EXHIBIT 99(b)
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SECOND QUARTER 2001
SUPPLEMENTAL EARNINGS PACKAGE
(ALL COMPARISONS ARE WITH FIRST QUARTER 2001 UNLESS OTHERWISE NOTED)
TABLE OF CONTENTS
Highlights of the Quarter.........................................2
Performance Review................................................3
Earnings Summary..................................................4
Net Interest Income...............................................4
Fee and Other Income..............................................6
Noninterest Expense...............................................7
Asset Quality.....................................................8
Loans Held For Sale..............................................10
Business Segment Results.........................................12
Key Definitions..................................................13
General Bank.....................................................14
Capital Management...............................................19
Corporate and Investment Banking.................................23
Parent...........................................................28
ALL INFORMATION EXCLUDES RESTRUCTURING AND OTHER CHARGES/GAINS AND IS BEFORE
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE EXCEPT WHERE SPECIFICALLY
NOTED.
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HIGHLIGHTS OF THE QUARTER
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Earnings
o Operating EPS of $0.66 per share ($0.73 on a cash operating basis), up 6%
from $0.62 in 1Q01. Operating earnings of $649 million, up 6% from $610
million in 1Q01.
o Reported net income for 2Q01 was $633 million, or $0.64 per share. This
included a net charge of $0.02 in restructuring and other charges/gains
primarily related to the June 2000 strategic repositioning. Reported net
income in 1Q01 was $0.59 per share, which included a net charge of $0.03
in restructuring and other charges/gains.
o Revenue growth was 3%, while expenses remained relatively flat. Revenue
growth exceeded expense growth, producing operating leverage of $60
million for the quarter.
o Average diluted shares increased 2.3 million, primarily due to the
vesting of stock awards issued in previous years. We repurchased 2.1
million shares in the open market during the quarter. Shares subject to
forward contracts increased by 5.9 million shares (no effect on
outstanding shares).
Core Businesses
o General Bank revenues up 6% vs. 1Q01; up 4% excluding strong mortgage
banking results. General Bank deposits and loans continued to show solid
growth while investment sales were also up, driven by record bank annuity
sales of $717 million. Service charges and fees grew 7%.
o Capital Management revenues increased despite continued weak market
conditions, due to strong annuity sales, higher broker client assets, and
record mutual fund assets.
o Corporate and Investment Banking revenues up 7% on strength in agency
businesses. Compared to 2Q00, revenues are up 21% excluding principal
investing while expenses have declined. Seeing increased market share in
key investment banking businesses.
Capital
o Continued focus on strengthening capital ratios:
o Tier 1 capital ratio improved to 7.40% from 7.18%, the fourth
straight quarterly increase.
o Total capital ratio improved to 11.48% from 11.33%; leverage ratio
improved to 6.01% from 5.88%.
Credit
o Credit quality remained relatively stable and we continue to proactively
manage the portfolio.
o Net charge-offs were 0.52% vs. 0.53% in 1Q01. Provided $30 million
in excess of net charge-offs and provisions for loans sold or
transferred to assets held for sale.
o Total nonperforming assets declined 6%. Allowance as a percentage
of loans and nonperforming assets increased modestly from 1Q01.
June 2000 Strategic Repositioning
o Completed on schedule and on budget.
2001 Outlook
o Revised charge-off guidance for full year 2001 from 60-80 bps to 55-65
bps.
o Core earnings of 66 cents provides foundation for continued growth.
o Continued to build capital ratios; settle $500 million in equity
forwards during 4Q01.
o Continue to proactively manage the portfolio with goal to hold NPAs
relatively flat while maintaining current allowance coverage ratios.
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PERFORMANCE REVIEW
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Before Restructuring and Other Charges/Gains
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Operating Basis Performance Highlights 2001 2000 2 Q 01
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Second First Fourth Third Second vs
(In millions, except per share data) Quarter Quarter Quarter Quarter Quarter 1 Q 01
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Operating earnings (a)
Net income $ 649 610 681 702 714 6 %
Diluted earnings per share $ 0.66 0.62 0.69 0.71 0.73 6
Return on average assets 1.05 % 1.01 1.12 1.12 1.13 -
Return on average stockholders' equity 16.19 15.64 15.36 15.76 17.74 -
Overhead efficiency ratio 64.34 % 65.18 63.85 66.42 64.36 -
Operating leverage $ 60 (65) 30 (133) (134) - %
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Cash operating earnings
Net income $ 723 684 753 778 807 6 %
Diluted earnings per share $ 0.73 0.69 0.76 0.79 0.82 6
Return on average tangible assets 1.19 % 1.15 1.26 1.26 1.30 -
Return on average tangible stockholders' equity 23.35 22.91 21.55 22.15 30.18 -
Overhead efficiency ratio 62.06 % 62.80 61.46 64.17 61.64 -
Operating leverage $ 59 (67) 31 (154) (136) - %
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Other financial data
Net interest margin 3.41 % 3.42 3.46 3.52 3.51 -
Fee and other income as % of total revenue 48.32 47.13 47.38 46.93 47.50 -
Effective income tax rate 31.54 % 31.54 31.21 30.43 32.45 -
Period-end common stock price $ 34.94 33.00 27.81 32.19 25.00 6 %
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Asset quality
Net charge-offs as % of average loans, net 0.52 % 0.53 0.64 0.46 0.69 -
Nonperforming assets to loans, net,
foreclosed properties and assets held for sale 1.23 % 1.30 1.22 0.98 0.87 -
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Capital adequacy
Tier 1 capital ratio (b) 7.40 % 7.18 7.02 7.00 6.65 -
Total capital ratio (b) 11.48 11.33 11.19 11.32 10.57 -
Leverage ratio (b) 6.01 % 5.88 5.92 5.73 5.34 -
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Other
Average diluted shares (In thousands) 978,185 975,847 990,445 986,763 981,940 - %
Actual shares (In thousands) 979,205 981,268 979,963 986,004 986,394 -
Dividends paid per common share $ 0.24 0.24 0.48 0.48 0.48 -
Dividend payout ratio 36.36 % 38.71 69.57 67.42 65.75 -
Book value per share $ 16.49 16.39 15.66 15.00 14.14 1
FTE employees 67,420 69,362 70,639 70,533 72,890 (3) %
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(a) Operating earnings are reported net income excluding after-tax net restructuring, merger-related and other changes and gains.
(b) The second quarter of 2001 is based on estimates.
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EARNINGS SUMMARY
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Before Restructuring and Other Charges/Gains
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Operating Earnings Summary 2001 2000 2 Q 01
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Second First Fourth Third Second vs
(In millions, except per share data) Quarter Quarter Quarter Quarter Quarter 1 Q 01
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Net interest income (Tax-equivalent) $ 1,742 1,734 1,757 1,860 1,930 - %
Fee and other income 1,629 1,546 1,582 1,645 1,746 5
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Total revenue (Tax-equivalent) 3,371 3,280 3,339 3,505 3,676 3
Provision for loan losses 223 219 192 142 228 2
Noninterest expense 2,169 2,138 2,132 2,328 2,366 1
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Income before income taxes (Tax-equivalent) 979 923 1,015 1,035 1,082 6
Income taxes 299 281 309 307 343 6
Tax-equivalent adjustment 31 32 25 26 25 (3)
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Net income $ 649 610 681 702 714 6 %
Net income (Cash basis) $ 723 684 753 778 807 6 %
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Diluted earnings per share $ 0.66 0.62 0.69 0.71 0.73 6 %
Diluted earnings per share (Cash basis) $ 0.73 0.69 0.76 0.79 0.82 6 %
Return on average stockholders' equity 16.19 % 15.64 15.36 15.76 17.74 -
Return on average tangible
stockholders' equity (Cash basis) 23.35 % 22.91 21.55 22.15 30.18 -
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NET INTEREST INCOME
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Interest Income Summary 2001 2000 2 Q 01
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Second First Fourth Third Second vs
(In millions) Quarter Quarter Quarter Quarter Quarter 1 Q 01
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Average earning assets $ 204,673 203,720 202,606 211,089 220,061 - %
Average interest-bearing liabilities 185,224 183,995 181,832 190,146 196,954 1
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Interest income (Tax-equivalent) 3,851 4,057 4,289 4,491 4,517 (5)
Interest expense 2,109 2,323 2,532 2,631 2,587 (9)
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Net interest income (Tax-equivalent) $ 1,742 1,734 1,757 1,860 1,930 - %
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Rate earned 7.54 % 8.03 8.44 8.48 8.24 -
Equivalent rate paid 4.13 4.61 4.98 4.96 4.73 -
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Net interest margin 3.41 % 3.42 3.46 3.52 3.51 -
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Key Points
o Margin remained relatively flat despite the declining rate environment as
higher spreads were offset by the 1Q01 securitization and sale of The Money
Store loans and growth in the equity derivatives business
Net Interest Income increased modestly, the result of the benefit associated
with lower interest rates, as liabilities generally repriced faster than assets.
This benefit was largely offset by the impact of the securitization and sale of
TMS loans in 1Q01 and growth in low-yielding assets related to our equity
derivatives business.
Net interest margin decreased 1 bps to 3.41%. Higher spreads related to
the rate environment were offset by reduced margin related to the TMS
securitization and sale and by growth in equity derivative assets. Excess
liquidity (sold as fed funds) also reduced the margin modestly.
Derivatives hedging asset and liability positions contributed 13 bps to
the margin, down from 14 bps in 1Q01.
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Average Balance Sheet Data 2001 2000 2 Q 01
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Second First Fourth Third Second vs
(In millions) Quarter Quarter Quarter Quarter Quarter 1 Q 01
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Commercial loans $ 76,378 77,270 76,253 75,380 75,951 (1)%
Consumer loans 42,834 42,580 43,840 48,095 56,663 1
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Total loans $119,212 119,850 120,093 123,475 132,614 (1)%
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Core interest-bearing deposits $ 91,654 91,149 91,069 89,637 89,285 1 %
Noninterest-bearing deposits 27,381 27,043 27,875 28,437 28,971 1
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Total core deposits 119,035 118,192 118,944 118,074 118,256 1
Foreign and other time deposits 17,944 19,090 19,385 25,038 22,948 (6)
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Total deposits $136,979 137,282 138,329 143,112 141,204 - %
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Key Points
o Solid consumer loan growth of 2% and small business up 5%, excluding
divestitures and securitizations
o Core deposits up 1%, despite an average impact of $434 million from
divestitures; low cast core deposits up $2.6 billion excluding
divestitures
o Reduced purchased deposits due to core deposit growth and lower cost
alternatives
Average earning assets increased 0.5%.
Average loans declined 0.5%. Average commercial loans were down 1%, and
were modestly affected lower commercial real estate balances and by the
transfer of loans to held for sale in 1Q01.
Average consumer loans increased 1%, and increased 2% excluding the impact
of $264 million sold or transferred to assets held for sale in 2Q01 and
1Q01 and $400 million in planned runoff of the indirect auto lending and
leasing portfolio. Home equity and other consumer direct lending accounted
for the normalized increase.
Securities and trading assets were flat. Trading account assets increased
5%, the result of continued growth in the equity derivatives business.
Securities declined 1%. Other earning assets increased 7% due to an
increase in fed funds sold, reverse repos, and interest-bearing balances.
Average interest-bearing liabilities increased 0.5%.
Average core deposits increased 1%, despite a divestiture impact on the
average of $434 million in 1Q01. Both interest-bearing and
noninterest-bearing core deposits increased. Low cost core deposits, which
exclude CDs and CAP FDIC balances, increased $2.6 billion or 4% excluding
divestitures, due to continued sales and retention efforts. Time deposits
declined due to the less-attractive rate environment. Other deposits
decreased 6%, as both foreign and other time deposits were reduced due to
a shift to lower cost wholesale funding sources. Thus, total deposits were
flat.
Liquidity improved as growth in cash and cash equivalents of $2.6 million
outpaced growth of $2.4 billion in short-term borrowings, despite a
decline of $1.1 billion in other deposits. Long-term debt declined 1%.
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FEE AND OTHER INCOME
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Fee and Other Income 2001 2000 2 Q 01
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Second First Fourth Third Second vs
(In millions) Quarter Quarter Quarter Quarter Quarter 1 Q 01
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Service charges and fees $ 486 468 481 508 491 4 %
Commissions 389 375 383 365 375 4
Fiduciary and asset management fees 384 381 387 384 374 1
Advisory, underwriting and other
investment banking fees 238 198 187 148 182 20
Principal investing (58) (43) (43) 34 205 (35)
Other income 190 167 187 206 119 14
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Total fee and other income $ 1,629 1,546 1,582 1,645 1,746 5 %
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Key Points
o Across-the-board increases in all fee categories except principal investing
o Service charges and fees up 4% on strong growth in both the General Bank and
Corporate and Investment Banking
o Solid asset management and commissions performance in a challenging market
o Corporate and Investment Banking fees up on increased activity in agency
businesses
o Other income up due to mortgage and home equity-related income
Fee and other income increased 5% on strength in investment banking agency
businesses as well as increases in service charges and fees and commissions.
Fees were 48% of total revenue in 2Q01 and 47% in 1Q01.
Service charges and fees grew 4%, on 7% growth in core businesses (7% in General
Bank and 5% in Corporate and Investment Banking). Parent contribution declined
due to branch divestitures. Mild seasonality in 1Q01 had a minimal effect on
growth.
Commissions increased 4%, despite a continuing weak market environment,
primarily due to strong annuity sales volume of $717 million and increased
broker client assets.
Fiduciary and asset management fees grew 1%, despite a challenging market
environment, reflecting a balanced mix of funds. Money market flows were strong,
and mutual fund assets reached a record, but the asset mix shifted slightly
toward lower-yielding funds. Additionally, average levels of most market indices
for the quarter were down from 1Q01.
Advisory, underwriting and other investment banking fees increased 20%. The
quarter was particularly strong in agency businesses, as M&A, loan syndications,
and commercial real estate finance posted higher results. 1Q01 asset
securitization results included trading losses of $46 million in connection with
certain nonperforming assets. Fixed income results continued strong but were $50
million lower than 1Q01, as that quarter marked a record for trading results.
Principal investing losses were $58 million, primarily due to impairments on
private equity investments taken during the quarter. Losses were $43 million in
1Q01.
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Other income increased $23 million. 2Q01 mortgage income was $40 million versus
$18 million in 1Q01, primarily related to deliveries and flow servicing sales.
2Q01 results also included a $21 million gain on an $800 million securitization
and sale of recent PEL production. Commercial leasing income of $48 million was
up $3 million. Net securities losses were less than $1 million compared to
losses of $16 million in 1Q01 (2Q01 included $26 million of asset securitization
impairment losses on certain nonperforming securities). Market valuation
adjustments in 2Q01 of $14 million included $7 million related to the mortgage
company (offset by gains in hedge positions). 1Q01 market valuation adjustments
totaled $30 million. 1Q01 results included a $75 million gain on the exchange of
our interest in Star ATM networks. Other income increased $14 million excluding
these items.
NONINTEREST EXPENSE
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Noninterest Expense 2001 2000 2 Q 01
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Second First Fourth Third Second vs
(In millions) Quarter Quarter Quarter Quarter Quarter 1 Q 01
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Salaries and employee benefits $ 1,363 1,329 1,243 1,381 1,396 3 %
Occupancy 155 163 150 157 155 (5)
Equipment 198 205 221 213 210 (3)
Advertising 11 9 16 14 31 22
Communications and supplies 111 110 123 117 122 1
Professional and consulting fees 69 73 97 87 82 (5)
Goodwill and other intangible amortization 77 78 80 79 100 (1)
Sundry expense 185 171 202 280 270 8
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Total noninterest expense $ 2,169 2,138 2,132 2,328 2,366 1 %
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FTE employees 67,420 69,362 70,639 70,533 72,890 (3) %
Overhead efficiency ratio (Cash basis) 62.06 % 62.80 61.46 64.17 61.64 -
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Key Points
o Total expenses remained virtually flat
o Personnel expenses up modestly due to impact of lower FTEs offset by
incentive payments on increased revenue
o Sundry expenses increased due to costs associated with higher loan volume
o Remaining categories down $17 million in total
Noninterest expense increased 1%. Salaries and employee benefits expenses grew
3%, due to lower FTEs offset by higher incentive payments on increased revenue.
Sundry expense increased $14 million, the result of higher loan costs related to
higher mortgage, home equity, and student lending volumes. Other expense
categories declined $17 million in the aggregate, reflecting tight expense
management.
Intangible amortization consisted of $60 million in goodwill amortization and
$17 million of deposit based intangible (DBI) amortization.
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ASSET QUALITY
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Asset Quality 2001 2000 2 Q 01
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Second First Fourth Third Second vs
(In millions) Quarter Quarter Quarter Quarter Quarter 1 Q 01
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Nonperforming assets
Loans $ 1,223 1,231 1,176 854 791 (1) %
Other real estate 104 106 103 97 93 (2)
Loans in assets held for sale 250 344 334 349 331 (27)
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Total nonperforming assets $ 1,577 1,681 1,613 1,300 1,215 (6) %
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as % of loans, net 1.08 % 1.09 1.03 0.77 0.69 -
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as % of loans, net, including assets held for sale 1.23 % 1.30 1.22 0.98 0.87 -
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Allowance for loan losses
Balance, beginning of period $ 1,759 1,722 1,720 1,706 1,760 2 %
Provision for loan losses 223 219 192 322 1,030 2
Allowance relating to loans transferred to
other assets or sold (65) (23) 2 (166) (856) -
Loan losses, net (157) (159) (192) (142) (228) 1
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Balance, end of period $ 1,760 1,759 1,722 1,720 1,706 - %
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as % of loans, net 1.44 % 1.43 1.39 1.39 1.33 -
as % of nonaccrual and restructured loans (a) 144 143 146 202 215 -
as % of nonperforming assets (a) 133 % 132 135 181 193 -
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Loan losses, net $ 157 159 192 142 228 (1) %
Commercial, as % of average commercial loans 0.55 % 0.56 0.80 0.53 0.73 -
Consumer, as % of average consumer loans 0.48 0.48 0.36 0.35 0.63 -
Total, as % of average loans, net 0.52 % 0.53 0.64 0.46 0.69 -
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(a) These ratios do not include nonperforming loans included in other assets as
held for sale.
Loans 90 days past due were $213 million, $220 million, $183 million, $145
million and $84 million in the second and first quarters of 2001 and in the
fourth, third and second quarters of 2000, respectively.
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Key Points
o Total NPAs declined 6%
o Allowance increased to 1.44% of net loans
o Provision exceeded charge-offs by $66 million including the provision for
loans sold or transferred to held for sale
o Delinquencies 90 days past due were $213 million vs. $220 million at March 31
o Net loan losses declined to $157 million or 52 bps
Net loan losses decreased $2 million to $157 million, and the charge-off ratio
declined to 0.52% from 0.53% in 1Q01. Gross charge-offs were $191 million offset
by $34 million in recoveries.
Provision for loan losses exceeded net charge-offs by $66 million. This resulted
in the allowance remaining fairly stable after accounting for offsets relating
to loan sales and transfers of loans to assets held for sale.
Allowance for loan losses remained relatively flat at $1.76 billion, or 1.44% of
loans versus 1.43% in 1Q01. The allowance to NPLs ratio rose to 144% while the
allowance to NPA ratio (excluding NPAs in assets held for sale) also increased
slightly to 133%.
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Nonperforming Assets (a) 2001 2000 2 Q 01
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Second First Fourth Third Second vs
(In millions) Quarter Quarter Quarter Quarter Quarter 1 Q 01
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Balance, beginning of period $ 1,337 1,279 951 884 1,270 5 %
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Commercial loan activity (over $5 million)
New nonaccrual loans and advances 314 266 487 223 242 18
Charge-offs (49) (69) (112) (27) (93) (29)
Transfers (to) from assets held for sale - - 11 (46) (223) -
Payments and return to accrual status (50) (59) (22) (29) (11) 15
Sales (54) - (15) - - -
Other (activity under $5 million) (100) (53) (69) (93) (78) -
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Commercial loan activity 61 85 280 28 (163) (28)
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Consumer loan activity
Transfers to assets held for sale (123) (90) - - (243) (37)
Other, net 52 63 48 39 20 (17)
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Consumer loan activity (71) (27) 48 39 (223) -
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Change in nonperforming assets (10) 58 328 67 (386) -
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Balance, end of period $ 1,327 1,337 1,279 951 884 (1) %
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(a) Excludes nonperforming loans included in assets held for sale, which in the second and first quarters of 2001 and in the
fourth, third and second quarters of 2000 were $250 million, $334 million, $349 million and $331 million, respectively.
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Key Points
o Transferred $123 million of consumer NPLs to assets held for sale; sale
expected to close in 3Q01
o NPAs including assets held for sale declined by $104 million or 6%
Nonperforming assets declined slightly by $10 million and, including NPAs in
assets held for sale, declined $104 million or 6%. While new nonaccrual
commercial loan balances rose by $56 million, the increase was more than offset
by sales, payments and the return to performing status of certain loans.
Consumer NPLs and NPAs in assets held for sale were also lower. During the
quarter, the company sold $54 million of commercial and $13 million of consumer
nonperforming loans and an additional $73 million of commercial NPLs and $83
million of consumer NPLs out of assets held for sale.
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LOANS HELD FOR SALE
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Loans Held for Sale 2001 2000
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Second First Fourth Third Second
(In millions) Quarter Quarter Quarter Quarter Quarter
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2000 Strategic Repositioning
Balance, beginning of period $ 689 4,263 4,983 6,326 -
Loans transferred to (from) assets held for sale, net (98) - - 719 7,182
Allowance for loan losses related to
loans transferred to assets held for sale - - 2 (166) (856)
Lower of cost or market valuation adjustments (21) (50) (111) - -
Loans sold (190) (3,327) (289) (1,756) -
Other, net (a) (63) (197) (322) (140) -
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Balance, end of period 317 689 4,263 4,983 6,326
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Other (b)
Balance, beginning of period 6,101 3,883 4,108 4,310 4,875
Originations 5,279 4,773 2,701 2,495 1,568
Loans transferred to (from) assets held for sale, net 37 282 (556) (24) (515)
Allowance for loan losses related to
loans transferred to assets held for sale (40) (23) - - -
Lower of cost or market valuation adjustments (14) (30) (33) (46) (53)
Loans sold (5,475) (2,628) (2,204) (2,587) (1,408)
Other, net (a) (242) (156) (133) (40) (157)
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Balance, end of period 5,646 6,101 3,883 4,108 4,310
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Loans held for sale, end of period $ 5,963 6,790 8,146 9,091 10,636
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(a) Other, net represents primarily loan payments.
(b) Other includes primarily student, mortgage warehouse, home equity and syndication loans.
Nonperforming loans included in assets held for sale in the second and first quarters of 2001 and in the fourth, third, and
second quarters of 2000 were $250 million, $344 million, $334 million, $349 million and $331 million, respectively.
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Key Points
o Sold $190 million of loans from strategic repositioning portfolio
o $317 million remains from repositioning; sale of $152 million of loans
expected to close in early 3Q01
o Strategic repositioning is now complete
Strategic Repositioning: During the quarter we sold $68 million of commercial
loans and $122 million of TMS loans in assets held for sale. Payments reduced
balances by $65 million. A balance of $317 million remains from the total
restructuring. $152 million of these loans are under contract for sale in 3Q01.
Other: During the quarter we transferred $131 million of consumer loans, $123
million of which were NPLs, to assets held for sale. The sale of these loans is
expected to close in 3Q01. Of the total $40 million allowance transferred with
the loans, $22 million were existing reserves and $18 million represented 2Q01
additional provision to adjust the loans to market value. We also sold $670
million of commercial loans and $4.8 billion of consumer loans, primarily
mortgages delivered to agencies out of the AHFS portfolio.
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Restructuring and Divestitures
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Restructuring Charges and Other Charges/Gains 2001 2000
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Second First Fourth Third Second
(In millions) Quarter Quarter Quarter Quarter Quarter
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Restructuring charges
Employee termination benefits $ (26) 2 10 27 135
Occupancy (32) - - 15 93
Goodwill and other asset impairments (noncash) - - - - 1,754
Other asset impairments - (1) (1) (16) 35
Contract cancellations (15) (1) (10) 4 80
Other - - 1 - 2
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Total restructuring charges (73) - - 30 2,099
Reversal of March 1999 and other accruals - (14) (1) (2) -
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Total (73) (14) (1) 28 2,099
Merger-related charges 4 16 34 24 11
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Total (69) 2 33 52 2,110
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Other charges/gains
Provision for loan losses - - - 180 802
Service charges and fees - - - 2 44
Other income (1) (28) (171) (540) 768
Other noninterest expense 97 69 212 68 27
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Total other charges/gains 96 41 41 (290) 1,641
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Total restructuring and other charges/gains 27 43 74 (238) 3,751
Income taxes (benefits) (11) (17) (38) 88 (838)
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After-tax restructuring, merger-related
and other charges/gains $ 16 26 36 (150) 2,913
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Key Points
o Completed June 2000 strategic repositioning efforts on schedule and on budget
o $73 million reversal due to favorable variances on occupancy and contract
termination costs, and lower severance costs
o $97 million other noninterest expense largely comprised of related personnel
expense to right-size staff and support functions, real estate consolidation
expenses, contract termination costs and professional fees
In 2Q01, we achieved the goals set out in our June 2000 strategic repositioning.
The company recorded a net after-tax charge of $16 million in restructuring and
other charges and gains. This charge reflects completion of the activity
associated with our strategic repositioning. Significant items included the
following:
o Net reversals of previously accrued restructuring charges totaling $73
million reflect favorable variance on contract termination and
occupancy costs, and lower severance costs for employees identified at
the time of the announcement of our strategic repositioning.
o Other noninterest expense includes severance and outplacement expense
of $31 million related to the right-sizing of staff and support
functions; real estate consolidation expenses of $18 million; contract
termination expenses of $16 million; professional fees of $12 million;
card and mortgage servicing deconversion expenses of $9 million and
other expenses totaling $11 million.
BUSINESS SEGMENT RESULTS
- ------------------------
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- --------------------------------------------------------------------------------------------------------------------------------
First Union Corporation Three Months Ended June 30, 2001
-----------------------------------------------------------------------------------
Performance Summary General Capital Corporate &
(In millions) Bank Management Investment BParent Consolidated
- --------------------------------------------------------------------------------------------------------------------------------
Income statement data
Net interest income $ 1,128 78 455 50 1,711
Fee and other income 390 771 333 135 1,629
Intersegment revenue 27 (11) (15) (1) -
- --------------------------------------------------------------------------------------------------------------------------------
Total revenue 1,545 838 773 184 3,340
Provision for loan losses 98 - 93 32 223
Noninterest expense 935 667 490 77 2,169
Income taxes 169 58 37 35 299
- --------------------------------------------------------------------------------------------------------------------------------
Operating earnings $ 343 113 153 40 649
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Economic profit $ 251 82 (4) 79 408
Risk adjusted return on capital (RAROC) 38.93 % 45.32 11.74 34.82 25.39
Economic capital $ 3,744 986 6,112 1,382 12,224
Overhead efficiency ratio 59.29 % 79.47 59.93 9.32 62.06
Average loans, net $ 65,501 4,559 41,145 8,007 119,212
Average core deposits $ 99,424 7,976 10,202 1,433 119,035
- --------------------------------------------------------------------------------------------------------------------------------
Business segment results are on an operating basis, and accordingly, they
exclude restructuring and other charges and gains primarily related to our
strategic repositioning announced in June 2000.
We made several changes, as outlined below, in our segment reporting beginning
1Q01. Each of the trailing four quarters has been restated to reflect these
changes.
Segments and sub-segments have been realigned: As a result of an in-depth review
of our management reporting model, we have designed new methodologies and
systems that we believe better reflect the evolution of our three core
businesses. We implemented this new management reporting model in the first
quarter of 2001. One of the key differences was a redefinition of our segments
and subsegments.
Intersegment revenues and servicing cost allocations have been established:
Intersegment revenues (referral fees) are paid from the segment that "owns" a
product to the segment that "sells" the product, and they are based upon
comparable fees paid in the market and/or upon negotiated amounts which estimate
the relative profitability value provided by the selling party. Cost allocation
transfers are made for servicing provided from one business segment to another.
Improved allocation of capital: Revised studies have been completed to more
accurately assess the risks inherent in each business unit, and capital has been
assigned based upon that risk assessment. (See economic capital definition.)
New financial metrics have been implemented: Business units are measured on
several new financial metrics, RAROC and Economic Profit (see definitions
below).
Cost allocation methodologies have been enhanced: Activity-Based Costing studies
have been completed for many business units to better align costs with products
and their revenues.
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KEY DEFINITIONS
- ---------------
Activity-Based Costing - A method of determining product costs based upon
detailed studies that align the cost of activities with the products those
activities support.
Cost of Capital -The cost of capital rate is the minimum rate of return that
must be earned so as not to dilute shareholder value. First Union's cost of
capital rate has been established using the capital asset pricing model (CAPM)
and is currently set at 12 percent. The cost of capital charge is determined by
multiplying the cost of capital rate times the amount of economic capital.
Economic Capital - Capital assigned based on a statistical assessment of the
credit, market and operating risks taken to generate profits in a particular
business unit and/or product.
Economic Net Income - GAAP net income adjusted for 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.
RAROC - Risk Adjusted Return On Capital. RAROC is calculated by dividing
economic net income by economic capital.
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GENERAL BANK
- ------------
This segment consists of the Consumer, Commercial, and Small Business
operations.
- ------------------------------------------------------------------------------------------------------------------------
General Bank 2001 2000 2 Q 01
--------------------- ----------------------------------
Performance Summary Second First Fourth Third Second vs
(In millions) Quarter Quarter Quarter Quarter Quarter 1 Q 01
- ------------------------------------------------------------------------------------------------------------------------
Income statement data
Net interest income $ 1,128 1,085 1,093 1,097 1,086 4 %
Fee and other income 390 343 355 352 301 14
Intersegment revenue 27 25 25 24 25 8
- ------------------------------------------------------------------------------------------------------------------------
Total revenue 1,545 1,453 1,473 1,473 1,412 6
Provision for loan losses 98 101 74 52 51 (3)
Noninterest expense 935 908 992 948 966 3
Income taxes 169 149 129 154 127 13
- ------------------------------------------------------------------------------------------------------------------------
Operating earnings $ 343 295 278 319 268 16 %
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
Performance and other data
Economic profit $ 251 220 183 212 165 14 %
Risk adjusted return on capital (RAROC) 38.93 % 36.65 31.97 35.33 30.70 -
Economic capital $ 3,744 3,618 3,653 3,615 3,555 3
Overhead efficiency ratio 59.29 % 61.19 65.77 62.89 66.83 -
Average loans, net $ 65,501 63,771 61,735 60,029 58,105 3
Average core deposits $ 99,424 98,415 98,184 97,186 97,499 1 %
- ------------------------------------------------------------------------------------------------------------------------
Key Points
o Revenues up 6%; up 4% excluding mortgage contribution
o Fee growth driven by service charges and fees, which increased 7%
o Solid loan growth of 3% and deposits up 1%, driven by strong growth of 4% in
low cost core deposits (DDA, interest checking, savings, and money market
accounts)
o Efficiency ratio below 60% for the first time; 14% growth in economic profit
- --------------------------------------------------------------------------------------------------------------------------
General Bank Key Metrics 2001 2000 2 Q 01
-------------------------- ---------------------------------
Second First Fourth Third Second vs
Quarter Quarter Quarter Quarter Quarter 1 Q 01
- --------------------------------------------------------------------------------------------------------------------------
Customer overall satisfaction score (a) 6.32 6.29 6.27 6.22 6.19 - %
Online customers (In thousands) 2,903 2,640 2,367 2,149 1,868 10
Financial centers 2,162 2,164 2,193 2,253 2,258 -
ATMs 3,419 3,676 3,772 3,831 3,832 (7)%
- --------------------------------------------------------------------------------------------------------------------------
(a) Gallup survey measured on a 1-7 scale; 6.4 = "best in class".
- --------------------------------------------------------------------------------------------------------------------------
Overall customer satisfaction score of 6.32 increased for the 9th consecutive
quarter and is close to "Best in Class."
ATM count down due to sale and removal of certain non-branded ATMs.
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CONSUMER
This sub-segment includes Retail Banking, First Union Mortgage Corp., First
Union Home Equity Bank, Educaid, and other retail businesses.
- ---------------------------------------------------------------------------------------------------------------------
Consumer 2001 2000 2 Q 01
--------------------- ----------------------------------
Performance Summary Second First Fourth Third Second vs
(In millions) Quarter Quarter Quarter Quarter Quarter 1 Q 01
- ---------------------------------------------------------------------------------------------------------------------
Income statement data
Net interest income $ 793 755 746 759 755 5 %
Fee and other income 299 256 267 251 231 17
Intersegment revenue 12 12 12 12 13 -
- ---------------------------------------------------------------------------------------------------------------------
Total revenue 1,104 1,023 1,025 1,022 999 8
Provision for loan losses 62 59 35 32 31 5
Noninterest expense 731 704 751 732 738 4
Income taxes 106 90 81 88 77 18
- ---------------------------------------------------------------------------------------------------------------------
Operating earnings $ 205 170 158 170 153 21 %
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Performance and other data
Economic profit $ 162 140 112 124 108 16 %
Risk adjusted return on capital (RAROC) 43.26 % 41.12 34.73 37.44 34.71 -
Economic capital $ 2,076 1,952 1,960 1,936 1,907 6
Overhead efficiency ratio 65.15 % 67.61 72.03 70.42 72.58 -
Average loans, net $ 34,307 33,034 31,942 30,703 29,246 4
Average core deposits $ 80,607 80,241 79,897 79,504 79,838 - %
- ---------------------------------------------------------------------------------------------------------------------
Net interest income was up 5%, due to high mortgage origination volume, record
loan production in financial centers and overall wider spreads in a declining
interest rate environment. Loans increased 4%, due to strong demand and focused
sales efforts. At the same time, core deposits increased for the third
consecutive quarter on the strength of interest checking and savings; slightly
offset by declines in CDs.
Fee and other income grew 17%, primarily due to strong growth in mortgage
originations, debit card, and service charges and fees. Fees were up 9%
excluding the contribution from the mortgage business, driven by a 7% increase
in service charges and fees from 1Q01. In retail banking alone, service charges
and fees were up $9 million or 4%.
2Q01 mortgage and home equity results included $22 million in gains on $3.7
billion in deliveries to agencies, $12 million in gains on flow servicing sales,
and $9 million on other sales. 1Q01 included $6 million in gains on deliveries,
$12 million in gains on flow servicing sales, and $10 million in other gains.
Results were impacted by market valuation adjustments of $15 million on FUHEB
NPAs in 1Q01.
Expenses were up 4%, primarily due to increases in volume-based expenses such as
loan costs and incentives. Even with tighter expense control, we are currently
running close to 100% staffing levels.
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CONSUMER LOAN PRODUCTION
- ------------------------------------------------------------------------------------------------------------------------
Consumer Loan Volume 2001 2000 2 Q 01
------------------------ ---------------------------------
Second First Fourth Third Second vs
(In millions) Quarter Quarter Quarter Quarter Quarter 1 Q 01
- ------------------------------------------------------------------------------------------------------------------------
Consumer direct $ 1,755 1,210 1,246 1,320 1,548 45 %
Prime equity lines 2,483 1,984 1,785 1,653 1,852 25
First Union Home Equity 1,558 1,274 1,289 1,245 1,083 22
First Union Mortgage Corporation 4,685 3,394 2,415 2,311 2,434 38
Other 731 728 360 392 185 -
- ------------------------------------------------------------------------------------------------------------------------
Total consumer loan volume $ 11,212 8,590 7,095 6,921 7,102 31 %
- ------------------------------------------------------------------------------------------------------------------------
Loan volume was up 31%, due primarily to increased refinancing volume in FUMC
originations, as well as strong growth in FUHEB volume.
- --------------------------------------------------------------------------------------------------------------------------
Consumer Average Loans 2001 2000 2 Q 01
-------------------- -----------------------------------
Second First Fourth Third Second vs
(In millions) Quarter Quarter Quarter Quarter Quarter 1 Q 01
- --------------------------------------------------------------------------------------------------------------------------
Consumer direct $ 12,595 12,024 11,784 11,496 11,102 5 %
Prime equity lines 9,738 9,319 8,873 8,435 8,118 4
First Union Home Equity 11,383 11,097 10,577 10,053 9,295 3
First Union Mortgage Corporation 87 89 82 90 105 (2)
Other 504 505 626 629 626 (0)
- --------------------------------------------------------------------------------------------------------------------------
Consumer average loans $ 34,307 33,034 31,942 30,703 29,246 4 %
- --------------------------------------------------------------------------------------------------------------------------
Average loan outstandings increased 4%, attributable to continued strong sales
efforts and increased focus on behavioral cross-selling (acquiring
transactional, borrowing and investing customers).
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COMMERCIAL
This sub-segment includes middle-market Commercial, Commercial Real Estate and
Government Banking.
- -----------------------------------------------------------------------------------------------------------------------------
Commercial 2001 2000 2 Q 01
--------------------- ------------------------------------
Performance Summary Second First Fourth Third Second vs
(In millions) Quarter Quarter Quarter Quarter Quarter 1 Q 01
- -----------------------------------------------------------------------------------------------------------------------------
Income statement data
Net interest income $ 172 169 179 172 170 2 %
Fee and other income 39 35 36 33 33 11
Intersegment revenue 14 12 13 12 12 17
- -----------------------------------------------------------------------------------------------------------------------------
Total revenue 225 216 228 217 215 4
Provision for loan losses 17 21 29 17 18 (19)
Noninterest expense 112 107 150 129 139 5
Income taxes 28 27 9 20 13 4
- -----------------------------------------------------------------------------------------------------------------------------
Operating earnings $ 68 61 40 51 45 11 %
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Performance and other data
Economic profit $ 30 24 7 11 6 25 %
Risk adjusted return on capital (RAROC) 22.99 % 20.76 14.59 16.05 14.20 -
Economic capital $ 1,098 1,116 1,146 1,130 1,129 (2)
Overhead efficiency ratio 47.39 % 47.92 62.26 56.71 61.18 -
Average loans, net $ 23,320 23,204 22,472 22,077 21,926 -
Average core deposits $ 10,106 9,479 9,467 8,908 8,967 7 %
- -----------------------------------------------------------------------------------------------------------------------------
Net interest income increased 2%. Loans were essentially flat, due to a slowing
in loan demand in this sub-segment's customer base. Deposits were up a solid 7%,
driven by continued focus on attracting low cost core deposits.
Fee and other income grew 11%, due to increased cash management service charges
(on lower compensating balances) as a result of a lower interest rate
environment. Service charges and fees were up $5 million or 15% from the prior
quarter. Results were particularly strong in government and real estate.
Expenses increased 5%, wholly attributable to volume-based expenses.
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SMALL BUSINESS
This sub-segment consists of Small Business Lending, Small Business Banking, and
Small Business Capital (SBA).
- ----------------------------------------------------------------------------------------------------------------------------
Small Business 2001 2000 2 Q 01
------------------ ---------------------------------------
Performance Summary Second First Fourth Third Second vs
(In millions) uarter Quarter Quarter Quarter Quarter 1 Q 01
- ----------------------------------------------------------------------------------------------------------------------------
Income statement data
Net interest income $ 163 161 168 166 161 1 %
Fee and other income 52 52 52 68 37 -
Intersegment revenue 1 1 - - - -
- ----------------------------------------------------------------------------------------------------------------------------
Total revenue 216 214 220 234 198 1
Provision for loan losses 19 21 10 3 2 (10)
Noninterest expense 92 97 91 87 89 (5)
Income taxes 35 32 39 46 37 9
- ----------------------------------------------------------------------------------------------------------------------------
Operating earnings $ 70 64 80 98 70 9 %
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Performance and other data
Economic profit $ 59 56 64 77 51 5 %
Risk adjusted return on capital (RAROC) 53.89 % 53.06 58.56 67.60 51.89 -
Economic capital $ 570 550 547 549 519 4
Overhead efficiency ratio 42.26 % 44.21 40.62 36.18 44.24 -
Average loans, net $ 7,874 7,533 7,321 7,249 6,933 5
Average core deposits $ 8,711 8,695 8,820 8,774 8,694 - %
- ----------------------------------------------------------------------------------------------------------------------------
Net interest income rose 1%. Loans increased 5% driven by small business
lending, while average core deposits were relatively flat.
Fee and other income matched 1Q01 levels, as securitization and service charge
income was flat.
Expenses decreased 5%, due to tighter expense control.
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CAPITAL MANAGEMENT
- ------------------
This segment includes Asset Management, Retail Brokerage Services, and Wealth
and Trust Services
- ----------------------------------------------------------------------------------------------------------------------
Capital Management 2001 2000 2 Q 01
-------------------- ----------------------------------
Performance Summary Second First Fourth Third Second vs
(In millions) Quarter Quarter Quarter Quarter Quarter 1 Q 01
- ----------------------------------------------------------------------------------------------------------------------
Income statement data
Net interest income $ 78 78 89 86 90 - %
Fee and other income 771 765 777 761 752 1
Intersegment revenue (11) (12) (12) (13) (13) (8)
- ----------------------------------------------------------------------------------------------------------------------
Total revenue 838 831 854 834 829 1
Provision for loan losses - - - - - -
Noninterest expense 667 659 654 652 624 1
Income taxes 58 59 68 62 70 (2)
- ----------------------------------------------------------------------------------------------------------------------
Operating earnings $ 113 113 132 120 135 - %
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Performance and other data
Economic profit $ 82 82 101 90 105 - %
Risk adjusted return on capital (RAROC) 45.32 % 45.93 53.10 48.45 55.54 -
Economic capital $ 986 985 974 979 972 -
Overhead efficiency ratio 79.47 % 79.15 76.66 78.11 75.23 -
Average loans, net $ 4,559 4,497 4,424 4,295 4,250 1
Average core deposits $ 7,976 8,003 7,879 7,935 7,888 - %
- ----------------------------------------------------------------------------------------------------------------------
Key Points
o Solid revenue performance during continuing market volatility
o In Retail Brokerage, record bank annuity sales over $700 million drove
increased production
- ----------------------------------------------------------------------------------------------------------------------------
Capital Management Key Metrics 2001 2000 2 Q 01
------------------------ -----------------------------------
Second First Fourth Third Second vs
(In millions) Quarter Quarter Quarter Quarter Quarter 1 Q 01
- ----------------------------------------------------------------------------------------------------------------------------
Trust assets $ 81,879 81,576 85,933 87,922 83,499 - %
Mutual fund assets 90,279 86,767 84,797 85,223 82,131 4
- ----------------------------------------------------------------------------------------------------------------------------
Total assets under management $ 172,158 168,343 170,730 173,145 165,630 2 %
- ----------------------------------------------------------------------------------------------------------------------------
Gross fluctuating mutual fund sales $ 1,981 1,983 1,762 1,819 1,656 - %
- ----------------------------------------------------------------------------------------------------------------------------
Assets under care (Excluding AUM) $ 499,847 489,380 485,516 500,962 507,193 2 %
- ----------------------------------------------------------------------------------------------------------------------------
Registered representatives (Actual) 7,706 7,784 7,459 7,342 7,091 (1)
Brokerage offices (Actual) 2,690 2,695 2,568 2,623 2,604 - %
- ----------------------------------------------------------------------------------------------------------------------------
Key Points
o Mutual funds surpassed $90 billion for the first time - equity increased 5%,
money market up 4%, and fixed income stable
o Despite unsettled market conditions, total assets under management increased
2% to $172 billion as both trust and mutual funds gained net new assets
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ASSET MANAGEMENT
This sub-segment consists of the mutual fund business and customized investment
advisory services.
- -----------------------------------------------------------------------------------------------------------------------
Asset Management 2001 2000 2 Q 01
-------------------- --------------------------------
Performance Summary Second First Fourth Third Second vs
(In millions) Quarter Quarter Quarter Quarter Quarter 1 Q 01
- -----------------------------------------------------------------------------------------------------------------------
Income statement data
Net interest income $ (14) (11) (8) (8) (5) (27)%
Fee and other income 153 156 162 164 152 (2)
Intersegment revenue - - - - - -
- -----------------------------------------------------------------------------------------------------------------------
Total revenue 139 145 154 156 147 (4)
Provision for loan losses - - - - - -
Noninterest expense 90 89 95 89 88 1
Income taxes 16 20 20 23 20 (20)
- -----------------------------------------------------------------------------------------------------------------------
Operating earnings $ 33 36 39 44 39 (8)%
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
Performance and other data
Economic profit $ 29 33 35 40 35 (12)%
Risk adjusted return on capital (RAROC) 109.52 % 121.75 123.11 139.70 129.11 -
Economic capital $ 122 121 125 125 122 1
Overhead efficiency ratio 64.21 % 61.62 61.93 57.16 59.68 -
Average loans, net $ 9 1 - - - -
Average core deposits $ 19 5 - - - - %
- -----------------------------------------------------------------------------------------------------------------------
Fee and other income decreased 2%, despite continued strong net fund flows, due
to lower daily average equity market valuations in 2Q01 versus 1Q01.
Expenses remained relatively flat reflecting continued focus on operating
efficiency.
- ------------------------------------------------------------------------------------------------------------------------------------
Mutual Funds 2001 2000 2 Q 01
------------------------------------------- ---------------------------------
Second Quarter First Quarter Fourth Third Second vs
------------------- ---------------------
(In billions) Amount Fund Mix Amount Fund Mix Quarter Quarter Quarter 1 Q 01
- ------------------------------------------------------------------------------------------------------------------------------------
Assets Under Management
Money market $ 55 61% $ 53 61% $ 47 44 41 4 %
Equity 23 26 22 25 26 29 29 5
Fixed income 11 12 11 13 11 11 11 -
Annuity 1 1 1 1 1 1 1 -
- ------------------------------------------------------------------------------------------------------------------------------------
Total mutual fund assets $ 90 100% $ 87 100% $ 85 85 82 4 %
- ------------------------------------------------------------------------------------------------------------------------------------
o A balanced investment philosophy and product offering enabled Capital
Management to retain assets and grow total assets under management.
Total mutual fund assets rose by 4%, spurred by period end improvement in the
equity markets and solid net money market sales of $2 billion for the quarter.
The fund mix remained relatively stable on a quarter-linked basis, with money
market assets growing by 4% and accounting for 61% of total assets and equity
funds rising almost 5% to comprise 26% of total assets.
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RETAIL BROKERAGE SERVICES
This sub-segment includes Retail Brokerage and Insurance Services.
- ---------------------------------------------------------------------------------------------------------------------
Retail Brokerage Services 2001 2000 2 Q 01
--------------------- -----------------------------------
Performance Summary Second First Fourth Third Second vs
(In millions) Quarter Quarter Quarter Quarter Quarter 1 Q 01
- ---------------------------------------------------------------------------------------------------------------------
Income statement data
Net interest income $ 36 36 41 38 38 - %
Fee and other income 499 492 491 480 485 1
Intersegment revenue (11) (11) (12) (12) (13) -
- ---------------------------------------------------------------------------------------------------------------------
Total revenue 524 517 520 506 510 1
Provision for loan losses - - - - - -
Noninterest expense 459 451 446 449 427 2
Income taxes 21 23 24 20 28 (9)
- ---------------------------------------------------------------------------------------------------------------------
Operating earnings $ 44 43 50 37 55 2 %
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Performance and other data
Economic profit $ 26 23 30 18 36 13 %
Risk adjusted return on capital (RAROC) 27.50 % 26.57 30.73 22.75 34.41 -
Economic capital $ 643 650 643 648 646 (1)
Overhead efficiency ratio 87.28 % 87.39 85.55 88.90 83.62 -
Average loans, net $ - 1 - 1 - -
Average core deposits $ 79 104 79 70 74 (24)%
- ---------------------------------------------------------------------------------------------------------------------
Net interest income remained flat, as margin loan receivables have stabilized.
Fee and other income was up $7 million or 1%, aided by strong annuity sales and
increased broker client assets which rose 5% during the quarter driven by the
continued success of the advice-driven distribution model.
Expenses increased 2% due primarily to costs associated with higher levels of
production.
- --------------------------------------------------------------------------------------------------------------------------
Retail Brokerage Metrics 2001 2000 2 Q 01
---------------------- ------------------------------------
Second First Fourth Third Second vs
(In millions) Quarter Quarter Quarter Quarter Quarter 1 Q 01
- --------------------------------------------------------------------------------------------------------------------------
Broker client assets $ 205,000 196,069 204,742 216,012 202,017 5 %
- --------------------------------------------------------------------------------------------------------------------------
Margin loans $ 3,060 3,060 3,556 4,013 3,613 - %
- --------------------------------------------------------------------------------------------------------------------------
Asset management accounts
Number of accounts (In thousands) 974 990 993 972 889 (2)%
- --------------------------------------------------------------------------------------------------------------------------
Licensed sales force
Full-service financial advisors 4,678 4,723 4,322 4,255 3,916 (1)%
Financial center series 6 3,028 3,061 3,137 3,087 3,175 (1)
- --------------------------------------------------------------------------------------------------------------------------
Total sales force 7,706 7,784 7,459 7,342 7,091 (1)%
- --------------------------------------------------------------------------------------------------------------------------
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WEALTH AND TRUST SERVICES
This sub-segment includes the Private Client business, offering services to high
net worth individuals, and Corporate and Institutional Trust.
- ------------------------------------------------------------------------------------------------------------------------
Wealth and Trust Services 2001 2000 2 Q 01
-------------------- ---------------------------------
Performance Summary Second First Fourth Third Second vs
(In millions) Quarter Quarter Quarter Quarter Quarter 1 Q 01
- ------------------------------------------------------------------------------------------------------------------------
Income statement data
Net interest income $ 54 52 54 55 56 4 %
Fee and other income 129 128 133 130 129 1
Intersegment revenue 1 (1) (1) (1) (1) -
- ------------------------------------------------------------------------------------------------------------------------
Total revenue 184 179 186 184 184 3
Provision for loan losses - - - - - -
Noninterest expense 128 128 123 122 119 -
Income taxes 20 17 21 21 22 18
- ------------------------------------------------------------------------------------------------------------------------
Operating earnings $ 36 34 42 41 43 6 %
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
Performance and other data
Economic profit $ 27 27 34 33 36 - %
Risk adjusted return on capital (RAROC) 61.68 % 61.62 77.65 75.64 81.84 -
Economic capital $ 225 217 209 208 207 4
Overhead efficiency ratio 69.69 % 70.60 65.82 66.32 64.33 -
Average loans, net $ 4,550 4,496 4,423 4,295 4,249 1
Average core deposits $ 7,878 7,894 7,800 7,865 7,814 - %
- ------------------------------------------------------------------------------------------------------------------------
Net interest income increased 4% due to improved spreads as higher Private
Client deposits offset a decline in corporate deposits. The loan portfolio was
up slightly and benefited from a declining interest rate environment.
Fee and other income rose slightly, as continued positive net customer growth
offset the decline in average equity market values.
Expenses were flat for the quarter reflecting the continued focus on efficiency.
CAPITAL MANAGEMENT OTHER
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. For 2Q01,
brokerage revenue and associated expense eliminations were $9 million and had no
net effect on earnings.
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CORPORATE AND INVESTMENT BANKING
- --------------------------------
This segment includes Corporate Banking and Investment Banking.
- ----------------------------------------------------------------------------------------------------------------------
Corporate and Investment Banking 2001 2000 2 Q 01
------------------- ---------------------------------
Performance Summary Second First Fourth Third Second vs
(In millions) Quarter Quarter Quarter Quarter Quarter 1 Q 01
- ----------------------------------------------------------------------------------------------------------------------
Income statement data
Net interest income $ 455 425 415 398 376 7 %
Fee and other income 333 312 268 363 533 7
Intersegment revenue (15) (12) (13) (12) (12) (25)
- ----------------------------------------------------------------------------------------------------------------------
Total revenue 773 725 670 749 897 7
Provision for loan losses 93 70 124 83 126 33
Noninterest expense 490 467 431 498 509 5
Income taxes 37 38 (53) 30 63 (3)
- ----------------------------------------------------------------------------------------------------------------------
Operating earnings $ 153 150 168 138 199 2 %
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Performance and other data
Economic profit $ (4) (22) 28 (25) 72 82 %
Risk adjusted return on capital (RAROC) 11.74 % 10.60 13.81 10.38 16.91 -
Economic capital $ 6,112 6,278 6,259 6,167 5,940 (3)
Overhead efficiency ratio 59.93 % 60.85 53.28 62.99 54.36 -
Average loans, net $ 41,145 42,511 41,922 42,169 42,787 (3)
Average core deposits $ 10,202 9,465 9,251 9,099 8,928 8 %
- ----------------------------------------------------------------------------------------------------------------------
Key Points
o Total revenue up 7%
o Net interest income up 7% as fixed income spreads widened in a lower rate
environment
o Fee and other income increased 7% on strong results in agency businesses,
primarily Loan Syndications and M&A, offset by lower trading profits after a
record first quarter
o Expenses up primarily due to higher incentive payments as a result of
increased revenue, especially in agency businesses
- --------------------------------------------------------------------------------
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Excluding Principal Investing
- -----------------------------
- ------------------------------------------------------------------------------------------------------------------------
Corporate and Investment Banking
(Excluding Principal Investing) 2001 2000 2 Q 01
--------------------- --------------------------------
Performance Summary Second First Fourth Third Second vs
(In millions) Quarter Quarter Quarter Quarter Quarter 1 Q 01
- ------------------------------------------------------------------------------------------------------------------------
Income statement data
Total revenue $ 840 780 716 725 696 8 %
Noninterest expense 482 459 424 490 506 5
Income taxes 62 60 (34) 24 (6) 3
Operating earnings $ 204 191 204 128 68 7 %
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
Performance and other data
Economic profit $ 86 60 104 2 (25) 43 %
Risk adjusted return on capital (RAROC) 19.25 % 16.92 20.39 12.16 9.93 -
Economic capital $ 4,773 4,909 4,910 4,915 4,837 (3)%
Overhead efficiency ratio 54.40 % 55.76 51.56 63.76 68.53 -
- ------------------------------------------------------------------------------------------------------------------------
Revenue increased $60 million or 8% versus 1Q01 and $144 million or 21% vs.
2Q00. The increase versus 1Q01 is due to strong agency results, particularly in
M&A and loan syndications, and continued strong trading results in fixed income.
The increase versus 2Q00 is due to across-the-board growth, with lower results
seen only in asset securitization (due to 2Q01 securities losses), derivatives,
and leasing.
Expenses increased 5% versus 1Q01, the result of higher incentive payments on
increased revenues. Expenses decreased 5% versus 2Q00, due to careful expense
management.
Operating earnings rose 7% vs. 1Q01 and more than doubled compared to 2Q00.
Overhead efficiency and economic profit improved significantly versus both
periods.
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CORPORATE BANKING
This sub-segment includes Large Corporate Lending, Commercial Leasing and Rail,
and International operations.
- ------------------------------------------------------------------------------------------------------------------------
Corporate Banking 2001 2000 2 Q 01
--------------------- ---------------------------------
Performance Summary Second First Fourth Third Second vs
(In millions) Quarter Quarter Quarter Quarter Quarter 1 Q 01
- ------------------------------------------------------------------------------------------------------------------------
Income statement data
Net interest income $ 345 343 363 354 337 1 %
Fee and other income 174 165 169 162 157 5
Intersegment revenue (8) (8) (9) (10) (10) -
- ------------------------------------------------------------------------------------------------------------------------
Total revenue 511 500 523 506 484 2
Provision for loan losses 95 71 123 80 114 34
Noninterest expense 231 239 217 254 220 (3)
Income taxes 63 65 63 58 50 (3)
- ------------------------------------------------------------------------------------------------------------------------
Operating earnings $ 122 125 120 114 100 (2)%
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
Performance and other data
Economic profit $ 49 39 63 30 40 26 %
Risk adjusted return on capital (RAROC) 17.65 % 16.48 18.85 15.33 16.59 -
Economic capital $ 3,478 3,526 3,636 3,565 3,528 (1)
Overhead efficiency ratio 45.02 % 47.51 41.58 50.15 45.31 -
Average loans, net $ 35,737 36,735 35,729 35,836 36,304 (3)
Average core deposits $ 7,753 7,470 7,385 7,362 7,303 4 %
- ------------------------------------------------------------------------------------------------------------------------
Net interest income rose 1% due to improved margins in the lower rate
environment. Loans declined $1 billion, or 3%, as we exited certain less
profitable lending relationships. Core deposits increased 4%, driven by our
increased focus on treasury services and overall relationship profitability.
Fee and other income increased 5%, due to higher fees in lending businesses and
stronger rail car leasing results.
Expenses decreased 3% due to continued expense control.
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Corporate Banking Fees 2001 2000 2 Q 01
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Second First Fourth Third Second vs
(In millions) Quarter Quarter Quarter Quarter Quarter 1 Q 01
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Lending $ 64 58 72 64 36 10 %
Leasing 48 45 37 35 62 7
International 62 62 60 63 59 -
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Corporate banking fees $ 174 165 169 162 157 5 %
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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.
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Investment Banking 2001 2000 2 Q 01
------------------- -------------------------------------
Performance Summary Second First Fourth Third Second vs
(In millions) Quarter Quarter Quarter Quarter Quarter 1 Q 01
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Income statement data
Net interest income $ 110 82 52 44 39 34 %
Fee and other income 159 147 99 201 376 8
Intersegment revenue (7) (4) (4) (2) (2) 75
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Total revenue 262 225 147 243 413 16
Provision for loan losses (2) (1) 1 3 12 -
Noninterest expense 259 228 214 244 289 14
Income taxes (benefits) (26) (27) (116) (28) 13 4
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Operating earnings $ 31 25 48 24 99 24 %
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Performance and other data
Economic profit $ (53) (61) (35) (55) 32 13 %
Risk adjusted return on capital (RAROC) 3.94 % 3.06 6.82 3.60 17.37 -
Economic capital $ 2,634 2,752 2,623 2,602 2,412 (4)
Overhead efficiency ratio 84.80 % 80.60 74.61 85.83 64.06 -
Average loans, net $ 5,408 5,776 6,193 6,333 6,483 (6)
Average core deposits $ 2,449 1,995 1,866 1,737 1,625 23 %
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Net interest income increased 34%, 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. Loans decreased 6%, while deposits were up 23%,
the latter attributable to significant customer relationship growth in the
mortgage servicing group.
Fee and other income increased 8% due to strong performance in agency business,
especially M&A and Loan Syndications, attributable to higher deal volume.
Additionally, asset securitization results were benefited by lower losses on
certain nonperforming securities ($26 million of securities losses in 2Q01 vs.
$46 million of trading losses in 1Q01). The increase in agency business was
partially offset by lower trading gains in fixed income sales and trading, which
declined from a strong 1Q01.
Principal investing losses were $58 million,
primarily due to impairments on private equity investments taken during the
quarter. Losses were $43 million in 1Q01. The invested portfolio totaled $2.8
billion at quarter end, of which 10% were public investments, 40% were private
direct investments, 30% were fund investments, and the remainder represented
mezzanine investments.
Expenses increased 14%, due to higher incentive payments as a result of
increased revenue, especially in agency businesses.
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Investment Banking Fees 2001 2000 2 Q 01
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Second First Fourth Third Second vs
(In millions) Quarter Quarter Quarter Quarter Quarter 1 Q 01
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Agency $ 117 44 120 85 114 - %
Principal investing (58) (43) (43) 34 205 35
Fixed income 115 165 87 93 75 (30)
Affordable housing (AH) (15) (19) (65) (11) (18) (21)
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Investment banking fees $ 159 147 99 201 376 8 %
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Memoranda
Pre-tax value of AH tax credits 30 29 93 32 31 3 %
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Adjusted investment banking fees $ 189 176 192 233 407 7
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Trading profits (included above) $ 110 83 57 70 73 33 %
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PARENT
- ------
This sub-segment includes the Central Money Book, Investment Portfolio, some
Consumer Real Estate and Mortgage Business, Divested Businesses and goodwill
amortization.
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Parent 2001 2000 2 Q 01
----------------------- -----------------------------------------
Performance Summary Second First Fourth Third Second vs
(In millions) Quarter Quarter Quarter Quarter Quarter 1 Q 01
- ---------------------------------------------------------------------------------------------------------------------------------
Income statement data
Net interest income $ 50 114 135 253 353 (56)%
Fee and other income 135 126 182 169 160 7
Intersegment revenue (1) (1) - 1 - -
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Total revenue 184 239 317 423 513 (23)
Provision for loan losses 32 48 (6) 7 51 (33)
Noninterest expense 77 104 55 230 267 (26)
Income taxes 35 35 165 61 83 -
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Operating earnings $ 40 52 103 125 112 (23)%
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Performance and other data
Economic profit $ 79 94 99 116 123 (16)%
Risk adjusted return on capital (RAROC) 34.82 % 34.98 34.74 35.03 33.11 -
Economic capital $ 1,382 1,642 1,730 2,009 2,325 (16)
Overhead efficiency ratio 9.32 % 18.46 (4.58) 40.57 37.23 -
Average loans, net $ 8,007 9,071 12,012 16,982 27,472 (12)
Average core deposits $ 1,433 2,309 3,630 3,854 3,941 (38)%
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Key Points
o Contribution continues to decline as businesses wind down
o 2Q01 fee results include $21 million gain on PEL securitization and sale and
$23 million in securities gains; 1Q01 results included $75 million gain on
interest in Star Systems and $15 million LOCOMs on loans held for sale
o Results include $30 million in provision in excess of business unit
charge-offs and provision for loans sold or transferred to held for sale
(also $30 million in 1Q01)
Net interest income declined 56%, primarily the result of the 1Q01
securitization of TMS loans and planned runoff of the auto loan and leasing
portfolio. Loans decreased 12%, due primarily to planned runoff of the indirect
auto lending and leasing portfolio of $400 million. Deposits decreased 38%, due
primarily to a divestiture impact of an average $434 million in 1Q01 branch
sales.
Fee and other income grew 7%, the result of a $21 million gain on the
securitization and sale of $800 million in prime equity loans and $23 million in
securities gains, primarily on mortgage-backed securities. 1Q01 results included
a $75 million gain on the exchange of our interest in Star Systems, $3 million
in securities losses, and $15 million in market valuation adjustments on
commercial loans held for sale.
Expenses declined 26%, due to divestitures and the impact of FICA benefits in
1Q01.
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FIRSTUNION.COM
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firstunion.com 2001 2000 2 Q 01
----------------------- -------------------------------------
Second First Fourth Third Second vs
(In thousands) Quarter Quarter Quarter Quarter Quarter 1 Q 01
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Online customers
Retail 2,773 2,529 2,276 2,075 1,813 10 %
Wholesale 130 111 91 74 55 17
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Total customers online 2,903 2,640 2,367 2,149 1,868 10
Retail enrollments per quarter 297 293 230 290 292 1
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Dollar value of transactions (In billions) $ 6.4 4.4 2.2 2.2 2.3 45 %
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Non-financial transactions (In millions) $ 27.8 24.9 23.2 20.2 19.4 12 %
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Online enrollments increased 10% from 1Q01 to 2.9 million. There were 297,000
new enrollments in 2Q01, up 10% from 1Q01. Dollar value of transactions
initiated through online banking (billpay and transfers) was $6.4 billion, up
45% from 1Q01 due in large part to an increase in customers to our online
Federal Funds Transfer application.
FIRST UNION DIRECT
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First Union Direct Metrics 2001 2000 2 Q 01
-------------------------- ------------------------------------
Second First Fourth Third Second vs
(In millions) Quarter Quarter Quarter Quarter Quarter 1 Q 01
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Customer calls to
Person 8.4 9.5 9.0 7.0 10.0 (12) %
Voice response unit 23.5 24.5 24.2 23.0 23.0 (4)
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Total calls 31.9 34.0 33.2 30.0 33.0 (6) %
Calls handled in 30 seconds or less 72 % 68 73 79 87 6
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This Supplemental Earnings Package may contain forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995, including,
without limitation, (i) statements about the benefits of the merger between
First Union Corporation and Wachovia Corporation, including future financial and
operating results, cost savings, enhanced revenues, and accretion to reported
earnings that may be realized from the merger; (ii) statements with respect to
First Union's plans, objectives, expectations and intentions and other
statements that are not historical facts; and (iii) other statements identified
by words such as "believes", "expects", "anticipates", "estimates", "intends",
"plans", "targets", "projects" and similar expressions. These statements are
based upon the current beliefs and expectations of First Union's management and
are subject to significant risks and uncertainties. Actual results may differ
from those set forth in the forward-looking statements.
The following factors, among others, could cause actual results to differ
materially from the anticipated results or other expectations expressed in the
forward-looking statements: (1) the risk that the businesses of First Union and
Wachovia will not be integrated successfully or such integration may be more
difficult, time-consuming or costly than expected; (2) expected revenue
synergies and cost savings from the merger may not be fully realized or realized
within the expected time frame; (3) revenues following the merger may be lower
than expected; (4) deposit attrition, operating costs, customer loss and
business disruption following the merger, including, without limitation,
difficulties in maintaining relationships with employees, may be greater than
expected; (5) the ability to obtain governmental approvals of the merger on the
proposed terms and schedule; (6) the failure of First Union's and Wachovia's
stockholders to approve the merger; (7) competitive pressures among depository
and other financial institutions may increase significantly and have an effect
on pricing, spending, third-party relationships and revenues; (8) the strength
of the United States economy in general and the strength of the local economies
in which First Union 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 First Union's loan
portfolio and allowance for loan losses; (9) changes in the U.S. and foreign
legal and regulatory framework; and (10) adverse conditions in the stock market,
the public debt market and other capital markets (including changes in interest
rate conditions) and the impact of such conditions on First Union's and the
combined company's capital markets and asset management activities. Additional
factors that could cause First Union's results to differ materially from those
described in the forward-looking statements can be found in First Union's
reports (such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and
Current Reports on Form 8-K) filed with the Securities and Exchange Commission
and available at the SEC's Internet site (http://www.sec.gov). All subsequent
written and oral forward-looking statements concerning the proposed transaction
with Wachovia or other matters attributable to First Union or any person acting
on its behalf are expressly qualified in their entirety by the cautionary
statements above. First Union does not undertake any obligation to update any
forward-looking statement to reflect circumstances or events that occur after
the date the forward-looking statements are made.
Additional Information
The proposed merger between First Union and Wachovia will be submitted to First
Union's and Wachovia's stockholders for their consideration. Stockholders are
urged to read the definitive joint proxy statement/prospectus regarding the
proposed transaction and any other relevant documents filed with the SEC, as
well as any amendments or supplements to those documents, because they contain
(or will contain) important information. You will be able to obtain a free copy
of the joint proxy statement/prospectus, as well as other filings containing
information about First Union and Wachovia, at the SEC's Internet site
(http://www.sec.gov). Copies of the joint proxy statement/prospectus and the SEC
filings that have been or will be incorporated by reference in the joint proxy
statement/prospectus can also be obtained, without charge, by directing a
request to First Union, Investor Relations, One First Union Center, Charlotte,
North Carolina 28288-0206 (704-374-6782), or to Wachovia, Investor Relations,
100 North Main Street, Winston-Salem, North Carolina 27150 (888-492-6397).
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