EXHIBIT 99(b)
FIRST UNION AND WACHOVIA
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial information
and explanatory notes are presented to show the impact of the merger on our
companies' historical financial positions and results of operations under the
purchase method of accounting. Under this method of accounting, the assets and
liabilities of the company not surviving the merger are, as of the effective
date of the merger, recorded at their respective fair values and added to those
of the surviving corporation. The unaudited pro forma condensed combined
financial information combines the historical financial information of First
Union and Wachovia as of and for the year ended December 31, 2000. The
unaudited pro forma condensed combined balance sheet as of December 31, 2000,
assumes the merger was consummated on that date. The unaudited pro forma
condensed combined statement of income gives effect to the merger as if the
merger had been consummated at the beginning of the period presented.
The merger provides for the exchange of 2 shares of First Union common stock
for each outstanding share of Wachovia common stock. The unaudited pro forma
condensed combined financial information is based on, and derived from, and
should be read in conjunction with the historical consolidated financial
statements and the related notes of both First Union and Wachovia.
The unaudited pro forma condensed combined financial information is
presented for illustrative purposes only and is not necessarily indicative of
the operating results that would have occurred or financial position if the
merger had been consummated during the period or as of the date for which the
pro forma data are presented, nor is it necessarily indicative of future
operating results or financial position of the combined company.
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PRO FORMA COMBINED CONDENSED BALANCE SHEET
FIRST UNION AND WACHOVIA
December 31, 2000
(Unaudited)
The following unaudited pro forma combined condensed balance sheet combines
the consolidated historical balance sheets of First Union and Wachovia assuming
the companies had been combined as of December 31, 2000, on a purchase
accounting basis.
December 31, 2000
----------------------------------------
First Pro Forma Pro Forma
(In millions) Union Wachovia Adjustments Combined
- ------------- -------- -------- ----------- ---------
ASSETS
Cash and due from banks.............. $ 9,906 3,727 -- 13,633
Interest-bearing bank balances....... 3,239 174 -- 3,413
Federal funds sold and securities
purchased under resale agreements... 11,240 789 -- 12,029
-------- ------ ------ -------
Total cash and cash equivalents.. 24,385 4,690 -- 29,075
-------- ------ ------ -------
Trading account assets............... 21,630 961 -- 22,591
Securities available for sale........ 47,603 7,572 -- 55,175
Investment securities................ 1,643 1,024 29 2,696
Loans, net of unearned income........ 123,760 55,002 -- 178,762
Allowance for loan losses............ (1,722) (823) -- (2,545)
-------- ------ ------ -------
Loans, net....................... 122,038 54,179 -- 176,217
-------- ------ ------ -------
Premises and equipment............... 5,024 911 (102) 5,803
Due from customers on acceptances.... 874 82 -- 956
Goodwill and other intangible
assets.............................. 3,664 1,256 7,770 12,690
Other assets......................... 27,309 3,357 (75) 30,591
-------- ------ ------ -------
Total assets..................... $254,170 74,032 7,622 335,824
======== ====== ====== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing deposits........ 30,315 9,180 -- 39,495
Interest-bearing deposits........... 112,353 35,232 -- 147,585
-------- ------ ------ -------
Total deposits....................... 142,668 44,412 -- 187,080
Short-term borrowings................ 39,446 9,828 -- 49,274
Bank acceptances outstanding......... 880 82 -- 962
Trading account liabilities.......... 7,475 334 -- 7,809
Other liabilities.................... 12,545 2,283 1,006 15,834
Long-term debt....................... 35,809 10,808 -- 46,617
-------- ------ ------ -------
Total liabilities................ 238,823 67,747 1,006 307,576
-------- ------ ------ -------
STOCKHOLDERS' EQUITY
Preferred stock...................... -- -- -- --
Common stock......................... 3,267 1,017 363 4,647
Paid-in capital...................... 6,272 731 10,790 17,793
Retained earnings.................... 6,021 4,506 (4,506) 6,021
Accumulated other comprehensive
income, net......................... (213) 31 (31) (213)
-------- ------ ------ -------
Total stockholders' equity....... 15,347 6,285 6,616 28,248
-------- ------ ------ -------
Total liabilities and
stockholders' equity............ $254,170 74,032 7,622 335,824
======== ====== ====== =======
See accompanying notes to pro forma financial information.
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PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FIRST UNION AND WACHOVIA
Year Ended December 31, 2000
(Unaudited)
The following unaudited pro forma combined condensed statement of income
combines the consolidated historical statements of income of First Union and
Wachovia assuming the companies had been combined as of January 1, 2000, on a
purchase accounting basis.
Year Ended December 31, 2000
----------------------------------------
First Pro Forma Pro Forma
(In millions) Union Wachovia Adjustments Combined
- ------------- -------- -------- ----------- ---------
Interest income...................... $ 17,534 5,345 -- 22,879
Interest expense..................... 10,097 2,830 -- 12,927
-------- ------- ------- ---------
Net interest income.................. 7,437 2,515 -- 9,952
Provision for loan losses............ 1,736 588 -- 2,324
-------- ------- ------- ---------
Net interest income after provision
for loan losses..................... 5,701 1,927 -- 7,628
Securities transactions--portfolio... (1,134) -- -- (1,134)
Fee and other income................. 7,846 1,931 -- 9,777
Restructuring and merger-related
charges............................. 2,190 136 -- 2,326
Noninterest expense.................. 9,520 2,447 734 12,701
-------- ------- ------- ---------
Income before income taxes and
cumulative effect of a change in
accounting principle................ 703 1,275 (734) 1,244
Income taxes......................... 565 443 (155) 853
-------- ------- ------- ---------
Income before cumulative effect of a
change in accounting principle...... $ 138 832 (579) 391
======== ======= ======= =========
PER COMMON SHARE DATA
Income before change in accounting
principle
Basic............................... $ 0.12 4.10 0.15 0.27
Diluted............................. $ 0.12 4.07 0.15 0.27
Average common shares outstanding (in
thousands)
Basic............................... 970,608 202,989 202,989 1,376,586
Diluted............................. 974,172 204,450 204,450 1,383,072
See accompanying notes to pro forma financial information.
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NOTES TO FIRST UNION AND WACHOVIA UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION
FIRST UNION AND WACHOVIA
Year Ended December 31, 2000
(Unaudited)
(1) The merger will be accounted for using the purchase method of
accounting, and accordingly, the assets and liabilities of Wachovia will be
recorded at their respective fair values on the date the merger is consummated.
The shares of First Union common stock issued to effect the merger will be
recorded at $31.15 per share which is the average price of the shares over a
four-day period surrounding the date the merger was announced.
The pro forma adjustments included herein are subject to updates as
additional information becomes available and as additional analyses are
performed. The unaudited pro forma financial information does not include the
impact of required deposit divestitures estimated to be $1.3 billion to $2.0
billion. The pro forma financial information also does not include
restructuring and merger-related charges and an anticipated $450 million
addition to the allowance for loan losses. We expect to realize significant
revenue enhancements and cost savings following the merger which also are not
reflected in this pro forma financial information. No assurance can be given
with respect to the ultimate level of such revenue enhancements or cost
savings.
The final allocation of the purchase price will be determined after the
merger is consummated and after completion of a thorough analysis to determine
the fair values of Wachovia's tangible and identifiable intangible assets and
liabilities. In addition, estimates related to restructuring and merger-related
charges are subject to final decisions related to combining the companies.
Accordingly, the final purchase accounting adjustments, restructuring charges
and merger-related charges may be materially different from the unaudited pro
forma adjustments presented herein. Any decrease in the net fair value of the
assets and liabilities of Wachovia as compared to the information shown herein
will have the effect of increasing the amount of the purchase price allocable
to goodwill.
(2) The pro forma financial information for the merger is included only for
the year ended December 31, 2000. The pro forma adjustments herein reflect an
exchange ratio of two shares of First Union common stock for each of the
203,424,000 shares of Wachovia common stock that were outstanding at December
31, 2000. The unaudited pro forma information presented herein is not
necessarily indicative of the results of operations or the combined financial
position that would have resulted had the merger been consummated at the
beginning of the applicable period presented, nor is it necessarily indicative
of the results of operations in future periods or the future financial position
of the combined company.
The pro forma financial information reflects the addition of 406,848,000
shares of First Union common stock with an aggregate par value of $1.4 billion,
an increase in paid-in capital of $11.6 billion for the excess of the fair
value of the shares over the par value, and goodwill and deposit base premium
of $7.2 billion and $1.8 billion, respectively. The pro forma financial
information also includes a special dividend of $0.48 per Wachovia share which
will be paid to Wachovia shareholders in connection with the merger.
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The pro forma adjustments related to the pro forma balance sheet for the
year ended December 31, 2000, are presented below.
Year Ended
December 31,
(In millions) 2000
- ------------- ------------
Investment securities--adjustment to fair value.................... $ 29
Premises and equipment--adjustment to fair value................... (102)
Goodwill and other intangible assets, net.......................... 7,770
Other assets--adjustments to fair value............................ (75)
------
Total............................................................ $7,622
======
Other liabilities
Personnel related................................................. 289
Occupancy related................................................. 55
Contract cancellations............................................ 93
Dividend payable.................................................. 98
Other............................................................. 83
Deferred income taxes............................................. 388
------
Total............................................................ 1,006
Stockholders' equity............................................... 6,616
------
Total............................................................ $7,622
======
The pro forma adjustments above include $697 million that is part of the
$1.4 billion of restructuring charges, merger-related charges and purchase
accounting adjustments. The rest of the $1.4 billion is estimated restructuring
and merger-related charges that are not reflected herein.
Certain other assets and liabilities of Wachovia, principally loans and
borrowings, will also be subject to adjustment to their respective fair values.
Pending more detailed analysis, no pro forma adjustments are included herein
for these assets and liabilities. The pro forma adjustments related to the
unaudited pro forma combined condensed statements of income reflect
amortization on a seven-year sum-of-the-years' digits method for deposit base
premium and a 25-year straight-line life method for goodwill. As a result, for
the year ended December 31, 2000, these adjustments amounted to an increase in
noninterest expense of $734 million, of which $444 million is related to
deposit base premium amortization and $290 million is related to goodwill
amortization; and reductions in income taxes of $155 million and income before
cumulative effect of a change in accounting principle of $579 million.
(3) Earnings per share data has been computed based on the combined
historical income before cumulative effect of a change in accounting principle
of First Union and Wachovia using the historical weighted average shares
outstanding of First Union common stock and the weighted average shares
outstanding, adjusted to equivalent shares of First Union common stock, for the
year ended December 31, 2000.
(4) On March 1, 2001, Wachovia completed the purchase of Republic Security
Financial Corporation, a bank holding company headquartered in West Palm Beach,
Florida. Republic Security had assets of $3.1 billion and deposits of $2.1
billion at December 31, 2000. The transaction was accounted for as a purchase
and resulted in intangible assets of approximately $260 million and the
issuance of 6.1 million shares of Wachovia common stock.
On April 9, 2001, Wachovia announced an agreement to sell its consumer
credit card portfolio. The portfolio includes 2.8 million customer accounts and
managed balances of $8 billion. The transaction is expected to close in the
second quarter of 2001, subject to regulatory approval, and is expected to
result in a pre-tax gain of approximately $1.4 billion.
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These transactions are not included in the pro forma financial information
presented herein.
(5) The Financial Accounting Standards Board has issued a Proposed Statement
of Financial Accounting Standards addressing the accounting for business
combinations and acquired intangible assets. Under this proposed standard,
goodwill and certain other intangible assets would not be subject to
amortization, but rather would be subject to periodic testing for impairment.
Deposit base intangible would continue to be subject to amortization. Under the
transition provisions, as currently proposed, amortization of all goodwill
would cease beginning in the quarter following issuance of a final standard.
The FASB currently expects to issue a final standard in mid-July; however,
there is no assurance that they will issue the final standard in accordance
with that timetable or that the final standard will have the same provisions as
currently proposed.
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