Former Wachovia contributed an estimated 17% of the deposit
increase.
Fee and other income declined 36% from 2Q01, due to higher write-downs in
securities and investments as well as a decline in advisory fees associated with
balance sheet management and an $8 million loss related to the World Trade
Center.
Expenses were up 78%, primarily due to the addition of former Wachovia expenses
as well as $39 million in new deposit base intangible amortization expense
associated with the Wachovia merger.
--------------------------------------------------------------------------------
Page - 28
FIRSTUNION.COM
-----------------------------------------------------------------------------------------------------------------------------------
firstunion.com 2001 2000
--------------------------------------------- --------------------------
Third Second First Fourth Third
(In thousands) Quarter Quarter Quarter Quarter Quarter
-----------------------------------------------------------------------------------------------------------------------------------
Online customers
Retail 3,661 2,773 2,529 2,276 2,075
Wholesale 149 130 111 91 74
-----------------------------------------------------------------------------------------------------------------------------------
Total customers online 3,810 2,903 2,640 2,367 2,149
Retail enrollments per quarter 310 297 293 230 290
-----------------------------------------------------------------------------------------------------------------------------------
Dollar value of transactions (In billions) $ 7.8 6.4 4.4 2.2 2.2
-----------------------------------------------------------------------------------------------------------------------------------
Online penetration 31 % 29 27 25 23
-----------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------- ------------------------
firstunion.com 3 Q 01 Estimated
vs Contribution From
(In thousands) 2 Q 01 WB FTU
---------------------------------------------------------------- ------------------------
Online customers
Retail 32 % 26 6 %
Wholesale 15 1 14
---------------------------------------------------------------- ------------------------
Total customers online 31 25 6
Retail enrollments per quarter 4 6 (2)
---------------------------------------------------------------- ------------------------
Dollar value of transactions (In billions) 22 5 17
---------------------------------------------------------------- ------------------------
Online penetration - % - - %
---------------------------------------------------------------- ------------------------
Online enrollments grew 31% from 2Q01 to 3.8 million, of which former Wachovia
contributed an estimated 25% of the increase. There were 310,000 retail
enrollments in 3Q01, up 4% from 2Q01. Dollar value of transactions initiated
through internet channel (includes billpay and transfers) was $7.8 billion, up
22% from 2Q01, due in large part to an increase in customers to our online
Federal Funds Transfer application as well as the estimated 5% contribution from
former Wachovia.
FIRST UNION DIRECT
-----------------------------------------------------------------------------------------------------------------------------------
First Union Direct Metrics 2001 2000 3 Q 01 Estimated
----------------------------- ---------------------------
Third Second First Fourth Third vs Contribution From
(In millions) Quarter Quarter Quarter Quarter Quarter 2 Q 01 WB FTU
-----------------------------------------------------------------------------------------------------------------------------------
Customer calls to
Person 8.8 8.4 9.5 9.0 7.0 5 % - - %
Voice response unit 27.9 23.5 24.5 24.2 23.0 19 - -
-----------------------------------------------------------------------------------------------------------------------------------
Total calls 36.7 31.9 34.0 33.2 30.0 15 - -
Calls handled in 30 seconds or less 84 % 72 68 73 79 - % - - %
-----------------------------------------------------------------------------------------------------------------------------------
Page -29
WACHOVIA
--------------------------------------------------------------------------------
The foregoing supplemental materials may contain, among other things,
certain forward-looking statements with respect to Wachovia Corporation
("Wachovia"), as well as the goals, plans, objectives, intentions, expectations,
financial condition, results of operations, future performance and business of
Wachovia, including, without limitation, (i) statements relating to certain of
Wachovia's goals and expectations with respect to earnings, earnings per share,
revenue, expenses, and the growth rate in such items, as well as other measures
of economic performance, including statements relating to estimates of credit
quality trends, and (ii) statements preceded by, followed by or that include the
words "may", "could", "would", "should", "believes", "expects", "anticipates",
"estimates", "intends", "plans", "targets" "probably", "potentially", "projects"
or similar expressions. These forward-looking statements involve certain risks
and uncertainties that are subject to change based on various factors (many of
which are beyond Wachovia's control). The following factors, among others, could
cause Wachovia's financial performance to differ materially from the goals,
plans, objectives, intentions, and expectations expressed in such
forward-looking statements: (1) the risk that the businesses of former First
Union Corporation and former Wachovia Corporation in connection with their
merger (the "Merger") will not be integrated successfully or such integration
may be more difficult, time-consuming or costly than expected; (2) expected
revenue synergies and cost savings from the Merger may not be fully realized or
realized within the expected time frame; (3) revenues following the Merger may
be lower than expected; (4) deposit attrition, operating costs, customer loss
and business disruption following the Merger, including, without limitation,
difficulties in maintaining relationships with employees, may be greater than
expected; (5) the strength of the United States economy in general and the
strength of the local economies in which Wachovia conducts operations may be
different than expected resulting in, among other things, a deterioration in
credit quality or a reduced demand for credit, including the resultant effect on
Wachovia's loan portfolio and allowance for loan losses; (6) the effects of, and
changes in, trade, monetary and fiscal policies and laws, including interest
rate policies of the Board of Governors of the Federal Reserve System; (7)
inflation, interest rate, market and monetary fluctuations; (8) adverse
conditions in the stock market, the public debt market and other capital markets
(including changes in interest rate conditions) and the impact of such
conditions on Wachovia's capital markets and capital management activities,
including, without limitation, its mergers and acquisition advisory business,
equity and debt underwriting activities, private equity investment activities,
derivative securities activities, investment and wealth management advisory
businesses, and brokerage activities; (9) adverse changes in the financial
performance and/or condition of Wachovia's borrowers which could impact the
repayment of such borrowers' outstanding loans; and (10) the impact on
Wachovia's businesses, as well as on the risks set forth above, of various
domestic or international military or terrorist activities or conflicts.
Additional information with respect to factors that may cause actual results to
differ materially from those contemplated by such forward-looking statements is
included in the reports filed by Wachovia with the Securities and Exchange
Commission, including its Current Report on Form 8-K dated October 23, 2001.
Wachovia cautions that the foregoing list of factors is not exclusive.
All subsequent written and oral forward-looking statements concerning the Merger
or other matters and attributable to Wachovia or any person acting on its behalf
are expressly qualified in their entirety by the cautionary statements above.
Wachovia does not undertake any obligation to update any forward-looking
statement, whether written or oral.
Page -30