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Five analysts and top management from twenty-five sector firms examine the eastern regional banks sector in this special 127-page Eastern Regional Banks issue from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info481.htm.

TWST: To what extent are these companies seeing a meaningful increase in bad loans and credit card debt, and which companies have been most affected to date?

Ms. Thompson: Asset quality is still deteriorating across the board for the whole group. Most of the pressure to date has come from commercial lending portfolios. The large corporate syndicated loans were the first to show signs of cracking in late 2000. Last year commercial middle-market loan portfolios, particularly in the Midwest, saw a significant amount of pressure. Consumer asset quality has held up better than I think anyone expected, and I have reason to hope the commercial credit quality has seen its worst days, but we’re not out of the woods yet. I think that non-performing assets will continue to rise for most of the banks through the first half of 2002 and net charge-offs are unlikely to peak until the second half of the year.

TWST: For the most part, because of their asset and liability mix, do the super-regionals tend to benefit from falling interest rates or from flat or rising rates?

Ms. Thompson: Most of the names in the super-regional group are liability sensitive, which means that they tend to benefit when interest rates decline. Right now we’re at the point where, if we haven’t seen the last of interest rate decreases, we’re close to it. So I’m not looking for a lot more net interest margin expansion due to lower interest rates — at least for the banks that remain liability sensitive. However, some banks have started to reposition their balance sheets to become more asset sensitive, which means they would benefit from rising rates.

TWST: How are you factoring this into your outlook for 2002?

Ms. Thompson: Because we’re still in the middle of a recession, I’m assuming that interest rates are not going to start to head up until the latter half of this year at the earliest. So the net interest margin should remain relatively flat on average through most of 2002. We could see upward bias to the margin for banks with high loan-to-deposit ratios, as they are more reliant on more expensive funding, but for the most part, net interest margins should remain relatively flat for the group in the near term.

TWST: Are there any companies that you believe that investors should really stay away from over the next six months?

Ms. Thompson: One company that I remain concerned about because of valuation is Bank One (NYSE:ONE). I just think that the stock has gotten a little ahead of itself. In my opinion, CEO Jamie Dimon has done a good job since taking over the helm in 2000, particularly in terms of cutting expenses, improving credit quality, and better positioning the company for growth in the future. That said, I think it’s still going to take some time before significant parts of its business, such as First USA and commercial lending, are positioned to deliver consistent, high-quality, core revenue and earnings growth. So I think Bank One is heading in the right direction, but with the stock trading at a premium to the peer group, I think it’s is fully valued at current levels.

TWST: Jennifer, in conclusion, what would your overall message be to investors who are looking at the bank stocks for 2002, particularly at the super-regionals?

Ms. Thompson: My message is that investors need to be selective among the names. It’s still a difficult operating environment with potential downside risk to the estimates due to credit cost, so it is important to focus on the companies that have sufficient balance sheet strength to sustain them through the difficult economic times and the revenue-generating capacity to grow at healthy rates over the longer term.

This special issue includes:

1) Eastern Regional Banks - In an in-depth (13,500 words) Analyst Roundtable, Nancy A. Bush, Managing Director at Ryan Beck & Co., Gerard S. Cassidy, Managing Director of Equity Research at RBC Capital Markets and Christopher Marinac, Managing Director at SunTrust Robinson Humphrey, examine the outlook for the sector including stock performance in 2001, regulatory outlook and share specific stock recommendations.

2) Super-Regional Banks - In an in-depth (4,100 words) Analyst Interview, Jennifer A. Thompson, Analyst at Putnam Lovell Securities, Inc., examines the outlook for the sector including and shares specific stock recommendations.

3) Eastern Banks - In an in-depth (3,100 words) Analyst Interview, Jacqueline Reeves, Managing Director at Putnam Lovell Securities, Inc., examines the outlook for the sector including and shares specific stock recommendations.

4) The TWST confidential Off-The-Record survey of management performance of nineteen sector firms asked market insiders about the ability of management teams to create shareholder value.

5) CEO interviews (average 2,500 words). Top management of twenty-five sector firms examine the outlook for their firm and the sector.