[LOGO OF FIRST UNION]
Repositioning for the Future
Presentation by
Ken Thompson
President and Chief Executive Officer
June 26, 2000
<PAGE>
Cautionary Statement [LOGO OF FIRST UNION]
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A number of statements we will be making in our presentation and in the
accompanying slides will be "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995, such as statements of the
Corporation's plans, goals, objectives, expectations, projections, targets,
estimates and intentions. These forward-looking statements involve significant
risks and uncertainties and are subject to change based on various factors (many
of which are beyond the Corporation's control).
Factors that could cause the Corporation's actual results to differ materially
from such forward-looking statements are set forth in the Corporation's most
recent Annual Report on Form 10-K, Current Reports on Form 8-K including its
Current Report on Form 8-K, dated June 26, 2000, and Quarterly Reports on Form
10-Q.
In addition to the foregoing, a significant portion of the financial information
presented has not been prepared based on GAAP and is derived from internal
management reporting sources.
<PAGE>
Overview [LOGO OF FIRST UNION]
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o 2Q 2000 earnings
o Restructuring program
o Vision and strategy
o New approach toward managing for growth
<PAGE>
2Q 2000 Earnings [LOGO OF FIRST UNION]
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Factors Affecting 2Q 2000 Earnings
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External
o Interest Rates
o Capital Markets
o Loan Losses
Internal
o The Money Store
o Auto Finance
2Q 2000 Estimated EPS
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$0.72 - $0.74 Total EPS
o $0.63 - $0.65 o Core Businesses
- Capital Management
- General Bank
- Capital Markets
o $0.09 o Balance Sheet
Strategies
<PAGE>
Core Businesses Targeted to
Generate Attractive Growth [LOGO OF FIRST UNION]
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Net Income
"Normalized" 3-5 year growth rate targets
from core businesses
Capital
Management 15%+ >>> Corporate
>>> Target EPS
General Bank 4 to 6% >>> growth rate of
>>> 10-12%
Capital Markets 12 to 15%
<PAGE>
Comprehensive Strategic Review [LOGO OF FIRST UNION]
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Lines of business closely examined over six months
o Restructuring program involves dispositions of various businesses and
assets
o One-time net restructuring and other charges of an estimated $2.8 billion
after tax, of which an estimated $1.8 billion after tax is non-cash*
o Divestitures estimated to "free-up" almost $1 billion in net capital
deployed toward growth investments or share repurchases
o Company will have a sharper focus and a stronger growth platform
* Net of an estimated $1 billion in gains from sale of non-core businesses.
<PAGE>
Strict Evaluation Criteria Governed
Decision-Making [LOGO OF FIRST UNION]
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Evaluation Criteria
1. Core vs. non-core businesses
2. Scale vs. non-scale
3. Net income growth potential
4. Risk-adjusted return on capital
5. Impact on credit and market risk
6. Improvement of product economics and product choice
<PAGE>
Focus on Core Advantages Led to
Resource Reallocation [LOGO OF FIRST UNION]
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Business Restructured Strategy
The Money Store o Discontinue retail subprime
origination
o Retain servicing of loans and
securitized assets
o Servicing operation becomes First
Union's home equity loan service
center
Mortgage o Sell mortgage servicing portfolio and
platform
o Market third party product for
servicing release premium
Credit Card o Sell loans and operations
o Market third party product for
referral fee
Non-Strategic Branches o Sell branches in areas where we lack
critical mass and growth potential
Other Non-Core Business o Streamline and downsize businesses
Lines where we lack scale and growth
potential (some processing
businesses, public finance, etc.)
Loan Portfolio o Sell nonperforming and poorly
performing loans
Securities o Sell various securities
<PAGE>
Estimated After Tax
Restructuring and Other Charges [LOGO OF FIRST UNION]
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<TABLE>
<CAPTION>
$ Millions
Non-cash Reserves Cash
charges established charges Cash gains Total
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<S> <C> <C> <C> <C>
The Money Store $(1,777) $(620) $ (189) $ $(2,586)
First Union Mortgage (86) (86)
Corporation
Credit card (98) (98)
Sale of securities (412) (412)
Improve risk profile (362) (362)
Sale of businesses 987 987
Other (198) (198)
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Total $(1,777) $(982) $ (983) $ 987 $(2,755)*
=============================================================
</TABLE>
* Includes net restructuring charges of $2,061 and other charges of $694.
Management's current estimates.
<PAGE>
Improved Risk Profile [LOGO OF FIRST UNION]
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o Quality of net income Improved
o Growth rate for net income Improved
o Credit risk Improved
o Liquidity risk Improved
o Interest rate risk Improved
o Operational risk Improved
o Capital ratios
- Holding company Well capitalized
- Bank Well capitalized
<PAGE>
Improved Credit Quality [LOGO OF FIRST UNION]
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o Lowered risk in loan portfolio
- Money Store production halted, increased reserves for existing
portfolio
- Health care NPAs and additional poorly performing loans divested
- Credit cards sold
- Reserves supplemented by additional provision of $260 million
o Improved coverage ratios
Estimated
Ratios 1Q00 2Q00
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Allowance/Loans 1.30% 1.33%
Allowance/NPAs 139% 201%
NPAs/Loans 0.93% 0.66%
2Q00 includes the impact of the restructuring program.
<PAGE>
Restructuring Frees Up Capital [LOGO OF FIRST UNION]
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Additional shares
available for repurchase >>>>> 30-35 million
if all "freed up" capital >>>>> shares
were used for share
repurchase
<PAGE>
Looking Ahead: A New Focus [LOGO OF FIRST UNION]
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Old First Union >>> Restructuring New First Union >>>
and New Focus
o Rapid growth through >>> o Expand share of customer wallet
acquisition >>> o Grow market share across
franchise
o Product orientation >>> o Focus on customer relationships
in distinct segments
o Emphasis on self-manufactured >>> o Sell more third party products
products
o Reliance on balance sheet >>> o Focus on "core" businesses to
strategies >>> generate higher earnings growth
o Investments focused on >>> o Disciplined and focused
achieving scale >>> investment in growth businesses
>>> o Strict measures for deploying
>>> capital
<PAGE>
Competitive Advantages Provide
Platform for Growth [LOGO OF FIRST UNION]
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<TABLE>
<CAPTION>
Integrated Integrated
Retail Wholesale
Capital << Customer >> General Bank << Customer >> Capital Markets
Management Strategy Strategy
<S> <C> <C> <C> <C>
o 6th largest o No. 1 deposit o Middle-market,
national share on East growth company
broker-dealer Coast orientation
with 7,000
registered o 15 million o Strong
reps* customers in relationships with
attractive 2,700 corporate
o 20th largest markets clients
mutual fund
complex with o Integrated, o Strong and rapidly
42 four- and multi-channel growing principal
five-star distribution investing group
funds network ($3.3 billion
committed)
o 4th largest
personal trust o Broad product line
provider (No. 2 middle market
M&A; No. 1 middle
market derivatives;
No. 5 leveraged loan
syndications)
</TABLE>
*Pending First Albany acquisition.
<PAGE>
Targeted Customer Segments
Offer Huge Growth Opportunity [LOGO OF FIRST UNION]
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<TABLE>
<CAPTION>
Target Segments Strategic Thrusts
<S> <C> <C> <C>
Significant >>>>> High Net Worth o Served by Private
Opportunity Income-producing Capital Management Group
assets >$1MM o National trust/estate
planning services
Footprint o Additional trust/estate
o 36-38% of all high net planning experts
worth and affluent ----------------------------------------------------------
households >>>>> Affluent o Attractive credit and
o 28% of small businesses Income-producing investment products
assets >$250,000 o Market leading online
Current banking/brokerage
Penetration o Referrals to Capital
o Relationships with Management Group
18-25% of target segments >>>>> ----------------------------------------------------------
o 6-8% share of footprint Emerging Affluent o Packaged financial
deposits; 5-7% share of Income-producing solutions
investable assets assets >$75,000 o Cross-selling at all
customer touch points
>>>>> ----------------------------------------------------------
Small Business o Aggregate personal and
Small Business business banking and
Owners investments
o 400 Business Financing
Centers
o Additional Relationship
Managers
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</TABLE>
<PAGE>
Capital Markets Will Focus Its
Growth Efforts [LOGO OF FIRST UNION]
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Reallocate >>>>> o Expenses will not grow as quickly
Resources >>>>>
o Expense reductions to fund growth areas
o Reduce capital commitment
Strategic >>>>> o Leverage off Principal Investing and Private
Focus >>>>> Equity Group coverage
o Focus on middle-market growth companies
o Industry-aligned corporate and investment banking
teams
Discipined >>>>> o Expand Principal Investing
Investments >>>>>
o Further develop New Economy activities
o Introduce selective new products
<PAGE>
Core Businesses Targeted to
Generate Attractive Growth [LOGO OF FIRST UNION]
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Net Income
"Normalized" 3-5 year growth rate targets
from core businesses
Capital Management 15%+ >>>>>
Corporate
General Bank 4 to 6% >>>>> Target EPS
growth rate of
Capital Markets 12 to 15% >>>>> 10-12%
<PAGE>
Core Businesses Expected to
Perform Well [LOGO OF FIRST UNION]
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Return on Equity
"Normalized" 3-5 year targets
from core businesses
Capital Management 40 to 45% >>>>> Corporate
Target
General Bank 18 to 20% >>>>> ROE of
19-21%
Capital Markets 15 to 25% >>>>>
<PAGE>
Business Mix Will Shift Considerably [LOGO OF FIRST UNION]
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Estimated share of net income from core businesses*
(Two pie charts appear here with the following plot points.)
Today "Normalized" over
3-5 Years
Capital >>>>>
Markets Capital
40% Markets
35-40%
Capital >>>>>
Management Capital
20% Management
30-35%
General Bank Loans >>>>>
and Deposits General Bank Loans
40% and Deposits
25-30%
* Excludes earnings from balance sheet strategies.
<PAGE>
A New and Talented
Leadership Team [LOGO OF FIRST UNION]
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Role Appointed
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Ken Thompson President and CEO 2000
Bob Atwood Chief Financial Officer 1991
(Retiring - search underway)
Rob Nimmo Chief Risk Officer 2000
Mark Treanor General Counsel 1999
Tom Wurtz Treasurer 1999
Don McMullen Head, Capital Management Group 1995
Ben Jenkins Head, General Banking Group 1999
Barnes Hauptfuhrer Co-head, Capital Markets Group 2000
Steve Cummings Co-head, Capital Markets Group 2000
David Carroll Head, eCommerce 1999
<PAGE>
Enhanced Financial Discipline [LOGO OF FIRST UNION]
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o RAROC and EVA metrics for investment decisions
o More focused and disciplined approach to acquisitions
o Explicit charge for use of balance sheet
o Re-engineered internal reporting system
o Key managers will be held accountable
<PAGE>
The New First Union [LOGO OF FIRST UNION]
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o Strong franchise with a powerful distribution network and an attractive
customer base
o Scale achieved in critical growth areas, especially lucrative Capital
Management business
o Restructuring plan and strategy designed to create
- Higher earnings growth
- Better quality earnings
- Better use of capital
- Improved risk profile
- Improved credit quality
