-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TTnG4zAGcfiYMVXJS/6qfuyba6YcgpHuq0WntbgHna0GZxjNltZpSrcfdu3X1Kno c8ZAhwROurd9pH0+KH5t9w== 0000950144-96-001190.txt : 19960327 0000950144-96-001190.hdr.sgml : 19960327 ACCESSION NUMBER: 0000950144-96-001190 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960326 SROS: BSE SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WACHOVIA CORP/ NC CENTRAL INDEX KEY: 0000774203 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 561473727 STATE OF INCORPORATION: NC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-09021 FILM NUMBER: 96538611 BUSINESS ADDRESS: STREET 1: 301 NORTH MAIN ST CITY: WINSTON SALEM STATE: NC ZIP: 27150 BUSINESS PHONE: 9197705000 MAIL ADDRESS: STREET 1: 301 NORTH MAIN ST CITY: WINSTON SALEM STATE: NC ZIP: 27150 FORMER COMPANY: FORMER CONFORMED NAME: FIRST WACHOVIA CORP DATE OF NAME CHANGE: 19910603 10-K405 1 WACHOVIA CORP. 10-K405 1 1995 FORM 10-K - ------------------------------------------------------------------------------- United States Securities and Exchange Commission Washington, DC 20549 Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Fiscal Year Ended December 31, 1995 Commission File Number 1-9021 WACHOVIA CORPORATION Incorporated in the State of North Carolina IRS Employer Identification Number 56-1473727 Address and Telephone: 100 North Main Street, Winston-Salem, North Carolina 27101, (910) 770-5000 191 Peachtree Street NE, Atlanta, Georgia 30303, (404) 332-5000 Securities registered pursuant to Section 12(b) of the Act: Common Stock -- $5.00 par value, which is registered on the New York Stock Exchange. As of February 6, 1996, Wachovia Corporation had 169,612,091 shares of common stock outstanding. The aggregate market value of Wachovia Corporation common stock held by nonaffiliates on February 6, 1996 was approximately $7.629 billion and the number of shares held by nonaffiliates was 169,524,175. Wachovia Corporation has (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Indicate by check mark if disclosure of delinquent filers pursuant to item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Wachovia Corporation's Proxy Statement for its 1996 Annual Shareholders' Meeting, which will be filed with the Commission by April 30, 1996 are incorporated by reference into Part III of this report. Portions of the annual report to shareholders for the year ended December 31, 1995 are incorporated by reference into Parts I and II as indicated in the table below. Except for parts of the Wachovia Corporation Annual Report expressly incorporated herein by reference, this Annual Report is not to be deemed filed with the Securities and Exchange Commission. PART I PAGE Item 1 Business Description of Business....... 3, 14-42, 72-74 Subsidiaries of Wachovia Corporation............................... 2 Average Balance Sheets/ Interest/Rates.............. 64-65, 68-69, 70 Volume and Rate Variance Analysis .................... 17, 40 Securities........................... 19, 50-51 Loans........................ 18, 26, 51-52, 71 Allowance for Loan Losses and Loan Loss Experience.......... 27, 28, 40 Deposits................. 20-21, 24, 64-65, 70 Return on Equity and Assets ................ 70 Short-Term Borrowed Funds .................. 24 Item 2 Properties.................................... 2 Item 3 Legal Proceedings............................. 58 Item 4 Submission of Matters to a Vote of Security Holders -- None PART II Item 5 Market for Registrant's Common Equity and Related Stockholder Matters ..................... 72-73 Item 6 Selected Financial Data................ 66-67, 71 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations............................ 14-42 Item 8 Financial Statements and Supplementary Data....................... 35-63 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure -- None PART III Item 10 Directors and Executive Officers of the Registrant..... Proxy Statement Item 11 Executive Compensation........... Proxy Statement Item 12 Security Ownership of Certain Beneficial Owners and Management................. Proxy Statement Item 13 Certain Relationships and Related Transactions....... Proxy Statement PART IV Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K .............................. 3, 7-11 2 SUBSIDIARIES OF WACHOVIA CORPORATION The following table sets forth the subsidiaries of Wachovia Corporation on December 31, 1995. The common stock of each of these subsidiaries is 100 percent owned by its parent. The financial statements of all subsidiaries are included in the consolidated statements of Wachovia Corporation and subsidiaries. Organized under the laws of the state of: Wachovia Bank of North Carolina, N.A. the United States Wachovia International Banking Corporation the United States* Wachovia Leasing Corporation North Carolina Wachovia Auto Leasing Company of North Carolina North Carolina Wachovia Insurance Services of North Carolina, Inc. North Carolina Greenville Agricultural Credit Corporation North Carolina City Loans, Inc. North Carolina WOC Company North Carolina Wachovia Bank of Georgia, N.A. the United States First Bank Building Corporation Georgia First Atlanta Services Corporation Delaware Wachovia Auto Leasing Company of Georgia Georgia WMCS, Inc. Georgia Wachovia Bank of South Carolina, N.A. the United States Wachovia Insurance Services of South Carolina, Inc. South Carolina First National Properties, Inc. South Carolina South Carolina National OREO, Inc. South Carolina Southern Provident Life Insurance Company Arizona Atlantic Savings Bank, FSB the United States Atlantic Mortgage Corporation of South Carolina, Inc. South Carolina Wachovia Mortgage Company North Carolina New Salem, Inc. North Carolina Wachovia Investments, Inc. North Carolina Wachovia Corporate Services, Inc. North Carolina Wachovia Operational Services Corporation North Carolina Wachovia Trust Services, Inc. North Carolina The First National Bank of Atlanta (Delaware) the United States Wachovia Bank Card Services, Inc. Delaware First Atlanta Corporation Georgia FA Investment Company Georgia Financial Life Insurance Company of Georgia Georgia The Wachovia Insurance Agency of Georgia, Inc. Georgia FAIRCO Properties, Inc. Georgia First Atlanta Lease Liquidating Corporation Georgia Wachovia Corporation of Florida Florida Wachovia Corporation of Alabama Alabama Wachovia Corporation of Tennessee Tennessee Wachovia Capital Markets, Inc. Georgia * Organized under Chapter 25(a) of the Federal Reserve Act of the United States PROPERTIES The principal offices of the Corporation and Wachovia Bank of North Carolina, N.A., are located at 100 North Main Street, Winston-Salem, North Carolina, where the company owns and occupies approximately 535,000 square feet of office space. Wachovia Bank of Georgia, N.A., occupies approximately 380,000 square feet of an office tower at 191 Peachtree Street, N.E., Atlanta, Georgia, under a lease expiring December 2008. Wachovia Bank of South Carolina, N.A., occupies approximately 12,000 square feet of office space in the Palmetto Center at 1426 Main Street, Columbia, South Carolina, under a lease expiring November 2003. The table on page 3 lists the number of banking offices. The Corporation's banking subsidiaries own in fee 339 offices while the others are leased or are located on leased land. The approximate lease terms range from one to fifty years on these properties. In addition, the Corporation's banking subsidiaries own in fee or lease a number of multistory office buildings which house supporting services. Other subsidiaries of the Corporation maintain leased office space in cities in which they conduct their respective operations. 2 3 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K Exhibits -- The index of exhibits has been filed as separate pages of the 1995 Form 10-K. Copies of the exhibit list or of Exhibits are available upon request to: Corporate Reporting, Wachovia Corporation, P.O. Box 3099, Winston-Salem, North Carolina 27150. A copying fee will be charged for the Exhibits. Financial Statement Schedules -- Omitted due to inapplicability or because the required information is shown in the Financial Statements or the Notes thereto. Reports on Form 8-K: A Current Report on Form 8-K dated October 3, 1995 was filed with the Securities and Exchange Commission setting forth the computation of Ratios of Earnings to Fixed Charges to be incorporated into Wachovia Corporation's Registration Statement on Form S-3 (Registration No. 33-55839). SIGNATURES Pursuant to the requirements to Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 13, 1996. WACHOVIA CORPORATION ROBERT S. McCOY, JR. - -------------------- Robert S. McCoy, Jr. Executive Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on March 13, 1996. L.M. BAKER, JR. - --------------- L.M. Baker, Jr. President and Chief Executive Officer ROBERT S. McCOY, JR. - -------------------- Robert S. McCoy, Jr. Executive Vice President and Chief Financial Officer JOHN C. McLEAN, JR. - ------------------- John C. McLean, Jr. Comptroller The Directors of Wachovia Corporation (listed below) have executed a power of attorney appointing Kenneth W. McAllister, their attorney-in-fact, empowering him to sign this report on their behalf: John G. Medlin, Jr. Donald R. Hughes Rufus C. Barkley, Jr. E. Kenneth Iverson Crandall C. Bowles James W. Johnston John L. Clendenin Wyndham Robertson Lawrence M. Gressette, Jr. Herman J. Russell Thomas K. Hearn, Jr. Sherwood H. Smith, Jr. W. Hayne Hipp Charles McKenzie Taylor Robert M. Holder, Jr. KENNETH W. McALLISTER --------------------- Kenneth W. McAllister Attorney-in-Fact 3 4 PART III ITEM 10. Directors and Executive Officers of the Registrant - ------------------------------------------------------------ The names, ages and positions of the executive officers of Wachovia as of January 31, 1996 are shown below along with their business experience during the past five years and the year of their employment with Wachovia and subsidiaries. Officers are elected annually by the Board of Directors and hold office for one year or until their successors are chosen and qualified. There are no family relationships between any of them, nor is there any arrangement or understanding between any officer and any other person pursuant to which the officer was selected. Name, Age Business Experience During Past and Position Five Years and Year Employed - ------------ ---------------------------- L. M. Baker, Jr., 53 Chief Executive Officer of Wachovia President and Chief Corporation since January 1994; Executive Officer Wachovia President of Wachovia Corporation Corporation; Chairman of since 1993; Chief Operating Officer of the Board Wachovia Bank Wachovia Corporation, February - of North Carolina, N.A.; December 1993; Executive Vice Director of Wachovia President of Wachovia Corporation Corporation, Wachovia Bank until January 1993; President and of Georgia, N.A., and Chief Executive Officer of Wachovia Wachovia Bank of South Corporation of North Carolina, January Carolina, N.A. 1990 - March 1993; President and Chief Executive Officer of Wachovia Bank of North Carolina, N.A., January 1990 - May 1993; Executive Vice President of Wachovia Corporation of North Carolina until December 1989; Executive Vice President of Wachovia Bank of North Carolina, N.A. until December 1989. Employed in 1969. Mickey W. Dry, 56 Executive Vice President and Chief Credit Executive Vice President Officer of Wachovia Corporation since and Chief Credit Officer November 1989; Executive Vice President of Wachovia Corporation; Wachovia Bank of North Carolina, N.A. Executive Vice President since October 1989; Senior Vice President/ Wachovia Bank of North Group Executive of Wachovia Bank of North Carolina, N.A. Carolina, N.A. until 1989. Employed in 1961. Hugh M. Durden, 52 Executive Vice President of Wachovia Executive Vice President Corporation since 1994; President of Wachovia Corporation, Wachovia Corporate Services, Inc. since Wachovia Bank of North July 1994; President of Wachovia Trust Carolina, N.A., President Services, Inc. January-June 1994; Wachovia Corporate Services, Executive Vice President of Wachovia Inc. Bank of North Carolina, N.A.; Western Division Executive, Wachovia Bank of North Carolina, N.A., 1991-1994; Regional Vice President, Southern Region, Wachovia Bank of North Carolina, N.A., 1989-1991. Employed in 1972. 4 5 Item 10. Directors and Executive Officers of the Registrant (Continued) - ----------------------------------------------------------------------- Name, Age Business Experience During Past and Position Five Years and Year Employed - ------------ ---------------------------- W. Doug King, 57 Executive Vice President of Wachovia Executive Vice President Corporation since July 1994; Senior Wachovia Corporation Vice President of Wachovia Corporation, October 1992 - July 1994. President of Wachovia Bank of South Carolina, N.A., January 1992- October 1992; Vice Chairman of Wachovia Bank of South Carolina, N.A., September 1990 - January 1992. Employed in 1963. Walter E. Leonard, Jr. 50 Executive Vice President of Wachovia Executive Vice President Corporation since October 1988; Wachovia Corporation, Executive Vice President of Wachovia Wachovia Bank of Georgia, Bank of Georgia, N.A.; President of N.A.; President Wachovia Wachovia Operational Services Corporation. Operational Services Employed in 1965. Corporation Kenneth W. McAllister, 47 Executive Vice President of Wachovia Executive Vice President Corporation since January 1994; General and General Counsel Counsel of Wachovia Corporation; Wachovia Corporation Secretary of Wachovia Corporation until October 1992. Employed in 1988. Robert S. McCoy, Jr., 57 Executive Vice President of Wachovia Executive Vice President and Corporation since January 1992; Chief Chief Financial Officer Financial Officer of Wachovia Corporation Wachovia Corporation since September 1992; Comptroller of Wachovia Corporation, January 1992 - August 1992; President of South Carolina National Corporation until 1992; Vice Chairman and Chief Financial Officer of Wachovia Bank of South Carolina, N.A., 1990 - 1992; Executive Vice President and Chief Financial Officer of Wachovia Bank of South Carolina, N.A., until 1990. Employed in 1984. John C. McLean, Jr., 47 Comptroller of Wachovia Corporation since Comptroller July 1993; Senior Vice President of Wachovia Bank of North Carolina, N.A. from April 1990 - July 1993. Employed in 1975. 5 6 Item 10. Directors and Executive Officers of the Registrant (Continued) - ----------------------------------------------------------------------- Name, Age Business Experience DuringPast and Position Five Years and Year Employed - ------------ ---------------------------- G. Joseph Prendergast, 50 Executive Vice President of Wachovia Executive Vice President Corporation since October 1988; Wachovia Corporation; Chairman of Wachovia Bank of Georgia, Chairman Wachovia Bank of N.A. since January 1994; Chairman Georgia, N.A. and Wachovia of Wachovia Bank of South Carolina, Bank of South Carolina, N.A.; N.A. since July 1995. President and Director Wachovia Bank Chief Executive Officer of Wachovia of Georgia, N.A., Wachovia Bank of Georgia, N.A. January 1993- Bank of North Carolina, N.A., January 1995; President and Chief and Wachovia Bank of South Executive Officer of Wachovia Carolina, N.A. Corporate Services, Inc. until July 1994; President and Chief Executive Officer of Wachovia Corporation of Georgia, January 1993- March 1993; Executive Vice President of Wachovia Bank of Georgia, N.A., 1989-1993; Executive Vice President of Wachovia Bank of North Carolina, N.A. until 1989. Employed in 1973. Richard B. Roberts, 52 Executive Vice President and Executive Vice President and Treasurer of Wachovia Corporation Treasurer Wachovia since April 1990; Executive Vice Corporation; Executive Vice President of Wachovia Bank of President Wachovia Bank of North Carolina, N.A. North Carolina, N.A. Employed in 1967. During the past five years, there have been no events under any bankruptcy act, no criminal proceedings and no judgments or injunctions material to an evaluation of the ability or integrity of any of Wachovia's executive officers, directors, or any persons nominated to become directors. 6 7 PART IV Item 14. Exhibits - ------------------ 3.1 Amended and Restated Articles of Incorporation of the registrant (Exhibit 3.1 to Report on Form 10-K of Wachovia Corporation for the fiscal year ended December 31, 1993, File No. 1-9021*). 3.2 Bylaws of the registrant as amended (Exhibit 3.2 to Quarterly Report on Form 10-Q of Wachovia Corporation for the quarter ended June 30, 1995, File No. 1-9021*). 4.1 Articles IV, VII, IX, X and XI of the registrant's Amended and Restated Articles of Incorporation (Included in Exhibit 3.1 hereto). 4.2 Article 1, Section 1.8, and Article 6 of the registrant's Bylaws (included in Exhibit 3.2 hereto). 4.3 Indenture dated as of May 15, 1986 between South Carolina National Corporation and Morgan Guaranty Trust Company of New York, as Trustee, relating to $35,000,000 principal amount of 6 1/2% Convertible Subordinated Debentures due in 2001 (Exhibit 28 to S-3 Registration Statement of South Carolina National Corporation, File No. 33-7710*). 4.4 First Supplemental Indenture dated as of November 26, 1991 by and among South Carolina National Corporation, Wachovia Corporation and Morgan Guaranty Trust Company of New York, as Trustee, amending the Indenture described in Exhibit 4.3 hereto (Exhibit 4.10 to Report on Form 10-K of Wachovia Corporation for the fiscal year ended December 31, 1991, File No. 1-9021*). 4.5 Indenture dated as of March 15, 1991 between South Carolina National Corporation and Bankers Trust Company, as Trustee, relating to certain unsecured subordinated securities (Exhibit 4(a) to S-3 Registration Statement of South Carolina National Corporation, File No. 33-39754*). 4.6 First Supplemental Indenture dated as of January 24, 1992 by and among South Carolina National Corporation, Wachovia Corporation and Bankers Trust Company, as Trustee, amending the Indenture described in Exhibit 4.5 hereto (Exhibit 4.12 to Report on Form 10-K of Wachovia Corporation for the fiscal year ended December 31, 1991, File No. 1-9021*). 4.7 Indenture dated as of August 22, 1989 between First Wachovia Corporation and The Philadelphia National Bank, as Trustee, relating to $300,000,000 principal amount of subordinated debt securities (Exhibit 4(c) to S-3 (Shelf) Registration Statement of First Wachovia Corporation, File No. 33-30721*). 4.8 First Supplemental Indenture, dated as of September 15, 1992 between Wachovia Corporation and CoreStates Bank, National Association, as Trustee, amending the Indenture described in Exhibit 4.7 hereto (Exhibit 4(d) to Report on Form 8 of Wachovia Corporation, filed on October 15, 1992, File No. 1-9021*). 7 8 Item 14. Exhibits (Continued) - ------------------------------ 4.9 Indenture dated as of March 1, 1993 between Wachovia Corporation and CoreStates Bank, National Association, as Trustee, relating to subordinated debt securities (Exhibit 4(a) to S-3 (Shelf) Registration Statement of Wachovia Corporation, File No. 33-59206*). 10.1 Deferred Compensation Plan of Wachovia Bank of North Carolina, N.A. (Exhibit 10.1 to Report on Form 10-K of Wachovia Corporation for the fiscal year ended December 31,1992, File No. 1-9021*). 10.2 1983 Amendment to Deferred Compensation Plan described in Exhibit 10.1 hereto (Exhibit 10.2 to Report on Form 10-K of Wachovia Corporation for the fiscal year ended December 31, 1992, File No. 1-9021*). 10.3 1986 Amendment to Deferred Compensation Plan described in Exhibit 10.1 hereto (Exhibit 10.9 to Report on Form 10-K of First Wachovia Corporation for the fiscal year ended December 31, 1986, File No. 1-9021*). 10.4 1983 Senior Management Stock Option Plan of Wachovia Corporation (Exhibit 4.2 to Post-Effective Amendment No. 1 to S-4 Registration Statement No. 2-99538*). 10.5 Stock Option and Stock Appreciation Rights Plan of Wachovia Corporation (Exhibit 4.3 to Post-Effective Amendment No. l to S-4 Registration Statement No. 2-99538*). 10.6 1986 Senior Management Stock Option Plan of Wachovia Corporation (Exhibit 10.20 to Report on Form 10-K of First Wachovia Corporation for the fiscal year ended December 31, 1986, File No. 1-9021*). 10.7 1987 Declaration of Amendment to 1986 Senior Management Stock Option Plan described in Exhibit 10.6 hereto (Exhibit 10.21 to Report on Form 10-K of First Wachovia Corporation for the fiscal year ended December 31, 1986, File No. 1-9021*). 10.8 Senior Management Incentive Plan of Wachovia Corporation as amended through April 22, 1994 (Exhibit 10.2 to Quarterly Report on Form 10-Q of Wachovia Corporation for the quarter ended March 31, 1994, File No. 1-9021*). 10.9 Retirement Savings and Profit-Sharing Benefit Equalization Plan of Wachovia Corporation (Exhibit 10.3 to Quarterly Report on Form 10-Q Wachovia Corporation for the quarter ended June 30, 1995, File No. 1-9021*). 10.10 Employment Agreements between Wachovia Corporation and Messrs. L. M. Baker, Jr., Robert S. McCoy, Jr., G. Joseph Prendergast, Hugh M. Durden and Walter E. Leonard, Jr. (Exhibit 10.17 to Report on Form 10-K of First Wachovia Corporation for the fiscal year ended December 31, 1987, File No. 1-9021*). 10.11 Amendment to Employment Agreements described in Exhibit 10.10 hereto (Exhibit 10.14 to Report on Form 10-K of First Wachovia Corporation for the fiscal year ended December 31, 1990, File No. 1-9021*). 8 9 Item 14. Exhibits (Continued) - ------------------------------ 10.12 Agreement between Wachovia Corporation and Mr. John G. Medlin, Jr. (Exhibit 10.16 to Report on Form 10-K of Wachovia Corporation for the fiscal year ended December 31, 1993, File No. 1-9021*). 10.13 Amendment to Agreement between Wachovia Corporation and Mr. John G. Medlin, Jr. described in Exhibit 10.12 hereto (Exhibit 10.4 to Quarterly Report on Form 10-Q of Wachovia Corporation for the quarter ended June 30, 1995, File No. 1-9021*). 10.14 Executive Retirement Agreement between Wachovia Corporation and Mr. John G. Medlin, Jr.(Exhibit 10.18 to Report on Form 10-K of First Wachovia Corporation for the fiscal year ended December 31, 1987, File No. 1-9021*). 10.15 Amendment to Executive Retirement Agreement described in Exhibit 10.14 hereto (Exhibit 10.17 to Report on Form 10-K of Wachovia Corporation for the fiscal year ended December 31, 1991, File No. 1-9021*). 10.16 Amendment to Executive Retirement Agreement between Wachovia Corporation and Mr. John G. Medlin, Jr. (Exhibit 10.3 to Quarterly Report on Form 10-Q of Wachovia Corporation for the quarter ended September 30, 1993, File 1-9021*). 10.17 Amendment to Executive Retirement Agreement between Wachovia Corporation and Mr. John G. Medlin, Jr. (Exhibit 10.4 to Quarterly Report on Form 10-Q of Wachovia Corporation for the quarter ended September 30, 1993, File No. 1-9021*). 10.18 Executive Retirement Agreements between Wachovia Corporation and Messrs. L.M. Baker, Jr., G. Joseph Prendergast, Walter E. Leonard, Jr., and Hugh M. Durden, dated as of January 27, 1995 (Exhibit 10.1 to Quarterly Report on Form 10-Q of Wachovia Corporation for the quarter ended June 30, 1995, File No. 1-9021*). 10.19 Executive Retirement Agreement between Wachovia Corporation and Mr. Robert S. McCoy, Jr. (Exhibit 10.2 to Quarterly Report on Form 10-Q of Wachovia Corporation for the quarter ended June 30, 1995, File No. 1-9021*). 10.20 Senior Management and Director Stock Plan of Wachovia Corporation (Exhibit 10 to Quarterly Report on Form 10-Q of First Wachovia Corporation for the quarter ended March 31, 1989, File No. 1-9021*). 10.21 1990 Declaration of Amendment to Senior Management and Director Stock Plan as described in Exhibit 10.20 hereto (Exhibit 10.17 to Report on Form 10-K of First Wachovia Corporation for fiscal year ended December 31, 1989, File No. 1-9021*). 10.22 Deferred Compensation Plan for the Board of Directors of Wachovia Corporation (Exhibit 10.19 to Report on Form 10-K of First Wachovia Corporation for the fiscal year ended December 31, 1990, File No. 1-9021*). 10.23 Retirement Pay Plan for Directors of Wachovia Corporation (Exhibit 10.21 to Report on Form 10-K of First Wachovia Corporation for the fiscal year ended December 31, 1990, File No. 1-9021*). 10.24 Management Restricted Stock Award Plan of South Carolina National Corporation, as amended (Exhibit 10(b) to Report on Form 10-K of South Carolina National Corporation for the fiscal year ended December 31, 1990, File No. 0-7042*). 9 10 Item 14. Exhibits (Continued) - ------------------------------ 10.25 Amendment to Management Restricted Stock Award Plan described in Exhibit 10.24 hereto (Exhibit 10.1 to Quarterly Report on Form 10-Q of Wachovia Corporation for the quarter ended September 30, 1993, File No. 1-9021*). 10.26 Incentive Stock Option Plan of South Carolina National Corporation, as amended (Exhibit 10(c) to Report on Form 10-K of South Carolina National Corporation for the fiscal year ended December 31, 1990, File No. 0-7042*). 10.27 Amendment to Incentive Stock Option Plan described in Exhibit 10.26 hereto (Exhibit 10.2 to Quarterly Report on Form 10-Q of Wachovia Corporation for the quarter ended September 30, 1993, File No. 1-9021*). 10.28 Deferred Compensation Plan dated as of January 19, 1987, as amended (Exhibit 10(c) to Report on Form 10-K of South Carolina National Corporation for the fiscal year ended December 31, 1986, File No. 0-7042*). 10.29 Amendment to Deferred Compensation Plan described in Exhibit 10.28 hereto (Exhibit 19(b) to Quarterly Report on Form 10-Q of South Carolina National Corporation for the quarter ended September 30, 1987, File No. 0-7042*). 10.30 Amendment to Deferred Compensation Plan described in Exhibit 10.28 hereto (Exhibit 10(d) to Report on Form 10-K of South Carolina National Corporation for the fiscal year ended December 31, 1988, File No. 0-7042*). 10.31 Amendment to Deferred Compensation Plan described in Exhibit 10.28 hereto (Exhibit 10.35 to Report on Form 10-K of Wachovia Corporation for the fiscal year ended December 31, 1993, File No. 1-9021*). 10.32 Agreement for Deferral of Directors' Fees (Exhibit 10(b) to S-14 Registration Statement of South Carolina National Corporation, No. 2-89011*). 10.33 Amendment to Agreement for Deferral of Directors' Fees described in Exhibit 10.32 hereto (Exhibit 10.39 to Report on Form 10-K of Wachovia Corporation for the fiscal year ended December 31, 1991, File No. 1-9021*). 10.34 Wachovia Corporation Stock Plan (Exhibit 4.1 to S-8 Registration Statement No. 033-53325*). 10.35 Wachovia Corporation Incentive Plan Deferral Arrangement. 10.36 Wachovia Corporation Executive Insurance Plan. 10.37 Form 11-K of the Wachovia Corporation Retirement Savings and Profit-Sharing Plan, to be filed as an amendment to Form 10-K for the year ended December 31, 1995. 11 Computation of Earnings Per Share (Note O to 1995 Consolidated Financial Statements of Wachovia Corporation and Subsidiaries, page 61 of 1995 Annual Report to Shareholders*). 13 Wachovia Corporation 1995 Annual Report to Shareholders, with the Report of Independent Auditors therein being manually signed in one copy by Ernst & Young LLP. (Except for those portions thereof which are expressly incorporated by reference herein, this report is not "filed" as a part of this Report on Form 10-K). 10 11 Item 14. Exhibits (Continued) - ------------------------------ 21 Subsidiaries of the Registrant (listed under "Subsidiaries of Wachovia Corporation" and included on page 2 of Report on Form 10-K for the fiscal year ended December 31, 1995*). 23 Consent of Ernst & Young LLP. 24 Power of Attorney. 27 Financial Data Schedule (for SEC purposes only). * Incorporated by reference. 11 EX-10.35 2 INCENTIVE PLAN DEFERRAL AGREEMENT 1 EXHIBIT 10.35 WACHOVIA CORPORATION INCENTIVE PLAN DEFERRAL ARRANGEMENT PREAMBLE Pursuant to the terms of an Incentive Plan as hereinafter defined, a select group of management employees of Wachovia Corporation (the "Corporation") and its affiliates may become eligible to receive incentive compensation. The Corporation desires to permit each such employee to elect to defer receipt of a portion of such incentive compensation, if deferral is deemed by such employee to be desirable. NOW, THEREFORE, the Corporation hereby adopts this Wachovia Corporation Incentive Plan Deferral Arrangement (the "Plan") as follows: ARTICLE I -- DEFINITIONS 1.1 "Account" means the book-entry account established by the Corporation for each Participant as described in Article IV. 1.2 "Committee" means the Management Resources and Compensation Committee of the Board of Directors of the Corporation, or any successor thereto. The Committee is responsible for the administration and interpretation of the Plan in accordance with its terms, and its determinations shall be binding and conclusive on all persons affected thereby. 1.3 "Deferred Compensation" means the portion of a Participant's award (if any) under an Incentive Plan that is deferred pursuant to the Plan. 1.4 "Deferring Participant" means, with respect to any Plan Year, an Eligible Employee who files the election described in Article III. 1.5 "Effective Date" means July 1, 1995. An election made by a Deferring Participant prior to the Effective Date to defer compensation under an Incentive Plan shall remain in effect following the Effective Date until terminated by the Deferring Participant as provided in Article III. Any reference in such prior election to a deferral arrangement under an Incentive Plan shall be deemed as of the Effective Date to refer to this Plan. 1.6 "Eligible Employee" means an employee who complies with the eligibility criteria in Article II. 1.7 "Incentive Plan" means any one or more of the Wachovia Corporation Senior Management Incentive Plan, the Wachovia Corporation Bond and Money Market Group Variable Compensation Plan, the Trust Investment Management Incentive Plan, the South Carolina National Corporation Executive Incentive Compensation Plan, and any other similar incentive compensation arrangement as may be adopted or amended by the Committee and which permits deferral of compensation pursuant to this Plan. 1.8 "Participant" means any present or Deferring Participant who has a balance in his or her Account under the Plan. 2 1.9 "Plan Year" means the twelve-month period ending on December 31 of each year, commencing with December 31, 1995. ARTICLE II -- ELIGIBILITY Any management employee of the Corporation or any of its affiliates who is potentially eligible to receive a payment under an Incentive Plan for any calendar year is an Eligible Employee for the Plan year coinciding with such calendar year. ARTICLE III -- ELECTION TO DEFER INCENTIVE COMPENSATION Any Eligible Employee with respect to any Plan Year may become a Deferring Participant for such Plan Year by filing an election to defer receipt of a percentage (not to exceed 50%) of the incentive pay, if any, earned by him for such Plan Year under an Incentive Plan. Such election shall be filed in writing with the Committee on a form provided by the Committee prior to the first day of the Plan Year for which such election is to be effective. An election, once filed, shall continue in effect until the first day of the Plan Year next following receipt by the Committee of a written revocation of such election, or until the Deferring Participant's earlier termination of employment or termination of participation in an Incentive Plan. No amount shall be deferred with respect to any Eligible Employee for any Plan Year for which there is no election in effect, and no election for any Plan Year may be revoked after the beginning of such Plan Year. The amount of the incentive pay which can be deferred for any Plan Year pursuant to the Plan shall not be less than $1,000. If the amount to be deferred pursuant to any election for a Plan Year shall be less than $1,000, such election shall be null and void and of no force and effect. An Eligible Employee who has revoked an election to defer may file a new election for any Plan Year (including the first Plan Year for which such election would have been effective) at any time prior to such Plan Year. ARTICLE IV -- ACCOUNTS 4.1 The Committee shall establish an Account for each Deferring Participant to which shall be credited Deferred Compensation hereunder and amounts equivalent to interest as provided in Section 4.2, and to which shall be debited all distributions pursuant to Article V. Amounts of Deferred Compensation shall be credited to the Account of a Deferring Participant as of the date that such amounts would have been paid to the Deferring Participant were it not for the deferral. 4.2 As of the last day of each calendar month (including after payments commence as provided in Article V), there shall be credited to the Account of each Participant an amount equivalent to interest at the rate determined as of such last day pursuant to Exhibit A. Such rate shall be applied to the average daily balance in the Account for such month. ARTICLE V -- DISTRIBUTION OF ACCOUNTS A Participant's Account shall be paid in cash 180 substantially equal consecutive monthly installments on the first day of each calendar month commencing with the month next following the Participant's termination of employment for any reason; provided, that the Participant may - 2 - 3 elect prior to the date the Participant terminates employment, with the consent of the Committee, for the Participant's Account to be distributed in a lump sum or in substantially equal consecutive monthly installments for a period of less than 180 months. ARTICLE VI -- DEATH 6.1 Each Participant may designate a beneficiary (which may include more than one person, natural or otherwise, and one or more secondary or contingent beneficiaries) to receive the amount in the Account, if any, following death of the Participant. In the event that a Participant shall die without any designated beneficiary surviving or then in existence, the beneficiary shall be the Participant's surviving spouse, if any. If there shall be no surviving spouse, the beneficiary shall be the Participant's estate. 6.2 If a Participant shall die while employed by the Corporation, the Corporation shall distribute the Account to the Participant's beneficiary in cash in 180 substantially equal consecutive monthly installments on the first day of each calendar month commencing with the month next following the Participant's death; provided, that the Committee may, with the consent of the beneficiary, distribute the Participant's Account in a lump sum or in a lesser number of consecutive monthly installments than would have been made to the Participant. 6.3 If a Participant shall die while receiving payments pursuant to Article V, but before receiving all such payments to which he is entitled, the Account will continue to be distributed to the Participant's beneficiary in the same manner as such payments would have been made to the Participant. 6.4 If a beneficiary shall commence receiving payments hereunder, and shall die or otherwise cease to exist before receiving distribution of the full amount in the Account, the then amount in the Account shall be paid as soon as practicable in a lump sum to the person or persons then in existence who would receive the property of the Participant under the intestate succession laws then in effect in the state in which the Participant was a resident at the time of death. ARTICLE VII -- ASSIGNMENT No rights of a Participant or any other person in the Account or to the payment of benefits hereunder shall be assigned, transferred, pledged or encumbered, except for transfers on account of death of the recipient thereof. ARTICLE VIII -- NO TRUST; UNSECURED INTEREST Nothing contained in the Plan and no action taken pursuant to the provisions of the Plan shall create or be construed as creating a trust of any kind, or a fiduciary relationship between the Corporation and any Participant or other person. Any funds which are or may be set aside under the provisions of the Plan shall continue for all purposes to be a part of the general funds of the Corporation and no person other than the Corporation shall, by virtue of the provisions of the Plan, have any interest in such funds. To the extent that any person acquires a right to - 3 - 4 receive payments from the Corporation under the Plan, such rights shall be no greater than the right of any unsecured general creditor of the Corporation. ARTICLE IX -- FACILITY OF PAYMENT Notwithstanding any other provisions hereof, if a Participant or any other person entitled to receive payments under the Plan shall be physically or mentally or legally incapable of receiving or acknowledging receipt of any benefit payable hereunder, the Corporation, upon the receipt of satisfactory evidence that another person or institution is maintaining the recipient and that no guardian or committee has been appointed for the recipient, may cause such benefit otherwise payable to the recipient to be made to such person or institution so maintaining the recipient. ARTICLE X -- CLAIMS PROCEDURE In the event any Participant or other person shall file a claim for payments hereunder which shall be denied by the Corporation, the Corporation shall comply with the claims procedure set forth in Section 503 of the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations thereunder. The Committee shall act as the named fiduciary responsible for review of any decision denying a claim. ARTICLE XI -- AMENDMENT; TERMINATION The Committee may amend the Plan from time to time in any respect, or may terminate the Plan, except that no amendment or termination shall affect rights to payments hereunder with respect to any Participant to the extent of amounts in the Account of the Participant, unless the Participant shall consent thereto in writing. ARTICLE XII -- MISCELLANEOUS 12.1 Neither this Plan, nor any action of the Corporation or Committee, or any election hereunder, shall be held or construed to confer on any person any legal right to be continued as an employee of the Corporation or of any affiliate of the Corporation. 12.2 The Corporation shall deduct from any amounts payable under the Plan all payroll taxes and withholdings as may be required by law. 12.3 The provisions of the Plan shall be construed and enforced according to the laws of the State of North Carolina. - 4 - 5 EXHIBIT A WACHOVIA CORPORATION INCENTIVE PLAN DEFERRAL ARRANGEMENT COMPUTATION OF AMOUNTS EQUIVALENT TO INTEREST --------------------------------------------- With respect to each calendar month during which a deferred compensation account balance exists, the Long-Term Applicable Federal Rate for the month shall be the rate used to compute the amount equivalent to interest credited for the month. The computed equivalent to interest shall be equal to the Long-Term Applicable Federal Rate for the month applied to the average daily balance in the account for the month multiplied by a ratio, the numerator of which is the number of days in the month and the denominator of which is the number of days in the year. LONG-TERM APPLICABLE FEDERAL RATE --------------------------------- The Long-Term Applicable Federal Rate shall be the rate as defined by Internal Revenue Code Section 1274(d) which is published each month in a Revenue Ruling issued by the Internal Revenue Service. The Long-Term Applicable Federal Rate is determined monthly by the Internal Revenue Service on the basis of the average market yield on outstanding marketable long-term obligations of the United States. EX-10.36 3 EXECUTIVE INSURANCE PLAN 1 EXHIBIT 10.36 WACHOVIA CORPORATION EXECUTIVE INSURANCE PLAN GENERAL OVERVIEW o The purpose of the Executive Insurance Plan is to provide permanent life insurance coverage more commensurate with the pay levels of the eligible executives. o Eligible executives who elect to participate under the Executive Insurance Plan will be afforded with an individual universal life insurance policy currently issued by New York Life Insurance Company. The amount of pre-retirement coverage provided to an executive who participates under the plan will be based on the base pay of the individual as indicated on the accompanying schedule. The amount of post-retirement coverage paid for by Wachovia will equal 25% of the amount of pre-retirement coverage, with the exception of the coverage for the Chief Executive Officer, which will be 50%. o The executive may elect additional post-retirement coverage in increments of 25% of pre-retirement coverage at his/her expense. This election may be made at any time, but will be available on a guaranteed issue basis only if the post-retirement coverage does not exceed the pre-retirement coverage. o Eligible executives who elect to participate in the plan will be provided with $50,000 life insurance coverage under the Choice Benefits Plan and be provided with Choice credits to purchase the $50,000 worth of coverage. If an executive chooses not to participate, then his/her participation with respect to life insurance under the Choice Benefits Plan will continue as before. Should an individual decline to participate, he/she will only be able to join the plan at the next enrollment date, which may occur as frequent as annually, and may be subject to some underwriting requirements. SPECIFIC INFORMATION o ELIGIBILITY - Executives whose base pay rate equals or exceeds $100,000 for the first time will be presented for eligibility consideration to the Management Resources and Compensation Committee (the "Committee") periodically for confirmation. It is anticipated that this periodic review will occur annually, but the Committee reserves the right to request less frequent updates. - Executives who are offered participation and elect to participate would be eligible to participate effective the first of the next calendar year. At that time, the executive's term life insurance coverage under the Choice Benefits Plan would be reduced to $50,000 along with a corresponding reduction in Choice credits. The Committee reserves the right to permit an earlier effective date for participation under the plan; however, any changes to Choice Benefits Plan participation must occur as of the beginning of the next calendar year. - If an executive declines to participate, his/her Choice Benefits life insurance coverage will continue unchanged. If at a future time the executive wishes to participate, he/she will have to wait until the next enrollment opportunity. 2 o COVERAGE - Pursuant to the attached schedule, executives who elect to participate under the Executive Insurance Plan will be afforded a fixed dollar amount of pre-retirement coverage predicated on the current base pay rate. In addition, Wachovia will provide for 25% of this pre-retirement coverage as a post-retirement death benefit within the policy. - The executive may elect to purchase additional post-retirement coverage, on a guaranteed issue basis, in increments of 25% of pre-retirement coverage provided the post-retirement coverage does not exceed the pre-retirement coverage. Also, the executive may elect additional pre-retirement coverage subject to the underwriting requirements of the policy. Any additional coverage elected by the participant will be at his/her expense. - If an executive's base pay would warrant the movement into a category with a higher amount of coverage, such a change would be considered at the next enrollment opportunity, but only with the confirmation of the Committee. - For executives who are provided coverage within the Category I indicated on the attached, an additional option exists to reconfigure the policy death benefit into a death benefit payable on a joint and last survivor basis provided the level of premiums payable by Wachovia on behalf of the executive remains the same. o PREMIUM PAYMENTS - Wachovia is scheduled to pay premiums on behalf of the executive for the amount of coverage indicated on the attached schedule. These annual premiums would be payable while the executive is employed by Wachovia and are scheduled to be payable until the executive reaches insurance age 62 or for at least 10 years if the executive is older than insurance age 53. - The scheduled coverage and corresponding premiums are based on the assumption of retirement at age 62. If the executive retires prior to that time, he/she would be responsible for the payment of premiums at the same level for the same amount of coverage as illustrated or could lower the premiums corresponding to a reduction in coverage. If the executive works beyond age 62, additional premiums may be necessary to continue the same pre-retirement level of coverage. -The premium amounts are also predicated on conservative illustrations of future policy performance. Should actual policy performance be worse than that illustrated, the premiums, which are scheduled to vanish after insurance age 62 or 10 policy years (if longer), may not in fact vanish. Wachovia has currently made no commitment to pay additional premiums beyond those illustrated should actual performance warrant additional premiums. However, the Committee reserves the right to consider the additional payment of premiums if circumstances warrant such consideration. -If an executive leaves Wachovia, he/she will be responsible for the ongoing payment of premiums. Wachovia's commitment will cease at that time. However, the Committee reserves the right to consider the payment of premiums for individuals who retire (under the provision of the Wachovia Corporation Retirement Income Plan), prior to insurance age 62 or 10 policy years, if longer. -All premiums paid by Wachovia will be considered as taxable income, and as such, will be subject to withholding throughout the executive's tax year. The premiums associated with any additional coverage elected by the executive can be paid on a payroll deduction basis. 3 o POLICY OWNERSHIP - The executive will be the owner of the policy and may select any beneficiary he/she chooses. - As a result of this ownership, the executive may exercise all options afforded him/her under the policy, inclusive of a policy loan or withdrawal. - However, if any action taken by the executive causes the policy to be suspended or terminated due to failure to pay any additional premiums due, failure to pay any interest on a policy loan or withdrawal of too much cash value (which will cause the policy to violate its cash value requirements to be deemed life insurance), Wachovia reserves the right to suspend or cease its premium payments. o UNDERWRITING - The plan, as designed, is configured for guaranteed issue on a unisex, smoker distinct basis. Provided the executive's elections remain within the confines of the plan design, guaranteed issue will be available. If the executive wishes to increase pre-retirement coverage, the underwriting requirements of the policy would need to be satisfied. - However, if an executive declines coverage and later wishes to participate, it is possible that guaranteed issue may not be available and some underwriting may be required. If any additional cost is incurred, as a result of such circumstances, Wachovia reserves the right to only pay for the cost of the policy on a guaranteed issue basis. o LIBERTY LIFE COVERAGE - Any executive, who becomes eligible to participate in the Executive Insurance Plan and who also has a Liberty Life Insurance Company policy paid for by Wachovia, will only be able to participate in the Executive Insurance Plan if he/she elects to relinquish Wachovia from the continued payment of premiums. - A variety of options exist on behalf of the Liberty Life policy, including the executive's continued payment of the full or a reduced premium amount, the cashing-in of the policy, the conversion to a lesser death benefit within the policy whose premium is illustrated to vanish, or the tax-free exchange with the New York Life policy. o PLAN CHANGES - The commmittee reserves the right to amend, modify or terminate the commitment by Wachovia to continue payment of premiums as described above with at least 30 days notice to the affected participants. Effective Date - June 1, 1995. EX-13 4 1995 ANNUAL REPORT 1 EXHIBIT 13 - ---------------------------------------------------------------------- 1995 ANNUAL REPORT AND FORM 10-K WACHOVIA - ---------------------------------------------------------------------- 2 CONTENTS - ---------------------------------------------------------------------- Financial Highlights ............................... 2 Wachovia Corporation ............................... 3 Selected Year-End Data ............................. 3 Letter to Shareholders ............................. 4 Wachovia Corporation Strategic Review - An Update .. 6 Management's Discussion and Analysis of Financial Condition and Results of Operations .. 14 Results of Operations -- 1995 vs. 1994 ............ 15 Shareholders' Equity and Capital Ratios ........... 32 Fourth Quarter Analysis ........................... 35 Results of Operations -- 1994 vs. 1993 ............ 39 Supervision and Regulation ......................... 41 Management's Responsibility for Financial Reporting. 43 Report of Independent Auditors ..................... 43 Financial Statements ............................... 44 Six-Year Financial Summaries ....................... 64 Stock Data ......................................... 72 Historical Comparative Data ........................ 74 Member Company Directors ........................... 75 Wachovia Corporation Directors and Officers ........ 76 Shareholder Information ............................ 77
1 3 FINANCIAL HIGHLIGHTS - ------------------------------------------------------------------------------------------------------
Percent 1995 1994 Change ------- -------- -------- EARNINGS AND DIVIDENDS (thousands, except per share data) Net income .................................................. $602,543 $539,058 11.8 Cash dividends paid on common stock ......................... 235,495 210,503 11.9 Payout ratio (total cash dividends / net income) ............ 39.1% 39.1% Net income per common share: Primary .................................................... $ 3.50 $ 3.13 11.9 Fully diluted .............................................. $ 3.49 $ 3.12 11.7 Cash dividends paid per common share ........................ $ 1.38 $ 1.23 12.2 Average primary shares outstanding .......................... 172,089 172,339 (.1) Average fully diluted shares outstanding .................... 172,957 172,951 -- Return on average assets* ................................... 1.45% 1.46% Return on average shareholders' equity* ..................... 17.67 17.41 Excluding average unrealized gains (losses) on securities available-for-sale, net of tax: Return on average assets ................................... 1.45 1.46 Return on average shareholders' equity .................... 17.78 17.37 BALANCE SHEET DATA AT YEAR-END (millions, except per share data) Total assets ................................................ $ 44,981 $ 39,188 14.8 Interest-earning assets ..................................... 40,001 34,712 15.2 Loans -- net of unearned income ............................. 29,261 25,891 13.0 Deposits .................................................... 26,369 23,069 14.3 Interest-bearing liabilities ................................ 34,001 29,485 15.3 Shareholders' equity** ...................................... 3,774 3,287 14.8 Shareholders' equity to total assets ........................ 8.39% 8.39% Risk-based capital ratios: Tier I capital ............................................. 9.43 9.26 Total capital .............................................. 13.64 12.73 Per share: Book value ................................................. $ 22.15 $ 19.23 15.2 Common stock closing price (NYSE) .......................... 45.75 32.25 41.9 Price/earnings ratio ....................................... 13.1x 10.3x *Includes average unrealized gains (losses) on securities available-for-sale of $21 million and ($8) million net of tax, respectively **Includes unrealized gains (losses) on securities available-for-sale of $116 million and ($38) million net of tax, respectively
2 4 WACHOVIA CORPORATION - ------------------------------------------------------------------------------ Wachovia Corporation (Wachovia or the Corporation) is a southeastern interstate bank holding company maintaining dual headquarters in Atlanta, Georgia, and Winston-Salem, North Carolina. Principal banking subsidiaries are Wachovia Bank of Georgia, N.A., Atlanta; Wachovia Bank of North Carolina, N.A., Winston-Salem; and Wachovia Bank of South Carolina, N.A., Columbia. The First National Bank of Atlanta and Wachovia Bank Card Services, Inc., in Wilmington, Delaware, provide credit card services for Wachovia's affiliated banks. Page 76 provides a complete listing of the Corporation's subsidiaries and member companies. Major corporate and institutional relationships are managed by Wachovia Corporate Services, Inc., through banking offices in Georgia, North Carolina and South Carolina and through representative offices in Chicago, London, New York City and Tokyo. The Corporation maintains foreign branches at Grand Cayman through its banking subsidiaries and an Edge Act subsidiary in New York City. Wachovia Trust Services, Inc., provides fiduciary, investment management and related financial services for corporate, institutional and individual clients. Discount brokerage and investment advisory services are provided by Wachovia Investments, Inc., to customers primarily in Georgia, North Carolina and South Carolina. Wachovia Operational Services Corporation provides information processing and systems development for Wachovia's subsidiaries. The Corporation is involved in other financial services activities including residential mortgage origination, state and local government securities underwriting, sales and trading, foreign exchange, corporate finance and other money market services. SELECTED YEAR-END DATA - -----------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 ------- ------- ------- ------- ------- ------- Trust assets (millions): Discretionary management ............... $20,226 $17,084 $17,950 $16,147 $14,302 $12,777 Total ................................... $90,144 $78,972 $92,287 $85,806 $78,214 $68,423 Banking offices: North Carolina .......................... 219 216 223 222 224 222 Georgia ................................. 124 127 129 134 135 142 South Carolina .......................... 146 150 157 158 160 153 --- --- --- --- --- --- Total ................................ 489 493 509 514 519 517 === === === === === === Automated banking machines: North Carolina ......................... 328 297 251 221 210 200 Georgia ................................ 204 189 180 173 164 162 South Carolina ......................... 180 166 167 164 163 156 --- --- --- --- --- --- Total ................................ 712 652 598 558 537 518 === === === === === === Employees (full time equivalent) .......... 15,996 15,602 15,531 16,164 16,886 16,864 Common stock shareholders ................. 28,027 28,779 28,079 26,706 29,806 28,195 Common shares outstanding (thousands) ..... 170,359 170,934 171,376 171,471 85,323 84,276
3 5 LETTER TO SHAREHOLDERS - -------------------------------------------------------------------------------- Dear Wachovia Shareholder: Wachovia completed a very productive year in 1995, achieving good earnings growth while moving forward with the implementation of major strategic initiatives. Net income per fully diluted share was $3.49, up 11.7 percent from $3.12 in 1994. Net income totaled $602.5 million compared with $539.1 million, a gain of 11.8 percent. Strong loan expansion and good growth in other operating revenue, particularly from more nontraditional sources, accounted for the earnings increase. A higher credit loss provision and a rise in noninterest expense tempered the results. Profitability remained strong with returns of 17.7 percent on shareholders' equity and 1.45 percent on assets compared with longer-term five-year averages of 15.6 percent and 1.29 percent, respectively. The total return on Wachovia common stock, including price appreciation and reinvested dividends, was 47.1 percent for the year compared with 60.2 percent for the Keefe, Bruyette & Woods Index of 50 money center and regional banks and 37.6 percent for the S&P 500 Index. The results for 1995 and the corporation's financial condition at year-end compare most favorably with other banking peers. Return on common shareholders' equity ranked seventh among the nation's 25 largest bank holding companies. Return on assets was sixth although the corporation ranked 20th in asset size at December 31. Average common equity to assets of 8.22 percent was fifth strongest among the top 25 banking companies. At year-end, nonperforming assets of .24 percent of loans and foreclosed property represented the lowest level of problem assets among this peer group, while the corporation had the second strongest reserve coverage of nonperforming loans at 763 percent. Expense management remained excellent with an overhead cost ratio of 54.2 percent, second best among these large banking companies. Graphs depicting several comparative measures for Wachovia and industry peers since 1990 are on page 74 of this report. The banking industry's financial condition improved during the first half of this decade. A nicely growing economy, favorable interest rates and a healthier credit cycle were the principal factors elevating results of other banks closer to Wachovia's traditional long-term performance. Conditions for the financial services industry in the remainder of the decade will be more challenging. The economy is likely to be slower growing. Traditional and nontraditional banking competition will be more intense. Profitability pressures will be evident as loan growth moderates, margins remain under pressure, easy expense savings have been achieved, loan losses rise and technology investing becomes more strategically critical. Despite these complexities, excellent opportunities exist for good companies in this business to succeed and generate high performance over time. Addressing the reality of the financial services marketplace, Wachovia's management conducted an unrestrained strategic assessment of the corporation. The findings of this comprehensive review were outlined in the 1994 Annual Report. A considerable portion of my time and that of other managers during 1995 was spent with groups of employees across our franchise. These sessions were designed to heighten understanding of the need for change, solicit comments and suggestions, express appreciation for the extra effort required by Wachovians and encourage dedicated implementation of these initiatives. I met with thousands of employees and was impressed by how well they are embracing these changes. Past investments are producing dividends as evidenced by our stronger sales force, broader product inventory and robust technology. Business volumes are increasing and revenue sources are becoming more diversified. I encourage you to read the "Strategic Review - An Update" beginning on page 6 which profiles some of the progress made so far. More changes will occur as investment spending and organizational refinements continue at a deliberate pace. The convergence of environmental forces and the resulting impact on banking performance has been a major impetus for recent banking consolidation. Wachovia remains open to mergers with or acquisitions of other banks. Mergers 4 6 in 1985 with First Atlanta and in 1991 with South Carolina National created a stronger franchise and demonstrated the corporation's commitment to seek combinations which contribute to solid long-term performance. Wachovia will continue to look for opportunities which enhance business growth and build shareholder value over time. Additional information about Wachovia's merger, acquisition and alliance strategy is included in the special section following this letter. During 1995, Wachovia continued to be a dependable partner with the communities it is privileged to serve. Mortgage lending providing affordable housing for low income and minority customers grew, substantial contributions were made for community economic development and educational improvement, and thousands of Wachovians served as volunteers in nonprofit organizations. I was particularly pleased that all Wachovia subsidiaries subject to the Community Reinvestment Act of 1977 received "outstanding" ratings, the highest available from federal regulators. As 1996 got under way, the economy's rate of growth continued to moderate. In this environment, Wachovia is fortunate to have the three southeastern states of Georgia, North Carolina and South Carolina as our primary market. The states' combined population totals 17.8 million and has been growing faster than both the nation and southeast as a whole. Other economic measures such as personal income, retail sales, residential building and corporate investment compare exceptionally well with other states and regions. Wachovia's market penetration in these states is complemented by our attractive national book of business principally in corporate banking services. As Wachovia moves ahead, we will not lose sight of the foundation for past accomplishments. There is in our organization an unwavering dedication to the time-honored priorities of being a sound, profitable and growing organization. In today's difficult earnings climate, banks can little afford to hamper performance as a result of poor credit risk management, unanticipated risks associated with operations or unbridled expense growth. As we enter 1996, the challenges confronting banking and financial services providers remain great. However, for strong institutions with a clear vision of the future, aggressive strategies and ample resources, the future is bright. Wachovia is committed to maintaining and building shareholder value in the challenging environment which lies ahead. Your continued confidence and support are appreciated. Sincerely, /s/ L. M. Baker, Jr. - ----------------------- (PICTURE) L. M. Baker, Jr. Chief Executive Officer February 21, 1996 5 7 - ------------------------------------------------------------------------------- (PICTURE - ARTIST'S SKETCH OF WACHOVIA CENTER) WACHOVIA CORPORATION STRATEGIC REVIEW AN UPDATE 6 8 - -------------------------------------------------------------------------------- During 1995, Wachovia moved forward with a major strengthening of the organization based on the findings of a strategic assessment conducted in 1994. Management teams have been implementing actions in five critical and interrelated areas designed to build shareholder value. These areas are: - - Raising Wachovia's effectiveness as a growth culture which includes selling products and services through a variety of traditional and nontraditional delivery channels - - Redirecting technology investment to support sales and service efforts - - More effectively managing key lines of businesses to achieve profitable growth - - Using mergers, acquisitions and alliances to complement business development strategies - - Assessing and managing the prudent use of capital This process is designed to take what has been an historically successful organization and make it even more effective. Significant progress has been made and this section presents a summary of the major developments. Initiatives moving Wachovia's growth culture to a higher level were well under way during 1995 in the General Banking and Corporate Services divisions. General Banking is responsible for a strategic direction for Wachovia's banks and coordination of consumer market products including investment services and personal trust activities. The Corporate Services Division manages, sells and delivers all credit and noncredit corporate banking services in addition to corporate trust, employee benefit and charitable trust services. The primary marketing and service distribution channel for the consumer market has been the branch network. Careful customer analysis demonstrates that Wachovia's customer base is more upscale than might be expected for a traditional branch distribution system. This reflects the effectiveness of Wachovia's relationship-based Personal Banker program. Introduced in 1973, it has served Wachovia well, continues to be fine-tuned and future strategies will include significant leveraging of this resource. PROFITABLE CUSTOMER SEGMENTS The analysis also indicated the major product offerings sold to each meaningful customer segment through branches currently are profitable. This is true despite earnings challenges branches have faced with the onset of deposit deregulation in the early 1980s. This knowledge suggests product line development and distribution initiatives can be accomplished at Wachovia without severe pressure to prematurely dismantle the existing delivery system. The branch system is undergoing tremendous change. A branch standardization project spanning 18 months resulted in the redeployment of about 700 positions. Most of these were assigned more profitably in card services, investment sales and telephone banking. Surveys indicate the standardization project was completed without sacrificing customer service. The year-end network of 489 banking offices was down from its peak of 519 at the end of 1991. An in-depth analysis of Wachovia's markets is under way to develop specific recommendations for each city's optimum distribution network. The review is expected to be completed in 1996. An experiment in March 1995 showed how effectively Plans for the construction of Wachovia Corporation's North Carolina headquarters building in Winston-Salem were announced in July 1992. - -------------------------------------------------------------------------------- 7 9 - -------------------------------------------------------------------------------- customers can be served in a downsized network as long as they perceive real value. On a Saturday, 200 branches were opened, about 41 percent of the three-state total, for a special one-day sale on 10-month and three-year CDs. Additionally, the Wachovia Premiere money market account was actively promoted. It was a successful marketing event, demonstrating the power of Wachovia's franchise. More than $1 billion in CDs was generated, 86 percent of which was new money. About 77,000 accounts were opened, 28,000 of which represented new relationships. The Premiere account enjoyed strong growth during 1995 with deposits totaling $3 billion at December 31, 1995. SALES FORCE INCREASED In addition to branch-based bankers, Wachovia has been expanding its consumer sales force throughout the three states. During 1995, Wachovia increased the number of investment counselors deployed in its primary markets to 150, up from 115 at the end of 1994. These Series 7 registered representatives sell a full range of investment products and handled sales volume in excess of $2 billion during the year. Net assets of one of their major product lines, Wachovia's Biltmore family of 15 mutual funds, grew to $2.9 billion from $2.2 billion at the end of 1994. Investment counselors, who employ a needs-oriented sales strategy, are equipped with laptop personal computers. Additionally, a telephone-based sales and service delivery channel for investment services, Wachovia Investor Center, was opened in Columbia, South Carolina. With the consolidation of investment counselors, Wachovia Brokerage and personal trust services into one area known as Personal Financial Services, Wachovia is fully organized to focus on increasing its share of the affluent market. Wachovia has approximately 165 mortgage loan originators who handled 13,000 home mortgage loans totaling about $1.3 billion in 1995. Wachovia Mortgage Origination System (WMOS), the corporation's automated mortgage application system introduced in late 1994, is delivered through laptop personal computers. The system has been enhanced to accommodate FHA and VA loans in addition to conventional loans. The increased functionality of WMOS strengthens the mortgage bankers' ability to provide a broad range of mortgage loan financing options and meet with customers and prospects where they want to be served. Sales Finance, the area responsible for Wachovia's participation in indirect automobile and consumer goods financing, had a very productive year. During 1995, Sales Finance received and made credit decisions on about a quarter of a million loan applications. Loans purchased increased 19 percent from the year-earlier volume in an automobile financing market which grew only moderately. It has completed the consolidation of all contract buying offices into one center at Greenville, North Carolina, where 28 credit managers do buying for the three states. Sales management activity is conducted by 36 territory managers. Sales Finance celebrated its 50th anniversary in 1995. At December 31, it was doing business with more than 1,000 active dealers, primarily located in North Carolina, South Carolina and Georgia with approximately 275,000 active consumer loans and leases totaling $2.5 billion. Wachovia's consumer market is growing nationally through the continued attractiveness of Bank Card Services' competitively priced Visa(R) and MasterCard(R) - -------------------------------------------------------------------------------- 8 10 - -------------------------------------------------------------------------------- CONSUMER MARKET GROWING credit cards. At the end of 1995, the number of active accounts totaled 1.8 million, an increase of 7.2 percent, and managed loans outstanding reached $4.5 billion, up 11 percent from a year earlier. Approximately 61 percent of the accounts and 66 percent of loans were to customers outside the corporation's three home states. During 1995, Bank Card Services added a no annual fee product to its low rate product line, further enhancing consumer value. Also, a commercial card division was established to support the offering of business, purchasing and travel and entertainment cards for corporate customers broadening Wachovia's cash management product line. In the fourth quarter of 1995, $500 million of credit card loans were removed from the corporation's balance sheet and sold to investors through a securitization. With this activity, Wachovia creates additional funding diversification to support increased loan growth. Information about this program is included in the Management's Discussion and Analysis of Financial Condition and Results of Operations. Excellent sales potential also exists among the 400,000 businesses in the three home states with revenues of $10 million or less. To help increase an approximately 25 percent penetration of this market, The Wachovia Business Choice Account(SM) was created and has been selling well. The product packages commonly used business services with optional features. Pricing is based on a point system which makes customer bank charges more predictable and easier to understand. To deliver even better marketing, servicing and productivity tools to bankers, Wachovia is investing $53 million in Next Generation Branch Automation (NGBA). It is the most significant technology investment in the branch system since the early 1980s when Wachovia introduced its first branch on-line information system. Three initial phases are involved. The first phase, completed in December, was the rollout of new hardware and a software enhancement on a six-branch per night basis. The initial software release is helping bankers streamline deposit account openings with electronically stored forms. Phase II focuses on loan processing, enabling 90 percent of consumer loans to be originated on line. This should shave 30 to 50 percent off the processing time required to make a loan. The system will help bankers make better lending decisions by evaluating and scoring many credit applications or by analyzing and summarizing debt ratios, disposable income and liquidity for complex loan requests. Loan processing documents will be maintained electronically, along with financial statements and credit procedures. The system is so effective at automating compliance with Wachovia's credit standards, customer sales representatives will open many credit services without referral to a banker, effectively increasing the sales force without adding staff. Deployment of this phase is expected to begin during the first half of 1996. NGBA's phase III will provide a comprehensive sales automation system organized around relationship information and customer needs. Bankers will work with customer-friendly sales screens, multimedia sales presentations, "what-if" product comparisons and an automated tickler file to follow up on future customer needs. The sales staff will be alerted to cross-sell opportunities through prompts suggesting possible product - -------------------------------------------------------------------------------- 9 11 - -------------------------------------------------------------------------------- needs based on an automated review of a customer's profile. Release dates for various components of this phase are expected to begin in late 1996. ALTERNATIVE CHANNELS EXPANDED Nontraditional channels for financial services also are being expanded. Wachovia On-Call(SM), reached by calling 1-800-WACHOVIA, is promising to become an important one. The 24-hour, 7-days-a-week telephone sales and service center is staffed by about 300 experienced bankers. It opened in June 1994 and handled more than 4 million calls in 1995. On-Call complements the automated Wachovia Phone Access(R) system, which accommodated an additional 17 million calls during 1995. As branch standardization was implemented in the three states, On-Call was helping to displace branch-based service delivery. However, the menu of products available through On-Call's telephone bankers is growing and includes loan origination and deposit account opening. Plans call for greater marketing of the telephone center in 1996 now that its functionality compares favorably with branch-based delivery. Wachovia On-Call's servicing proficiency also is giving branch-based bankers additional time to sell. Another successful alternative delivery strategy is the workplace deployment of ATMs. Out of 712 ATMs at the end of 1995, Wachovia had installed 104 in workplace sites for 84 corporate clients. This has encouraged the movement of customer relationships to Wachovia. With growing and relevant functionality, ATM deployment will become even more aggressive. Wachovia will participate with Visa in a stored-value card pilot program during the 1996 Summer Olympic Games in Atlanta. These cards can be used in place of cash at participating merchants and discarded when their value is depleted. Wachovia's long-term strategy for smart cards also includes the use of this technology with proprietary debit and credit cards to provide reloading capability for cards with a stored value feature. Wachovia is an investor in Security First Network Bank, which made history on October 18 by becoming the first bank to open on the Internet. Customers can balance checkbooks, get account information, view images of canceled checks and pay bills by computer. Through this investment, Wachovia can learn more about security issues regarding banking on the Internet and gauge customer acceptance of on-line banking. Wachovia employees also are helping to pilot a home banking product. Testing with a limited group of customers will occur before offering the service more widely. COMPREHENSIVE PRODUCT ARSENAL In the corporate market, Wachovia also has been aggressive in building sales through its relationship-based strategy. Corporate Services' arsenal of products, deployed by 1,450 Wachovians, is comprehensive and growing. For example, a major corporate banking capability is the integration of information delivery products so customers can receive extensive on-line information from Wachovia through a single electronic channel called Wachovia Connection(SM). This Microsoft Windows(TM)-based system is being strengthened to give access to document images and traditional cash management products on the same platform. Combined with improved electronic funds transfer capabilities, information and service delivery products will provide highly integrated, effective solutions accessed by large and small corporate customers through personal computers, phone, fax and e-mail. - -------------------------------------------------------------------------------- 10 12 - -------------------------------------------------------------------------------- In 1995, Wachovia introduced CD-ROM delivery of check images. This innovative product has been a major success with customers who find the Windows-based check archive service boosts efficiency and saves cost. On-line access to intramonth check images, as well as a number of other refinements, are expected during 1996 to make this attractive product more valuable to customers. A new wholesale lockbox system will enhance Treasury Services' receivable processing capabilities. The new system incorporates image technology and a reengineered work flow to improve service offerings quality and reduce costs. Customer conversion is under way and should be completed in late 1996. For two consecutive years, a nationally recognized cash management research organization has given Wachovia its highest rating in all facets of wholesale lockbox processing and ranked the corporation's overall treasury services number one in quality among banks. An expanded Capital Markets Division is offering a wide array of specialized corporate finance, international banking, financial institutions and foreign exchange services. During 1995, Wachovia bankers arranged structured leveraged lease transactions for municipalities as part of a growing leasing program. Wachovia is the leading bank distributor of small-issue variable rate demand bonds and has the largest foreign exchange trading room in the Southeast. To further bolster marketing and sales efforts and provide management with comprehensive and precise performance information, Wachovia is redirecting technology investments into three other critical initiatives. They are the $30 million Consolidated Customer Information File (CCIF), a $20 million new trust system and the $15 million Performance Measurement System. ROBUST CUSTOMER FILE Wachovia regularly has been improving a customer information file it introduced in the 1970s. Looking forward, it was evident that to gain full marketing and sales value a much different structure and a more robust engine was needed to help analyze and understand market segments. The assessment led to the development of the Consolidated Customer Information File. Good progress has been made in the design of massive relational data bases, high speed search approaches and data base content capability. This new system will provide critical information for market segmentation analysis and will be updated and available continuously for bankers. Real time information will allow each contact with Wachovia to be tailored to each customer based on all the institutional knowledge available. The prospects for this new capability are exciting. An important step toward developing CCIF and Next Generation Branch Automation was a "share of wallet" pilot project conducted in Cobb County, Georgia, a fast-growing market in north Atlanta. In this project, a manual review of customer wallet share information was correlated to likely product needs. Bankers then met with customers and through a relationship review process identified and sold appropriate services. Of the customers contacted, 82 percent agreed to a relationship review with 54 percent purchasing additional services. Wallet share for this group increased from 10 to 40 percent. These results confirmed the attractive revenue opportunities available from existing customers through improved automation, more focused marketing and sales and better use of information. Wachovia plans to mine its expanded customer data warehouse to better anticipate consumer demand - -------------------------------------------------------------------------------- 11 13 - -------------------------------------------------------------------------------- for financial services and maximize its effectiveness with targeted segments. The trust system project is designed to help Wachovia compete more effectively in wealth management as more Americans move into age groups which tend to save. Wachovia has been working with Financial Technologies, Inc., and a group of banks to develop a powerful system to better serve customers and prospects and the benefit plans offered by employers. Conversion is expected to begin in late 1996. PERFORMANCE MEASUREMENT ENHANCEMENT The corporate wide performance measurement system will provide enhanced customer, product and organization profitability information. This will assist business units and product managers in making effective decisions. Both financial and nonfinancial measures will be utilized to support new and changing strategies, delivery channels and customer trends. In addition, investments are being made in Wachovia's credit card technology platform. Advanced fraud detection and a new payment processing system have been installed and conversion to new software for basic accounting and reporting functions is planned. While Wachovia has an attractive business franchise, it will be alert for strategic acquisitions, alliances or combinations which broaden product capability, increase the scale of existing businesses, provide access to a larger base of customers and increase shareholder value. For example, in December, Wachovia announced strategic alliances involving its credit card and corporate trust operations. Wachovia Bank Card Services and First Data Corporation's Card Establishment Services consummated a joint venture through which Wachovia will provide merchant processing services using First Data's advanced technology and greater product offerings. An alliance with Boston EquiServe Limited Partnership will give stock transfer customers access to strong operating systems, software and more service features. Wachovia will continue to maintain all contact with its trust clients and their shareholders. Alliances also were formed with two highly regarded international banking institutions -- The Hongkong and Shanghai Banking Corporation and Bank Mendes Gans of Amsterdam -- increasing services worldwide for Wachovia's global trade customers. At the same time, Wachovia will exit businesses which are not a strategic fit. In December, Wachovia announced the sale of its bond trustee business to The Bank of New York with the transaction to be completed in the 1996 second quarter. The $9 billion residential mortgage loan servicing portfolio was sold in April 1995 to GE Capital Mortgage Services with proceeds being invested in various corporate initiatives. Mergers with other banks have been used by Wachovia in the past as an opportunity for growth. This option will continue to be carefully evaluated. STRONG CAPITAL POSITION The ability to grow is directly related to capital. Wachovia remains committed to the maintenance of a strong capital position which is one of the organization's greatest strengths. As Wachovia moves ahead with its corporate strategies and planned investments, the internal capital generation rate may exceed the needs of its business activities. Wachovia has authorization to repurchase up to 5 - -------------------------------------------------------------------------------- 12 14 - -------------------------------------------------------------------------------- million shares of its common stock not to exceed an investment of $200 million. As of January 31, 1996, slightly more than one million shares had been repurchased under this authorization. Repurchase activity is likely to increase depending on market conditions and other factors related to the corporation's capital management strategy. Wachovia is dedicated to managing and deploying capital in a prudent, competent manner designed to enhance shareholder value over time. Banking companies face sobering issues and exciting prospects as the financial services industry continues to evolve. Wachovia is committed to embracing this period of change, making it work to its advantage and to remaining among the ranks of leading financial companies. Adjusting to the shifting realities of the marketplace is not new to Wachovia. Throughout its 116-year history of excellence, Wachovia has trod new ground while adhering to its fundamental values and high principles. The people of Wachovia approach the future with considerable optimism bolstered by a proud history, tactical flexibility, enviable financial strength, modern technology and strong leadership. The 28-story Wachovia Center opened in October 1995. The building has approximately 535,000 square feet of office space and is located within a block from where Wachovia Bank was founded in 1879. (PICTURE - WACHOVIA CENTER AT NIGHT) - -------------------------------------------------------------------------------- 13 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ FINANCIAL SUMMARY TABLE 1 - ------------------------------------------------------------------------------------------------------------------------------------
Five-Year Compound 1995 1994 1993 1992 1991 1990 Growth Rate ---------- ---------- ---------- ---------- ---------- ---------- ---------- SUMMARY OF OPERATIONS (thousands, except per share data) Interest income -- taxable equivalent.......... $3,118,503 $2,462,454 $2,221,738 $2,301,325 $2,731,925 $2,856,318 1.8% Interest expense.............................. 1,579,107 1,038,388 839,012 967,028 1,467,849 1,684,114 (1.3) ---------- ---------- ---------- ---------- ---------- ---------- Net interest income--taxable equivalent....... 1,539,396 1,424,066 1,382,726 1,334,297 1,264,076 1,172,204 5.6 Taxable equivalent adjustment*................ 98,773 100,160 98,901 79,247 94,910 107,674 (1.7) ---------- ---------- ---------- ---------- ---------- ---------- Net interest income........................... 1,440,623 1,323,906 1,283,825 1,255,050 1,169,166 1,064,530 6.2 Provision for loan losses..................... 103,791 71,763 92,652 119,420 293,000 142,992 (6.2) ---------- ---------- ---------- ---------- ---------- ---------- Net interest income after provision for loan losses............................. 1,336,832 1,252,143 1,191,173 1,135,630 876,166 921,538 7.7 Other operating revenue....................... 680,101 604,432 600,179 535,242 490,178 458,852 8.2 Gain on sale of mortgage servicing portfolio.. 79,025 -- -- -- -- -- Gain on sale of subsidiary.................... -- -- 8,030 19,486 -- -- Investment securities gains (losses).......... (23,494) 3,320 19,394 1,497 11,091 6,218 ---------- ---------- ---------- ---------- ---------- ---------- Total other income........................... 735,632 607,752 627,603 556,225 501,269 465,070 9.6 Personnel expense............................. 600,326 563,507 568,680 539,823 524,489 487,473 4.3 Other expense................................. 603,270 534,906 562,556 555,829 572,028 464,811 5.4 ---------- ---------- ---------- ---------- ---------- ---------- Total other expense.......................... 1,203,596 1,098,413 1,131,236 1,095,652 1,096,517 952,284 4.8 Income before income taxes.................... 868,868 761,482 687,540 596,203 280,918 434,324 14.9 Applicable income taxes**..................... 266,325 222,424 195,445 162,978 51,378 88,647 24.6 ---------- ---------- ---------- ---------- ---------- ---------- Net income.................................... $ 602,543 $ 539,058 $ 492,095 $ 433,225 $ 229,540 $ 345,677 11.8 ========== ========== ========== ========== ========== ========== Net income per common share: Primary..................................... $ 3.50 $ 3.13 $ 2.83 $ 2.51 $ 1.34 $ 2.05 11.3 Fully diluted............................... $ 3.49 $ 3.12 $ 2.81 $ 2.48 $ 1.32 $ 2.02 11.6 Cash dividends paid per common share.......... $ 1.38 $ 1.23 $ 1.11 $ 1.00 $ .92 $ .82 11.0 Cash dividends paid on common stock........... $ 235,495 $ 210,503 $ 191,488 $ 170,756 $ 146,404 $ 130,797 12.5 Cash dividend payout ratio.................... 39.1% 39.1% 38.9% 39.4% 63.8% 37.8% Average primary shares outstanding............ 172,089 172,339 173,941 172,641 171,481 168,888 .4 Average fully diluted shares outstanding...... 172,957 172,951 175,198 175,512 175,218 172,722 SELECTED AVERAGE BALANCES (millions) Total assets.................................. $ 41,473 $ 37,029 $ 33,629 $ 31,832 $ 32,045 $ 30,469 6.4 Loans--net of unearned income................. 27,505 24,213 21,546 20,032 20,589 20,080 6.5 Investment securities......................... 8,340 7,683 7,039 6,201 5,783 4,879 11.3 Other interest-earning assets................. 1,152 898 1,195 1,864 1,988 1,823 (8.8) Total interest-earning assets................. 36,997 32,794 29,780 28,097 28,360 26,782 6.7 Interest-bearing deposits..................... 18,960 16,931 17,019 17,884 17,924 16,583 2.7 Short-term borrowed funds..................... 7,798 6,230 5,403 4,961 6,080 6,231 4.6 Long-term debt................................ 4,902 4,350 2,073 449 178 177 94.3 Total interest-bearing liabilities............ 31,660 27,511 24,495 23,294 24,182 22,991 6.6 Noninterest-bearing deposits.................. 5,302 5,384 5,354 4,947 4,595 4,620 2.8 Total deposits................................ 24,262 22,315 22,373 22,831 22,519 21,203 2.7 Shareholders' equity.......................... 3,410 3,096 2,872 2,596 2,462 2,237 8.8 RATIOS (averages) Net loan losses to loans...................... .37% .29% .31% .48% .99% .47% Net yield on interest-earning assets.......... 4.16 4.34 4.64 4.75 4.46 4.38 Shareholders' equity to: Total assets................................ 8.22 8.36 8.54 8.16 7.68 7.34 Net loans................................... 12.58 13.01 13.58 13.21 12.13 11.28 Return on assets.............................. 1.45 1.46 1.46 1.36 .72 1.13 Return on shareholders' equity................ 17.67 17.41 17.13 16.69 9.33 15.45 *Taxable equivalent adjustments reflect federal income tax rates of 35% in 1995, 1994 and 1993 and 34% in 1992, 1991 and 1990 **Income taxes applicable to securities transactions were ($8,576), $1,328, $7,472, $470, $3,997 and $2,379, respectively - ------------------------------------------------------------------------------------------------------------------------------------
14 16 Results of Operations 1995 vs. 1994 Overview The economy grew at a modest pace in 1995, with inflationary pressures remaining low while consumer spending softened, particularly in the final quarter of the year. Short-term interest rates were reduced twice by Federal Reserve actions in response to the low inflationary environment and slower economic growth. Unemployment for the nation, based on preliminary data, fell to 5.6 percent from 6.1 percent in 1994. Within Wachovia Corporation's primary operating states of Georgia, North Carolina and South Carolina, economic activity continued to remain relatively strong. Based on preliminary data, unemployment rates for the year were 4.8 percent in Georgia, 4.4 percent in North Carolina and 5.1 percent in South Carolina. Wachovia Corporation's consolidated net income for 1995 totaled $602.543 million or $3.49 per fully diluted share compared with $539.058 million or $3.12 per fully diluted share in 1994. Good growth in net interest income, along with solid gains in other operating revenue, accounted for the earnings increase which was tempered by a higher credit loss provision and a rise in noninterest expense. Net income represented returns of 17.67 percent on shareholders' equity and 1.45 percent on assets compared with 17.41 percent and 1.46 percent, respectively, in 1994. The equity and assets used in calculating these ratios include unrealized gains or losses, net of taxes, on securities available-for-sale. Expanded discussion of operating results and the corporation's financial condition are presented in the following narrative, tables and charts. Interest income is stated on a taxable equivalent basis which is adjusted for the tax-favored status of earnings from certain loans and investments. References to changes in assets and liabilities represent daily average balances unless otherwise noted. The narrative should be read in conjunction with the Consolidated Financial Statements and Notes on pages 44 through 63. Expanded six-year financial data appears on pages 64 through 71.
NET INCOME PER SHARE NET INCOME (FULLY DILUTED) (MILLIONS) 1990 $2.02 1990 $345.7 1991 $1.32 1991 $229.5 1992 $2.48 1992 $433.2 1993 $2.81 1993 $492.1 1994 $3.12 1994 $539.1 1995 $3.49 1995 $602.5
15 17 Net Interest Income Taxable equivalent net interest income, the primary source of the corporation's earnings, rose $115.330 million or 8.1 percent in 1995 compared with a $41.340 million or 3 percent increase in 1994. Strong growth in interest-earning assets, primarily loans, and a higher average rate earned accounted for the earnings gain which was moderated principally by an increase in the average rate paid on interest-bearing liabilities. The average rate earned on loans, while up in 1995, remained constrained by competitive pricing pressures, particularly in the latter half of the year. The net yield on interest-earning assets (taxable equivalent net interest income as a percentage of average interest-earning assets) declined 18 basis points to 4.16 percent, principally reflecting pricing pressure on loan yields as the year progressed, as well as a higher average rate paid on funds. The corporation anticipates pricing pressure on loans to continue in 1996. NET INTEREST INCOME* (MILLIONS) Interest Interest Net interest income* expense income* ------- ------- ------------ 1990 $2856.3 $1684.1 $1172 1991 $2731.9 $1467.8 $1264 1992 $2301.3 $ 967.0 $1334 1993 $2221.7 $ 839.0 $1383 1994 $2462.5 $1038.4 $1424 1995 $3118.5 $1579.1 $1539 - ------------------------------------------------------------------------------------------------------------------------------------ COMPONENTS OF EARNINGS PER PRIMARY SHARE TABLE 2 - ------------------------------------------------------------------------------------------------------------------------------------
Change Change 1995 1994 1993 1995/1994 1994/1993 ------- ------ ------ --------- --------- Interest income - taxable equivalent ...................... $18.12 $14.29 $12.77 $3.83 $1.52 Interest expense .......................................... 9.18 6.03 4.82 3.15 1.21 ------ ------ ------ ----- ----- Net interest income - taxable equivalent .................. 8.94 8.26 7.95 .68 .31 Taxable equivalent adjustment ............................. .57 .58 .57 (.01) .01 ------ ------ ------ ----- ----- Net interest income ....................................... 8.37 7.68 7.38 .69 .30 Provision for loan losses ................................. .60 .42 .53 .18 (.11) ------ ------ ------ ----- ----- Net interest income after provision for loan losses ....... 7.77 7.26 6.85 .51 .41 Other operating revenue ................................... 3.95 3.51 3.45 .44 .06 Gain on sale of mortgage servicing portfolio .............. .46 -- -- .46 -- Gain on sale of subsidiary ................................ -- -- .05 -- (.05) Investment securities gains (losses) ...................... (.14) .02 .11 (.16) (.09) ------ ------ ------ ----- ----- Total other income ........................................ 4.27 3.53 3.61 .74 (.08) Personnel expense ......................................... 3.49 3.27 3.27 .22 -- Other expense ............................................. 3.50 3.10 3.24 .40 (.14) ------ ------ ------ ----- ----- Total other expense ....................................... 6.99 6.37 6.51 .62 (.14) Income before income taxes ................................ 5.05 4.42 3.95 .63 .47 Applicable income taxes ................................... 1.55 1.29 1.12 .26 .17 ------ ------ ------ ----- ----- Net income ................................................ $ 3.50 $ 3.13 $ 2.83 $ .37 .30 ====== ====== ====== ===== ===== - ------------------------------------------------------------------------------------------------------------------------------------
16 18 - ---------------------------------------------------------------------------------------------------------------------------------- TAXABLE EQUIVALENT RATE/VOLUME VARIANCE ANALYSIS* TABLE 3 - ----------------------------------------------------------------------------------------------------------------------------------
Variance Average Volume Average Rate Interest Attributable to - -------------------- ------------ ------------------ ----------------- 1995 1994 1995 1994 1995 1994 Variance Rate Volume - ------ ------ ---- ---- ------- ------ ----------- ------- --------- (Millions) (Thousands) INTEREST INCOME Loans: $ 9,154 $ 7,367 7.44 6.03 Commercial...................... $ 681,206 $ 444,395 $236,811 $116,186 $120,625 1,968 1,966 9.81 8.99 Tax-exempt...................... 193,080 176,701 16,379 16,182 197 ------- ------- ---------- ---------- -------- 11,122 9,333 7.86 6.66 Total commercial............ 874,286 621,096 253,190 123,025 130,165 734 735 9.23 8.30 Direct retail................... 67,803 61,054 6,749 6,834 (85) 2,444 2,450 8.22 7.77 Indirect retail................. 200,818 190,444 10,374 10,831 (457) 3,952 3,529 12.35 11.05 Credit card..................... 488,158 389,763 98,395 48,869 49,526 344 334 12.61 11.55 Other revolving credit.......... 43,390 38,556 4,834 3,614 1,220 ------- ------- ---------- ---------- -------- 7,474 7,048 10.71 9.65 Total retail................. 800,169 679,817 120,352 77,598 42,754 640 496 9.82 9.26 Construction.................... 62,823 45,988 16,835 2,873 13,962 3,676 3,356 8.62 7.72 Commercial mortgages............ 316,956 259,077 57,879 31,877 26,002 4,018 3,699 8.36 7.78 Residential mortgages........... 335,907 287,922 47,985 22,123 25,862 ------- ------- ---------- ---------- -------- 8,334 7,551 8.59 7.85 Total real estate........... 715,686 592,987 122,699 58,177 64,522 271 173 8.73 7.83 Lease financing................. 23,598 13,563 10,035 1,699 8,336 304 108 7.43 5.70 Foreign......................... 22,610 6,162 16,448 2,348 14,100 ------- ------- ---------- ---------- -------- 27,505 24,213 8.86 7.90 Total loans................. 2,436,349 1,913,625 522,724 245,875 276,849 Investment securities: Held-to-maturity: 2,275 2,290 6.79 6.61 U.S. Government and agency.... 154,571 151,355 3,216 4,165 (949) 1,446 1,069 8.01 7.72 Mortgage backed securities.... 115,889 82,584 33,305 3,210 30,095 424 599 11.84 12.53 State and municipal........... 50,192 75,069 (24,877) (3,907) (20,970) 15 12 5.77 5.04 Other......................... 832 618 214 97 117 ------- ------- ---------- ---------- -------- Total securities 4,160 3,970 7.73 7.80 held-to-maturity........... 321,484 309,626 11,858 (2,794) 14,652 Available-for-sale:** 3,078 2,504 6.88 5.51 U.S. Government and agency...... 211,766 137,984 73,782 38,385 35,397 901 942 6.61 4.58 Mortgage backed securities...... 59,570 43,193 16,377 18,334 (1,957) 201 267 6.29 5.02 Other........................... 12,653 13,399 (746) 2,967 (3,713) ------- ------- ---------- ---------- -------- Total securities 4,180 3,713 6.79 5.24 available-for-sale........... 283,989 194,576 89,413 62,782 26,631 ------- ------- ---------- ---------- -------- 8,340 7,683 7.26 6.56 Total investment securities.... 605,473 504,202 101,271 56,165 45,106 115 13 7.93 4.58 Interest-bearing bank balances.... 9,121 597 8,524 731 7,793 Federal funds sold and securities purchased under 122 196 5.93 3.91 resale agreements............... 7,234 7,682 (448) 3,111 (3,559) 915 689 6.59 5.28 Trading account assets............ 60,326 36,348 23,978 10,336 13,642 ------- ------- ---------- ---------- -------- $36,997 $32,794 8.43 7.51 Total interest-earning assets. 3,118,503 2,462,454 656,049 320,749 335,300 ======= ======= INTEREST EXPENSE $ 3,264 $ 3,384 1.81 1.63 Interest-bearing demand........... 59,016 55,088 3,928 5,935 (2,007) 6,540 6,122 3.67 2.69 Savings and money market savings.. 240,329 164,461 75,868 64,004 11,864 6,492 5,336 5.70 4.26 Savings certificates.............. 370,289 227,060 143,229 87,505 55,724 1,915 1,573 5.85 4.47 Large denomination certificates... 111,944 70,305 41,639 24,397 17,242 ------- ------- ---------- ---------- -------- Total time deposits in 18,211 16,415 4.29 3.15 domestic offices.......... 781,578 516,914 264,664 203,351 61,313 749 516 5.59 4.32 Time deposits in foreign offices.. 41,876 22,318 19,558 7,678 11,880 ------- ------- ---------- ---------- -------- 18,960 16,931 4.34 3.18 Total time deposits.......... 823,454 539,232 284,222 213,762 70,460 Federal funds purchased and securities sold under 5,264 5,050 6.02 4.44 repurchase agreements........ 316,759 224,089 92,670 82,866 9,804 505 505 5.51 3.94 Commercial paper.................. 27,807 19,880 7,927 7,945 (18) 2,029 675 6.03 4.24 Other short-term borrowed funds... 122,441 28,603 93,838 16,334 77,504 ------- ------- ---------- ---------- -------- Total short-term 7,798 6,230 5.99 4.37 borrowed funds.............. 467,007 272,572 194,435 115,633 78,802 3,864 3,523 5.67 4.88 Bank notes........................ 219,035 171,968 47,067 29,421 17,646 1,038 827 6.70 6.60 Other long-term debt.............. 69,611 54,616 14,995 851 14,144 ------- ------- ---------- ---------- -------- 4,902 4,350 5.89 5.21 Total long-term debt........ 288,646 226,584 62,062 31,458 30,604 ------- ------- ---------- ---------- -------- Total interest-bearing $31,660 $27,511 4.99 3.77 liabilities............... 1,579,107 1,038,388 540,719 368,072 172,647 ======= ======= ----- ----- ---------- ---------- -------- 3.44 3.74 Interest rate spread ===== ===== Net yield on interest-earning 4.16 4.34 assets and net interest income... $1,539,396 $1,424,066 $115,330 (61,395) 176,725 ===== ===== ========== ========== ======== - ------------------------------------------------------------------------------------------------------------------------------------ *Interest income and yields are presented on a fully taxable equivalent basis using the federal income tax rate and state tax rates, as applicable, reduced by the nondeductible portion of interest expense **Volume amounts are reported at amortized cost; excludes pretax unrealized gains (losses) of $34 million in 1995 and $(12) million in 1994
17 19 Interest Income Taxable equivalent interest income increased $656.049 million or 26.6 percent, fueled by strong gains in interest-earning assets, as well as by a higher average rate earned. Average interest-earning assets were up $4.203 billion or 12.8 percent, led principally by loans, while the average yield rose 92 basis points. In 1994, average interest-earning assets increased $3.014 billion or 10.1 percent with the average rate earned higher by 5 basis points. Loan growth accelerated in 1995, rising $3.292 billion or 13.6 percent compared with a gain of $2.667 billion or 12.4 percent in 1994. Loans were up in both the commercial and retail portfolios with commercial activity continuing to account for the majority of the increase. Offsetting loan growth for the year in the retail sector was the securitization of $500 million in credit card receivables in the fourth quarter. Commercial loans, including related real estate categories, grew $2.547 billion or 18.9 percent. Gains were led by regular commercial loans, associated largely with capital spending and inventory building, and by commercial mortgages, with increases of $1.787 billion or 24.3 percent and $320 million or 9.5 percent, respectively. Good gains also occurred in foreign loans, reflecting short-term trade financing in Latin America, in construction loans for apartments, shopping centers and office buildings primarily in Georgia, North Carolina and South Carolina, and in lease financing, reflecting some structured leverage lease transactions for municipalities. Based on regulatory definitions, commercial real estate loans totaled $4.601 billion at December 31, 1995, representing 15.7 percent of the corporation's loan portfolio. Regulatory definitions for commercial real estate include loans which have real estate as the collateral but not the primary consideration in a credit risk evaluation. Commercial mortgages were $3.855 billion or 13.2 percent of total loans, and construction loans were $746 million or 2.5 percent. Comparable amounts a year earlier were $4.037 billion in commercial real estate loans, representing 15.6 percent of the loan portfolio, with $3.484 billion in commercial mortgages and $553 million in construction loans, representing 13.5 percent and 2.1 percent, respectively, of total loans at year-end 1994. The corporation also had cross-border commitments, consisting primarily of loans, of $406 million or .9 percent of total assets at December 31, 1995 versus $275 million or .7 percent a year earlier. Included in the corporation's cross-border commitments were loans and commitments to foreign financial institutions and corporations. There were no loans and commitments to foreign governments at year-end 1995 or 1994. Retail loans, including residential mortgages, expanded $745 million or 6.9 percent from 1994 with credit card loans and residential mortgages accounting for substantially all the increase. Credit card loans were up $423 million or 12 percent. Good growth occurred particularly in Wachovia's no annual fee credit cards following a national solicitation in the fourth quarter. Residential mortgages were higher by $319 million or 8.6 percent, largely reflecting increased demand in variable rate financing. Indirect retail loans, - ------------------------------------------------------------------------------------------------------------------- SELECTED LOAN MATURITIES AND INTEREST SENSITIVITY TABLE 4 December 31, 1995 (thousands) - -------------------------------------------------------------------------------------------------------------------
One Year One to Over Total or Less Five Years Five Years ----------- ------------- ------------ ----------- Commercial, financial and other..................... $ 9,753,450 $ 8,875,502 $ 591,457 $ 286,491 Industrial revenue and other tax-exempt financing... 2,238,538 1,224,550 352,346 661,642 Construction and land development................... 745,776 490,249 255,527 -- Commercial mortgages................................ 3,855,095 2,068,327 843,863 942,905 ----------- ----------- ---------- ---------- Loans to domestic borrowers...................... 16,592,859 12,658,628 2,043,193 1,891,038 Loans to foreign borrowers......................... 390,112 250,654 139,458 -- ----------- ----------- ---------- ---------- Selected loans, net.............................. $16,982,971 $12,909,282 $2,182,651 $1,891,038 =========== =========== ========== ========== Interest sensitivity: Loans with predetermined interest rates........... $ 7,926,688 $ 4,573,793 $1,794,872 $1,558,023 Loans with floating interest rates................ 9,056,283 8,335,489 387,779 333,015 ----------- ----------- ---------- ---------- Total............................................ $16,982,971 $12,909,282 $2,182,651 $1,891,038 =========== =========== ========== ========== - -------------------------------------------------------------------------------------------------------------------
18 20 - ----------------------------------------------------------------------------------------------------------------------- INVESTMENT SECURITIES TABLE 5 December 31 (thousands) - -----------------------------------------------------------------------------------------------------------------------
1995 ------------------------------------------------------------------------------------ Taxable Amortized Unrealized Unrealized Fair Average Equivalent Cost Gain Loss Value Maturity Yield* --------- ---------- ---------- ---------- --------- ---------- (Yrs./Mos.) HELD-TO-MATURITY U.S. Treasury and other U.S. Government agencies: Within one year........... $ -- $ -- $ -- $ -- -- One to five years......... -- -- -- -- -- Five to ten years......... -- -- -- -- -- Over ten years............ -- -- -- -- -- ---------- -------- ------ ---------- -- Total................... -- -- -- -- -- State and municipal: Within one year.......... 54,702 652 11 55,343 11.95% One to five years........ 99,231 6,578 14 105,795 11.90 Five to ten years........ 103,983 16,487 21 120,449 12.60 Over ten years........... 63,129 9,878 166 72,841 12.17 ---------- -------- ------ ---------- Total.................. 321,045 33,595 212 354,428 5/10 12.18 Mortgage backed: Within one year............ -- -- -- -- One to five years.......... -- -- -- -- Five to ten years.......... 192,917 4,896 471 197,342 6.94 Over ten years............. 1,105,018 63,995 61 1,168,952 8.43 ---------- -------- ------ ---------- 8.21 Total.................... 1,297,935 68,891 532 1,366,294 19/4 Other interest-earning investments: Within one year........... -- -- -- -- One to five years......... 250 -- -- 250 9.01 Five to ten years......... 250 -- -- 250 8.50 Over ten years............ -- -- -- -- ---------- -------- ------ ---------- Total................... 500 -- -- 500 4/0 8.76 ---------- -------- ------ ---------- Total held-to-maturity..... 1,619,480 102,486 744 1,721,222 16/7 9.03 AVAILABLE-FOR-SALE U.S. Treasury and other U.S. Government agencies: Within one year............ 571,027 5,396 31 576,392 7.50 One to five years.......... 4,999,499 135,918 6,202 5,129,215 6.97 Five to ten years.......... 251 15 -- 266 7.43 Over ten years............. 16,188 7,084 -- 23,272 13.09 ---------- -------- ------ ---------- Total.................... 5,586,965 148,413 6,233 5,729,145 2/0 7.05 Mortgage backed: Within one year............ 12,526 49 1 12,574 7.27 One to five years.......... 121,869 956 105 122,720 6.85 Five to ten years.......... 244,326 5,645 -- 249,971 7.73 Over ten years............. 1,093,040 28,429 345 1,121,124 7.21 ---------- -------- ------ ---------- Total.................... 1,471,761 35,079 451 1,506,389 17/6 7.26 Other interest-earning investments: Within one year........... 10 -- -- 10 8.18 One to five years......... 25,525 40 -- 25,565 2.79 Five to ten years......... 248 8 -- 256 8.12 Over ten years............ 73,200 -- -- 73,200 5.82 ---------- -------- ------ ---------- Total................... 98,983 48 -- 99,031 10/3 5.04 ---------- -------- ------ ---------- Total available-for-sale interest-earning investments.................. 7,157,709 183,540 6,684 7,334,565 5/6 7.06 Federal Reserve Bank stock and other investments................... 62,004 13,365 109 75,260 ---------- -------- ------ ---------- Total available-for-sale. 7,219,713 196,905 6,793 7,409,825 ---------- -------- ------ ---------- Total portfolio.......... $8,839,193 $299,391 7,537 $9,131,047 ========== ======== ====== ========== 1994 1993 ---------------------------- -------------------------- Amortized Fair Amortized Fair Cost Value Cost Value ----------- ---------- ---------- ---------- HELD-TO-MATURITY U.S. Treasury and other U.S. Government agencies: Within one year........... $ 3,486 $ 3,481 $ 611,434 $ 620,018 One to five years......... 2,387,449 2,296,620 3,828,687 3,925,789 Five to ten years......... 84,469 88,910 116,665 137,324 Over ten years............ 16,072 20,165 15,950 23,340 ---------- ---------- ---------- ---------- Total................... 2,491,476 2,409,176 4,572,736 4,706,471 State and municipal: Within one year.......... 190,528 193,693 75,501 77,254 One to five years........ 155,436 161,733 309,939 337,197 Five to ten years........ 123,316 133,342 151,253 172,827 Over ten years........... 85,085 90,396 118,464 140,456 Total.................. ---------- ---------- ---------- ---------- 554,365 579,164 655,157 727,734 Mortgage backed: Within one year............ 1,709 1,689 44,500 44,510 One to five years.......... 158,964 153,913 539,315 546,467 Five to ten years.......... 212,624 201,934 559,029 560,130 Over ten years............. 751,253 754,798 1,165,890 1,217,385 ---------- ---------- ---------- ---------- Total.................... 1,124,550 1,112,334 2,308,734 2,368,492 Other interest-earning investments: Within one year........... -- -- 34,426 34,420 One to five years......... 13,721 13,484 85,713 85,779 Five to ten years......... 498 486 11,980 11,987 Over ten years............ -- -- 101,192 101,261 ---------- ---------- ---------- ---------- Total................... 14,219 13,970 233,311 233,447 ---------- ---------- ---------- ---------- Total held-to-maturity..... 4,184,610 4,114,644 7,769,938 8,036,144 AVAILABLE-FOR-SALE U.S. Treasury and other U.S. Government agencies: Within one year............ 861,302 853,695 One to five years.......... 1,652,408 1,607,213 Five to ten years.......... -- -- Over ten years............. -- -- ---------- ---------- Total.................... 2,513,710 2,460,908 Mortgage backed: Within one year............ -- -- One to five years.......... 228,181 223,207 Five to ten years.......... 264,416 259,869 Over ten years............. 339,770 332,971 ---------- ---------- Total.................... 832,367 816,047 Other interest-earning investments: Within one year........... 6,770 6,810 One to five years......... 64,826 64,837 Five to ten years......... 495 515 Over ten years............ 91,900 91,913 ---------- ---------- Total................... 163,991 164,075 ---------- ---------- Total available-for-sale interest-earning investments.................. 3,510,068 3,441,030 Federal Reserve Bank stock and other investments................... 90,026 97,217 108,718 120,546 ---------- ---------- ---------- ---------- Total available-for-sale. 3,600,094 3,538,247 ---------- ---------- Total portfolio.......... $7,784,704 $7,652,891 $7,878,656 $8,156,690 ========== ========== ========== ========== - ------------------------------------------------------------------------------------------------------- *Yields are presented on a fully taxable equivalent basis using the federal income tax rate and state tax rates, as applicable
19 21 which consists primarily of automobile sales financing, remained largely unchanged for the year, although moderate gains occurred in the latter half of 1995. In the fourth quarter, the corporation securitized $500 million in credit card receivables. The action was taken to further diversify funding sources and as part of overall balance sheet management for the corporation. Securitization involves the transfer of a pool of assets from the balance sheet to a master trust which then issues and sells to investors certificates representing a pro rata interest in the underlying assets. Interest income is reduced by the removal of the securitized receivables from the balance sheet, while interest expense associated with their funding also is lowered. The provision for loan losses no longer includes amounts associated with potential charge-offs for the securitized loans, while noninterest income is increased in the form of servicing fees and other excess revenue associated with the securitized assets. See Note D to the Consolidated Financial Statements for additional information. At December 31, 1995, the corporation's managed credit card receivables totaled $4.543 billion, including $625 million in net securitized loans. Approximately 91 percent of the portfolio was variable rate. At year-end 1994, managed credit card outstandings were $4.094 billion, which included $125 million in net securitized loans, with approximately 90 percent of the portfolio variable rate. Managed credit card receivables averaged $4.168 billion for the year versus $3.549 billion in 1994. Investment securities, the second largest category of interest-earning assets, increased $657 million or 8.5 percent. In the second quarter, the corporation sold $1.950 billion of securities available-for-sale at a loss, reinvesting the proceeds in higher-yielding investments to enhance the overall yield of the portfolio. Also in the fourth quarter, securities held-to-maturity with a book value of $2.720 billion and a market value of $2.774 billion were reclassified as securities available-for-sale following issuance by the Financial Accounting Standards Board of "A Guide to Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities." Under the implementation guide, business entities were allowed a one-time opportunity to reclassify investment securities effective for year-end 1995 financial statements. The corporation took the reclassification action primarily to provide additional flexibility in managing the investment securities portfolio. At December 31, 1995, securities available-for-sale totaled $7.410 billion and securities held-to-maturity were $1.619 billion. Average securities available-for-sale marked to fair market value had an unrealized gain of $34.248 million, pretax, and $21.021 million, net of tax, from changes in market value. The unrealized gain is reported, net of tax, as part of shareholders' equity. The investment grade of the corporation's municipal portfolio remained good with 94.7 percent of the portfolio rated A or better by Moody's at year-end 1995 compared with 96.6 percent at the close of 1994. Interest Expense Interest expense for the year was higher by $540.719 million or 52.1 percent, principally reflecting the impact of a 122 basis point rise in the average cost of funds. Higher levels of interest-bearing liabilities, up $4.149 billion or 15.1 percent, also contributed to the expense increase. Growth in interest-bearing liabilities occurred primarily in interest-bearing time deposits and in short-term bank notes, which are classified as part of other short-term borrowings. Largely reflecting this growth, funding from additional short-term sources and from long-term debt rose more moderately in 1995. Interest-bearing time deposits expanded $2.029 billion or 12 percent. Savings certificates led the increase, rising $1.156 billion or 21.7 percent. Good growth, particularly in the latter half of the year, also occurred in savings and money market savings, in foreign time deposits and in large denomination certificates, which partially reflected more attractive pricing due to a reduction in associated deposit insurance premiums. The increase in savings certificates and in savings and money market savings reflected both the success of a sale in March of 10-month and three-year certificates of deposit and of growth in Wachovia's Premier money market account. The one-day certificate sale, offered at limited branches in the corporation's primary markets, attracted over $1 billion in deposits, with approximately 86 percent representing new money. About 28,000 new account relationships were generated from the approximately 77,000 accounts participating in the sale. Short-term borrowings for the year increased $1.568 billion or 25.1 percent with other short-term borrowings, principally short-term bank notes, accounting for most of the growth. Federal funds purchased 20 22 and securities sold under repurchase agreements expanded modestly, while commercial paper borrowings were unchanged. Short-term bank notes are part of Wachovia Bank of North Carolina's ongoing bank note program. Under the program, which was revised in the fourth quarter of 1995, the bank can issue and have outstanding an aggregate principal amount of up to $6 billion of notes with maturities of 270 days or less and can issue an aggregate principal amount of up to $10 billion of notes with maturities longer than 270 days. Note terms may range from 30 days to 15 years. Bank notes with original maturities of one year or less are included in other short-term borrowings and were issued beginning in the fourth quarter of 1994. Notes with maturities greater than one year are medium-term bank notes, classified as part of long-term debt. At December 31, 1995, short-term bank notes outstanding totaled $1.413 billion with an average cost of 5.86 percent and an average maturity of 1.04 months. This compared with outstandings of $456 million with an average cost of 6.13 percent and an average maturity of 4.15 months at fourth quarter-close 1994. Long-term debt rose $552 million or 12.7 percent. Medium-term bank notes were higher by $341 million or 9.7 percent, while other long-term debt increased $211 million or 25.5 percent. Medium-term bank notes totaled $4.088 billion at December 31, 1995 with an average cost of 5.77 percent and an average maturity of 1.23 years versus $3.953 billion in outstandings with an average cost of 5.31 percent and an average maturity of 1.73 years at year-end 1994. Other long-term debt includes the issuance in the fourth quarter of $250 million in 30-year subordinated debentures. The notes have a 10-year put option and were priced at par to yield 6.605 percent or 47.5 basis points above comparable 10-year Treasuries. Gross deposits averaged $24.262 billion versus $22.315 billion in 1994, an increase of $1.947 billion or 8.7 percent. Collected deposits, net of float, averaged $22.498 billion, up $1.807 billion or 8.7 percent from $20.691 billion in the year earlier. Asset and Liability Management, Interest Rate Sensitivity and Liquidity Management The goal of asset and liability management is to maintain high quality and consistent growth of net interest income with acceptable levels of risk to changes in interest rates. The corporation seeks to meet this goal by influencing the maturity and repricing characteristics of the various lending and deposit taking lines of business, by managing discretionary balance sheet asset and liability portfolios and by utilizing off-balance sheet financial instruments. Interest rate risk management is carried out by Funds Management which operates under policies established by the Finance Committee of the corporation's board of directors and the guidance of the Management Finance Committee. Rate risk, liquidity, capital positions and discretionary on- and off-balance sheet activity is reviewed quarterly by the Board Finance Committee. Interim oversight of the asset and liability function is provided through regular bimonthly meetings of Funds Management managers and the Chief Financial Officer. Funds Management personnel carry out day-to-day activity within approved risk management guidelines and strategies. The corporation uses a number of tools to measure interest rate risk, including monitoring the difference or gap between rate sensitive assets and liabilities over various time periods, monitoring the change in present value of the asset and liability portfolios under various rate scenarios and simulating net interest income under the same rate scenarios. The rate sensitivity gap table on page 22 sets forth the volume of interest-earning assets and interest-bearing liabilities outstanding as of year-ends 1995 and 1994, which mature or are projected to reprice in each of the future time periods shown. The projected asset repricing volumes include management assumptions of prepayments of mortgage related assets and automobile financing. Also, the projected interest checking and savings repricing volumes are based on management's assumptions of the expected rate sensitivity of these accounts in relationship to the prime rate. The sensitivity assumptions for these two deposit accounts were reduced somewhat in 1995 compared with 1994. Inclusion of the impact of these management assumptions in the gap analysis table presents a more accurate view of the corporation's rate risk position. The section on nonsensitive and maturities beyond one year includes bank credit card loans of $447 million in 1995 and $404 million in 1994, savings balances of $850 million in 1995 and $676 million in 1994 and interest-bearing checking balances of $2.399 billion in 1995 and $2.115 billion in 1994. 21 23
Interest Rate Sensitivity Gap Analysis - -------------------------------------- Interest Sensitive Period ----------------------------------------------------------- $in millions Total Over One 0 to 3 4 to 6 7 to 12 Within Year and December 31, 1995 Months Months Months One Year Nonsensitive Total - ----------------- ------- ------ ------ -------- ------------ -------- Loans and net leases, net of unearned income ....................... $18,226 $ 1,162 $ 1,492 $20,880 $ 8,381 $29,261 Investment securities............................................... 416 316 681 1,413 7,617 9,030 Interest-bearing bank balances...................................... - - 446 446 5 451 Federal funds sold and securities purchased under resale agreements. 144 - - 144 - 144 Trading account assets.............................................. 1,115 - - 1,115 - 1,115 ------- ------- ------- ------- ------- ------- Total earning assets.......................................... 19,901 1,478 2,619 23,998 16,003 40,001 Interest-bearing demand............................................. 625 150 300 1,075 2,399 3,474 Savings and money market savings.................................... 5,504 212 425 6,141 850 6,991 Savings certificates................................................ 2,053 1,308 1,088 4,449 2,164 6,613 Large denomination certificates..................................... 1,402 279 641 2,322 350 2,672 Time deposits in foreign offices.................................... 748 6 1 755 - 755 Federal funds purchased and securities sold under repurchase agreements ....................................................... 5,850 - - 5,850 - 5,850 Commercial paper.................................................... 502 - - 502 - 502 Other short-term borrowed funds..................................... 1,674 1 18 1,693 28 1,721 Bank notes.......................................................... 2,332 115 503 2,950 1,138 4,088 Other long-term debt................................................ - - - - 1,335 1,335 ------- ------- ------- ------- ------- ------- Total interest-bearing liabilities 20,690 2,071 2,976 25,737 8,264 34,001 Interest rate swaps................................................. (202) 59 (31) (174) 174 - ------- ------- ------- ------- ------- ------- Interest sensitivity gap...................................... (991) (534) (388) $(1,913) 7,913 $ 6,000 ------- ------- ------- ======= ------- ======= Cumulative interest sensitivity gap .......................... $ (991) $(1,525) $(1,913) $ 6,000 ======= ======= ======= ======= December 31, 1994 - ----------------- Loans and net leases, net of unearned income........................ $16,265 $ 902 $ 1,379 $18,546 $ 7,345 $25,891 Investment securities............................................... 869 531 797 2,197 5,526 7,723 Interest-bearing bank balances...................................... 7 - - 7 - 7 Federal funds sold and securities purchased under resale agreements. 202 - - 202 - 202 Trading account assets.............................................. 890 - - 890 - 890 ------- ------ ------- ------- ------- ------- Total earning assets.......................................... 18,233 1,433 2,176 21,842 12,871 34,713 Interest-bearing demand............................................. 617 264 529 1,410 2,115 3,525 Savings and money market savings.................................... 4,376 338 676 5,390 676 6,066 Savings certificates................................................ 1,741 1,135 966 3,842 1,623 5,465 Large denomination certificates..................................... 610 227 210 1,047 369 1,416 Time deposits in foreign offices.................................... 879 31 - 910 - 910 Federal funds purchased and securities sold under repurchase agreements ....................................................... 5,895 3 - 5,898 - 5,898 Commercial paper.................................................... 404 2 1 407 - 407 Other short-term borrowed funds..................................... 850 2 155 1,007 - 1,007 Bank notes.......................................................... 1,114 156 815 2,085 1,868 3,953 Other long-term debt................................................ - - - - 838 838 ------- ------- ------- ------- ------- ------- Total interest-bearing liabilities 16,486 2,158 3,352 21,996 7,489 29,485 Interest rate swaps................................................. (248) 14 (11) (245) 260 15 ------- ------- ------- ------- ------- ------- Interest sensitivity gap...................................... 1,499 (711) (1,187) $ (399) 5,642 $ 5,243 ------- ------- ------- ======= ------- ======= Cumulative interest sensitivity gap .......................... $ 1,499 $ 788 $ (399) $ 5,243 ======= ======= ======= ======= Note: Refer to page 21 for details on management's assumptions of the repricing characteristics of certain accounts without contractual maturity dates.
Management believes that rate risk is best measured by simulation modeling which calculates expected net interest income based on projected interest-earning assets, interest-bearing liabilities, off-balance sheet financial instruments and interest rates. The corporation monitors exposure to a gradual change in rates of 200 basis points up or down over a rolling 12-month period and an interest rate shock of an instantaneous change in rates of 200 basis points up or down over the same period. From time to time, the model horizon is expanded to a 24-month period. The corporation policy limit for the maximum negative impact on net interest income from a gradual change in interest rates of 2 percentage points over 12 months is 7.5 percent. Management generally has maintained a risk position well within the policy guideline level. As of December 31, 1995, the model indicated the impact of a 2 percentage point gradual rise in rates over 12 months would approximate a .25 percent increase in net interest income, while a 2 percentage point decline in rates over the same period would approximate a .55 percent decrease from an unchanged rate environment. In addition to on-balance sheet instruments such as investment securities and purchased funds, the corporation uses off-balance sheet derivative instruments to manage interest rate risk, liquidity and net interest 22 24 income. Off-balance sheet instruments include interest rate swaps, futures and options with indices that directly correlate to on-balance sheet instruments. The corporation has used off-balance sheet financial instruments, principally interest rate swaps, over a number of years and believes their use on a sound basis enhances the effectiveness of asset and liability and interest rate sensitivity management. Off-balance sheet asset and liability derivative transactions are based on referenced or notional amounts. Statement of Financial Accounting Standards No. 119, "Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments" (FASB 119), distinguishes between derivative financial instruments held or issued for trading purposes and those held or issued for purposes other than trading, including risk management. Note J in Notes to Consolidated Financial Statements contains disclosures regarding off-balance sheet financial instruments held for risk management purposes, while disclosures regarding instruments held for trading are included in Note I. At December 31, 1995, the corporation had $2.345 billion notional amount of derivatives outstanding for asset and liability management purposes. Interest rate swaps were $1.320 billion or 56 percent of the total notional amount, while futures represented the remaining amount. Details on the maturity schedule on asset and liability management derivatives including notional amounts and average maturities are contained in the following table.
Maturity Schedule of Asset and Liability Management Derivatives --------------------------------------------------------------- December 31, 1995 Within Over Average One Two Three Four Five Five Life Year Years Years Years Years Years Total (Years) ------ ----- ----- ----- ----- ----- ----- ------ $in millions Interest rate swaps: Pay fixed/receive floating: Notional amount.................. $ 431 $ 15 $ 16 $ 18 $ 12 $ 45 $ 537 1.37 Weighted average rates received.. 4.90% 5.99% 6.02% 5.95% 6.01% 5.89% 5.11% Weighted average rates paid...... 7.55 6.64 6.95 6.93 6.96 7.77 7.49 Receive fixed/pay floating: Notional amount.................. $ 110 $ 79 $ 90 $ 1 $ 2 $ 137 $ 419 4.80 Weighted average rates received.. 5.11% 6.79% 7.57% 9.77% 10.49% 6.73% 6.52% Weighted average rates paid...... 6.19 5.94 5.95 8.68 8.54 5.92 6.02 Index amortizing swaps:* Receive fixed/pay floating: Notional amount.................. $ 75 $ 125 $ 125 - - - $ 325 1.59 Weighted average rates received.. 7.14% 7.88% 8.48% - - - 7.94% Weighted average rates paid...... 5.90 6.00 5.94 - - - 5.95 Total: Notional amount.................. $ 616 $ 219 $ 231 $ 19 $ 14 $ 182 $1,281 2.55 Weighted average rates received.. 5.21% 7.36% 7.95% 6.12% 6.80% 6.52% 6.29% Weighted average rates paid...... 7.11 6.02 6.01 7.01 7.24 6.38 6.62 Forward starting interest rate swaps: Notional amount.................. - - - - - $ 39 $ 39 8.53 Weighted average rates paid...... - - - - - 8.03% 8.03% TOTAL INTEREST RATE SWAPS............. $ 616 $ 219 $ 231 $ 19 $ 14 $ 221 $1,320 2.72 Futures............................... 1,025 - - - - - 1,025 .08 (Total derivatives (notional amount).. $1,641 $ 219 $ 231 $ 19 $ 14 $ 221 $2,345 1.57 *Maturity is based upon expected average lives rather than contractual lives.
Credit risk of off-balance sheet derivative financial instruments is equal to the fair value gain of the instrument if a counterparty fails to perform. The credit risk is normally a small percentage of the notional amount and fluctuates as interest rates move up or down. The corporation mitigates this risk by subjecting the transactions to the same rigorous approval and monitoring process as is used for on-balance sheet credit transactions, by dealing in the national market with highly rated counterparties, by executing all transactions under International Swaps and Derivatives Association Master Agreements and by using collateral instruments to reduce exposure. Collateral is delivered by either party when the fair value of a particular transaction or 23 25 group of transactions with the same counterparty on a net basis exceeds an acceptable threshold of exposure. The threshold level is determined based on the strength of the individual counterparty. The fair value of all asset and liability derivative positions for which the corporation was exposed to counterparties totaled $21.284 million at December 31, 1995. The fair value of all asset and liability derivative positions for which counterparties were exposed to the corporation amounted to $14.411 million on the same date. Details of the net fair value gain of $6.873 million are included in Note J of Notes to Consolidated Financial Statements. Asset and liability derivative transactions are accounted for following hedge accounting rules. Accordingly, gains and losses related to the fair value of derivative contracts used for asset and liability management purposes are not immediately recognized in earnings. If the hedged or altered balance sheet amounts were marked to market, the resulting unrealized balance sheet gains or losses could be expected to offset unrealized derivatives gains and losses. The corporation uses derivative financial contracts to (1) swap floating rate assets or liabilities to fixed rate; (2) convert fixed rate assets or liabilities to floating rate; (3) hedge the interest rate spread between assets and liabilities; and (4) hedge the yield or rate on future transactions. These transactions serve to better match the repricing characteristics of various assets and liabilities, reduce spread risk, adjust overall rate sensitivity and enhance net interest income. ---------------------------------------- LARGE DENOMINATION DEPOSITS* TABLE 6 December 31, 1995 (thousands) ---------------------------------------- REMAINING MATURITIES Three months or less..... $1,413,895 Over three through six months.............. 276,292 Over six through twelve months........... 643,627 Over twelve months....... 337,945 ---------- Total.................. $2,671,759 ========== *Includes domestic office certificates of deposit of $100 or more ---------------------------------------- - --------------------------------------------------------------------------------------------------------------------- SHORT-TERM BORROWED FUNDS (thousands) TABLE 7 - ---------------------------------------------------------------------------------------------------------------------
1995 1994 1993 ---------------- ---------------- -------------------- Amount Rate Amount Rate Amount Rate ---------- ---- ---------- ---- ---------- ------ At year-end: Federal funds purchased and securities sold under repurchase agreements ...................... $5,850,540 5.01% $5,898,398 5.33% $4,741,283 2.88% Commercial paper ....................................... 502,136 4.26 406,706 5.09 589,178 2.92 Other borrowed funds ................................... 1,720,592 5.79 1,007,340 5.30 1,091,123 3.24 ---------- ---------- ---------- Total ............................................... $8,073,268 5.13 $7,312,444 5.32 $6,421,584 2.94 ========== ========== ========== Average for the year: Federal funds purchased and securities sold under repurchase agreements ...................... $5,264,072 6.02 $5,051,124 4.44 $3,944,864 3.23 Commercial paper* ...................................... 504,669 5.51 505,117 3.94 485,889 3.02 Other borrowed funds ................................... 2,029,094 6.03 674,593 4.24 972,008 3.25 ---------- ---------- ---------- Total ................................................ $7,797,835 5.99 $6,230,834 4.37 $5,402,761 3.22 ========== ========== ========== Maximum month-end balance: Federal funds purchased and securities sold under repurchase agreements ...................... $6,642,662 $5,898,398 $5,307,332 Commercial paper ....................................... 563,779 571,347 613,375 Other borrowed funds ................................... 2,910,246 1,007,340 1,525,017 *Average interest rate for each year includes effect of fees paid on back-up lines of credit - ---------------------------------------------------------------------------------------------------------------------
24 26 Changing the repricing characteristics of liabilities to match the assets they support generally is accomplished through an interest rate swap whereby the corporation pays a fixed rate and receives a floating rate. This allows the corporation to acquire fixed rate assets without increasing exposure to rising interest rates. Converting fixed rate debt to a floating rate is accomplished generally by receiving fixed on an interest rate swap and paying floating. The corporation has used this type of transaction to convert long-term subordinated debt to a floating rate. This transaction increases liquidity by allowing a long-term liability to replace a short-term liability, yet have a rate that is consistent with and fluctuates with short-term rates. Receiving a fixed rate on an interest rate swap and paying a floating rate has the effect of converting floating rate assets to fixed rate assets. The results are essentially the same as acquiring a fixed rate security funded with a floating rate liability. Both transactions reduce asset sensitivity. The corporation has used this type of transaction to convert a portion of the floating rate credit card portfolio to fixed rates. Hedging the spread between the rate received and the rate paid on certain assets and liabilities can be achieved by the use of options contracts such as caps and floors. Changes in the yield or rate on anticipated future transactions can be hedged by purchasing or selling futures contracts on which change in price is highly correlated with the anticipated transaction. The corporation has used both futures contracts and options contracts to hedge spreads and anticipated transactions. The objective of liquidity management is to ensure the corporation is positioned to meet all immediate and future demands for cash. Liquidity management relies upon liquidity analysis, knowledge of historical trends over past credit and business cycles and forecasts of future conditions to achieve its objectives. The two broad-based sources of liquidity which exist for the corporation are its high quality marketable or securitizable assets, along with liabilities which are readily accepted in the marketplace. Asset liquidity is provided by securities which, by their maturity structure or marketability, can produce cash flows that result in enhanced liquidity and by loans which may be securitized. The corporation generates additional cash through the liability side of the balance sheet from the growth of deposits and the issuance of bank notes and other forms of debt securities. Wachovia's ability to attract a variety of funds rests on the corporation's strength of capital, reputation, credit ratings, high quality assets and diverse statewide banking networks. At December 31, 1995, Wachovia's common equity represented 8.39 percent of assets, 5th highest among the 25 largest U.S. banking companies. Wachovia's strong capital position is reflected in its credit ratings and remains central to its ability to raise additional funds at attractive rates through short-term borrowings and long-term debt. At year-end 1995, the corporation's senior debt was rated (P)Aa3 by Moody's and (P)AA by Standard & Poor's. Subordinated debt was rated A1 and AA- by Moody's and Standard & Poor's, respectively. Commercial paper was rated P-1 by Moody's and A-1+ by Standard & Poor's. In addition to seeking to maintain liquidity through a strong balance sheet and performance that assures market acceptance, the corporation limits, through policy and internal guidelines which are subject to periodic review and revision, the total amount of purchased funds used to support the balance sheet and the concentrations of funding from noncore sources. Purchased funds currently are limited to 40 percent of total assets by policy. Internal management guidelines currently are substantially below the policy limit. To insure against concentrations by maturity or type of funding source, the corporation also has established policy limits for the percentage of purchased funds from individual categories of liabilities to no more than 20 percent of assets. The percentage of purchased funds maturing overnight, within 30 days, within 90 days and within 180 days also are limited by policy. In addition, management monitors significant concentrations of funds from single deposit or borrowing sources. Asset liquidity is assured through maintaining significant amounts of investment securities in the available-for-sale portfolio. These securities may be sold at any time to provide needed liquidity or for other reasons. Liquidity also is available from loan assets which are readily securitizable. Management regularly reviews the liquidity position under normal business conditions and under significant market disruption or stress conditions. Results of these reviews are presented to the Management Finance Committee and Board Finance Committee quarterly. 25 27 Nonperforming Assets Nonperforming assets were $69.364 million or .24 percent of loans and foreclosed property at December 31, 1995. The total was lower by $31.153 million or 31 percent from a year earlier. Declines occurred in each quarter throughout the year primarily due to paydowns by borrowers, the return of cash-basis assets to accrual status and sales of foreclosed property. The corporation historically has maintained relatively low levels of problem assets reflecting its strong underwriting standards, consistent credit reviews and aggressive loan charge-off policy. Real estate nonperforming assets, the largest category of total nonperforming assets, were $55.181 million or .63 percent of real estate loans and foreclosed real estate at December 31, 1995. This compared with $68.353 million or .87 percent at year-end 1994, a decrease of $13.172 million or 19.3 percent. The total at December 31, 1995 included $43.576 million of real estate nonperforming loans versus $49.479 million at fourth quarter-close 1994. Commercial real estate nonperforming assets were $30.910 million or .67 percent of related loans and foreclosed real estate, down $12.489 million or 28.8 percent from $43.399 million or 1.07 percent at year-end 1994. Commercial real estate nonperforming loans included in these totals were $27.163 million at December 31, 1995 and $35.885 million a year earlier. - ------------------------------------------------------------------------------------------------------------------------------- NONPERFORMING ASSETS AND CONTRACTUALLY PAST DUE LOANS TABLE 8 December 31 (thousands) - -------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 -------- -------- -------- -------- -------- -------- NONPERFORMING ASSETS Cash-basis assets: Domestic borrowers................................. $53,547* $ 78,712 $108,882 $173,977 $240,578 $199,480 Foreign borrowers -- less developed countries...... -- -- -- -- -- 1,437 ------- -------- -------- -------- -------- -------- Total cash-basis assets........................ 53,547 78,712 108,882 173,977 240,578 200,917 Restructured loans -- domestic ...................... --** -- 80 117 604 2,629 ------- -------- -------- -------- -------- -------- Total nonperforming loans...................... 53,547 78,712 108,962 174,094 241,182 203,546 Foreclosed property: Foreclosed real estate............................. 14,468 22,900 51,701 93,555 69,957 41,139 Less valuation allowance........................... 2,863 4,026 9,168 5,082 2,837 4,012 Other foreclosed assets............................ 4,212 2,931 3,406 2,842 2,609 5,106 ------- -------- -------- -------- -------- -------- Total foreclosed property...................... 15,817 21,805 45,939 91,315 69,729 42,233 ------- -------- -------- -------- -------- -------- Total nonperforming assets..................... $69,364*** $100,517 $154,901 $265,409 $310,911 $245,779 ======= ======== ======== ======== ======== ======== Nonperforming loans to year-end loans................ .18% .30 .47% .83% 1.17% .96% Nonperforming assets to year-end loans and foreclosed property ........................... .24 .39 .67 1.25 1.50 1.16 Year-end allowance for loan losses times nonperforming loans.......................... 7.63x 5.16x 3.72x 2.18x 1.49x 1.33x Year-end allowance for loan losses times nonperforming assets......................... 5.89 4.04 2.61 1.43 1.16 1.10 CONTRACTUALLY PAST DUE LOANS (accruing loans past due 90 days or more) Domestic borrowers................................... $48,970 $ 37,010 $ 44,897 $ 49,277 $ 88,158 $ 66,202 ======= ======== ======== ======== ======== ======== *Includes $12,260 of loans which have been defined as impaired per Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan" (FASB 114) **Excludes $199 of loans which have been renegotiated at market rates and have been reclassified to performing status ***Net of cumulative corporate and commercial real estate charge-offs and foreclosed real estate write-downs totaling $23,134; includes $3,429 of nonperforming assets on which interest and principal are paid current - -------------------------------------------------------------------------------------------------------------------------------
26 28 Provision and Allowance for Loan Losses The provision for loan losses was $103.791 million, higher by $32.028 million or 44.6 percent from $71.763 million in 1994. The provision reflects management's assessment of the adequacy of the allowance for loan losses to absorb potential write-offs in the loan portfolio due to a deterioration in credit conditions or change in risk profile. Factors considered in this assessment include growth and mix of the loan portfolio, current and anticipated economic conditions, historical credit loss experience and changes in borrowers' financial positions. The provision for loan losses exceeded net charge-offs in 1995 by $2.676 million. Net loan losses for the year totaled $101.115 million or .37 percent of average loans, an increase of $30.686 million or 43.6 percent from $70.429 million or .29 percent of average loans in 1994. The rise primarily reflected higher charge-offs in consumer lending, particularly credit cards and other retail loans, as well as a more moderate increase in loan recoveries. Loan recoveries represented 24.8 percent of gross charge-offs versus 31.4 percent in 1994. Excluding credit cards, net loan losses totaled $12.100 million or .05 percent of average related loans for the year compared with $11.995 million or .06 percent in 1994, an increase of $105 thousand or less than 1 percent. Credit card net charge-offs were $89.015 million or 2.25 percent of average credit card loans, higher by $30.581 million or 52.3 percent from $58.434 million or 1.66 percent of average loans in 1994. Managed credit card loan losses, including securitized credit card outstandings, totaled $93.372 million or 2.24 percent of average managed receivables. This compared with $58.485 million in managed net charge-offs or 1.65 percent of average managed outstandings in 1994. Other retail loans, consisting of direct and indirect retail lending, had net loan losses of $11.336 million or .36 percent of average related loans, an increase of $3.883 million or 52.1 percent from $7.453 million or .23 percent a year earlier. Real estate loans had net recoveries of $1.875 million or .02 percent of average real estate loans compared with net recoveries of $5.310 million or .07 percent in 1994, a decrease of $3.435 million or 64.7 percent. At December 31, 1995, the allowance for loan losses totaled $408.808 million, representing 1.40 percent of year-end loans and 763 percent coverage of nonperforming loans. Comparable amounts a year earlier were $406.132 million, 1.57 percent and 516 percent, respectively. The corporation prospectively adopted Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan" (FASB 114) on January 1, 1995. The standard requires that a loan meeting the definition of impairment be measured at the present value of expected future cash flows using the loan's effective interest rate, or as a practical expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. A loan is impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. At December 31, 1995, the portion of the allowance for loan losses relating to impaired loans as defined by FASB 114 was $916 thousand. ALLOWANCE FOR LOAN LOSSES Year-end loan loss X Allowance times allowance (millions) nonperforming loans -------------------- ------------------- 1990 $269.0 1.33x 1991 $360.2 1.49x 1992 $379.6 2.18x 1993 $404.8 3.72x 1994 $406.1 5.16x 1995 $408.8 7.63x EARNING COVERAGE OF NET LOAN LOSSES (EXCLUDING MORTGAGE SERVICING PORTFOLIO SALE, SUBSIDIARY SALE AND SECURITIES TRANSACTIONS) Earnings before income taxes and provision for X Number of times earnings loan losses (millions) coverned net loan losses ----------------------- -------------------------- 1990 $571.1 6.09x 1991 $562.8 2.77x 1992 $694.6 7.29x 1993 $752.8 11.17x 1994 $829.9 11.78x 1995 $917.1 9.07x LOAN LOSS EXPERIENCE (MILLIONS)
Net loan Credit Real losses to Card Commercial Subtotal Estate Subtotal Other Total avg loans ------ ---------- -------- ------ -------- ----- ----- --------- 1990 $41.821 $16.278 $ 58.099 $ 13.584 $ 71.683 $22.122 $ 93.805 .47% 1991 $65.359 $56.490 $121.849 $ 55.463 $177.312 $25.687 $202.999 .99% 1992 $56.795 $ .559 $ 57.354 $ 21.249 $ 78.603 $16.642 $ 95.245 .48% 1993 $52.675 $ 1.220 $ 53.895 $ 5.821 $ 59.716 $ 7.695 $ 67.411 .31% 1994 $58.434 $ 7.206 $ 65.640 $ (5.310) $ 60.330 $10.099 $ 70.429 .29% 1995 $89.015 $(1.267) $ 87.748 $ (1.875) $ 85.873 $15.242 $101.115 .37%
27 29 - -------------------------------------------------------------------------------------------------------- ALLOWANCE FOR LOAN LOSSES (thousands) TABLE 9 - --------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 -------- -------- -------- -------- -------- -------- SUMMARY OF TRANSACTIONS Balance at beginning of year .............. $406,132 $404,798 $379,557 $360,193 $269,916 $219,219 Additions from acquisitions ............... -- -- -- -- 276 1,510 Allowance of company sold ................. -- -- -- (4,811) -- -- Provision for loan losses ................. 103,791 71,763 92,652 119,420 293,000 142,992 Deduct net loan losses: Loans charged off: Commercial ............................. 4,283 12,883 6,792 13,153 61,089 22,982 Credit card ............................ 101,976 69,728 62,991 67,863 72,386 48,150 Other revolving credit ................. 4,304 3,715 3,922 4,627 5,154 3,680 Other retail ........................... 15,296 11,409 8,431 17,221 26,251 23,625 Real estate ............................ 7,748 4,705 14,514 27,041 58,089 16,241 Lease financing ........................ 892 226 458 668 1,614 1,497 Foreign ................................ -- -- -- 960 675 -- -------- -------- -------- -------- -------- -------- Total ................................ 134,499 102,666 97,108 131,533 225,258 116,175 Recoveries: Commercial ............................. 5,550 5,677 5,572 12,594 4,599 6,704 Credit card ............................ 12,961 11,294 10,316 11,068 7,027 6,329 Other revolving credit ................. 1,140 1,059 1,029 1,024 721 747 Other retail ........................... 3,960 3,956 3,791 5,481 6,545 5,368 Real estate ............................ 9,623 10,015 8,693 5,792 2,626 2,657 Lease financing ........................ 142 204 264 322 263 246 Foreign ................................ 8 32 32 7 478 319 Total ................................ 33,384 32,237 29,697 36,288 22,259 22,370 -------- -------- -------- -------- -------- -------- Net loan losses ......................... 101,115 70,429 67,411 95,245 202,999 93,805 -------- -------- -------- -------- -------- -------- Balance at end of year .................... $408,808* $406,132 $404,798 $379,557 $360,193 $269,916 ======== ======== ======== ======== ======== ======== NET LOAN LOSSES (RECOVERIES) BY CATEGORY Commercial ................................ $ (1,267) $ 7,206 $ 1,220 $ 559 $ 56,490 $ 16,278 Credit card ............................... 89,015 58,434 52,675 56,795 65,359 41,821 Other revolving credit .................... 3,164 2,656 2,893 3,603 4,433 2,933 Other retail .............................. 11,336 7,453 4,640 11,740 19,706 18,257 Real estate ............................... (1,875) (5,310) 5,821 21,249 55,463 13,584 Lease financing ........................... 750 22 194 346 1,351 1,251 Foreign ................................... (8) (32) (32) 953 197 (319) -------- ------- ------- ------- -------- ------- Total ................................ $101,115 $ 70,429 $67,411 $95,245 $202,999 $93,805 ======== ======= ======= ======= ======== ======= Net loan losses -- excluding credit cards .. $ 12,100 $11,995 $14,736 $38,450 $137,640 $51,984 NET LOAN LOSSES (RECOVERIES) TO AVERAGE LOANS BY CATEGORY Commercial ................................ (.01%) .08% .02% .01% .69% .20% Credit card ............................... 2.25 1.66 2.03 3.20 4.19 2.94 Other revolving credit .................... .92 .80 .88 1.12 1.48 1.02 Other retail .............................. .36 .23 .16 .44 .72 .64 Real estate ............................... (.02) (.07) .08 .30 .73 .19 Lease financing ........................... .28 .01 .14 .29 1.08 .87 Foreign ................................... -- (.03) (.04) 1.32 .23 (.40) Total loans ............................... .37 .29 .31 .48 .99 .47 Total loans -- excluding credit cards ..... .05 .06 .08 .21 .72 .28 Year-end allowance to outstanding loans ... 1.40% 1.57% 1.76% 1.80% 1.75% 1.27% Earnings coverage of net loan losses** .... 9.07x 11.78x 11.17x 7.29x 2.77x 6.09x ALLOCATION OF ALLOWANCE FOR LOAN LOSSES*** Commercial ............................... $ 87,765* $ 88,682 $ 89,431 $ 92,279 $ 89,055 $ 73,636 Credit card ............................... 110,400 109,615 78,264 54,584 44,655 39,255 Other revolving credit .................... 5,544 5,368 4,958 4,718 6,193 3,545 Other retail .............................. 27,816 32,084 33,748 28,113 25,303 44,233 Real estate ............................... 101,335 108,354 111,960 113,996 128,216 76,534 Lease financing ........................... 1,666 2,211 2,018 1,994 2,159 3,114 Foreign ................................... 3,697 3,830 931 715 1,382 2,296 Unallocated ............................... 70,585 55,988 83,488 83,158 63,230 27,303 -------- -------- -------- -------- -------- -------- Total ............................... $408,808 $406,132 $404,798 $379,557 $360,193 $269,916 ======== ======== ======== ======== ======== ======== - -------------------------------------------------------------------------------------------------------- *Includes the related allowance for credit losses for impaired loans as defined in FASB 114, "Accounting by Creditors for Impairment of a Loan," of $916 at December 31, 1995 **Earnings before income taxes and provision for loan losses excluding mortgage servicing portfolio sale, subsidiary sale and securities transactions ***The allocation of the allowance for loan losses above represents an estimate based on historical loss experience, individual credits, economic conditions and other judgmental factors. Since any allocation is judgmental and involves consideration of many factors, the allocation may be more or less than the charge-offs that may ultimately occur. The entire allowance is available for charge-offs in any category of loans. See page 71 for percentages of loan categories to total loans. - --------------------------------------------------------------------------------------------------------
28 30 Noninterest Income Total other operating revenue, which excludes the gain from the sale of the corporation's mortgage servicing portfolio as well as sales of investment securities and subsidiaries, rose $75.669 million or 12.5 percent for the year. The increase was fueled primarily by good gains in deposit account service charges and credit card fee income, expanded trading account profits and solid growth in investment fee income, electronic banking services and other income, including revenues from the Capital Markets Group. In the fourth quarter of 1995, the corporation reclassified foreign exchange income from other income to trading account profits. The corporation also restated other service charges and fees to separately identify revenues generated from electronic banking services and investment fee income. Prior period amounts have been restated to reflect the reclassifications. Service charges on deposit accounts were up $12.964 million or 6.6 percent. Higher revenues from overdraft and insufficient fund charges largely accounted for the increase. Gains also occurred in savings account service charges and in commercial account analysis fees, particularly in the closing months of the year. The level of corporate service activities expanded in 1995, however, most of the gains were compensated by increased credit given for commercial deposit account balances. Credit card fee income rose $12.357 million or 11 percent. Gains reflected excess revenues received from cardholder payments on the corporation's securitized loans along with higher levels of cardholder interchange income, net merchant discount income and overlimit charges. At year-end 1995, Wachovia had 1.805 million active credit card accounts, including those under management, an increase of 122 thousand or 7.2 percent from 1.683 million a year earlier. Trading account profits were up $16.196 million. Gains reflected stronger profits from foreign exchange trading as well as improved bond market conditions with lower yields on government and municipal securities resulting in favorable pricing. For the year 1995, trading account profits were comprised of trading profits of $11.209 million, foreign exchange income of $12.416 million and derivatives valuation of $2.073 million. Investment fee income, consisting primarily of fees from mutual funds, variable rate demand bonds, brokerage commissions, private placements and loan syndications, rose $12.861 million or 91.3 percent. Good gains in mutual fund activities, loan syndications, brokerage commissions and public finance fees largely accounted for the increase. At December 31, 1995, the corporation's Biltmore family of mutual funds totaled $2.905 billion compared with $2.209 billion at year-end 1994. Electronic banking service revenues, comprised principally of fees from ATM and debit card usage, expanded $9.796 million or 39.7 percent, reflecting greater usage of these cards. - --------------------------------------------------------------------------------------------------------------------- NONINTEREST INCOME (thousands) TABLE 10 - ---------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 ---- ---- ---- ---- ---- ---- Service charges on deposit accounts .................... $209,113 $196,149 $202,885 $189,537 $170,827 $155,808 Fees for trust services ................................ 130,521 128,100 120,030 109,504 102,665 99,572 Credit card income -- net of interchange payments ...... 124,282 111,925 101,780 78,068 62,814 55,202 Electronic banking ..................................... 34,479 24,683 14,840 12,936 10,590 8,522 Investment fee income .................................. 26,953 14,092 16,619 13,013 13,302 8,265 Mortgage fee income .................................... 23,320 33,224 39,101 40,078 28,608 20,741 Trading account profits (losses) -- excluding interest.. 25,698 9,502 22,445 (2,916) 17,846 17,321 Insurance premiums and commissions ..................... 13,164 11,679 11,847 15,002 12,819 14,232 Bankers' acceptance and letter of credit fees........... 23,190 23,168 19,668 20,141 14,232 11,605 Student loan servicing ................................. -- -- 5,535 33,250 31,470 29,841 Other service charges and fees ......................... 24,682 18,109 17,456 18,636 18,216 18,132 Other income ........................................... 44,699 33,801 27,973 7,993 6,789 19,611 Total other operating revenue .................... 680,101 604,432 600,179 535,242 490,178 458,852 Gain on sale of mortgage servicing portfolio ........... 79,025 -- -- -- -- -- Gain on sale of subsidiary ............................. -- -- 8,030 19,486 -- -- Investment securities gains (losses) ................... (23,494) 3,320 19,394 1,497 11,091 6,218 Total ............................................ $735,632 $607,752 $627,603 $556,225 $501,269 $465,070 - ---------------------------------------------------------------------------------------------------------------------
29 31 Trust service fees rose modestly by $2.421 million or slightly under 2 percent for the year. Moderate gains in personal trust fees helped to offset softness in corporate trust revenues. Trust assets at December 31, 1995 totaled $90.144 billion, including $20.226 billion under management. At year-end 1994, total trust assets were $78.972 billion, including $17.084 billion under management. Mortgage fee income decreased $9.904 million or 29.8 percent, principally reflecting the loss of servicing fee income due to the sale of the corporation's $9 billion residential mortgage servicing portfolio in April. The corporation sold its mortgage servicing portfolio based on a strategic analysis of the future of the servicing business, competitive industry trends and the long-term needs for technology investments. Proceeds from the sale are being invested in programs to enhance future growth and productivity including the corporation's Next Generation Branch Automation, upgrades to customer information databases and major refinements to financial systems for performance measurement. Lower origination fees also accounted for the decline in mortgage fee income. Loan originations in 1995 totaled $1.316 billion compared with $1.429 billion in 1994. Remaining combined categories of other operating revenue increased $18.978 million or 21.9 percent. Insurance premiums and commissions were higher by $1.485 million or 12.7 percent, while bankers' acceptance and letter of credit fees remained largely unchanged. Other income rose $10.898 million or 32.2 percent, largely reflecting higher revenues from Wachovia's Capital Markets Group. Other income also included contractual servicing revenue from the corporation's securitized credit card portfolio of $3.350 million in 1995 versus $257 thousand in 1994. Including the sale of the corporation's mortgage servicing portfolio and sales of investment securities, total noninterest income was up $127.880 million or 21 percent. The second quarter sale of the mortgage servicing portfolio resulted in a pretax gain of $79.025 million or $47.385 million, aftertax. Investment securities sales had a net loss of $23.494 million for the year, resulting largely from the corporation's decision to restructure its securities portfolio in the second quarter by selling $1.950 billion of securities available-for-sale at a loss and reinvesting the proceeds in higher yielding investments. Noninterest Expense Total noninterest expense was up $105.183 million or 9.6 percent for the year, reflecting moderate increases in personnel expense and combined net occupancy and equipment expense along with higher spending associated primarily with the corporation's ongoing strategic initiatives. Measured as a percentage of total adjusted revenues (taxable equivalent net interest income and total other operating revenue), noninterest spending in 1995 remained essentially flat with 1994 with an overhead ratio of 54.2 percent versus 54.1 percent in the prior year. Total personnel expense grew $36.819 million or 6.5 percent. Salaries expense increased $33.940 million or 7.3 percent due largely to higher base salaries and greater use of incentive pay for increased sales efforts, as well as to severance compensation for continued consolidation efforts. Employee benefits expense was up $2.879 million or 2.9 percent, with increases in line with growth in salaries. Combined net occupancy and equipment expense climbed $9.387 million or 5 percent. Net occupancy expense was up $6.194 million or 7.7 percent due largely to higher maintenance, renovation and operating premise lease expenses. Equipment expense grew $3.193 million or 3 percent, in large part reflecting increases in depreciation expense for the rollout of the corporation's Next Generation Branch Automation equipment. Remaining combined categories of noninterest expense rose $58.977 million or 17 percent. Expenses for professional services increased $18.990 million or 92.7 percent, driven principally by consulting fees associated 30 32 - ------------------------------------------------------------------------------------------------------------------- NONINTEREST EXPENSE (thousands) TABLE 11 - -------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 ---------- ---------- ---------- ---------- ---------- -------- Salaries................................... $ 498,730 $ 464,790 $ 455,621 $ 451,193 $ 443,273 $413,592 Employee benefits.......................... 101,596 98,717 113,059 88,630 81,216 73,881 ---------- ---------- ---------- ---------- ---------- -------- Total personnel expense............... 600,326 563,507 568,680 539,823 524,489 487,473 Net occupancy expense...................... 87,105 80,911 82,070 80,673 75,729 71,402 Equipment expense.......................... 109,701 106,508 102,246 100,916 99,569 98,042 Postage and delivery....................... 37,962 35,163 38,160 37,036 38,188 33,655 Outside data processing, programming and software................. 42,486 35,211 38,613 33,082 30,671 27,684 Stationery and supplies.................... 26,805 24,558 25,344 26,342 28,507 23,289 Advertising and sales promotion............ 50,362 34,067 38,141 27,911 22,139 30,010 Professional services...................... 39,483 20,493 17,144 18,412 25,786 18,887 Travel and business promotion.............. 19,694 16,254 15,563 13,578 13,641 13,637 FDIC insurance and regulatory examinations. 40,389 53,451 53,663 53,970 49,629 27,377 Check clearing and other bank services..... 9,195 8,894 10,159 10,391 11,334 10,310 Amortization of intangible assets.......... 8,587 18,693 28,001 34,423 51,756 19,815 Foreclosed property expense................ 920 (4,288) 7,654 9,755 15,655 4,845 Other expense.............................. 130,581 104,991 105,798 109,340 109,424 85,858 ---------- ---------- ---------- ---------- ---------- -------- Total................................. $1,203,596 $1,098,413 $1,131,236 $1,095,652 $1,096,517 $952,284 ========== ========== ========== ========== ========== ======== Overhead ratio.............................. 54.2% 54.1% 57.0% 58.6% 62.5% 58.4% - -------------------------------------------------------------------------------------------------------------------
with the corporation's strategic initiatives. Advertising and sales promotion expense was up $16.295 million or 47.8 percent primarily reflecting costs for expanded credit card solicitations. Outside data processing, programming and software expense grew $7.275 million or 20.7 percent due largely to increased costs for external programming services, higher volume of treasury cash services operations and amortization of externally purchased software. The corporation's foreclosed property expense totaled $920 thousand for the year versus a net gain of $4.288 million in 1994. In the third quarter of 1995, the Federal Deposit Insurance Corporation reduced deposit insurance premiums paid by banking companies retroactive to June 1, 1995. The rate assessed for well-capitalized banks decreased from $.23 to $.04 per $100 of deposits resulting in a refund of $13.173 million to the corporation. In the same quarter, the corporation made an accrual of $8.581 million for a probable one-time Savings Association Insurance Fund assessment. Income Taxes Applicable income taxes for the year were up $43.901 million or 19.7 percent. Income taxes computed at the statutory rate are reduced primarily by the interest earned on state and municipal debt securities and industrial revenue obligations. Also, within certain limitations, one-half of the interest income on qualifying employee stock ownership plan loans is exempt from federal taxes. The interest earned on state and municipal debt instruments is exempt from federal taxes and, except for out-of-state issues, from Georgia and North Carolina taxes as well, and results in substantial interest savings for local governments and their constituents. 31 33 Shareholders' Equity and Capital Ratios At December 31, 1995, shareholders' equity was $3.774 billion, higher by $487 million or 14.8 percent from $3.287 billion at year-end 1994. Included in the December 31, 1995 total was $116.113 million, net of tax, of unrealized gains on securities available-for-sale marked to fair market value under Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (FASB 115) versus $37.635 million, net of tax, of unrealized losses at year-end 1994. Shareholders' equity for the year averaged $3.410 billion compared with $3.096 billion in 1994, an increase of $314 million or 10.1 percent with unrealized gains of $21.021 million, net of tax, included in the 1995 average versus unrealized losses of $7.561 million, net of tax, for 1994. Wachovia's book value at December 31, 1995 was $22.15, an increase of 15.2 percent from $19.23 per share at year-end 1994. The corporation's internal capital generation rate (net income less dividends as a percentage of average equity) increased to 10.8 percent from 10.6 percent in 1994. The corporation was authorized by the board of directors on July 28, 1995 to repurchase up to 5 million shares of its common stock. The authorization replaced an earlier action on July 22, 1994 to repurchase the same number of shares. Repurchased shares will be used for various corporate purposes, including share issuance for the corporation's employee stock plans and dividend reinvestment plan. In 1995, the corporation repurchased a total of 1,755,500 shares under the new and previous authorizations at an average price of $36.745 per share for a total cost of $64.506 million. As of December 31, 1995, a total of 4,600,000 shares remained available for repurchase under the new authorization. On January 26, 1996, the corporation announced that, depending on market conditions and other factors related to management of its capital, share repurchase activity may increase significantly in 1996. This possibly could result in approximately 3 million fewer average shares outstanding for the year than in 1995. Share repurchase activity will remain governed by the corporation's capital management strategy to deploy capital in a prudent and competent manner designed to enhance shareholder value over the long-term. - ------------------------------------------------------------------------------------------------------------------------- CAPITAL COMPONENTS AND RATIOS TABLE 12 December 31 (thousands) - -------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 ----------- ----------- ----------- ----------- ----------- ---------- Tier I capital: Common shareholders' equity............. $ 3,773,757 $ 3,286,507 $ 3,017,947 $ 2,774,767 $ 2,484,414 $ 2,370,928 Less ineligible intangible assets....... 29,472 30,961 32,451 33,941 33,198 34,727 Unrealized (gains) losses on securities available-for-sale, net of tax........ (116,113) 37,635 -- -- -- -- ----------- ----------- ----------- ----------- ----------- ---------- Total Tier I capital................ 3,628,172 3,293,181 2,985,496 2,740,826 2,451,216 2,336,201 Tier II capital: Allowable allowance for loan losses..... 408,808 406,132 384,032 348,887 332,528 266,898 Allowable long-term debt................ 1,208,479 830,782 583,738 344,983 136,682 143,477 ----------- ----------- ----------- ----------- ----------- ---------- Tier II capital additions........... 1,617,287 1,236,914 967,770 693,870 469,210 410,375 ----------- ----------- ----------- ----------- ----------- ---------- Total capital....................... $ 5,245,459 $ 4,530,095 $ 3,953,266 $ 3,434,696 $ 2,920,426 $2,746,576 =========== =========== =========== =========== =========== ========== Risk-adjusted assets..................... $38,469,866 $35,573,896 $30,701,782 $27,880,304 $26,583,836 $26,056,745 Quarterly average assets.................. $43,477,038 $38,146,370 $35,419,829 $32,518,351 $32,180,449 $31,760,373 Risk-based capital ratios: Tier I capital.......................... 9.43% 9.26% 9.72% 9.83% 9.22% 8.97% Total capital........................... 13.64 12.73 12.88 12.32 10.99 10.54 Tier I leverage ratio*.................... 8.36% 8.63% 8.44% 8.44% 7.62% 7.36% Shareholders' equity to total assets...... 8.39% 8.39% 8.26% 8.32% 7.49% 7.12% *Ratio excludes the average unrealized gains (losses) on securities available-for-sale, net of tax, of $63,884 and ($26,581), respectively - -------------------------------------------------------------------------------------------------------------------------
32 34 Intangible assets totaled $39.093 million at December 31, 1995, consisting of $29.472 million in goodwill, $6.932 million in deposit base intangibles, $1.422 million in purchased credit card intangibles and $1.267 million in other intangible assets. In April, the corporation sold its mortgage servicing portfolio with associated mortgage servicing rights of $31.903 million at March 31, 1995. At year-end 1994, intangible assets were $78.408 million, with $34.477 million in mortgage servicing rights, $30.961 million in goodwill, $8.574 million in deposit base intangibles, $2.712 million in purchased credit card intangibles and $1.684 million in other intangibles. Regulatory agencies divide capital into Tier I (consisting of shareholders' equity less ineligible intangible assets) and Tier II (consisting of the allowable portion of the reserve for loan losses and certain long-term debt) and measure capital adequacy by applying both capital levels to a banking company's risk-adjusted assets and off-balance sheet items. Regulatory requirements presently specify that Tier I capital should exclude the market appreciation or depreciation of securities available-for-sale arising from valuation adjustments under FASB 115. In addition to these capital ratios, regulatory agencies have established a Tier I leverage ratio which measures Tier I capital to average assets less ineligible intangible assets. Regulatory guidelines require a minimum of total capital to risk-adjusted assets ratio of 8 percent with one-half consisting of tangible common shareholders' equity and a minimum Tier I leverage ratio of 3 percent. Banks which meet or exceed a Tier I ratio of 6 percent, a total capital ratio of 10 percent and a Tier I leverage ratio of 5 percent are considered well capitalized by regulatory standards. At December 31, 1995, Wachovia's Tier I to risk-adjusted assets ratio was 9.43 percent with total capital 13.64 percent of risk-adjusted assets. The corporation's Tier I leverage ratio was 8.36 percent. Dividends Cash dividends paid in 1995 totaled $235.495 million, an increase of $24.992 million or 11.9 percent from $210.503 million paid in 1994. The payout ratio of cash dividends paid to net income was 39.1 percent in both 1995 and 1994. Cash dividends paid per common share totaled $1.38, up 12.2 percent from $1.23 per common share paid in 1994. At its meeting on January 26, 1996, the corporation's board of directors declared a first quarter dividend of $.36 per share, payable March 1 to shareholders of record on February 6, 1996. The dividend represents an increase of 9.1 percent from $.33 per share paid in the same period of 1995. Pages 72 and 73 present additional dividend information. YEAR-END SHAREHOLDERS' EQUITY PER SHARE FIVE-YEAR COMPOUND GROWTH RATE = 9.5% 1990 $14.07 1991 $14.56 1992 $16.18 1993 $17.61 1994 $19.23 1995 $22.15 33 35 - ----------------------------------------------------------------------------------------------- QUARTERLY FINANCIAL SUMMARY TABLE 13 - -----------------------------------------------------------------------------------------------
1995 ----------------------------------------- Fourth Third Second First Quarter Quarter Quarter Quarter -------- -------- -------- -------- SUMMARY OF OPERATIONS (thousands, except per share data) Interest income -- taxable equivalent ............. $815,894 $813,117 $774,078 $715,414 Interest expense ................................. 424,624 418,917 392,970 342,596 -------- -------- -------- -------- Net interest income -- taxable equivalent ......... 391,270 394,200 381,108 372,818 Taxable equivalent adjustment .................... 24,531 26,633 23,987 23,622 -------- -------- -------- -------- Net interest income .............................. 366,739 367,567 357,121 349,196 Provision for loan losses ........................ 30,172 23,179 28,652 21,788 -------- -------- -------- -------- Net interest income after provision for loan losses ................................ 336,567 344,388 328,469 327,408 Other operating revenue .......................... 186,289 170,415 166,304 157,093 Gain on sale of mortgage servicing portfolio ...................................... -- -- 79,025 -- Investment securities gains (losses) ............. 2,554 317 (26,236) (129) -------- -------- -------- -------- Total other income ................................ 188,843 170,732 219,093 156,964 Personnel expense ................................. 152,078 153,298 149,987 144,963 Other expense ..................................... 162,987 145,584 156,630 138,069 -------- -------- -------- -------- Total other expense ............................... 315,065 298,882 306,617 283,032 Income before income taxes ........................ 210,345 216,238 240,945 201,340 Applicable income taxes* .......................... 64,147 64,958 78,036 59,184 -------- -------- -------- -------- Net income ........................................ $146,198 $151,280 $162,909 $142,156 ======== ======== ======== ======== Net income per common share: Primary ......................................... $ .85 $ .88 $ .94 $ .83 Fully diluted ................................... $ .85 $ .87 $ .95 $ .82 Cash dividends paid per common share .............. $ .36 $ .36 $ .33 $ .33 Cash dividends paid on common stock ............... $ 61,423 $ 61,312 $ 56,302 $ 56,458 Cash dividend payout ratio ........................ 42.0% 40.5% 34.6% 39.7% Average primary shares outstanding ................ 172,372 171,793 171,986 172,205 Average fully diluted shares outstanding .......... 172,705 172,512 172,446 172,760 SELECTED AVERAGE BALANCES (millions) Total assets ...................................... $ 43,477 $ 42,573 $ 40,876 $ 38,902 Loans -- net of unearned income .................... 28,470 28,097 27,203 26,219 Investment securities** ........................... 8,676 8,778 8,276 7,612 Other interest-earning assets ..................... 1,562 1,210 1,012 815 Total interest-earning assets ..................... 38,708 38,085 36,491 34,646 Interest-bearing deposits ......................... 20,705 19,352 18,388 17,354 Short-term borrowed funds ......................... 7,332 8,593 7,869 7,390 Long-term debt .................................... 5,213 4,851 4,863 4,674 Total interest-bearing liabilities ................ 33,250 32,796 31,120 29,418 Noninterest-bearing deposits ...................... 5,361 5,212 5,333 5,302 Total deposits .................................... 26,066 24,564 23,721 22,656 Shareholders' equity .............................. 3,576 3,463 3,345 3,253 RATIOS (averages) Annualized net loan losses to loans ............... .42% .33% .42% .30% Annualized net yield on interest-earning assets ......................... 4.01 4.11 4.19 4.36 Shareholders' equity to: Total assets .................................... 8.22 8.13 8.18 8.36 Net loans ....................................... 12.74 12.51 12.48 12.60 Annualized return on assets*** .................... 1.35 1.42 1.59 1.46 Annualized return on shareholders' equity*** ....................................... 16.36 17.47 19.48 17.48 - ----------------------------------------------------------------------------------------------- 1994 ----------------------------------------- Fourth Third Second First Quarter Quarter Quarter Quarter -------- -------- --------- -------- SUMMARY OF OPERATIONS (thousands, except per share data) Interest income-- taxable equivalent ............. $677,097 $632,359 $594,669 $558,329 Interest expense ................................. 305,564 274,329 242,488 216,007 -------- -------- -------- -------- Net interest income-- taxable equivalent ......... 371,533 358,030 352,181 342,322 Taxable equivalent adjustment .................... 25,893 24,909 24,882 24,476 -------- -------- -------- -------- Net interest income .............................. 345,640 333,121 327,299 317,846 Provision for loan losses ........................ 19,539 18,123 16,342 17,759 -------- -------- -------- -------- Net interest income after provision for loan losses ................................ 326,101 314,998 310,957 300,087 Other operating revenue .......................... 154,723 151,541 153,299 144,869 Gain on sale of mortgage servicing portfolio ...................................... -- -- -- -- Investment securities gains (losses) ............. 2,094 433 221 572 -------- -------- -------- -------- Total other income ................................ 156,817 151,974 153,520 145,441 Personnel expense ................................. 141,566 139,695 141,232 141,014 Other expense ..................................... 140,959 131,598 133,313 129,036 -------- -------- -------- -------- Total other expense ............................... 282,525 271,293 274,545 270,050 Income before income taxes ........................ 200,393 195,679 189,932 175,478 Applicable income taxes* .......................... 58,267 57,687 55,791 50,679 -------- -------- -------- -------- Net income ........................................ $142,126 $137,992 $134,141 $124,799 ======== ======== ======== ======== Net income per common share: Primary ......................................... $ .83 $ .80 $ .78 $ .72 Fully diluted ................................... $ .82 $ .80 $ .78 $ .72 Cash dividends paid per common share .............. $ .33 $ .30 $ .30 $ .30 Cash dividends paid on common stock ............... $ 56,420 $ 51,241 $ 51,399 $ 51,443 Cash dividend payout ratio ........................ 39.7% 37.1% 38.3% 41.2% Average primary shares outstanding ................ 171,973 172,097 172,558 172,739 Average fully diluted shares outstanding .......... 172,552 172,701 173,197 173,378 SELECTED AVERAGE BALANCES (MILLIONS) Total assets ...................................... $ 38,146 $ 37,409 $ 36,753 $ 35,778 Loans-- net of unearned income .................... 25,290 24,553 23,969 23,010 Investment securities** ........................... 7,582 7,695 7,767 7,690 Other interest-earning assets ..................... 877 809 829 1,083 Total interest-earning assets ..................... 33,749 33,057 32,565 31,783 Interest-bearing deposits ......................... 17,040 17,020 16,964 16,694 Short-term borrowed funds ......................... 6,619 6,115 6,038 6,148 Long-term debt .................................... 4,795 4,637 4,281 3,670 Total interest-bearing liabilities ................ 28,454 27,772 27,283 26,512 Noninterest-bearing deposits ...................... 5,471 5,364 5,333 5,366 Total deposits .................................... 22,511 22,384 22,297 22,060 Shareholders' equity .............................. 3,186 3,114 3,063 3,021 RATIOS (averages) Annualized net loan losses to loans ............... .31% .29% .26% .30% Annualized net yield on interest-earning assets ......................... 4.37 4.30 4.34 4.37 Shareholders' equity to: Total assets .................................... 8.35 8.32 8.33 8.44 Net loans ....................................... 12.80 12.89 13.00 13.36 Annualized return on assets*** .................... 1.49 1.48 1.46 1.40 Annualized return on shareholders' equity*** ....................................... 17.84 17.73 17.52 16.53 - ------------------------------------------------------------------------------------------------ * Income taxes applicable to securities transactions were $980, $91, ($9,580), ($67), $840, $173, $89 and $226, respectively ** Reported at amortized cost; excludes pretax unrealized gains (losses) on securities available-for-sale of $104, $65, $15, ($49), ($44), ($28), ($14) and $37, respectively *** Includes average unrealized gains (losses) on securities available-for-sale of $64, $40, $9, ($30), ($27), ($17), ($9) and $22 net of tax, respectively
34 36 Fourth Quarter Analysis The corporation's net income per fully diluted share was $.85 in the fourth quarter of 1995, a gain of 2.7 percent from $.82 in the same three months a year earlier. Net income totaled $146.198 million, up $4.072 million or 2.9 percent from $142.126 million, and represented annualized returns of 16.36 percent on shareholders' equity and 1.35 percent on assets. Taxable equivalent net interest income rose $19.737 million or 5.3 percent largely reflecting good gains in interest-earning assets moderated by increased funding costs and higher levels of interest-bearing liabilities. Average loans grew $3.180 billion or 12.6 percent and included the impact of a $500 million credit card securitization. Gains were led by regular commercial loans, up $1.469 billion or 18.6 percent, residential mortgages, higher by $406 million or 10.8 percent, and commercial mortgages, which increased $342 million or 9.9 percent. Average investment securities expanded $1.094 billion or 14.4 percent. The corporation QUARTERLY NET INCOME QUARTERLY NET INCOME PER SHARE, 1994 PER SHARE, 1995 (FULLY DILUTED) (FULLY DILUTED) 1st Quarter .72 1st Quarter .82 2nd Quarter .78 2nd Quarter .95 3rd Quarter .80 3rd Quarter .87 4th Quarter .82 4th Quarter .85 - ------------------------------------------------------------------------------------------------- COMPONENTS OF EARNINGS PER PRIMARY SHARE TABLE 14 - -------------------------------------------------------------------------------------------------
1995 1994 Fourth Fourth Quarter Quarter Change -------- -------- -------- Interest income -- taxable equivalent ........................... $ 4.73 $ 3.94 $ .79 Interest expense ............................................... 2.46 1.78 .68 -------- -------- ------- Net interest income -- taxable equivalent ....................... 2.27 2.16 .11 Taxable equivalent adjustment .................................. .14 .15 (.01) -------- -------- ------- Net interest income ............................................ 2.13 2.01 .12 Provision for loan losses ...................................... .18 .12 .06 -------- -------- ------- Net interest income after provision for loan losses ............ 1.95 1.89 .06 Other operating revenue ........................................ 1.08 .90 .18 Investment securities gains .................................... .02 .02 -- -------- -------- ------- Total other income ............................................. 1.10 .92 .18 Personnel expense .............................................. .88 .82 .06 Other expense .................................................. .95 .82 .13 -------- -------- ------- Total other expense ............................................ 1.83 1.64 .19 Income before income taxes ..................................... 1.22 1.17 .05 Applicable income taxes ........................................ .37 .34 .03 -------- -------- ------- Net income ..................................................... $ .85 $ .83 $ .02 ======== ======== ======= - -------------------------------------------------------------------------------------------------
35 37
- ------------------------------------------------------------------------------------------------------------------------------------ TAXABLE EQUIVALENT RATE/VOLUME VARIANCE ANALYSIS - FOURTH QUARTER* TABLE 15 - ------------------------------------------------------------------------------------------------------------------------------------ Variance Average Volume Average Rate Interest Attributable to ----------------- ------------ --------------------- ------------------- 1995 1994 1995 1994 1995 1994 Variance Rate Volume -------- ------- ----- ----- -------- -------- --------- ------- -------- (Millions) (Thousands) INTEREST INCOME Loans: $ 9,365 $ 7,896 7.30 6.86 Commerical....................... $172,285 $136,600 $ 35,685 $ 9,057 $ 26,628 2,204 1,945 9.35 9.91 Tax-exempt....................... 51,934 48,582 3,352 (2,858) 6,210 ------- ------- -------- -------- -------- 11,569 9,841 7.69 7.47 Total commercial............. 224,219 185,182 39,037 5,677 33,360 742 752 9.40 8.56 Direct retail.................... 17,593 16,229 1,364 1,571 (207) 2,532 2,442 8.20 7.85 Indirect retail.................. 52,305 48,310 3,995 2,197 1,798 3,797 3,812 12.33 11.44 Credit card...................... 118,019 109,926 8,093 8,524 (431) 349 339 12.50 12.05 Other revolving credit........... 11,011 10,297 714 390 324 ------- ------- -------- -------- -------- 7,420 7,345 10.64 9.98 Total retail................. 198,928 184,762 14,166 12,257 1,909 725 524 9.77 10.87 Construction..................... 17,857 14,358 3,499 (1,569) 5,068 3,789 3,447 8.60 8.23 Commercial mortgages............. 82,129 71,507 10,622 3,318 7,304 4,167 3,761 8.48 7.89 Residential mortgages............ 89,073 74,770 14,303 5,868 8,435 ------- ------- -------- -------- -------- 8,681 7,732 8.64 8.24 Total real estate............. 189,059 160,635 28,424 8,028 20,396 452 185 9.44 7.75 Lease financing.................. 10,749 3,615 7,134 940 6,194 348 187 7.29 6.32 Foreign.......................... 6,393 2,987 3,406 517 2,889 ------- ------- -------- -------- -------- 28,470 25,290 8.77 8.42 Total loans................... 629,348 537,181 92,167 22,550 69,617 Investment Securities: Held-to-maturity: 1,637 2,414 6.80 6.65 U.S. Government and agency..... 28,038 40,487 (12,449) 846 (13,295) 1,474 1,103 7.96 7.79 Mortgage backed securities..... 29,561 21,640 7,921 490 7,431 338 566 11.33 12.32 State and municipal............ 9,657 17,579 (7,922) (1,312) (6,610) 12 14 5.12 5.71 Other.......................... 160 209 (49) (20) (29) ------- ------- -------- -------- -------- Total securities 3,461 4,097 7.73 7.74 held-to-maturity............ 67,416 79,915 (12,499) (100) (12,399) Available-for-sale:** 3,954 2,389 7.08 5.47 U.S. Government and agency..... 70,545 32,922 37,623 11,686 25,937 1,106 855 7.20 4.50 Mortgage backed securities..... 20,067 9,694 10,373 6,971 3,402 155 241 6.00 6.22 Other.......................... 2,353 3,773 (1,420) (131) (1,289) ------- ------- -------- -------- -------- Total securities 5,215 3,485 7.07 5.28 available-for-sale.......... 92,965 46,389 46,576 18,908 27,668 ------- ------- -------- -------- -------- 8,676 7,582 7.33 6.61 Total investment securities... 160,381 126,304 34,077 14,726 19,351 421 7 7.95 6.62 Interest-bearing bank balances..... 8,442 110 8,332 26 8,306 Federal funds sold and securities purchased under 225 100 5.84 5.46 resale agreements................ 3,310 1,382 1,928 103 1,825 916 770 6.25 6.25 Trading account assets............. 14,413 12,120 2,293 (1) 2,294 ------- ------- -------- -------- -------- $38,708 $33,749 8.36 7.96 Total interest-earning assets. 815,894 677,097 138,797 35,578 103,219 ======= ======= INTEREST EXPENSE $ 3,317 $ 3,364 1.84 1.70 Interest-bearing demand............ 15,392 14,443 949 1,150 (201) 6,985 6,114 3.73 3.08 Savings and money market savings... 65,731 47,438 18,293 10,954 7,339 6,631 5,457 5.90 4.61 Savings certificates............... 98,647 63,416 35,231 19,935 15,296 2,797 1,493 6.10 4.86 Large denomination certificates.... 43,028 18,288 24,740 5,609 19,131 ------- ------- -------- -------- -------- Total time deposits in 19,730 16,428 4.48 3.47 domestic offices............ 222,798 143,585 79,213 46,914 32,299 975 612 5.52 5.12 Time deposits in foreign offices... 13,567 7,898 5,669 667 5,002 ------- ------- -------- -------- -------- 20,705 17,040 4.53 3.53 Total time deposits........... 236,365 151,483 84,882 48,314 36,568 Federal funds purchased and securities sold under 4,686 5,478 6.01 5.34 repurchase agreements............ 70,970 73,723 (2,753) 8,624 (11,377) 561 466 5.39 4.87 Commercial paper................... 7,625 5,725 1,900 645 1,255 2,085 675 5.92 5.09 Other short-term borrowed funds.... 31,126 8,667 22,459 1,625 20,834 ------- ------- -------- -------- -------- Total short-term 7,332 6,619 5.94 5.28 borrowed funds.............. 109,721 88,115 21,606 11,564 10,042 3,889 3,956 5.77 5.20 Bank notes......................... 56,589 51,868 4,721 5,618 (897) 1,324 839 6.58 6.67 Other long-term debt............... 21,949 14,098 7,851 (193) 8,044 ------- ------- -------- -------- -------- 5,213 4,795 5.98 5.46 Total long-term debt.......... 78,538 65,966 12,572 6,566 6,006 ------- ------- -------- -------- -------- Total interest-bearing $33,250 $28,454 5.07 4.26 liabilities................. 424,624 305,564 119,060 62,971 56,089 ======= ======= ----- ----- -------- -------- -------- 3.29 3.70 Interest rate spread ===== ===== Net yield on interest-earning 4.01 4.37 assets and net interest income... $391,270 $371,533 $ 19,737 (31,976) 51,713 ===== ===== ======== ======== ======== - ------------------------------------------------------------------------------------------------------------------------------------
*Interest income and yields are presented on a fully taxable equivalent basis using the federal income tax rate and state tax rates, as applicable, reduced by the nondeductible portion of interest expense **Volume amounts are reported at amortized cost; excludes pretax unrealized gains (losses) of $104 million in 1995 and $(44) million in 1994 36 38 - ----------------------------------------------------------------------------------------------- QUARTERLY ALLOWANCE FOR LOAN LOSSES (thousands) TABLE 16 - -----------------------------------------------------------------------------------------------
1995 -------------------------------------------------- Fourth Third Second First Quarter Quarter Quarter Quarter ---------- --------- --------- --------- SUMMARY OF TRANSACTIONS Balance at beginning of period .......... $ 408,684 $ 408,633 $ 408,500 $ 406,132 Provision for loan losses ............... 30,172 23,179 28,652 21,788 Deduct net loan losses: Loans charged off: Commercial .......................... 1,662 431 1,872 318 Credit card ......................... 29,292 27,424 23,829 21,431 Other revolving credit .............. 1,239 1,202 1,058 805 Other retail ........................ 4,747 3,609 3,528 3,412 Real estate ......................... 1,332 526 5,499 391 Lease financing ..................... 56 99 636 101 Foreign ............................. -- -- -- -- --------- --------- --------- --------- Total ............................. 38,328 33,291 36,422 26,458 Recoveries: Commercial .......................... 894 2,561 1,400 695 Credit card ......................... 3,365 3,207 3,186 3,203 Other revolving credit .............. 278 273 267 322 Other retail ........................ 913 1,056 972 1,019 Real estate ......................... 2,804 3,021 2,037 1,761 Lease financing ..................... 26 45 41 30 Foreign ............................. -- -- -- 8 --------- --------- --------- --------- Total ............................. 8,280 10,163 7,903 7,038 --------- --------- --------- --------- Net loan losses ....................... 30,048 23,128 28,519 19,420 --------- --------- --------- --------- Balance at end of period ................ $ 408,808* $ 408,684* $ 408,633* $ 408,500* ========= ========= ========= ========= NET LOAN LOSSES (RECOVERIES) BY CATEGORY Commercial .............................. 768 (2,130) 472 (377) Credit card ............................. 25,927 24,217 20,643 18,228 Other revolving credit .................. 961 929 791 483 Other retail ............................ 3,834 2,553 2,556 2,393 Real estate ............................. (1,472) (2,495) 3,462 (1,370) Lease financing ......................... 30 54 595 71 Foreign ................................. -- -- -- (8) --------- --------- --------- --------- Total ............................. 30,048 23,128 28,519 19,420 ========= ========= ========= ========= Net loan losses -- excluding credit cards .......................... $ 4,121 $ (1,089) $ 7,876 $ 1,192 ANNUALIZED NET LOAN LOSSES (RECOVERIES) TO AVERAGE LOANS BY CATEGORY Commercial .............................. .03% (.07%) .02% (.01%) Credit card ............................. 2.73 2.38 2.07 1.84 Other revolving credit .................. 1.10 1.08 .93 .57 Other retail ............................ .47 .32 .33 .31 Real estate ............................. (.07) (.12) .17 (.07) Lease financing ......................... .03 .09 1.19 .15 Foreign ................................. -- -- -- (.01) Total loans ............................. .42 .33 .42 .30 Total loans -- excluding credit cards ... .07 (.02) .14 .02 Period-end allowance to outstanding loans ..................... 1.40% 1.41% 1.45% 1.53% 1994 --------------------------------------------------- Fourth Third Second First Quarter Quarter Quarter Quarter --------- --------- --------- --------- SUMMARY OF TRANSACTIONS Balance at beginning of period .......... $ 406,005 $ 405,942 $ 405,474 $ 404,798 Provision for loan losses ............... 19,539 18,123 16,342 17,759 Deduct net loan losses: Loans charged off: Commercial .......................... 1,793 3,063 2,947 5,080 Credit card ......................... 19,682 17,310 16,808 15,928 Other revolving credit .............. 1,000 908 902 905 Other retail ........................ 3,216 2,504 2,605 3,084 Real estate ......................... 1,785 749 1,352 819 Lease financing ..................... 57 28 80 61 Foreign ............................. -- -- -- -- --------- --------- --------- --------- Total ............................. 27,533 24,562 24,694 25,877 Recoveries: Commercial .......................... 1,382 915 1,423 1,957 Credit card ......................... 2,926 2,837 2,760 2,771 Other revolving credit .............. 224 285 303 247 Other retail ........................ 927 1,159 749 1,121 Real estate ......................... 2,624 1,273 3,506 2,612 Lease financing ..................... 31 25 70 78 Foreign ............................. 7 8 9 8 --------- --------- --------- --------- Total ............................. 8,121 6,502 8,820 8,794 --------- --------- --------- --------- Net loan losses ....................... 19,412 18,060 15,874 17,083 --------- --------- --------- --------- Balance at end of period ................ $ 406,132 $ 406,005 $ 405,942 $ 405,474 ========= ========= ========= ========= NET LOAN LOSSES (RECOVERIES) BY CATEGORY Commercial .............................. $ 411 $ 2,148 $ 1,524 $ 3,123 Credit card ............................. 16,756 14,473 14,048 13,157 Other revolving credit .................. 776 623 599 658 Other retail ............................ 2,289 1,345 1,856 1,963 Real estate ............................. (839) (524) (2,154) (1,793) Lease financing ......................... 26 3 10 (17) Foreign ................................. (7) (8) (9) (8) --------- --------- --------- --------- Total ............................. $ 19,412 $ 18,060 $ 15,874 $ 17,083 ========= ========= ========= ========= Net loan losses -- excluding credit cards .......................... $ 2,656 $ 3,587 $ 1,826 $ 3,926 ANNUALIZED NET LOAN LOSSES (RECOVERIES) TO AVERAGE LOANS BY CATEGORY Commercial .............................. .02% .09% .07% .14% Credit card ............................. 1.76 1.57 1.63 1.67 Other revolving credit .................. .92 .74 .72 .80 Other retail ............................ .29 .17 .23 .25 Real estate ............................. (.04) (.03) (.12) (.10) Lease financing ......................... .06 .01 .02 (.04) Foreign ................................. (.01) (.04) (.04) (.04) Total loans ............................. .31 .29 .26 .30 Total loans -- excluding credit cards ... .05 .07 .04 .08 Period-end allowance to outstanding loans ..................... 1.57% 1.63% 1.67% 1.71% - ------------------------------------------------------------------------------------------------
*Includes the related allowance for credit losses for impaired loans as defined in FASB 114, "Accounting by Creditors for Impairment of a Loan," of $916 at December 31, 1995, $916 at September 30, 1995, $0 at June 30, 1995 and $2,070 at March 31, 1995 37 39 reclassified $2.720 billion of securities held-to-maturity as securities available-for-sale under a one-time allowance permitted by the Financial Accounting Standards Board for year-end 1995 financial statements. The provision for loan losses was $30.172 million, an increase of $10.633 million or 54.4 percent from $19.539 million a year earlier. Net loan loses were $30.048 million or .42 percent of average loans annualized compared with $19.412 million or .31 percent in the same three months of 1994. The rise reflected higher charge-offs, principally in credit cards and other retail loans, as well as more moderate loan recoveries. Excluding credit cards, net charge-offs for the fourth period totaled $4.121 million or .07 percent of average related loans compared with $2.656 million or .05 percent in 1994. Credit card net loan losses were $25.927 million or 2.73 percent of average credit card loans for the period versus $16.756 million or 1.76 percent in the 1994 fourth quarter. On a managed basis credit card net charge-offs, including securitized loans, were $29.164 million or 2.72 percent compared with $16.799 million or 1.73 percent a year earlier. Other retail loans, consisting of direct and indirect retail lending, had net loan losses of $3.834 million or .47 percent of average related loans versus $2.289 million or .29 percent in the same three months of 1994. Other operating revenue expanded $31.566 million or 20.4 percent. Solid growth occurred in all major categories except mortgage fee income which declined from the prior year primarily due to the April sale of the corporation's mortgage servicing portfolio and loss of associated servicing income. Deposit account service charges were up $6.958 million or 14.4 percent, while trust fee revenues increased $3.404 million or 10.9 percent. Credit card fee income was higher by $2.091 million or 6.9 percent and included excess revenues received from cardholder payments on the corporation's securitized loan portfolio. Investment fee income, consisting of fees from mutual funds, loan syndications, brokerage commissions, variable rate demand bonds and private placements, rose $4.127 million or 116.1 percent. Electronic banking service revenues, associated
- ---------------------------------------------------------------------------------------------------------------------------------- NONINTEREST INCOME (thousands) TABLE 17 - ---------------------------------------------------------------------------------------------------------------------------------- 1995 1994 ----------------------------------------- ----------------------------------------- Fourth Third Second First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter -------- -------- -------- -------- -------- -------- -------- -------- Service charges on deposit accounts ..... $ 55,371 $ 52,409 $ 52,452 $ 48,881 $ 48,413 $ 48,940 $ 50,646 $ 48,150 Fees for trust services ................. 34,689 31,740 33,211 30,881 31,285 32,151 32,983 31,681 Credit card income -- net of interchange payments .................. 32,291 31,180 31,867 28,944 30,200 28,271 28,120 25,334 Electronic banking ...................... 9,412 8,962 8,860 7,245 7,513 6,353 6,072 4,745 Investment fee income ................... 7,682 8,690 5,404 5,177 3,555 3,911 2,785 3,841 Mortgage fee income ..................... 4,050 4,269 6,547 8,454 8,886 8,590 7,715 8,033 Trading account profits (losses) -- excluding interest .................... 8,238 5,646 5,608 6,206 1,669 3,464 1,133 3,236 Insurance premiums and commissions ...... 3,422 3,044 3,385 3,313 3,189 2,425 3,379 2,686 Bankers' acceptance and letter of credit fees ........................ 6,003 5,885 5,743 5,559 5,365 5,827 5,689 6,287 Other service charges and fees .......... 7,054 5,609 5,624 6,395 4,462 4,307 4,299 5,041 Other income ............................ 18,077 12,981 7,603 6,038 186 7,302 10,478 5,835 -------- -------- -------- -------- -------- -------- -------- -------- Total other operating revenue ..... 186,289 170,415 166,304 157,093 154,723 151,541 153,299 144,869 Gain on sale of mortgage servicing portfolio ............................. -- -- 79,025 -- -- -- -- -- Investment securities gains (losses) .... 2,554 317 (26,236) (129) 2,094 433 221 572 -------- -------- -------- -------- -------- -------- -------- -------- Total ............................. $188,843 $170,732 $219,093 $156,964 $156,817 $151,974 $153,520 $145,441 ======== ======== ======== ======== ======== ======== ======== ======== - ----------------------------------------------------------------------------------------------------------------------------------
38 40
- ----------------------------------------------------------------------------------------------- NONINTEREST EXPENSE (thousands) TABLE 18 - ----------------------------------------------------------------------------------------------- 1995 ------------------------------------------------- Fourth Third Second First Quarter Quarter Quarter Quarter --------- --------- --------- --------- Salaries ................................. $ 129,673 $ 127,152 $ 123,720 $ 118,185 Employee benefits ........................ 22,405 26,146 26,267 26,778 --------- --------- --------- --------- Total personnel expense ............ 152,078 153,298 149,987 144,963 Net occupancy expense .................... 24,551 21,424 20,940 20,190 Equipment expense ........................ 27,753 25,750 27,935 28,263 Postage and delivery ..................... 9,801 9,379 9,190 9,592 Outside data processing, programming and software ............... 11,966 9,959 10,664 9,897 Stationery and supplies .................. 7,604 6,374 6,619 6,208 Advertising and sales promotion .......... 16,869 14,334 9,747 9,412 Professional services .................... 14,922 9,721 9,149 5,691 Travel and business promotion ............ 6,051 4,474 5,110 4,059 FDIC insurance and regulatory examinations ........................... 4,242 9,464 13,344 13,339 Check clearing and other bank services ... 2,334 2,374 2,337 2,150 Amortization of intangible assets ........ 1,190 1,210 2,116 4,071 Foreclosed property expense .............. 813 (146) 408 (155) Other expense ............................ 34,891 31,267 39,071 25,352 --------- --------- --------- --------- Total .............................. $ 315,065 $ 298,882 $ 306,617 $ 283,032 ========= ========= ========= ========= Overhead ratio ........................... 54.6% 52.9% 56.0% 53.4% - -----------------------------------------------------------------------------------------------
1994 ------------------------------------------------- Fourth Third Second First Quarter Quarter Quarter Quarter Salaries ................................. $ 117,904 $ 116,793 $ 114,882 $ 115,211 Employee benefits ........................ 23,662 22,902 26,350 25,803 --------- --------- --------- --------- Total personnel expense ............ 141,566 139,695 141,232 141,014 Net occupancy expense .................... 21,261 20,026 20,196 19,428 Equipment expense ........................ 27,197 26,789 26,010 26,512 Postage and delivery ..................... 8,650 8,645 8,816 9,052 Outside data processing, programming and software ............... 10,773 7,834 8,119 8,485 Stationery and supplies .................. 6,182 6,578 5,836 5,962 Advertising and sales promotion .......... 6,949 8,019 9,316 9,783 Professional services .................... 6,539 4,617 5,385 3,952 Travel and business promotion ............ 4,650 3,757 4,343 3,504 FDIC insurance and regulatory examinations ........................... 13,188 13,294 13,589 13,380 Check clearing and other bank services ... 2,204 2,475 1,920 2,295 Amortization of intangible assets ........ 4,430 4,524 4,602 5,137 Foreclosed property expense .............. 9 (452) (404) (3,441) Other expense ............................ 28,927 25,492 25,585 24,987 --------- --------- --------- --------- Total .............................. $ 282,525 $ 271,293 $ 274,545 $ 270,050 ========= ========= ========= ========= Overhead ratio ........................... 53.7% 53.2% 54.3% 55.4% - ------------------------------------------------------------------------------------------------
with ATM and debit card usage, grew $1.899 million or 25.3 percent. Trading account profits were up $6.569 million and include foreign exchange revenue, classified prior to year-end 1995 financial statements as part of other income. Prior period amounts have been restated for the reclassification. Total noninterest expense was higher by $32.540 million or 11.5 percent, primarily reflecting investment spending associated with the corporation's ongoing strategic initiatives. Total personnel expense rose $10.512 million or 7.4 percent with increases in salaries expense moderated by lower employee benefit costs. Combined net occupancy and equipment expense was up $3.846 million or 7.9 percent, principally due to renovations and continued rollout of Next Generation Branch Automation equipment. Remaining combined categories of noninterest expense grew $18.182 million or 19.7 percent. Advertising and sales promotion expense increased $9.920 million or 142.8 percent, reflecting costs for expanded national credit card solicitations in the period. Expenses for professional services were higher by $8.383 million or 128.2 percent, primarily due to consulting fees for ongoing strategic initiatives. RESULTS OF OPERATIONS 1994 vs. 1993 Consolidated net income for 1994 was $539.058 million or $3.12 per fully diluted share compared with $492.095 million or $2.81 per fully diluted share in 1993. The earnings gain reflected strong loan growth, good expense control and lower credit loss costs, along with a modest increase in other operating revenue. Net income represented returns of 17.41 percent on shareholders' equity and 1.46 percent on assets versus 17.13 percent and 1.46 percent, respectively, in 1993. Taxable equivalent net interest income increased $41.340 million or 3 percent. Growth in interest-earning assets primarily fueled the gain which was offset partially by higher levels of interest-bearing liabilities and an increase in the average cost of funds. The net yield on interest-earning assets declined 30 basis points. Taxable equivalent interest income rose $240.716 million or 10.8 percent. Average interest-earning assets were higher by $3.014 billion or 10.1 percent led by loans, which expanded $2.667 billion or 12.4 percent for the year. The commercial loan portfolio, including related real estate categories, grew $1.549 billion or 13 percent, reflecting gains largely in regular commercial loans and commercial mortgages. Retail loans, 39 41 including residential mortgages, were higher by $1.118 billion or 11.6 percent, with credit cards and indirect retail loans accounting for the majority of the growth. Interest expense increased $199.376 million or 23.8 percent. Average interest-bearing liabilities were up $3.016 billion or 12.3 percent while the average rate paid rose 34 basis points. Growth in interest-bearing liabilities occurred primarily in long-term debt and in short-term borrowings, up $2.277 billion or 109.8 percent and $827 million or 15.3 percent, respectively. Total interest-bearing time deposits were largely unchanged. The increase in long-term debt principally was due to continued expansion of medium-term bank notes. The notes are part of Wachovia Bank of North Carolina's ongoing bank note program, consisting of short- and medium-term bank notes, which provide additional funding for the corporation at attractive rates. The following table summarizes the changes in taxable equivalent interest income and interest expense due to changes in rates and volumes between 1994 and 1993. Changes which are not solely due to rate or volume are allocated proportionately to rate and volume.
1994 over 1993 ----------------------------------- Attributable to ---------------------- Rate Volume Total --------- --------- --------- $ in thousands Increase (decrease) in interest income: Loans .................................................. $ 25,589 $ 210,408 $ 235,997 Investment securities: Held-to-maturity: State and municipal ................................. 438 (11,223) (10,785) Other investments ................................... 24,422 (204,350) (179,928) Available-for-sale: Other investments ................................... -- 194,576 194,576 Interest-bearing bank balances ......................... 555 (2,863) (2,308) Federal funds sold and securities purchased under resale agreements .................................... 2,508 (7,259) (4,751) Trading account assets ................................. 9,245 (1,330) 7,915 --------- Total interest-earning assets ....................... 14,458 226,258 240,716 Increase (decrease) in interest expense: Total deposits in domestic offices ..................... (21,681) (4,482) (26,163) Time deposits in foreign offices ....................... 6,144 1,671 7,815 Short-term borrowed funds .............................. 69,217 29,508 98,725 Long-term debt ......................................... 437 118,562 118,999 --------- Total interest-bearing liabilities .................. 90,306 109,070 199,376 --------- Increase in net interest income ........................... $ 41,340 =========
At December 31, 1994, nonperforming assets were $100.517 million or .39 percent of loans and foreclosed property, down $54.384 million or 35.1 percent from a year earlier. The provision for loan losses totaled $71.763 million in 1994, lower by $20.889 million or 22.5 percent from $92.652 million in 1993, but exceeded net loan losses by $1.334 million. Net charge-offs were $70.429 million or .29 percent of average loans compared with $67.411 million or .31 percent in 1993. The allowance for loan losses at December 31, 1994 was $406.132 million, representing 1.57 percent of loans and 516 percent coverage of nonperforming loans versus $404.798 million, 1.76 percent and 372 percent, respectively, at year-end 1993. Total other operating revenue rose $4.253 million or slightly under 1 percent. Good gains in credit card fee income, trust service fees, and electronic banking service revenues largely were offset by reduced levels of deposit account service charges, mortgage fee income and trading account profits. Credit card fee income increased $10.145 million or 10 percent, while trust service fees were higher by $8.070 million or 6.7 percent. Electronic banking service revenues grew $9.843 million or 66.3 percent. Service charges on deposit accounts were lower by $6.736 million or 3.3 percent, with mortgage fee income decreasing $5.877 million or 15 percent. Trading account profits were down $12.943 million or 57.7 percent. Total noninterest expense decreased $32.823 million or 2.9 percent. Total personnel expense was lower by $5.173 million or under 1 percent with increases in salaries expense offset by reduced employee benefits expense. Combined net occupancy and equipment expense rose $3.103 million or 1.7 percent, reflecting a rise in equipment expense moderated partially by lower net occupancy expense. Remaining combined categories of noninterest expense spending were down $30.753 million or 8.1 percent. 40 42 SUPERVISION AND REGULATION --------------------------------------------------------- Wachovia Corporation is a registered bank holding company under the Bank Holding Company Act of 1956 (BHC Act) and is subject to the supervision of, and regulation by, the Board of Governors of the Federal Reserve System (FRB). South Carolina National Corporation is likewise subject to the requirements of the BHC Act, which requires prior Board approval for bank acquisitions and prohibits a bank holding company from engaging in any business other than banking or bank-related activities. On December 1, 1995, South Carolina National, the mid-tier holding company remaining after Wachovia's 1991 acquisition of South Carolina National Corporation, was merged into Wachovia Corporation to simplify organizational structure. In addition to the provisions of the BHC Act, state banking commissions serve in a supervisory and regulatory capacity with respect to the bank holding company activities. Wachovia Corporation is also a savings and loan holding company registered under the Home Owners' Loan Act of 1933 (HOLA), as amended by the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), and is subject to examination, supervision and reporting requirements of the Office of Thrift Supervision (OTS). Various state and federal laws govern the activities of the Corporation's banking affiliates. As federally insured national banks, Wachovia Bank of North Carolina, N.A., Wachovia Bank of Georgia, N.A., Wachovia Bank of South Carolina, N.A., and The First National Bank of Atlanta are subject to the regulation, supervision and reporting requirements of the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC). The banking subsidiaries are directly affected by the actions of the FRB as it attempts to manage the money supply and credit availability in the economy. The Corporation's nonbanking subsidiaries are subject to a variety of state and federal laws. For example, the Corporation's discount brokerage and investment advisory subsidiary is subject to supervision and regulation by the Securities and Exchange Commission (SEC), the National Association of Securities Dealers, Inc., state securities regulators and the various exchanges through which it conducts business. The Corporation's insurance subsidiaries are subject to the insurance laws of the states in which they are active. All nonbanking subsidiaries are supervised by the FRB. Federal law regulates transactions among Wachovia Corporation and its affiliates, including the amount of banking affiliates' loans to or investments in nonbank affiliates and the amount of advances to third parties collateralized by securities of the affiliate. In addition, various requirements and restrictions under federal and state laws regulate the operations of the Corporation's banking affiliates, requiring the maintenance of reserves against deposits, limiting the nature of loans and interest that may be charged thereon, restricting investments, and other activities. Under FRB policy, the Corporation is expected to act as a source of financial strength to, and commit resources to support, each of its subsidiary banks. In addition, FIRREA provides that a depository institution insured by the FDIC can be held liable by the FDIC for any loss incurred or reasonably expected to be incurred in connection with the default of a commonly controlled FDIC insured depository institution. Under the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA), federal banking regulators are required to take prompt corrective action in respect of depository institutions that do not meet minimum capital requirements. FDICIA also imposes substantial examination, audit and reporting requirements on insured depository institutions. Among other requirements, the regulation requires a revision of risk-based capital standards. These standards are required to incorporate interest rate risk, concentration of credit risk and the risks of nontraditional activities and to reflect the actual performance and expected risk of loss of multifamily mortgages. See Shareholders' Equity and Capital Ratios on pages 32 and 33. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the Act) has introduced a process that will enable nationwide interstate banking through bank subsidiaries and interstate bank mergers. Effective September 29, 1995, the bill allows adequately capitalized and managed bank holding companies to acquire control of a bank in any state subject to concentration limits. Beginning June 1, 1997, 41 43 banks will be permitted to merge with one another across state lines. A state could authorize such mergers earlier than June 1, 1997. In contrast, a state also could choose to opt-out of interstate branching by enacting legislation before June 1, 1997. The legislation preserves state laws which require that a bank must be in existence for a minimum period of time before being acquired as long as the requirement is five years or less. The legislation has immediate relevance for the banking industry due to increased competitive forces from institutions which may consolidate through mergers and those which may move into new markets through enhanced opportunities to branch across state lines. Separately the Act also permits bank subsidiaries to act as agents for certain purposes for each other across state lines. These agency powers became available on September 29, 1995. Effective January 2, 1996, Wachovia Bank of Georgia, Wachovia Bank of North Carolina and Wachovia Bank of South Carolina entered into a mutual agreement to act as agents for each other, thereby making significant interstate banking services available to all customers in their three states. There have been a number of legislative and regulatory proposals that would have an impact on the operation of bank holding companies and their banks. Due to continued changes in the regulatory environment, additional legislation aimed at banking industry reform is likely to continue. While the potential effects of legislation currently under consideration cannot be measured with any degree of certainty, the Corporation is unaware of any pending legislative reforms or regulatory activities which would materially affect its financial position or operating results in the foreseeable future. 42 44 MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING The management of Wachovia Corporation is responsible for the preparation of the financial statements, related financial data and other information in this annual report. The financial statements are prepared in accordance with generally accepted accounting principles and include amounts based on management's estimates and judgment where appropriate. Financial information appearing throughout this annual report is consistent with the financial statements. In meeting its responsibility both for the integrity and fairness of these statements and information, management depends on the accounting system and related internal control structures that are designed to provide reasonable assurances that transactions are authorized and recorded in accordance with established procedures and that assets are safeguarded and proper and reliable records are maintained. The concept of reasonable assurance is based on the recognition that the cost of an internal control structure should not exceed the related benefits. As an integral part of the internal control structure, the corporation maintains a professional staff of internal auditors who monitor compliance with and assess the effectiveness of the internal control structure and coordinate audit coverage with the independent auditors. The Audit Committee of Wachovia's Board of Directors, composed solely of outside directors, meets regularly with the corporation's management, internal auditors, independent auditors and regulatory examiners to review matters relating to financial reporting, internal control structure and the nature, extent and results of the audit effort. The independent auditors, internal auditors and banking regulators have direct access to the Audit Committee with or without management present. The financial statements have been audited by Ernst & Young LLP, independent auditors, who render an independent professional opinion on management's financial statements. Their appointment was recommended by the Audit Committee, approved by the Board of Directors and ratified by the shareholders. Their examination provides an objective assessment of the degree to which the corporation's management meets its responsibility for financial reporting. Their opinion on the financial statements is based on auditing procedures which include reviewing internal control structures and performing selected tests of transactions and records as they deem appropriate. These auditing procedures are designed to provide a reasonable level of assurance that the financial statements are fairly presented in all material respects. REPORT OF INDEPENDENT AUDITORS The Board of Directors Wachovia Corporation We have audited the consolidated statements of condition of Wachovia Corporation and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Wachovia Corporation and subsidiaries at December 31, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. As discussed in Note C to the financial statements, in 1994, the Corporation changed its method of accounting for certain investment securities. As discussed in Notes A and M to the financial statements, in 1993, the company changed its methods of accounting for income taxes and postretirement benefits. /s/ ERNST & YOUNG LLP --------------------- Ernst & Young LLP Winston-Salem, North Carolina January 11, 1996 43 45 WACHOVIA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CONDITION
December 31 1995 1994 ----------- ----------- $ in thousands ASSETS Cash and due from banks ........................................ $ 2,692,318 $ 2,670,115 Interest-bearing bank balances ................................. 451,279 6,763 Federal funds sold and securities purchased under resale agreements ............................ 144,105 201,606 Trading account assets ......................................... 1,114,926 889,958 Securities available-for-sale .................................. 7,409,825 3,538,247 Securities held-to-maturity (market value of $1,721,222 in 1995 and $4,114,644 in 1994) .............................. 1,619,480 4,184,610 Loans and net leases ........................................... 29,269,825 25,898,774 Less unearned income on loans .................................. 8,672 7,970 ----------- ----------- Total loans .............................................. 29,261,153 25,890,804 Less allowance for loan losses ................................. 408,808 406,132 ----------- ----------- Net loans ................................................ 28,852,345 25,484,672 Premises and equipment ......................................... 628,153 543,548 Due from customers on acceptances .............................. 883,825 416,591 Other assets ................................................... 1,185,058 1,251,848 ----------- ----------- Total assets ............................................. $44,981,314 $39,187,958 =========== =========== LIABILITIES Deposits in domestic offices: Demand ....................................................... $ 5,855,286 $ 5,657,579 Interest-bearing demand ...................................... 3,473,607 3,524,857 Savings and money market savings ............................. 6,991,133 6,065,966 Savings certificates ......................................... 6,613,238 5,464,532 Large denomination certificates .............................. 2,671,759 1,416,318 Noninterest-bearing time ..................................... 3,334 24,121 ----------- ---------- Total deposits in domestic offices ....................... 25,608,357 22,153,373 Deposits in foreign offices: Demand ....................................................... 5,766 5,540 Time ......................................................... 754,634 910,345 ----------- ----------- Total deposits in foreign offices ........................ 760,400 915,885 ----------- ----------- Total deposits ........................................... 26,368,757 23,069,258 Federal funds purchased and securities sold under repurchase agreements ............................. 5,850,540 5,898,398 Commercial paper ............................................... 502,136 406,706 Other short-term borrowed funds ................................ 1,720,592 1,007,340 Long-term debt: Bank notes ................................................... 4,088,326 3,953,318 Other long-term debt ......................................... 1,334,702 837,146 ----------- ----------- Total long-term debt ..................................... 5,423,028 4,790,464 Acceptances outstanding ........................................ 883,825 416,591 Other liabilities .............................................. 458,679 312,694 ----------- ----------- Total liabilities ........................................ 41,207,557 35,901,451 Off-balance sheet items, commitments and contingent liabilities-- Notes I, J and L SHAREHOLDERS' EQUITY Preferred stock, par value $5 per share: Authorized 50,000,000 shares; none outstanding................. -- -- Common stock, par value $5 per share: Issued 170,358,504 shares in 1995 and 170,933,749 shares in 1994 ............................. 851,793 854,669 Capital surplus ................................................ 713,120 741,946 Retained earnings .............................................. 2,208,844 1,689,892 ----------- ----------- Total shareholders' equity ............................... 3,773,757 3,286,507 ----------- ----------- Total liabilities and shareholders' equity ............... $44,981,314 $39,187,958 =========== ===========
See notes to consolidated financial statements 44 46 WACHOVIA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31 1995 1994 1993 $ in thousands, except per share ---------- ---------- ---------- INTEREST INCOME Loans ................................................................ $2,384,919 $1,864,082 $1,627,450 Securities available-for-sale: Other investments .................................................. 268,106 182,440 -- Securities held-to-maturity: State and municipal ................................................ 34,023 50,122 57,670 Other investments .................................................. 260,218 223,691 396,056 Interest-bearing bank balances ....................................... 9,121 597 2,905 Federal funds sold and securities purchased under resale agreements .................................. 7,234 7,682 12,433 Trading account assets ............................................... 56,109 33,680 26,323 ---------- ---------- ---------- Total interest income .......................................... 3,019,730 2,362,294 2,122,837 INTEREST EXPENSE Deposits: Domestic offices ................................................... 781,578 516,914 543,077 Foreign offices .................................................... 41,876 22,318 14,503 ---------- ---------- ---------- Total interest on deposits ..................................... 823,454 539,232 557,580 Short-term borrowed funds ............................................ 467,007 272,572 173,847 Long-term debt ....................................................... 288,646 226,584 107,585 ---------- ---------- ---------- Total interest expense ......................................... 1,579,107 1,038,388 839,012 NET INTEREST INCOME .................................................. 1,440,623 1,323,906 1,283,825 Provision for loan losses ............................................ 103,791 71,763 92,652 ---------- ---------- ---------- Net interest income after provision for loan losses .................. 1,336,832 1,252,143 1,191,173 OTHER INCOME Service charges on deposit accounts .................................. 209,113 196,149 202,885 Fees for trust services .............................................. 130,521 128,100 120,030 Credit card income ................................................... 124,282 111,925 101,780 Mortgage fee income .................................................. 23,320 33,224 39,101 Trading account profits .............................................. 25,698 9,502 22,445 Student loan servicing ............................................... -- -- 5,535 Other operating income ............................................... 167,167 125,532 108,403 ---------- ---------- ---------- Total other operating revenue .................................. 680,101 604,432 600,179 Gain on sale of mortgage servicing portfolio ......................... 79,025 -- -- Gain on sale of subsidiary ........................................... -- -- 8,030 Investment securities gains (losses) ................................. (23,494) 3,320 19,394 ---------- ---------- ---------- Total other income ............................................. 735,632 607,752 627,603 OTHER EXPENSE Salaries ............................................................. 498,730 464,790 455,621 Employee benefits .................................................... 101,596 98,717 113,059 ---------- ---------- ---------- Total personnel expense ........................................ 600,326 563,507 568,680 Net occupancy expense ................................................ 87,105 80,911 82,070 Equipment expense .................................................... 109,701 106,508 102,246 Other operating expense .............................................. 406,464 347,487 378,240 ---------- ---------- ---------- Total other expense ............................................ 1,203,596 1,098,413 1,131,236 Income before income taxes ........................................... 868,868 761,482 687,540 Applicable income taxes .............................................. 266,325 222,424 195,445 ---------- ---------- ---------- NET INCOME ........................................................... $ 602,543 $ 539,058 $ 492,095 ========== ========== ========== Net income per common share: Primary ............................................................ $ 3.50 $ 3.13 $ 2.83 Fully diluted ...................................................... $ 3.49 $ 3.12 $ 2.81 Average shares outstanding: Primary ............................................................ 172,089 172,339 173,941 Fully diluted ...................................................... 172,957 172,951 175,198
See notes to consolidated financial statements 45 47 WACHOVIA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common Stock ---------------------------- Capital Retained Shares Amount Surplus Earnings $ in thousands, except per share ------------ ------------ ------------ ------------ YEAR ENDED DECEMBER 31, 1993 Balance at beginning of year ....................... 171,471,178 $ 857,356 $ 817,889 $ 1,099,522 Net income ......................................... 492,095 Cash dividends declared on common stock -- $1.11 a share ........................... (191,488) Common stock issued pursuant to: Stock option and employee benefit plans .......... 645,539 3,228 11,347 (41) Dividend reinvestment plan ....................... 318,655 1,593 9,375 (15) Conversion of debentures ......................... 1,738,533 8,693 7,802 (60) Common stock acquired .............................. (2,797,232) (13,986) (84,826) 8 Miscellaneous ...................................... (901) (5) (14) (526) ----------- --------- --------- ----------- Balance at end of year ............................. 171,375,772 $ 856,879 $ 761,573 $ 1,399,495 =========== ========= ========= =========== YEAR ENDED DECEMBER 31, 1994 Balance at beginning of year ....................... 171,375,772 $ 856,879 $ 761,573 $ 1,399,495 Net income ......................................... 539,058 Cash dividends declared on common stock -- $1.23 a share ........................... (210,503) Common stock issued pursuant to: Stock option and employee benefit plans .......... 714,648 3,573 14,560 Dividend reinvestment plan ....................... 357,015 1,785 9,895 Conversion of debentures ......................... 162,777 814 2,290 Common stock acquired .............................. (1,676,463) (8,382) (46,178) Unrealized losses on securities available-for-sale, net of tax ................... (37,635) Miscellaneous ...................................... (194) (523) ----------- --------- --------- ----------- Balance at end of year ............................. 170,933,749 $ 854,669 $ 741,946 $ 1,689,892 =========== ========= ========= =========== YEAR ENDED DECEMBER 31, 1995 Balance at beginning of year ....................... 170,933,749 $ 854,669 $ 741,946 $ 1,689,892 Net income ......................................... 602,543 Cash dividends declared on common stock -- $1.38 a share ........................... (235,495) Common stock issued pursuant to: Stock option and employee benefit plans .......... 800,751 4,004 16,023 Dividend reinvestment plan ....................... 349,310 1,747 11,719 Conversion of debentures ......................... 165,885 829 2,355 Common stock acquired .............................. (1,890,517) (9,453) (60,026) Unrealized gains on securities available-for-sale, net of tax ................... 153,748 Miscellaneous ...................................... (674) (3) 1,103 (1,844) ----------- --------- --------- ----------- Balance at end of year ............................. 170,358,504 $ 851,793 $ 713,120 $ 2,208,844 =========== ========= ========= ===========
See notes to consolidated financial statements 46 48 WACHOVIA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31 1995 1994 1993 $ in thousands ----------- ----------- ----------- OPERATING ACTIVITIES Net income .................................................................... $ 602,543 $ 539,058 $ 492,095 Adjustments to reconcile net income to net cash provided by operations: Provision for loan losses ................................................... 103,791 71,763 92,652 Depreciation and amortization ............................................... 90,547 107,502 108,085 Deferred income taxes (benefit) ............................................. 3,919 12,440 (26,663) Investment securities (gains) losses ........................................ 23,494 (3,320) (19,394) Gain on sale of mortgage servicing portfolio ................................ (79,025) -- -- Gain on sale of subsidiary .................................................. -- -- (8,030) Gain on sale of noninterest-earning assets .................................. (5,699) (5,316) (1,517) Increase (decrease) in accrued income taxes ................................. 6,995 (1,059) 6,207 Increase in accrued interest receivable ..................................... (64,872) (31,041) (38,968) Increase (decrease) in accrued interest payable ............................. 67,061 11,509 (43,116) Net change in other accrued and deferred income and expense ................. 44,195 (19,337) (2,818) Net change in trading account activities .................................... (224,968) (101,179) 107,189 Net change in loans held for resale ......................................... (333,075) 259,083 (377,994) ----------- ----------- ----------- Net cash provided by operating activities ............................... 234,906 840,103 287,728 INVESTING ACTIVITIES Net (increase) decrease in interest-bearing bank balances ..................... (444,516) 5,715 177,075 Net decrease (increase) in federal funds sold and securities purchased under resale agreements ........................................... 57,501 489,500 (212,134) Purchases of securities available-for-sale .................................... (4,035,218) (1,131,114) -- Purchases of securities held-to-maturity ...................................... (665,727) (588,873) (3,287,189) Sales of securities available-for-sale ........................................ 2,398,468 73,062 -- Sales of securities held-to-maturity .......................................... -- -- 76,224 Calls, maturities and prepayments of securities available-for-sale ............ 715,181 1,185,413 -- Calls, maturities and prepayments of securities held-to-maturity .............. 508,830 544,099 1,819,801 Net increase in loans made to customers ....................................... (3,143,478) (3,255,879) (1,621,508) Capital expenditures .......................................................... (185,796) (147,870) (152,061) Proceeds from sales of premises and equipment ................................. 31,433 36,789 14,457 Proceeds from sales of mortgage servicing portfolio ........................... 142,011 -- -- Net increase in other assets .................................................. (46,431) (128,411) (188,376) Business combinations and dispositions ........................................ -- -- 20,000 ----------- ----------- ----------- Net cash used by investing activities ................................... (4,667,742) (2,917,569) (3,353,711) FINANCING ACTIVITIES Net increase (decrease) in demand, savings and money market accounts .......... 1,051,063 (621,400) 752,659 Net increase (decrease) in certificates of deposit ............................ 2,248,436 338,260 (775,722) Net (decrease) increase in federal funds purchased and securities sold under repurchase agreements ............................................ (47,858) 1,157,115 1,027,791 Net increase (decrease) in commercial paper ................................... 95,430 (182,472) 202,560 Net increase (decrease) in other short-term borrowings ........................ 713,252 (83,783) 242,300 Proceeds from issuance of bank notes .......................................... 1,349,812 2,095,479 1,861,010 Maturities of bank notes ...................................................... (1,216,044) (515,425) (250,000) Proceeds from issuance of other long-term debt ................................ 496,387 247,887 248,075 Payments on other long-term debt .............................................. (491) (352) (80,579) Common stock issued ........................................................... 24,115 25,339 24,961 Dividend payments ............................................................. (235,495) (210,503) (191,488) Common stock repurchased ...................................................... (65,032) (52,908) (98,804) Other equity transactions ..................................................... -- -- (19) Net increase in other liabilities ............................................. 41,464 20,816 4,908 ----------- ----------- ----------- Net cash provided by financing activities ............................... 4,455,039 2,218,053 2,967,652 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .............................. 22,203 140,587 (98,331) Cash and cash equivalents at beginning of year ................................ 2,670,115 2,529,528 2,627,859 ----------- ----------- ----------- Cash and cash equivalents at end of year ...................................... $ 2,692,318 $ 2,670,115 $ 2,529,528 =========== =========== =========== SUPPLEMENTAL DISCLOSURES Unrealized appreciation in securities available-for-sale: Increase (decrease) in securities available-for-sale ........................ $ 251,958 $ (61,847) $ -- (Decrease) increase in deferred taxes ....................................... (98,210) 24,212 -- Increase (decrease) in shareholders' equity ................................. 153,748 (37,635) --
See notes to consolidated financial statements 47 49 WACHOVIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS $ in thousands - -------------------------------------------------------------------------------- NOTE A -- ACCOUNTING POLICIES Nature of Operations -- The Corporation is a southeastern interstate bank holding company maintaining dual headquarters in Atlanta, Georgia, and Winston-Salem, North Carolina. Principal banking subsidiaries are Wachovia Bank of Georgia, N.A., Atlanta; Wachovia Bank of North Carolina, N.A., Winston-Salem; and Wachovia Bank of South Carolina, N.A., Columbia. The First National Bank of Atlanta in Wilmington, Delaware, provides credit card services for Wachovia's affiliated banks. In addition to general commercial banking, the Corporation and its subsidiaries are engaged in trust and investment management, residential mortgage origination, leasing, state and local government securities underwriting, foreign exchange, corporate finance and other money market services. Principles of Consolidation -- The consolidated financial statements include the accounts of Wachovia Corporation and its subsidiaries after elimination of all material intercompany balances and transactions. Use of Estimates -- The financial statements are prepared in accordance with generally accepted accounting principles which require management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Cash and Due From Banks -- The Corporation considers cash and due from banks, all of which are maintained in financial institutions, as cash and cash equivalents for purposes of the Consolidated Statements of Cash Flows. Trading Instruments -- The Corporation maintains trading positions in both derivative and nonderivative (or cash) financial instruments. Trading cash instruments are held for distribution through retail sales or in anticipation of market movements and are carried at fair value. Gains and losses, both realized and unrealized, are included in trading account profits (losses). Interest revenue arising from cash financial instruments is included in interest income-trading account assets. Trading cash instruments are comprised primarily of securities backed by the U.S. Treasury and various federal agencies and state and local governmental bodies. Trading derivative financial instruments are customer oriented, and trading positions are established as necessary to accommodate customers' requirements. Gains and losses from securities trading derivatives and foreign exchange activities are included in trading account profits (losses), while gains and losses from interest rate derivatives are included in other operating income. Investment Securities Held-to-Maturity and Available-for-Sale -- Management determines the appropriate classification of debt securities at the time of purchase. Debt securities are classified as held-to-maturity when the Corporation has the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are stated at amortized cost. Debt securities not classified as held-to-maturity or trading, and marketable equity securities are classified as available-for-sale and are stated at fair value. Unrealized gains and losses, net of tax, on available-for-sale securities are recorded in shareholders' equity. The amortized cost of debt securities classified as held-to-maturity or available-for-sale is adjusted for amortization of premiums and accretion of discounts to maturity, or in the case of mortgage backed securities, over the estimated life of the security. Such amortization is included in interest income from investments. The specific identification method is used to determine realized gains and losses on sales of securities, which are reported as investment securities gains and losses. Risk Management Instruments -- Interest rate swaps and options (caps and floors) are used as part of the Corporation's overall interest rate risk management and are designated as hedges of interest-bearing assets and liabilities. Amounts receivable or payable under interest rate swap and option agreements are recognized in interest income. If a derivative financial instrument designated as a hedge is terminated early, any resulting gain or loss is deferred and amortized to net interest income over the remaining periods originally covered by the instrument. Loans and Allowance for Loan Losses -- Loans are carried at their principal amount outstanding, except for loans held for resale which are carried at the lower of cost or market. Interest on loans is accrued and recorded as interest income based upon the principal amount outstanding. Except for revolving credit loans, the recognition of interest income is discontinued when a loan becomes 90 days past due as to principal and interest or when, in management's judgment, the interest will not be collectible in the normal course of business. When interest accruals are discontinued, the balance of accrued interest is reversed. Management may elect to continue the accrual of interest when the estimated net realizable value of collateral is sufficient to cover the principal balance and accrued interest and the loan is in the process of collection. Interest is accrued on revolving credit loans until payments become 120 days delinquent, at which time the outstanding principal balance and accrued unpaid interest is charged off. See Note D for the discussion of the adoption of Statement of Financial Accounting Standard No. 114, "Accounting by Creditors for Impairment of a Loan." The allowance is maintained at a level believed to be adequate by management to absorb potential losses in the loan portfolio. Management's determination of the adequacy of the allowance is based on an evaluation of the portfolio, past loan loss experience, current domestic and international economic conditions, volume, growth and composition of the loan portfolio, and other risks inherent in the portfolio. Premises and Equipment -- Premises, equipment and leasehold improvements are stated at cost less accumulated depreciation and amortization. For financial reporting purposes, the provision for depreciation is computed by the straight-line method based upon the estimated useful lives of the assets. Leasehold improvements are amortized on a straight-line basis over the shorter of the life of the leasehold asset or the lease term. Intangible Assets -- The excess of cost over net assets and identifiable intangible assets, including deposit base intangibles, of acquired businesses is amortized on the straight-line method over the estimated periods benefited. Premiums paid to purchase servicing rights of mortgage loans are amortized over the aggregate estimated remaining servicing life of the loans. - -------------------------------------------------------------------------------- 48 50 WACHOVIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued $ in thousands - -------------------------------------------------------------------------------- NOTE A -- ACCOUNTING POLICIES -- Concluded Impairment of Long-Lived Assets -- Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" was issued in March 1995. This standard will be adopted as of January 1, 1996 and is not expected to have a material impact on financial position or results of operations. Income Taxes -- Effective January 1, 1993, the Corporation prospectively adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (FASB 109), which requires an asset and liability approach to accounting for income taxes. The cumulative impact of adopting FASB 109 was a tax benefit of $2,700 or $.02 per fully diluted share, which is reflected in income tax expense for the year ended December 31, 1993. Under FASB 109, deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Corporation and its subsidiaries file a consolidated tax return. Each subsidiary provides for income taxes based on its contribution to income taxes (benefit) of the consolidated group. Stock-Based Compensation -- Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" was issued in October 1995 and encourages, but does not require, adoption of a fair value method of accounting for employee stock-based compensation plans. As permitted by the new standard, management intends to elect disclosure of the Corporation's pro forma net income and net income per share as if the fair value method had been applied in measuring compensation cost. Reclassifications -- Certain prior year balances have been reclassified to conform to the current year presentation. - -------------------------------------------------------------------------------- NOTE B -- FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used by the Corporation in estimating its fair value disclosures for financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rates and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. Also, the fair value estimates presented herein are based on pertinent information available to management as of December 31, 1995 and 1994. Such amounts have not been comprehensively revalued for purposes of these financial statements since those dates and therefore, current estimates of fair value may differ significantly from the amounts presented herein. Trading Account Assets -- Fair values for the Corporation's trading account assets, which also are the amounts recognized in the statements of condition, are based on quoted market prices. Investment Securities -- Fair values for investment securities are based on quoted market prices. If a quoted market price is not available, fair value is estimated using market prices for similar securities. Investment securities are classified as held-to-maturity or available-for-sale based upon management's determination at the time of purchase and periodic reevaluation. Loans -- For credit card, equity lines and other loans with short-term or variable rate characteristics, the carrying value reduced by an estimate of credit losses inherent in the portfolio is a reasonable estimate of fair value. The fair values of residential mortgage loans are estimated using quoted market prices for securities backed by similar loans, adjusted for differences between the market for the securities and the loans being valued and an estimate of credit losses in the portfolio. The fair value of all other loans is estimated by discounting their future cash flows using interest rates currently being offered for loans with similar terms, reduced by an estimate of credit losses inherent in the portfolio. The discount rates used are commensurate with the interest rate and prepayment risks involved for the various types of loans. Deposits -- The fair values disclosed for demand deposits (e.g., interest- and noninterest-bearing demand, savings and money market savings) are equal to the amounts payable on demand at the reporting date (i.e., their carrying amounts). Fair values for certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated monthly maturities. Long-Term Debt -- Fair values of long-term debt are based on market prices where available. When quoted market prices are not available, fair values are estimated using discounted cash flow analyses, based on the Corporation's current incremental borrowing rates for similar types of borrowing arrangements. Many of the Corporation's assets and liabilities are short-term financial instruments whose carrying amounts reported in the statement of condition approximate fair value. These items include cash and due from banks, interest-bearing bank balances, federal funds sold and securities purchased under resale agreements, due from customers on acceptances, short-term borrowed funds, acceptances outstanding, and the financial - -------------------------------------------------------------------------------- 49 51 WACHOVIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued $ in thousands - -------------------------------------------------------------------------------- NOTE B -- FAIR VALUE OF FINANCIAL INSTRUMENTS -- Concluded instruments included in other assets and liabilities. The estimated fair values of the Corporation's remaining on-balance sheet financial instruments as of December 31 are summarized below.
1995 ------------------------- Estimated Book Value Fair Value ----------- ----------- Financial assets: Trading account assets ......................... $ 1,114,926 $ 1,114,926 Investment securities .......................... 9,029,305 9,131,047 Loans, net of allowance for loan losses ........ 28,852,345 29,148,815 Financial liabilities: Deposits ....................................... 26,368,757 26,532,636 Long-term debt ................................. 5,423,028 5,582,409 1994 ------------------------- Estimated Book Value Fair Value ----------- ----------- Financial assets: Trading account assets ......................... $ 889,958 $ 889,958 Investment securities .......................... 7,772,857 7,652,891 Loans, net of allowance for loan losses ........ 25,484,672 25,882,744 Financial liabilities: Deposits ....................................... 23,069,258 23,171,818 Long-term debt ................................. 4,790,464 4,796,299
Off-Balance Sheet Instruments -- Fair values for the Corporation's off-balance sheet instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties' credit standing for loan commitments and letters of credit, and the estimated amount the Corporation would receive or pay to terminate or replace the contract at current market rates for the remainder of the off-balance sheet instruments. See Notes I and J for additional information about off-balance sheet financial instruments. The estimated fair values of the Corporation's off-balance sheet financial instruments as of December 31 are summarized below. The amounts for commitments and letters of credit are presented negative in order to represent the approximate cost the Corporation would incur to pay third parties to assume these commitments. Interest rate contract fair values and other off-balance sheet financial instruments represent the fair value gain or loss of the contracts.
1995 1994 Estimated Estimated Fair Value Fair Value ------------ ------------ Unfunded commitments to extend credit .................................. $ (62,291) $ (70,534) Letters of credit ................................ (31,239) (29,664) Interest rate contracts issued for trading purposes ........................... 4,063 2,533 Interest rate contracts held for purposes other than trading .................... 6,873 (25,528) Other off-balance sheet financial instruments issued or held for trading or lending purposes .................... 2,601 (28,728)
This presentation excludes certain financial instruments and all nonfinancial instruments. The disclosures also do not include certain intangible assets, such as customer relationships, mortgage servicing rights, deposit base intangibles and goodwill. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Corporation. The financial information presented over periods of years which encompass various economic and interest rate conditions and cycles provides a means of evaluating the effectiveness of the Corporation in dealing with changing market conditions and in managing the controllable aspects of its business. - -------------------------------------------------------------------------------- NOTE C -- INVESTMENT SECURITIES The aggregate amortized cost, fair value, and gross unrealized gains and losses of investment securities as of December 31 were as follows:
1995 ------------------------------------------------- Amortized Unrealized Unrealized Fair Cost Gains Losses Value ---------- ---------- --------- ----------- Held-to-Maturity - ---------------- U.S. Treasury and other agencies ... $ -- $ -- $ -- $ -- State and municipal ................ 321,045 33,595 212 354,428 Mortgage backed .................... 1,297,935 68,891 532 1,366,294 Other .............................. 500 -- -- 500 ---------- ---------- ---------- ---------- $1,619,480 $ 102,486 $ 744 $1,721,222 ========== ========== ========== ========== Available-for-Sale - ------------------ U.S. Treasury and other agencies ... $5,586,965 $ 148,413 $ 6,233 $5,729,145 Mortgage backed .................... 1,471,761 35,079 451 1,506,389 Other .............................. 98,983 48 -- 99,031 Equity ............................. 62,004 13,365 109 75,260 ---------- ---------- ---------- ---------- $7,219,713 $ 196,905 $ 6,793 $7,409,825 ========== ========== ========== ========== 1994 ------------------------------------------------- Amortized Unrealized Unrealized Fair Cost Gains Losses Value ---------- ---------- ---------- ---------- Held-to-Maturity - ---------------- U.S. Treasury and other agencies ... $2,491,476 $ 21,080 $ 103,380 $2,409,176 State and municipal ................ 554,365 26,596 1,797 579,164 Mortgage backed .................... 1,124,550 12,114 24,330 1,112,334 Other .............................. 14,219 -- 249 13,970 ---------- ---------- ---------- ---------- $4,184,610 $ 59,790 $ 129,756 $4,114,644 ========== ========== ========== ========== Available-for-Sale - ------------------ U.S. Treasury and other agencies ... $2,513,710 $ 1,818 $ 54,620 $2,460,908 Mortgage backed .................... 832,367 691 17,011 816,047 Other .............................. 163,991 84 -- 164,075 Equity ............................. 90,026 7,287 96 97,217 ---------- ---------- ---------- ---------- $3,600,094 $ 9,880 $ 71,727 $3,538,247 ========== ========== ========== ==========
- -------------------------------------------------------------------------------- 50 52 WACHOVIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued $ in thousands - -------------------------------------------------------------------------------- NOTE C -- INVESTMENT SECURITIES -- Concluded The amortized cost and estimated fair value of investment securities at December 31, 1995, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations.
Amortized Fair Cost Value ---------- ---------- Held-to-Maturity - ---------------- Due in one year or less ..................... $ 54,702 $ 55,343 Due after one year through five years ....... 99,481 106,045 Due after five years through ten years ...... 297,150 318,041 Due after ten years ......................... 1,168,147 1,241,793 ---------- ---------- Total ................................. 1,619,480 1,721,222 Available-for-Sale - ------------------ Due in one year or less ..................... 583,563 588,976 Due after one year through five years ....... 5,146,893 5,277,500 Due after five years through ten years ...... 244,825 250,493 Due after ten years ......................... 1,182,428 1,217,596 ---------- ---------- Total ................................. 7,157,709 7,334,565 No contractual maturity ..................... 62,004 75,260 ---------- ---------- Total ................................. 7,219,713 7,409,825 ---------- ---------- Total investment securities ........... $8,839,193 $9,131,047 ========== ==========
Proceeds, gross gains and gross losses realized from the sales, calls and prepayments of available-for-sale securities for December 31 were as follows:
1995 1994 ---------- ---------- Proceeds .................................... $2,398,468 $ 73,062 Gross gains ................................. 3,790 3,361 Gross losses ................................ 27,284 41
Trading account assets are reported at fair value with unrealized gains and losses of ($63), ($177) and $1,079 included in earnings during 1995, 1994 and 1993, respectively. At December 31, 1995 and 1994, investment securities with a carrying value of $4,360,792 and $4,011,111, respectively, were pledged as collateral to secure public deposits and for other purposes. There were no obligations of any one issuer exceeding 10 percent of consolidated shareholders' equity at December 31, 1995. On December 1, 1995, the Corporation reclassified securities with an amortized cost of $2,720,000 (fair value $2,774,000) from held-to-maturity to available-for-sale. The reclassification was made pursuant to a reassessment of the investment securities portfolio based on the issuance of a special report by the Financial Accounting Standards Board "A Guide to Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities." In accordance with the report, business entities were allowed a one time reclassification of the investment securities portfolio between November 15, 1995 and December 31, 1995. There were no transfers of held-to-maturity securities during 1994, nor were there any sales of held-to-maturity securities in 1995 or 1994. Effective January 1, 1994, the Corporation prospectively adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (FASB 115). - -------------------------------------------------------------------------------- NOTE D -- LOANS AND ALLOWANCE FOR LOAN LOSSES Loans at December 31 are summarized as follows:
1995 1994 ----------- ----------- Commercial: Commercial, financial and other ........... $ 9,753,450 $ 8,377,878 Tax-exempt ................................ 2,238,538 1,809,600 Retail: Direct .................................... 755,375 750,228 Indirect .................................. 2,543,771 2,339,889 Credit card ............................... 3,917,997 3,969,369 Other revolving credit .................... 353,727 343,140 Real estate: Construction .............................. 745,776 553,105 Commercial mortgages ...................... 3,855,095 3,483,452 Residential mortgages ..................... 4,213,556 3,821,207 Lease financing-- net ....................... 493,756 188,521 Foreign ..................................... 390,112 254,415 ----------- ----------- Total loans-- net ..................... $29,261,153 $25,890,804 =========== ===========
Loans at December 31 that had been placed on a cash basis and those on which the contractual rate of interest had been reduced below market are summarized below.
1995 1994 ---------- ---------- Cash-basis assets-- domestic ................ $ 53,547 $ 78,712 Restructured loans .......................... -- -- ---------- ---------- Total nonperforming loans ............. $ 53,547 $ 78,712 ========== ========== Interest income which would have been recorded pursuant to original terms: Domestic .................................. $ 6,280 $ 7,929 ========== ========== Interest income recorded: Domestic .................................. $ 3,430 $ 3,391 ========== ==========
Loans totaling $199 at December 31, 1995, which have been restructured at market rates and have been returned to accrual status are not included in the nonperforming loan total. Foregone interest on these balances is included in the above presentation. At December 31, 1995, the Corporation had no significant outstanding commitments to lend additional funds to borrowers owing cash-basis and restructured loans. - -------------------------------------------------------------------------------- 51 53 WACHOVIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued $ in thousands - -------------------------------------------------------------------------------- NOTE D -- LOANS AND ALLOWANCE FOR LOAN LOSSES -- Concluded Changes in the allowance for loan losses for the three years ended December 31, 1995 were as follows:
1995 1994 1993 -------- -------- -------- Balance at beginning of year .......... $406,132 $404,798 $379,557 Provision for loan losses ............. 103,791 71,763 92,652 Recoveries on loans previously charged off ......................... 33,384 32,237 29,697 Loans charged off ..................... (134,499) (102,666) (97,108) -------- -------- -------- Balance at end of year ................ $408,808 $406,132 $404,798 ======== ======== ========
Loans totaling $4,678, $13,051 and $42,256 were transferred to foreclosed real estate during 1995, 1994 and 1993, respectively. It is the policy of the Corporation to review each prospective credit in order to determine an adequate level of security or collateral to obtain prior to making the loan. The type of collateral will vary and ranges from liquid assets to real estate. The Corporation's access to collateral, in the event of borrower default, is assured through adherence to state lending laws and the Corporation's sound lending standards and credit monitoring procedures. The Corporation regularly monitors its credit concentrations on loan purpose, industry and customer bases. At year-end, there were no significant credit concentrations within these categories. See Note I for discussion of off-balance sheet credit risk. The Corporation's subsidiaries have granted loans and extended letters of credit to certain directors and executive officers of the Corporation and its subsidiaries and to their associates. The aggregate amount of loans was $489,303 and $399,023 at December 31, 1995 and 1994, respectively. During 1995, $824,461 in new loans were made, and repayments totaled $734,181. Outstanding standby letters of credit to related parties totaled $22,531 and $34,934 at December 31, 1995 and 1994, respectively. Related party loans are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated transactions with unrelated persons and do not involve more than the normal risk of collectibility. Loans held for sale at December 31 along with activity during the period are summarized as follows:
1995 1994 ----------- ----------- Balance at beginning of year ................ $ 429,745 $ 688,828 Originations/purchases ...................... 19,800,424 20,197,006 Sales/transfers ............................. (19,467,349) (20,456,089) ----------- ----------- Balance at end of year ...................... $ 762,820 $ 429,745 =========== ===========
At December 31, 1995, impaired loans totaled $12,260, comprised of $9,014 of loans with no allowance for loan losses and $3,246 of loans with a related allowance of $916. The average recorded investment in impaired loans during the year ended December 31, 1995 was approximately $7,228. The Corporation recognized $58 of cash-basis interest income on impaired loans during 1995. Effective January 1, 1995, the Corporation prospectively adopted Statement of Financial Accounting Standard No. 114, "Accounting by Creditors for Impairment of a Loan" (FASB 114). This standard defines a loan as impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans are measured at the present value of expected future cash flows using the loan's initial effective interest rate or the fair value of the collateral for certain collateral dependent loans. The adoption of FASB 114 did not have a material impact on the Corporation's financial position or results of operations. During 1995, the Corporation securitized $500 million of credit card receivables. A securitization involves the transfer of a pool of assets to a master trust which issues and sells certificates to investors representing a pro rata interest in the underlying assets. The securitization has been recorded as a sale in accordance with Statement of Financial Accounting Standards No. 77, "Reporting by Transferors for Transfers of Receivables with Recourse." The Corporation recorded no gain or loss at the time of sale, due to the relatively short average life of the credit card loans. As a result of this transaction, amounts that would have been a component of net interest income and the provision for loan losses are instead recorded, net of the interest expense on the trust certificates, as credit card income. - -------------------------------------------------------------------------------- NOTE E -- PREMISES, EQUIPMENT AND LEASES Premises and equipment at December 31 are summarized as follows:
1995 1994 ---------- ---------- Land ........................................ $ 88,168 $ 88,098 Premises .................................... 404,045 352,159 Equipment ................................... 636,100 562,845 Leasehold improvements ...................... 70,917 67,755 ---------- ---------- 1,199,230 1,070,857 Less accumulated depreciation and amortization .......................... 571,077 527,309 ---------- ---------- Total premises and equipment .......... $ 628,153 $ 543,548 ========== ==========
The annual minimum rentals under the terms of the Corporation's noncancelable operating leases as of December 31, 1995 are as follows: 1996............................................... $ 40,952 1997............................................... 37,916 1998............................................... 30,675 1999............................................... 28,550 2000............................................... 29,248 Thereafter......................................... 167,289 -------- Total minimum lease payments................. $334,630 ========
The net rental expense for all operating leases amounted to $43,137 in 1995, $43,491 in 1994 and $47,579 in 1993. Certain leases have various renewal options and require increased rentals under cost of living escalation clauses. - -------------------------------------------------------------------------------- 52 54 WACHOVIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued $ in thousands - -------------------------------------------------------------------------------- NOTE F -- CREDIT ARRANGEMENTS At December 31, 1995 and 1994, lines of credit arrangements aggregating $200,000 were available to the Corporation from unaffiliated banks. Commitment fees were 10 basis points in 1995 and 15 basis points in 1994; compensating balances are not required. The unused portion of these banking arrangements principally serves as commercial paper back-up lines. There were no borrowings outstanding under credit arrangements at December 31, 1995 or 1994. - -------------------------------------------------------------------------------- NOTE G -- LONG-TERM DEBT Long-term debt at December 31 is summarized as follows:
1995 1994 ---------- ---------- Bank notes, net of discount of $3,473 and $6,132 in 1995 and 1994, respectively (a) ............ $4,088,326 $3,953,318 Other long-term debt: 7.0% subordinated debt securities due in 1999, net of discount of $1,741 and $2,112 in 1995 and 1994, respectively (b) ............................................... 298,259 297,888 6.375% subordinated debt securities due in 2003, net of discount of $1,518 and $1,679 in 1995 and 1994, respectively (b) ............................................... 248,482 248,321 9.65% subordinated capital notes due in 2001 (b) ............................................. 25,488 25,486 6.5% convertible subordinated debentures due in 2001 (b) (c) ................................. 6,200 9,400 6.8% subordinated notes due in 2005, net of discount of $347 (b) ............................. 249,653 -- 6.375% subordinated notes due in 2009, net of discount of $299 and $313 in 1995 and 1994, respectively (b) ................................................. 249,701 249,687 6.605% subordinated notes due in 2025 (b) .................................................... 250,000 -- Capitalized lease obligations ................................................................ 6,873 6,210 Other ........................................................................................ 46 154 ---------- ---------- Total other long-term debt ............................................................... 1,334,702 837,146 ---------- ---------- Total long-term debt ..................................................................... $5,423,028 $4,790,464 ========== ==========
(a) Wachovia Bank of North Carolina has an ongoing bank note program under which the bank may offer an aggregate principal amount of up to $16 billion at any one time ($7 billion at December 31, 1994). The notes can be issued as fixed or floating rate notes and with terms of 30 days to 15 years. Bank notes with original maturities of one year or less are included in other short-term borrowed funds in the Consolidated Statements of Condition. Bank notes with original maturities greater than one year are classified as long-term debt. Interest rates on the long-term notes ranged from 4.44% to 7.75% and 4.0% to 7.50% with maturities ranging from 1996 to 2002 and 1995 to 1999 at December 31, 1995 and 1994, respectively. The average rates were 5.77% and 5.31% with average maturities of 1.23 years and 1.73 years at December 31, 1995 and 1994, respectively. (b) Debt qualifies for inclusion in the determination of total capital under the Risk-Based Capital guidelines. (c) The debentures are redeemable under certain conditions and are convertible into common stock of the Corporation at a conversion price of $19.29 per share. At December 31, 1995, $28,800 of these notes had been converted. The principal maturities of long-term debt for the next five years subsequent to December 31, 1995 are $2,246,577 in 1996, $1,167,743 in 1997, $205,366 in 1998, $669,070 in 1999 and $695 in 2000. Interest paid on deposits and other borrowings was $1,512,046 in 1995, $1,026,879 in 1994 and $882,128 in 1993. - -------------------------------------------------------------------------------- NOTE H -- CAPITAL STOCK The authorized capital stock of the Corporation consists of 500,000,000 common shares and 50,000,000 preferred shares. At December 31, 1995, 24,314,246 common shares were reserved for the conversion of notes and issuance for employee benefit plans and the dividend reinvestment plan. On July 28, 1995, the Corporation's Board of Directors authorized the repurchase of up to 5 million shares of common stock. Repurchased shares will be used for various corporate purposes including the issuance of shares for employee benefit plans and the dividend reinvestment plan. During the year, the Corporation repurchased 1,755,500 shares pursuant to stock repurchase authorizations. At December 31, 1995, the number of shares available for possible repurchase totaled 4,600,000. During 1994, the new Wachovia Corporation Stock Plan was approved, authorizing up to 6 million shares of common stock to be granted to selected key employees and nonemployee directors in the form of incentive and nonqualified stock options, stock appreciation rights, restricted stock awards and restricted units. Since the inception of the new plan, a total of 1,845,620 options and 173,750 awards were granted. In the aggregate, the Corporation's stock option and incentive plans provide for the granting of options or awards for the purchase or issuance of 9,758,493 shares at 100% of the fair market value of the stock at the date of the grant. A committee of the Board of Directors determines such times options and awards shall be granted and exercised and the term of the exercise - ------------------------------------------------------------------------------- 53 55 WACHOVIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued $ in thousands - -------------------------------------------------------------------------------- NOTE H -- CAPITAL STOCK -- Concluded period (not to exceed ten years). The 1994 officer plan awards shares of stock earned contingent upon both a performance requirement and time period requirement (5 years). Under the 1994 Plan, newly elected nonemployee directors are granted a one-time award of 1,000 shares of restricted stock to be earned over a three year period. Additionally, nonemployee directors are awarded 250 shares of restricted stock annually which are earned over a one year period. Recipients of awards under the Predecessor Plan are entitled to compensation equivalent to the dividends that would have been payable on the proportion of the awards reserved but not yet fully earned based on the years of service since the date of grant divided by the number of years over which the award is deemed to be fully earned. Compensation equivalent to dividends totaled $72 in 1995, $86 in 1994, and $54 in 1993. At December 31, 1995, and 1994, deferred compensation related to director and management awards was $4,781 and $3,025, respectively. Compensation expense related to stock awards was $1,975 for 1995, $1,397 for 1994 and $1,864 for 1993. Activity in the option and award plans during 1995 and 1994 is summarized as follows: A
Options and Awards -------------------------------------------- Outstanding Available ----------------------------- Option Price for Grant Awards Options Per Share ----------- ----------- ----------- ------------ January 1, 1994 ....... 892,068 206,316 4,161,808 $ 5.41-37.00 Authorized under 1994 plan ......... 6,000,000 -- -- Granted ............. (920,600) 64,000 856,600 31.25-34.625 Exercised ........... -- (36,728) (483,212) 5.41-33.125 Canceled ............ (35,468) -- -- Forfeited ........... 3,000 (8,000) (74,780) 19.75-34.625 ---------- ------- --------- Total December 31, 1994................. 5,939,000 225,588 4,460,416 5.41-37.00 ========== ======= ========= Granted ............. (1,098,770) 109,750 989,020 33.75-36.875 Exercised ........... -- (60,898) (750,651) 5.41-34.625 Forfeited ........... 22,700 (1,674) (75,988) 18.3855-34.625 ---------- ------- --------- Total December 31, 1995................. 4,862,930 272,766 4,622,797 12.50-36.875 ========== ======= =========
At December 31, 1995, options for 2,306,901 shares were exercisable at option prices ranging from $12.50 to $34.625. - -------------------------------------------------------------------------------- NOTE I -- OFF-BALANCE SHEET TRADING AND LENDING ACTIVITIES The Corporation maintains positions in a variety of financial instruments with off-balance sheet risk to meet the financing needs of its customers. Financial instruments issued or held to accommodate customer lending activities include unfunded commitments to extend credit, standby, commercial and similar letters of credit, securities lending, participations in bankers' acceptances and mortgage loans sold with recourse. In order to accommodate customer capital management, interest rate risk management and international transaction requirements, the Corporation engages in dealer trading activities by structuring and executing over-the-counter interest rate contracts, commitments to purchase or sell securities, and foreign exchange contracts. The Corporation maintains active trading positions in foreign exchange forward contracts and manages credit risk through the establishment of offsetting sell positions, as well as standard limit and monitoring procedures. The Corporation maintains a trading portfolio of interest rate swap and option (caps and floors) contracts and foreign exchange options consisting of generally matched, offsetting contracts with customers and market counterparties. Off-balance sheet financial instruments involve, in varying degrees, exposure to credit and interest rate risk in excess of the amount recognized in the statements of financial condition. The Corporation follows the same credit policies and careful underwriting practices in making commitments and conditional obligations as it does for on-balance sheet instruments. In those instances where collateral is necessary to support financial instrument credit risk, the Corporation assures its ability to access borrower's collateral, in the event of default, through strict adherence to corporate lending policy and applicable state lending laws. Derivative Financial Instruments Held or Issued for Trading Purposes -- The amounts disclosed below represent the year end fair value of derivative financial instruments held or issued for trading purposes and the average fair value during the year. The Corporation's credit exposure to off-balance sheet derivative financial instruments is represented by the fair value gain of the instrument if a counterparty fails to perform. Options written do not expose the Corporation to credit risk, except to the extent of the underlying risk in the debt instrument that the Corporation may be obligated to acquire under certain written put options. Caps and floors written do not expose the Corporation to credit risk. - -------------------------------------------------------------------------------- 54 56 WACHOVIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued $ in thousands - -------------------------------------------------------------------------------- NOTE I -- OFF-BALANCE SHEET TRADING AND LENDING ACTIVITIES -- Continued
1995 -------------------------------------------------- Notional Fair Value Fair Value Average Value Gains (Losses) Fair Value ---------- ---------- ----------- ---------- U.S. dollar interest rate contracts as intermediary: Interest rate swaps-pay fixed .............. $2,081,318 $ 4,501 $ (33,553) $ 9,650 Interest rate swaps-pay floating ........... 2,087,317 36,290 (2,920) (6,344) Interest rate caps and floors written ...... 761,947 461 (3,403) (2,161) Interest rate caps and floors purchased .... 761,947 2,923 (236) 2,085 Securities trading activities: Commitments to purchase securities, futures and forward contracts ............ 409,238 2,749 (229) 1,367 Commitments to sell securities, futures and forward contracts ............ 326,259 396 (2,671) (1,096) Net options written to purchase or sell securities ....................... 81,000 -- (44) (5) Foreign exchange trading activities: Commitments to purchase foreign exchange ......................... 791,502 6,391 (7,818) 7,639 Commitments to sell foreign exchange ....... 778,582 9,550 (5,773) (4,721) Foreign exchange options written ........... 2,462 21 -- 32 Foreign exchange options purchased ......... 2,462 -- (20) (29) 1994 --------------------------------------------------- Notional Fair Value Fair Value Average Value Gains (Losses) Fair Value ---------- ---------- ---------- ---------- U.S. dollar interest rate contracts as intermediary: Interest rate swaps-pay fixed .............. $1,212,223 $ 57,686 $ (1,719) $ 27,432 Interest rate swaps-pay floating ........... 1,243,223 2,062 (55,557) (24,410) Interest rate caps and floors written ...... 258,540 585 (2,309) (797) Interest rate caps and floors purchased .... 258,540 2,309 (524) 664 Securities trading activities: Commitments to purchase securities, futures and forward contracts ............ 409,029 349 (221) (11,193) Commitments to sell securities, futures and forward contracts ............ 222,728 311 (312) 11,510 Net options written to purchase or sell securities ....................... 94,000 -- (27) (3) Foreign exchange trading activities: Commitments to purchase foreign exchange ......................... 524,180 6,529 (2,304) 15,866 Commitments to sell foreign exchange ....... 519,472 3,387 (6,303) (14,878) Foreign exchange options written ........... 3,016 10 -- (1,311) Foreign exchange options purchased ......... 3,014 -- (9) 1,021
Interest Rate Swaps -- These transactions generally involve the exchange of fixed and floating rate payments without the exchange of the underlying principal amounts. Payments made or received under swap contracts are accrued based on contractual terms and are reported as other operating income. The related accrued amounts receivable or payable to customers or counterparties are included in other assets or liabilities. Revenues from the customer portfolio represent a small profit margin on intermediated transactions. The difference in the fair value of the offsetting contracts is not material. The Corporation acts as principal in the exchange of interest payments between parties and is exposed to loss should one of the parties default. The Corporation controls the credit risk of these instruments through adherence to credit approval policies, monetary limits and monitoring procedures. Entering into interest rate swap agreements involves not only credit risk but also interest rate risk associated with unmatched positions. Notional principal amounts are often used to express the volume of these transactions but do not represent the much smaller amounts potentially subject to credit risk. These amounts are derived by estimating the cost, on a present value basis, of replacing outstanding agreements at current market rates. Contracts whose present value estimates indicate fair value gains are those which customers and market counterparties are exposed to the Corporation and for which the Corporation has potential credit risk. The Corporation controls interest rate risk inherent in the derivative trading portfolio by entering into offsetting swap positions or by using other hedging techniques to manage risk. At December 31, 1995, the weighted average maturity of pay-fixed swaps held in the customer portfolio was .39 years and .37 years for receive-fixed swaps. Under pay-fixed swap agreements, the Corporation paid interest at a weighted average fixed rate of 6.53% and received interest at a weighted average floating rate of 5.02% (based on year-end rates). Under receive-fixed swap agreements, the Corporation received interest at a weighted average fixed rate of 6.56% and paid interest at a weighted average floating rate of 5.07% (based on year-end rates). Interest Rate Caps and Floors -- These instruments are written by the Corporation to enable its customers to transfer, modify, or reduce their interest rate risk exposure. In a cap or floor contract, the purchaser pays a premium at the initiation of the contract for the right to receive payments if market interest rates are greater than the strike price of a cap or less than the strike price of a floor. Payments made or received under cap or floor contracts are accrued based on contractual terms and are reported as other operating income. Credit risk and interest rate risk are managed through the oversight procedures applied to other interest rate contracts, as well as through the purchase of offsetting cap and floor positions. The present value of purchased caps and floors in a gain position represent the potential credit risk to the Corporation. Commitments to Purchase and Sell Securities, Futures and Forward Contracts -- These instruments are contracts for delayed delivery of securities or money market instruments in which the seller agrees to deliver a specified instrument at a specified price or yield at a specified date. Commitments to purchase and sell securities, futures and forward contracts used in securities trading operations are recognized currently at market value and are reported as trading account profits (losses). Risks arise in these transactions through the possible inability of one of the counterparties to meet the terms of the contracts and from movements in interest rates or securities values. Risks associated with these instruments are mitigated through offsetting purchase and sell positions, as well as oversight provided by organized exchanges, which determine who may buy and sell such instruments. Net Options Written to Purchase and Sell Foreign Exchange -- Forward commitments involve the purchase or sale of foreign currency amounts for delivery at a specified future date. Payments on forward commitments are exchanged on the delivery date based upon the exchange rate in the contract. Forward commitments to purchase and sell foreign exchange are recognized at market value and are reported as other operating income. The potential risks associated with these obligations arise from fluctuations in foreign exchange rates, as well as potential inability of the counterparty to perform under the contract. These risks are mitigated through the - -------------------------------------------------------------------------------- 55 57 WACHOVIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued $ in thousands - ----------------------------------------------------------------------------- NOTE I -- OFF-BALANCE SHEET TRADING AND LENDING ACTIVITIES -- Concluded establishment of offsetting sell positions, as well as standard limit and monitoring procedures. Foreign Exchange Options -- These agreements represent rights to purchase or sell foreign currency at a predetermined price at a future date. The purchaser pays a premium at the initiation of the contract for the right to exchange a specified amount at the contract's exchange rate at the maturity of the option. The Corporation maintains a portfolio of generally matched offsetting foreign exchange options. Fluctuations in foreign currency markets, as well as the potential default of the counterparty to an option contract, represent the risks associated with these instruments. Limit and monitoring procedures along with offsetting positions serve to control the risk associated with these items. The fair value of foreign exchange options purchased serves to offset the fair value of written options. Revenues from the derivative trading portfolio are shown below.
1995 1994 1993 -------- -------- -------- Interest rate contracts ......... $ 4,332 $ 1,411 $ 514 Securities activities ........... (7,569) 7,219 (489) Foreign exchange activities ..... 11,834 5,827 8,610 -------- -------- -------- Total ..................... $ 8,597 $ 14,457 $ 8,635 ======== ======== ========
Off-Balance Sheet Financial Instruments Issued for Lending Activities -- The Corporation issues off-balance sheet financial instruments as part of its commercial and consumer lending activities. The contract amounts of these instruments represent potential credit risk at December 31 as shown below.
1995 1994 ----------- ----------- Commercial and consumer lending activities: Unfunded commitments to extend credit ..................... $26,145,025 $27,919,542 Standby letters of credit ........... 4,139,181 3,751,314 Commercial and similar letters of credit ................. 149,006 139,753 Securities lent ..................... -- 39,550 Participations in bankers' acceptances ....................... 5,625 4,909 Mortgage loans sold with recourse ... -- 30,234
Commitments to Extend Credit -- These are legally binding contracts to lend to a customer, provided there is no contract violation. These commitments have fixed termination dates and generally require payment of a fee. As most commitments expire prior to being drawn, the amounts shown do not necessarily represent the future cash requirements of the contracts. Credit worthiness is evaluated and in some instances collateral is obtained to support the borrowing. At December 31, 1995 and 1994, approximately 13% and 12%, respectively, of unfunded commitments to extend credit were supported by collateral. Of the total unfunded commitment amounts presented, approximately 27% in 1995 and 22% in 1994 were comprised of cancelable credit card commitments, and approximately 5% in 1995 and 9% in 1994 were represented by real estate commitments. Also included in total unfunded commitments were securities underwriting commitments of $0 in 1995 and $880 in 1994. Standby, Commercial and Similar Letters of Credit -- These instruments are conditional commitments issued by the Corporation guaranteeing the performance of a customer to a third party. These guarantees are issued primarily to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending credit to customers and is subject to the Corporation's underwriting process. At December 31, 1995 and 1994, approximately 3% and 4%, respectively, of these instruments were supported by collateral. There were no significant concentrations of letters of credit to any one group of borrowers at either year-end. Securities Lent -- These are securities of the Corporation and its customers lent to third parties. Credit risk arises in these transactions through the possible failure of the borrower to return the securities. To minimize risk the Corporation evaluates the credit worthiness of the borrower, and obtains collateral with a market value exceeding 100% of the contract amount. Participation in Bankers' Acceptances -- These instruments represent risk participation in time drafts drawn by customers under a committed multibank credit facility. These drafts have been accepted and remarketed by other financial institutions. Under the terms of these arrangements, the Corporation may be required to reimburse the accepting financial institution for the Corporation's pro rata share of any payment default by the customer. The Corporation applies the same underwriting standards in evaluating the credit risk associated with these instruments as it does in evaluating on-balance sheet instruments. Mortgage Loans Sold with Recourse -- The Corporation is obligated under recourse provisions related to the sale of residential mortgages to the Federal National Mortgage Association. These mortgages are collateralized by 1-4 family residential homes. All mortgage loans with original loan-to-value ratios exceeding 80% (up to a maximum of 95%) have private mortgage insurance coverage. - ------------------------------------------------------------------------------- NOTE J -- OFF-BALANCE SHEET RISK MANAGEMENT ACTIVITIES The Corporation manages its exposure to fluctuation in interest rates by entering into interest rate swap and option contracts with financial institution counterparties. The Corporation's operations are subject to a risk in interest rate fluctuations to the extent of a difference between the amount of its interest-earning assets and interest-bearing liabilities that mature or reprice in specified periods. The Corporation's principal objective of asset/liability management activities is to provide maximum levels of net interest income while maintaining acceptable levels of interest rate and liquidity risk and facilitating the Corporation's funding needs. Accordingly, the Corporation uses a combination of derivative financial instruments, including interest rate swaps, futures and options with indices that correlate to on-balance sheet instruments to modify the repricing characteristics of interest-earning assets and interest-bearing liabilities. - ------------------------------------------------------------------------------ 56 58 WACHOVIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued $ in thousands - ------------------------------------------------------------------------------- NOTE J -- OFF-BALANCE SHEET RISK MANAGEMENT ACTIVITIES -- Concluded In anticipation of the maturity of certificiates of deposit that were issued in connection with a one-day sale held in 1995, the Corporation offered customers favorable renewal terms. The Corporation entered into financial futures contracts to mitigate the risk of falling interest rates during the term of the renewal offer (October 1995 through January 1996). These futures contracts are accounted for as a hedge of anticipated transactions; accordingly, the resulting gain or loss is deferred and recognized as an adjustment of interest expense over the term of the renewed certificates. The amounts disclosed below represent the end of period notional and fair value of derivative financial instruments held for risk management purposes. The Corporation's credit exposure to off-balance sheet derivative financial instruments is represented by the fair value gain of the instrument if a counterparty fails to perform.
1995 1994 ------------------------------------- ------------------------------------ Notional Fair Value Fair Value Notional Fair Value Fair Value Value Gains (Losses) Value Gains (Losses) ---------- ---------- ----------- ---------- ---------- ---------- Convert floating rate liabilities to fixed: Swaps -- pay fixed/receive floating.......... $ 119,719 $ 232 $ (3,519) $ 233,282 $ 3,668 $ (2,690) Caps purchased -- pay fixed/receive floating. -- -- -- 15,000 14 -- Convert fixed rate assets to floating: Swaps -- pay fixed/receive floating.......... 418,430 -- (5,958) 17,460 132 -- Forward starting swaps -- pay fixed/ receive floating........................... 38,570 -- (4,284) 57,540 434 -- Convert fixed rate liabilities to floating: Swaps -- receive fixed/pay floating ......... 200,000 4,889 -- 100,000 -- (16,337) Convert floating rate assets to fixed: Swaps -- receive fixed/pay floating.......... 218,750 1,597 (643) 120,105 112 (4,005) Index amortizing swaps -- receive fixed/ pay floating............................... 325,000 14,426 -- 175,000 -- (6,776) Hedge spread between prime and fed funds: Interest rate caps........................... -- -- -- 400,000 10,552 (10,632) ---------- ------- -------- ---------- ------- -------- Total interest rate swaps and options.... 1,320,469 21,144 (14,404) 1,118,387 14,912 (40,440) Financial futures contracts -- anticipatory hedge of certificate of deposit renewal...... 1,025,000 140 (7) -- -- -- ---------- ------- -------- ---------- ------- -------- Total derivatives........................ $2,345,469 $21,284 ($14,411) $1,118,387 $14,912 ($40,440) ========== ======= ======== ========== ======= ========
Deferred losses resulting from terminated swap contracts of $6,020 and $15,117 at December 31, 1995 and 1994, respectively, are included in other assets. - -------------------------------------------------------------------------------- NOTE K -- INCOME TAXES The provision for income taxes is summarized below. Included in these amounts are income taxes (benefits) related to securities transactions of $(8,576), $1,328 and $7,472 in 1995, 1994 and 1993, respectively. The Corporation made income tax payments totaling $254,866 in 1995, $211,345 in 1994 and $217,716 in 1993.
1995 1994 1993 -------- -------- -------- Currently payable: Federal...................... $250,086 $202,685 $209,853 Foreign...................... 288 147 289 State and local.............. 12,032 7,152 11,966 -------- -------- -------- Total currently payable ... 262,406 209,984 222,108 Deferred: Federal...................... 11,607 13,241 (25,828) State........................ (7,688) (801) (835) -------- -------- -------- Total deferred............ 3,919 12,440 (26,663) -------- -------- -------- Total tax expense......... $266,325 $222,424 $195,445 ======== ======== ========
The reasons for the difference between consolidated income tax expense and the amount computed by applying the statutory federal income tax rate of 35% to income before taxes were as follows:
1995 1994 1993 -------- -------- -------- Income before income taxes............. $868,868 $761,482 $687,540 ======== ======== ======== Federal income taxes at statutory rate....................... $304,104 $266,519 $240,639 State and local income taxes, net of federal benefit............... 2,824 4,128 7,235 Effect of tax-exempt securities interest and other income............ (46,398) (48,217) (50,817) Effect of tax rate change on beginning net deferred tax assets.... -- -- (2,683) Other items............................ 5,795 (6) 1,071 -------- -------- -------- Total tax expense................ $266,325 $222,424 $195,445 ======== ======== ========
Under FASB 109, deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the - ------------------------------------------------------------------------------- 57 59 WACHOVIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued $ in thousands - -------------------------------------------------------------------------------- NOTE K -- INCOME TAXES -- Concluded Corporation's deferred tax assets and liabilities at December 31, 1995 and 1994 are as follows:
Deferred Tax Assets -------------------- 1995 1994 -------- -------- Allowance for loan losses ................... $156,531 $147,894 Unrealized losses on securities available-for-sale ........................ -- 24,212 Other........................................ 39,672 26,145 -------- -------- Gross deferred tax assets .............. $196,203 $198,251 ======== ======== Deferred Tax Liabilities ------------------------ 1995 1994 ---------- ---------- Unrealized gains on securities available-for-sale ........................ $ 73,998 $ -- Depreciation ................................ 36,586 34,941 Lease financing.............................. 45,913 21,508 Accretion of discounts on securities......... 12,429 12,888 Other........................................ 2,871 2,379 Gross deferred tax liabilities.......... $171,797 $ 71,716 ======== ======== Net deferred tax asset.................. $ 24,406 $126,535
======== ======== Management believes that the Corporation will fully realize the net deferred tax asset as of December 31, 1995 based on the Corporation's refundable taxes from carryback years, as well as its current level of operating income. - -------------------------------------------------------------------------------- NOTE L -- CASH, DIVIDEND, LOAN RESTRICTIONS AND CONTINGENT LIABILITIES In the normal course of business, the Corporation and its subsidiaries enter into agreements, or are subject to regulatory requirements, that result in cash, debt and dividend restrictions. A summary of the most restrictive items follows. The Corporation's banking subsidiaries are required to maintain average reserve balances with the Federal Reserve Bank. The average amount of those reserve balances for the year ended December 31, 1995 was approximately $374,119. Under current Federal Reserve regulations, the banking subsidiaries also are limited in the amount they may loan to their affiliates, including the Corporation. Loans to a single affiliate may not exceed 10% and loans to all affiliates may not exceed 20% of the bank's capital, surplus and undivided profits plus the allowance for loan losses. Based on these limitations, approximately $343,898 was available for loans to the Corporation at December 31, 1995. The approval of the Comptroller of the Currency is required if the total of all dividends declared by a national bank in any calendar year exceeds the bank's net profits, as defined, for that year combined with its retained net profits for the preceding two calendar years. Under this formula, the banking subsidiaries cannot distribute as dividends to the Corporation in 1996, without the approval of the Comptroller of the Currency, more than $532,099 plus an additional amount equal to the banks' retained net profits for 1996 up to the date of any dividend declaration. As a result of the above dividend and loan restrictions, approximately $2,746,813 of consolidated net assets of the Corporation's banking subsidiaries at December 31, 1995 was restricted from transfer to the Corporation in the form of cash dividends, loans or advances. The Corporation and its subsidiaries are defendants in certain legal proceedings arising in connection with their business. In the opinion of management and general counsel, the ultimate resolution of those proceedings will result in no material adverse effect on the Corporation's financial position and results of operations. There are no known situations where the Corporation has an environmental liability that will materially affect the financial position or results of operations. 58 60 WACHOVIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- continued $ in thousands - -------------------------------------------------------------------------------- NOTE M -- PENSION AND OTHER POSTRETIREMENT BENEFITS The Corporation maintains a defined benefit pension plan which covers substantially all employees. The plan provides pension benefits that are based on the employee's length of credited service and final average compensation as defined in the plan. The pension expense of the plan is determined using the projected unit credit method. The Corporation's policy is to fund amounts allowable for federal income tax purposes. The following table sets forth the funded status of the Corporation's defined benefit pension plan and the amounts recognized in the Consolidated Statements of Condition at December 31.
1995 1994 --------- --------- Actuarial present value of accumulated benefit obligation: Vested .................................... $ 364,059 $ 288,732 Nonvested.................................. 30,186 30,373 --------- --------- Total.................................. $ 394,245 $ 319,105 ========= ========= Actuarial present value of projected benefit obligation for service rendered to date .......................... ($444,786) ($353,443) Plan assets at fair value -- primarily listed stocks, fixed income securities and collective funds........................... 491,760 422,333 --------- --------- Plan assets in excess of projected benefit obligation ........................ 46,974 68,890 Unrecognized net loss from past experience different from that assumed..... 38,005 24,675 Unrecognized prior service cost.............. (19,097) (21,594) Unrecognized transition asset................ (39,716) (45,921) --------- --------- Pension asset recorded in Consolidated Statements of Condition ................... $ 26,166 $ 26,050 ========= =========
Net pension benefit included the following components.
1995 1994 1993 ------- ------- ------- Service cost -- benefits earned during the period .............. $12,746 $14,486 $12,714 Interest cost on projected benefit obligation ............. 29,018 26,477 24,647 Actual (return) loss on plan assets .................... (98,474) 3,466 (39,227) Net amortization and deferral .... 56,594 (47,587) (3,577) ------- ------- ------- Net periodic pension benefit ..... $ (116) $(3,158) $(5,443) ======= ======= =======
The rates used in determining the actuarial present value of the projected benefit obligation were as follows:
1995 1994 ----- ---- Discount rates.................................. 7.25% 8.5% Rates of increase in compensation levels........ 5% 5%
The expected long-term rate of return on plan assets used to determine the net periodic pension benefit was 8% for 1995, 1994 and 1993. The Corporation also sponsors separate unfunded nonqualified pension plans that provide certain officers with defined pension benefits in excess of limits imposed on qualified plans by federal tax law and for certain compensation not covered in the qualified plans. The following table summarizes the plans at December 31.
1995 1994 -------- -------- Actuarial present value of accumulated benefit obligation: Vested .................................. $ 29,865 $ 24,098 Nonvested................................ 4,504 4,713 -------- -------- Total................................ $ 34,369 $ 28,811 ======== ======== Actuarial present value of projected benefit obligation for service rendered to date......................... ($44,352) ($34,061) Unrecognized actuarial losses.............. 14,039 13,168 Unrecognized transition obligation......... 391 440 Unrecognized prior service cost............ 6,760 (264) -------- -------- Pension liability recorded in Consolidated Statements of Condition.................. ($23,162) ($20,717) ======== ========
Net pension cost included the following components.
1995 1994 1993 ------ ------ ------ Service cost -- benefits earned during the period ................... $ 769 $ 576 $ 526 Interest cost on projected benefit obligation................... 3,035 2,523 2,612 Net amortization and deferral.......... 1,528 1,178 520 ------ ------ ------ Net periodic pension cost.............. $5,332 $4,277 $3,658 ====== ====== ======
The rates used in determining the actuarial present value of the projected benefit obligation were as follows:
1995 1994 ----- ---- Discount rates ............................... 7.25% 8.5% Rates of increase in compensation levels...... 5% 5%
- -------------------------------------------------------------------------------- 59 61 WACHOVIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued $ in thousands - -------------------------------------------------------------------------------- NOTE M -- PENSION AND OTHER POSTRETIREMENT BENEFITS -- Concluded The Corporation also provides supplemental benefits to substantially all employees through defined contribution plans designed to encourage participants to save on a regular basis and to provide such participants with deferred compensation and additional performance incentive. Total expense relating to these plans, which represented the Corporation's matching and discretionary contributions, was $16,478 in 1995, $16,131 in 1994 and $22,767 in 1993. Employee participants may elect to contribute from 1% to 10% of base salary, with the Corporation matching 50% of each participant's contribution up to a maximum employer contribution of 3% of base salary. The plans provide for additional contributions of up to 3% of salary in accordance with a preestablished formula based on certain earnings performance criteria and also for special discretionary employer contributions of up to 4% of each eligible employee's base salary as approved annually by the Board of Directors. The Corporation and its subsidiaries provide certain health care benefits for retired employees. Substantially all of the employees may become eligible for these benefits if they reach normal retirement age while working for the Corporation or its subsidiaries. The benefits are provided through self-insured plans administered by insurance companies whose premiums are based on the claims paid during the year. On January 1, 1993, the Corporation prospectively adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" (FASB 106), which requires the accrual of nonpension benefits as employees render service. Adoption of FASB 106 increased postretirement benefits expense in 1993 by $5,210 and, on an after-tax basis, reduced net income by $3,235 or $.02 per fully diluted share. During 1995, the Corporation contributed assets to fund the postretirement benefit obligation. The following table presents the status of the plan as of December 31.
1995 1994 -------- -------- Accumulated postretirement benefit obligation: Retirees.................................... ($32,517) ($22,813) Fully eligible active plan participants..... (10,249) (9,774) Other active plan participants.............. (12,156) (9,214) -------- -------- Total................................... (54,922) (41,801) Plan assets at fair value -- primarily insurance contracts......................... 11,000 -- Unrecognized net gain ........................ (14,293) (21,944) Unrecognized transition obligation............ 53,585 56,737 Unrecognized prior service cost............... 740 -- -------- -------- Accrued postretirement benefit cost........... $ (3,890) $ (7,008) ======== ========
Net periodic postretirement benefit cost included the following components.
1995 1994 1993 ------ ------ ------ Service cost.......................... $ 724 $ 851 $ 738 Interest cost......................... 3,954 3,494 4,953 Amortization of gain ................. (707) (646) -- Amortization of transition obligation over 20 years ...................... 3,152 3,152 3,152 Amortization of prior service cost.... 57 -- -- ------ ------ ------ Net periodic postretirement benefit cost........................ $7,180 $6,851 $8,843 ====== ====== ======
The annual assumed rate of increase in health care costs used in determining the accumulated postretirement benefit obligation and net periodic postretirement benefit costs for 1995 and 1994 were 8% for retirees under age 65 and 6% for retirees age 65 and over. These rates are assumed to remain constant for each of these categories of retirees. For 1993 reported figures, the annual rate of increase in health care costs was assumed to be 16% initially, decreasing to 14% for 1994, and gradually to 7% by 2007 and remaining at that level thereafter. The health care cost trend rate assumption has a significant effect on the amounts reported. Increasing the assumed health care cost trend rates by one percentage point would increase the accumulated postretirement benefit obligation for the plan as of December 31, 1995 and 1994 by $1,372 and $1,746, respectively, and the aggregate of the service and interest cost of the net periodic postretirement benefit cost for 1995, 1994 and 1993 by $117, $131 and $291, respectively. The discount rates used in determining the accumulated postretirement benefit obligations at December 31, 1995 and 1994 were 7.25% and 8.5%, respectively. - ------------------------------------------------------------------------------- 60 62 WACHOVIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued $ in thousands - ------------------------------------------------------------------------------- NOTE N -- SELECTED INCOME STATEMENT INFORMATION The components of other operating income and expense for the three years ended December 31, 1995 were as follows:
1995 1994 1993 -------- -------- -------- Other operating income: Electronic banking..................................................................... $ 34,479 $ 24,683 $ 14,840 Investment fee income.................................................................. 26,953 14,092 16,619 Insurance premiums and commissions..................................................... 13,164 11,679 11,847 Bankers' acceptance and letter of credit fees.......................................... 23,190 23,168 19,668 Other service charges and fees......................................................... 24,682 18,109 17,456 Other income........................................................................... 44,699 33,801 27,973 -------- -------- -------- Total other operating income....................................................... $167,167 $125,532 $108,403 ======== ======== ======== Other operating expense: Postage and delivery................................................................... $ 37,962 $ 35,163 $ 38,160 Outside data processing, programming and software...................................... 42,486 35,211 38,613 Stationery and supplies................................................................ 26,805 24,558 25,344 Advertising and sales promotion........................................................ 50,362 34,067 38,141 Professional services.................................................................. 39,483 20,493 17,144 Travel and business promotion.......................................................... 19,694 16,254 15,563 FDIC insurance and regulatory examinations............................................. 40,389 53,451 53,663 Check clearing and other bank services................................................. 9,195 8,894 10,159 Amortization of intangible assets...................................................... 8,587 18,693 28,001 Foreclosed property expense............................................................ 920 (4,288) 7,654 Other expense.......................................................................... 130,581 104,991 105,798 -------- -------- -------- Total other operating expense...................................................... $406,464 $347,487 $378,240 ======== ======== ======== - ------------------------------------------------------------------------------------------------------------------------
NOTE O -- EARNINGS PER SHARE
Year Ended December 31 ---------------------------- 1995 1994 1993 -------- -------- -------- Primary (thousands, except per share) - ------- Average common shares outstanding ...................................................... 170,635 171,110 172,273 Dilutive common stock options -- based on treasury stock method using average market price............................................................ 1,366 1,152 1,594 Dilutive common stock awards -- based on treasury stock method using average market price ........................................................... 88 77 74 -------- -------- -------- Average primary shares outstanding...................................................... 172,089 172,339 173,941 ======== ======== ======== Net income.............................................................................. $602,543 $539,058 $492,095 ======== ======== ======== Per share amount ....................................................................... $ 3.50 $ 3.13 $ 2.83 Fully Diluted (thousands, except per share) - ------------- Average common shares outstanding ...................................................... 170,635 171,110 172,273 Dilutive common stock options -- based on treasury stock method using period-end market price if higher than average market price .................... 1,802 1,152 1,594 Dilutive common stock awards -- based on treasury stock method using period-end market price if higher than average market price .................... 115 77 77 Convertible long-term debt assumed converted ........................................... 405 612 1,254 -------- -------- -------- Average fully diluted shares outstanding................................................ 172,957 172,951 175,198 ======== ======== ======== Net income.............................................................................. $602,543 $539,058 $492,095 Add interest on convertible long-term debt, net of tax ................................. 330 513 937 -------- -------- -------- Adjusted net income..................................................................... $602,873 $539,571 $493,032 ======== ======== ======== Per share amount........................................................................ $ 3.49 $ 3.12 $ 2.81 - ------------------------------------------------------------------------------------------------------------------------
61 63 WACHOVIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued $ in thousands - ------------------------------------------------------------------------------- NOTE P -- WACHOVIA CORPORATION (PARENT COMPANY ONLY) INFORMATION The following is a condensed statement of financial condition of the parent company at December 31.
1995 1994 ------ ------ Assets - ------ Cash on demand deposit with bank subsidiary........... $ 3 $ 27 Interest-bearing bank balances with bank subsidiaries............................... 713,765 331,766 Securities available-for-sale......................... 42,139 15,279 Securities held-to-maturity........................... -- 2,000 Demand loans to nonbank subsidiaries.................. 324,900 372,608 Capital notes receivable from bank subsidiaries ................................... 776,980 525,000 Loan participation with nonbank subsidiary ........... 75,000 25,000 Current amount due from subsidiaries ................. 8,922 6,878 Investments in: Bank and bank holding company subsidiaries........... 3,622,267 3,226,834 Nonbank subsidiaries................................. 105,009 61,791 Other assets.......................................... 42,480 36,701 ---------- ---------- Total assets..................................... $5,711,465 $4,603,884 ========== ========== Liabilities and Shareholders' Equity - ------------------------------------ Parent company commercial paper....................... $ 502,136 $ 406,706 Subordinated capital notes, net of discount of $3,917 and $4,103 in 1995 and 1994, respectively ......................... 1,327,783 795,897 Demand loans from bank and bank holding company subsidiaries......................... 58,746 86,426 Other liabilities..................................... 49,043 28,348 Shareholders' equity ................................. 3,773,757 3,286,507 ---------- ---------- Total liabilities and shareholders' equity....... $5,711,465 $4,603,884 ========== ==========
The operating results of the parent company for the three years ended December 31, 1995 are shown below.
1995 1994 1993 -------- -------- -------- Income - ------ Dividends from: Bank and bank holding company subsidiaries........................... $233,700 $306,770 $186,493 Nonbank subsidiaries .................... 52,075 3,902 5,218 Interest from subsidiaries................ 89,278 61,089 39,968 Other interest income..................... 571 468 152 Other income ............................. 33,589 30,382 21,243 -------- -------- -------- Total income ........................ 409,213 402,611 253,074 Expense - ------- Interest on short-term borrowed funds .......................... 27,807 19,880 14,692 Interest on long-term debt ............... 67,309 52,586 32,580 Interest paid to subsidiaries............. 4,781 2,419 1,096 Other expense............................. 25,823 23,218 21,367 -------- -------- -------- Total expense........................ 125,720 98,103 69,735 Income before income taxes and equity in undistributed net income of subsidiaries .................. 283,493 304,508 183,339 Applicable income taxes (benefit)......... (1,177) (2,527) (3,423) -------- -------- -------- Income before equity in undistributed net income of subsidiaries ......................... 284,670 307,035 186,762 Equity in undistributed net income of subsidiaries............... 317,873 232,023 305,333 -------- -------- -------- Net income........................... $602,543 $539,058 $492,095 ======== ======== ========
- -------------------------------------------------------------------------------- 62 64 WACHOVIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Concluded $ in thousands - -------------------------------------------------------------------------------- NOTE P -- WACHOVIA CORPORATION (PARENT COMPANY ONLY) INFORMATION -- Concluded The cash flows for the parent company for the three years ended December 31, 1995 were as follows:
1995 1994 1993 -------- -------- -------- Operating Activities - -------------------- Net income ................................................................ $602,543 $539,058 $492,095 Adjustments to reconcile net income: Deferred income taxes (benefit) ........................................... 1,056 (927) (3,491) (Decrease) increase in accrued income taxes .................................................. (449) 2,456 (7,517) Increase in accrued interest receivable ................................................... (1,915) (4,792) (266) Increase in accrued interest payable ...................................................... 5,714 6,983 2,735 Net change in other accrued and deferred income and expense ........................................... 3,245 (2,631) 1,739 Equity in undistributed net income of subsidiaries ............................................ (317,873) (232,023) (305,333) -------- -------- -------- Net cash provided by operations ....................................................... 292,321 308,124 179,962 Investing Activities - -------------------- Net increase in interest-bearing bank balances ........................................................... (381,999) (253,883) (54,033) Purchases of securities available-for-sale ...................................................... (4,128) (8,287) -- Sales of securities available-for-sale .................................... 7,538 2,429 -- Purchases of securities held-to-maturity......................................................... -- -- (712) Sales and maturities of securities held-to-maturity ............................................. -- -- 49 Investment in loan participation .......................................... (50,000) -- -- Net decrease (increase) in demand loans to nonbank subsidiaries ............................................................ 47,708 298,894 (249,557) Capital notes issued to bank subsidiaries ....................................................... (250,000) (150,000) (100,000) Capital notes repaid by bank subsidiaries ....................................................... 30,000 -- -- Net (increase) decrease in other assets ......................................................... (4,137) 1,486 (4,991) Equity investment in subsidiaries ......................................... (55,551) (80,000) (1,940) -------- ------- ------- Net cash used by investing activities ................................................ (660,569) (189,361) (411,184) Financing Activities - -------------------- Net increase in demand loans from subsidiaries ....................................................... 52,873 52,855 53,239 Net (decrease) increase in commercial paper ........................................................ 95,430 (182,472) 202,560 Proceeds from long-term debt .............................................. 496,387 247,800 248,075 Payments on long-term debt................................................. -- -- (335) (Decrease) increase in other liabilities ............................................................. (54) 1,140 (7,000) Issuance of stock.......................................................... 24,115 25,339 24,961 Dividend payments ......................................................... (235,495) (210,503) (191,488) Common stock repurchased .................................................. (65,032) (52,908) (98,804) Other equity transactions -- -- (19) -------- -------- --------- Net cash provided (used) by financing activities ............................................. 368,224 (118,749) 231,189 -------- -------- --------- (Decrease) increase in cash ............................................... (24) 14 (33) Cash at beginning of year ................................................. 27 13 46 -------- -------- --------- Cash at end of year ....................................................... $ 3 $ 27 $ 13 ======== ======== ========= Noncash investing and financing activities: Common stock issued upon conversion of long-term debt........................................... $ 3,184 $ 3,104 $ 16,437
On December 1, 1995, South Carolina National Corporation was merged into Wachovia Corporation. The assets and liabilities of this second tier holding company which were merged into the Wachovia Corporation parent company totaled $54,664 and $45,506, respectively. - -------------------------------------------------------------------------------- 63 65 WACHOVIA CORPORATION AND SUBSIDIARIES CONSOLIDATED AVERAGE BALANCES (thousands)
1995 1994 --------------------- -------------------- Amount % Amount % ASSETS ------------ ----- ----------- ----- Loans -- net of unearned income: Commercial ........................................................... $ 9,153,970 22.1 $ 7,366,981 19.9 Tax-exempt ........................................................... 1,967,749 4.7 1,965,555 5.3 ----------- ----- ----------- ----- Total commercial ................................................. 11,121,719 26.8 9,332,536 25.2 Direct retail......................................................... 734,305 1.8 735,335 2.0 Indirect retail....................................................... 2,444,309 5.9 2,450,181 6.6 Credit card .......................................................... 3,951,789 9.5 3,528,617 9.5 Other revolving credit................................................ 344,178 .8 333,853 .9 ----------- ----- ----------- ----- Total retail ..................................................... 7,474,581 18.0 7,047,986 19.0 Construction ......................................................... 640,013 1.5 496,401 1.3 Commercial mortgages ................................................. 3,675,903 8.9 3,355,898 9.1 Residential mortgages ................................................ 4,018,377 9.7 3,698,864 10.0 ----------- ----- ----------- ----- Total real estate ................................................ 8,334,293 20.1 7,551,163 20.4 Lease financing ...................................................... 270,389 .7 173,185 .5 Foreign............................................................... 304,277 .7 108,028 .3 ----------- ----- ----------- ----- Total loans ...................................................... 27,505,259 66.3 24,212,898 65.4 Investment securities: Held-to-maturity: State and municipal ................................................ 423,747 1.0 599,206 1.6 Other investments .................................................. 3,735,893 9.0 3,371,132 9.1 ----------- ----- ----------- ----- Total securities held-to-maturity ................................ 4,159,640 10.0 3,970,338 10.7 Available-for-sale: Other investments*.................................................. 4,214,082 10.2 3,700,477 10.0 ----------- ----- ----------- ----- Total investment securities ...................................... 8,373,722 20.2 7,670,815 20.7 Interest-bearing bank balances ......................................... 114,962 .3 13,037 .0 Federal funds sold and securities purchased under resale agreements..... 121,924 .3 196,651 .5 Trading account assets ................................................. 915,065 2.2 688,669 1.9 ----------- ----- ----------- ----- Total interest-earning assets..................................... 37,030,932 89.3 32,782,070 88.5 Cash and due from banks ................................................ 2,519,900 6.1 2,407,387 6.5 Premises and equipment ................................................. 573,386 1.4 518,030 1.4 Other assets ........................................................... 1,755,773 4.2 1,728,399 4.7 Allowance for loan losses .............................................. (407,430) (1.0) (406,702) (1.1) ----------- ----- ----------- ----- Total assets ..................................................... $41,472,561 100.0 $37,029,184 100.0 =========== ===== =========== ===== LIABILITIES AND SHAREHOLDERS' EQUITY Time deposits in domestic offices: Interest-bearing demand .............................................. $ 3,263,852 7.9 $ 3,383,902 9.1 Savings and money market savings ..................................... 6,539,852 15.8 6,122,283 16.5 Savings certificates.................................................. 6,491,879 15.7 5,335,541 14.4 Large denomination certificates ...................................... 1,915,097 4.6 1,572,948 4.3 ----------- ----- ----------- ----- Total time deposits in domestic offices .......................... 18,210,680 44.0 16,414,674 44.3 Time deposits in foreign offices ....................................... 749,511 1.8 516,157 1.4 ----------- ----- ----------- ----- Total interest-bearing deposits................................... 18,960,191 45.8 16,930,831 45.7 Federal funds purchased and securities sold under repurchase agreements. 5,264,072 12.7 5,051,124 13.7 Commercial paper........................................................ 504,668 1.2 505,117 1.4 Other short-term borrowed funds ........................................ 2,029,095 4.9 674,593 1.8 ----------- ----- ----------- ----- Total short-term borrowed funds................................... 7,797,835 18.8 6,230,834 16.9 Bank notes ............................................................. 3,863,398 9.3 3,522,540 9.5 Other long-term debt.................................................... 1,038,210 2.5 827,077 2.2 ----------- ----- ----------- ----- Total long-term debt ............................................. 4,901,608 11.8 4,349,617 11.7 ----------- ----- ----------- ----- Total interest-bearing liabilities ............................... 31,659,634 76.4 27,511,282 74.3 Other deposits: Demand in domestic offices............................................ 5,284,722 12.7 5,312,255 14.3 Demand in foreign offices ............................................ 6,823 .0 5,380 .0 Noninterest-bearing time in domestic offices.......................... 10,119 .0 66,458 .2 Other liabilities ...................................................... 1,101,094 2.7 1,037,556 2.8 Shareholders' equity ................................................... 3,410,169 8.2 3,096,253 8.4 ----------- ----- ----------- ----- Total liabilities and shareholders' equity........................ $41,472,561 100.0 $37,029,184 100.0 =========== ===== =========== ===== TOTAL DEPOSITS ......................................................... $24,261,855 $22,314,924
*Includes unrealized gain of $34,248 in 1995 64 66
1993 1992 1991 1990 Five-Year - ------------------- ------------------ -------------------- -------------------- Compound Amount % Amount % Amount % Amount % Growth Rate - ------------ ----- ----------- ----- ----------- ---- ----------- ----- ----------- $ 6,198,159 18.5 $ 5,867,310 18.4 $ 6,112,621 19.1 $ 6,023,033 19.8 8.7% 1,890,337 5.6 1,997,998 6.3 2,070,612 6.4 2,114,022 6.9 (1.4) ----------- ----- ----------- ----- ----------- ----- ----------- ----- 8,088,496 24.1 7,865,308 24.7 8,183,233 25.5 8,137,055 26.7 6.4 684,679 2.0 687,556 2.2 757,865 2.4 830,280 2.7 (2.4) 2,245,115 6.7 2,006,442 6.3 1,991,185 6.2 2,000,545 6.6 4.1 2,591,207 7.7 1,774,342 5.6 1,558,929 4.9 1,422,072 4.7 22.7 328,075 1.0 322,768 1.0 299,301 .9 288,156 .9 3.6 ----------- ----- ----------- ----- ----------- ----- ----------- ----- 5,849,076 17.4 4,791,108 15.1 4,607,280 14.4 4,541,053 14.9 10.5 470,465 1.4 519,971 1.7 1,020,690 3.2 1,225,283 4.0 (12.2) 3,147,293 9.4 3,063,395 9.6 2,912,517 9.1 2,740,395 9.0 6.0 3,779,444 11.2 3,602,157 11.3 3,653,410 11.4 3,212,427 10.5 4.6 ----------- ----- ----------- ----- ----------- ----- ----------- ----- 7,397,202 22.0 7,185,523 22.6 7,586,617 23.7 7,178,105 23.5 3.0 135,355 .4 118,209 .3 124,519 .4 144,041 .5 13.4 76,212 .2 72,347 .2 86,968 .2 80,223 .3 30.6 ----------- ----- ----------- ----- ----------- ----- ----------- ----- 21,546,341 64.1 20,032,495 62.9 20,588,617 64.2 20,080,477 65.9 6.5 688,799 2.1 780,426 2.5 877,991 2.7 948,192 3.1 (14.9) 6,350,557 18.9 5,420,655 17.0 4,904,993 15.3 3,930,476 12.9 (1.0) ----------- ----- ----------- ----- ----------- ----- ----------- ----- 7,039,356 21.0 6,201,081 19.5 5,782,984 18.0 4,878,668 16.0 (3.1) -- -- -- -- -- -- -- -- ----------- ----- ----------- ----- ----------- ----- ----------- ----- 7,039,356 21.0 6,201,081 19.5 5,782,984 18.0 4,878,668 16.0 11.4 78,297 .2 301,568 1.0 416,103 1.3 604,162 2.0 (28.2) 394,959 1.2 483,679 1.5 597,354 1.9 479,735 1.6 (24.0) 721,111 2.1 1,078,370 3.4 974,621 3.0 739,268 2.4 4.4 ----------- ----- ----------- ----- ----------- ----- ----------- ----- 29,780,064 88.6 28,097,193 88.3 28,359,679 88.4 26,782,310 87.9 6.7 2,368,237 7.0 2,370,379 7.4 2,486,267 7.8 2,702,272 8.9 (1.4) 468,218 1.4 444,957 1.4 432,908 1.4 419,958 1.4 6.4 1,411,152 4.2 1,294,825 4.1 1,061,906 3.3 807,485 2.6 16.8 (398,697) (1.2) (375,762) (1.2) (295,891) (.9) (243,069) (.8) 10.9 ----------- ----- ----------- ----- ----------- ----- ----------- ----- $33,628,974 100.0 $31,831,592 100.0 $32,044,869 100.0 $30,468,956 100.0 6.4 =========== ===== =========== ===== =========== ===== =========== ===== $ 3,219,413 9.6 $ 2,842,853 8.9 $ 2,354,780 7.3 $ 2,092,729 6.9 9.3 5,997,750 17.8 5,826,317 18.3 5,314,432 16.6 4,876,599 16.0 6.0 5,595,225 16.6 6,197,779 19.5 6,862,392 21.4 5,998,805 19.7 1.6 1,739,831 5.2 2,593,675 8.2 3,102,496 9.7 3,126,103 10.2 (9.3) ----------- ----- ----------- ----- ----------- ----- ----------- ----- 16,552,219 49.2 17,460,624 54.9 17,634,100 55.0 16,094,236 52.8 2.5 466,571 1.4 423,069 1.3 289,722 .9 489,044 1.6 8.9 ----------- ----- ----------- ----- ----------- ----- ----------- ----- 17,018,790 50.6 17,883,693 56.2 17,923,822 55.9 16,583,280 54.4 2.7 3,944,864 11.7 3,110,737 9.8 3,498,869 10.9 3,876,762 12.7 6.3 485,889 1.5 469,120 1.5 348,125 1.1 365,369 1.2 6.7 972,008 2.9 1,381,713 4.3 2,233,271 7.0 1,988,614 6.6 .4 ----------- ----- ----------- ----- ----------- ----- ----------- ----- 5,402,761 16.1 4,961,570 15.6 6,080,265 19.0 6,230,745 20.5 4.6 1,535,750 4.6 272,688 .9 -- -- -- -- 537,852 1.6 175,940 .5 177,623 .6 177,436 .6 42.4 ----------- ----- ----------- ----- ----------- ----- ----------- ----- 2,073,602 6.2 448,628 1.4 177,623 .6 177,436 .6 94.2 ----------- ----- ----------- ----- ----------- ----- ----------- ----- 24,495,153 72.9 23,293,891 73.2 24,181,710 75.5 22,991,461 75.5 6.6 5,277,509 15.7 4,853,925 15.2 4,519,407 14.1 4,562,568 15.0 3.0 5,516 .0 5,759 .0 7,213 .0 7,208 .0 (1.1) 71,577 .2 87,358 .3 68,801 .2 49,698 .2 (27.3) 907,111 2.7 994,263 3.1 806,206 2.5 620,568 2.0 12.2 2,872,108 8.5 2,596,396 8.2 2,461,532 7.7 2,237,453 7.3 8.8 ----------- ----- ----------- ----- ----------- ----- ----------- ----- $33,628,974 100.0 $31,831,592 100.0 $32,044,869 100.0 $30,468,956 100.0 6.4 =========== ===== =========== ===== =========== ===== =========== ===== $22,373,392 $22,830,735 $22,519,243 $21,202,754 2.7
65 67 WACHOVIA CORPORATION AND SUBSIDIARIES SUMMARY OF OPERATIONS (thousands)
1995 1994 ------------------- ------------------ Amount % Amount % ----------- ------ ---------- ----- INTEREST INCOME....................................... $ 3,019,730 80.4 $2,362,294 79.5 INTEREST EXPENSE...................................... 1,579,107 42.0 1,038,388 34.9 ----------- ------ ---------- ----- NET INTEREST INCOME................................... 1,440,623 38.4 1,323,906 44.6 Provision for loan losses............................. 103,791 2.8 71,763 2.4 ----------- ------ ---------- ----- Net interest income after provision for loan losses... 1,336,832 35.6 1,252,143 42.2 OTHER INCOME Service charges on deposit accounts................... 209,113 5.6 196,149 6.7 Fees for trust services............................... 130,521 3.5 128,100 4.3 Credit card income.................................... 124,282 3.3 111,925 3.8 Mortgage fee income................................... 23,320 .6 33,224 1.1 Trading account profits (losses)...................... 25,698 .7 9,502 .3 Student loan servicing................................ -- -- -- -- Other operating income................................ 167,167 4.4 125,532 4.2 ----------- ------ ---------- ----- Total other operating revenue.................... 680,101 18.1 604,432 20.4 Gain on sale of mortgage servicing portfolio.......... 79,025 2.1 -- -- Gain on sale of subsidiary............................ -- -- -- -- Investment securities gains (losses).................. (23,494) (.6) 3,320 .1 ----------- ------ ---------- ----- Total other income............................... 735,632 19.6 607,752 20.5 OTHER EXPENSE Salaries.............................................. 498,730 13.3 464,790 15.7 Employee benefits..................................... 101,596 2.7 98,717 3.3 ----------- ------ ---------- ----- Total personnel expense......................... 600,326 16.0 563,507 19.0 Net occupancy expense................................ 87,105 2.3 80,911 2.7 Equipment expense.................................... 109,701 2.9 106,508 3.6 Other operating expense.............................. 406,464 10.9 347,487 11.7 ----------- ------ ---------- ----- Total other expense............................. 1,203,596 32.1 1,098,413 37.0 Income before income taxes........................... 868,868 23.1 761,482 25.7 Applicable income taxes (2).......................... 266,325 7.1 222,424 7.5 ----------- ------ ---------- ----- NET INCOME........................................... $ 602,543 16.0 $ 539,058 18.2 =========== ====== ========== ===== Net income per common share: Primary............................................. $ 3.50 $ 3.13 Fully diluted....................................... $ 3.49 $ 3.12 Cash dividends paid per common share................. $ 1.38 $ 1.23 Average shares outstanding: Primary (3)......................................... 172,089 172,339 Fully diluted (4)................................... 172,957 172,951 (1) Percentages reflected above are based on total income (interest plus other). (2) Income taxes applicable to securities transactions were as follows: 1995 -- ($8,576); 1994 -- $1,328; 1993 -- $7,472; 1992 -- $470; 1991 -- $3,997; and 1990 -- $2,379. (3) Average primary shares outstanding include common equivalent shares as follows: 1995 -- 1,454; 1994 -- 1,229; 1993 -- 1,668; 1992 -- 1,878; 1991 -- 1,640; and 1990 -- 828. (4) Average fully diluted shares outstanding include dilutive common stock options and awards and convertible debentures and notes as follows: 1995 -- 2,322; 1994 -- 1,841; 1993 -- 2,925; 1992 -- 4,749; 1991 -- 5,377; and 1990 -- 4,662.
66 68
1993 1992 1991 1990 Five-Year - ---------------- ---------------- ---------------- ---------------- Compound Amount % Amount % Amount % Amount % Growth Rate - ---------- ---- ---------- ---- ---------- ---- ---------- ---- ----------- $2,122,837 77.2 $2,222,078 80.0 $2,637,015 84.0 $2,748,644 85.5 1.9% 839,012 30.5 967,028 34.8 1,467,849 46.8 1,684,114 52.4 (1.3) - ---------- ---- ---------- ---- ---------- ---- ---------- ---- 1,283,825 46.7 1,255,050 45.2 1,169,166 37.2 1,064,530 33.1 6.2 92,652 3.4 119,420 4.3 293,000 9.3 142,992 4.4 (6.2) - ---------- ---- ---------- ---- ---------- ---- ---------- ---- 1,191,173 43.3 1,135,630 40.9 876,166 27.9 921,538 28.7 7.7 202,885 7.4 189,537 6.8 170,827 5.4 155,808 4.8 6.1 120,030 4.4 109,504 3.9 102,665 3.3 99,572 3.1 5.6 101,780 3.7 78,068 2.8 62,814 2.0 55,202 1.7 17.6 39,101 1.4 40,078 1.5 28,608 .9 20,741 .6 2.4 22,445 .8 (2,916) (.1) 17,846 .6 17,321 .6 8.2 5,535 .2 33,250 1.2 31,470 1.0 29,841 .9 (100.0) 108,403 3.9 87,721 3.2 75,948 2.4 80,367 2.6 15.8 - ---------- ---- ---------- ---- ---------- ---- ---------- ---- 600,179 21.8 535,242 19.3 490,178 15.6 458,852 14.3 8.2 -- -- -- -- -- -- -- -- 8,030 .3 19,486 .7 -- -- -- -- 19,394 .7 1,497 .0 11,091 .4 6,218 .2 - ---------- ---- ---------- ---- ---------- ---- ---------- ---- 627,603 22.8 556,225 20.0 501,269 16.0 465,070 14.5 9.6 455,621 16.6 451,193 16.2 443,273 14.1 413,592 12.9 3.8 113,059 4.1 88,630 3.2 81,216 2.6 73,881 2.3 6.6 - ---------- ---- ---------- ---- ---------- ---- ---------- ---- 568,680 20.7 539,823 19.4 524,489 16.7 487,473 15.2 4.3 82,070 3.0 80,673 2.9 75,729 2.4 71,402 2.2 4.1 102,246 3.7 100,916 3.6 99,569 3.2 98,042 3.0 2.3 378,240 13.7 374,240 13.5 396,730 12.7 295,367 9.3 6.6 - ---------- ---- ---------- ---- ---------- ---- ---------- ---- 1,131,236 41.1 1,095,652 39.4 1,096,517 35.0 952,284 29.7 4.8 687,540 25.0 596,203 21.5 280,918 8.9 434,324 13.5 14.9 195,445 7.1 162,978 5.9 51,378 1.6 88,647 2.7 24.6 - ---------- ---- ---------- ---- ---------- ---- ---------- ---- $ 492,095 17.9 $ 433,225 15.6 $ 229,540 7.3 $ 345,677 10.8 11.8 ========== ==== ========== ==== ========== ==== ========== ==== $ 2.83 $ 2.51 $ 1.34 $ 2.05 11.3 $ 2.81 $ 2.48 $ 1.32 $ 2.02 11.6 $ 1.11 $ 1.00 $ .92 $ .82 11.0 173,941 172,641 171,481 168,888 .4 175,198 175,512 175,218 172,722 .0
67 69 WACHOVIA CORPORATION AND SUBSIDIARIES NET INTEREST INCOME -- TAXABLE EQUIVALENT (thousands)
1995 1994 ----------------- ----------------- Amount % Amount % ---------- ---- ---------- ------ INTEREST INCOME Loans: Commercial............................................................... $ 681,206 21.8 $ 444,395 18.0 Tax-exempt............................................................... 193,080 6.2 176,701 7.2 ---------- ----- ---------- ------ Total commercial..................................................... 874,286 28.0 621,096 25.2 Direct retail............................................................ 67,803 2.2 61,054 2.5 Indirect retail.......................................................... 200,818 6.4 190,444 7.7 Credit card.............................................................. 488,158 15.7 389,763 15.8 Other revolving credit................................................... 43,390 1.4 38,556 1.6 ---------- ----- ---------- ------ Total retail......................................................... 800,169 25.7 679,817 27.6 Construction............................................................. 62,823 2.0 45,988 1.9 Commercial mortgages..................................................... 316,956 10.2 259,077 10.5 Residential mortgages.................................................... 335,907 10.8 287,922 11.7 ---------- ----- ---------- ------ Total real estate.................................................... 715,686 23.0 592,987 24.1 Lease financing.......................................................... 23,598 .8 13,563 .6 Foreign.................................................................. 22,610 .7 6,162 .2 ---------- ----- ---------- ------ Total loans.......................................................... 2,436,349 78.2 1,913,625 77.7 Investment securities: Held-to-maturity: State and municipal.................................................... 50,192 1.6 75,069 3.1 Other investments...................................................... 271,292 8.7 234,557 9.5 ---------- ----- ---------- ------ Total securities held-to-maturity.................................... 321,484 10.3 309,626 12.6 Available-for-sale: Other investments...................................................... 283,989 9.1 194,576 7.9 ---------- ----- ---------- ------ Total investment securities.......................................... 605,473 19.4 504,202 20.5 Interest-bearing bank balances............................................ 9,121 .3 597 .0 Federal funds sold and securities purchased under resale agreements....... 7,234 .2 7,682 .3 Trading account assets.................................................... 60,326 1.9 36,348 1.5 ---------- ----- ---------- ------ Total interest income................................................ 3,118,503 100.0 2,462,454 100.0 INTEREST EXPENSE Interest-bearing demand................................................... 59,016 1.9 55,088 2.2 Savings and money market savings.......................................... 240,328 7.7 164,461 6.7 Savings certificates...................................................... 370,290 11.9 227,060 9.2 Large denomination certificates........................................... 111,944 3.6 70,305 2.9 ---------- ----- ---------- ------ Total time deposits in domestic offices.............................. 781,578 25.1 516,914 21.0 Time deposits in foreign offices.......................................... 41,876 1.3 22,318 .9 ---------- ----- ---------- ------ Total time deposits.................................................. 823,454 26.4 539,232 21.9 Federal funds purchased and securities sold under repurchase agreements... 316,759 10.2 224,089 9.1 Commercial paper.......................................................... 27,807 .9 19,880 .8 Other short-term borrowed funds........................................... 122,441 3.9 28,603 1.2 ---------- ----- ---------- ------ Total short-term borrowed funds...................................... 467,007 15.0 272,572 11.1 Bank notes................................................................ 219,035 7.0 171,968 7.0 Other long-term debt...................................................... 69,611 2.2 54,616 2.2 ---------- ----- ---------- ------ Total long-term debt................................................. 288,646 9.2 226,584 9.2 ---------- ----- ---------- ------ Total interest expense............................................... 1,579,107 50.6 1,038,388 42.2 ---------- ----- ---------- ------ NET INTEREST INCOME....................................................... $1,539,396 49.4 $1,424,066 57.8 ========== ===== ========== ====== Percentage of interest-earning assets: Interest income.......................................................... 8.43% 7.51% Interest expense......................................................... 4.27 3.17 ---- ---- Net interest income.................................................. 4.16% 4.34% ==== ==== Taxable equivalent adjustment included in interest income: Loans.................................................................... $ 51,430 $ 49,543 Investment securities.................................................... 43,126 47,949 Trading account assets................................................... 4,217 2,668 ---------- ---------- Total (2)............................................................ $ 98,773 $ 100,160 ========== ========== (1) Percentages reflected above are based on total interest income. (2) The taxable equivalent adjustment for 1995, 1994 and 1993 reflects the federal income tax rate of 35% and state tax rates, as applicable, reduced by the nondeductible portion of interest expense; the taxable equivalent adjustment for prior years reflects the federal income tax rate of 34%.
68 70
1993 1992 1991 1990 Five-Year - ------------------ ------------------ ------------------ ----------------- Compound Amount % Amount % Amount % Amount % Growth Rate - ---------- ----- ---------- ----- ---------- ----- ---------- ----- ----------- $ 327,729 14.8 $ 349,868 15.2 $ 502,100 18.4 $ 596,227 20.9 2.7% 171,163 7.7 173,158 7.5 206,099 7.5 230,049 8.0 (3.4) - ---------- ----- ---------- ----- ---------- ----- ---------- ----- 498,892 22.5 523,026 22.7 708,199 25.9 826,276 28.9 1.1 59,455 2.7 77,850 3.4 97,655 3.6 110,423 3.9 (9.3) 189,143 8.5 191,594 8.3 209,985 7.7 225,582 7.9 (2.3) 304,502 13.7 257,885 11.2 259,773 9.5 240,709 8.4 15.2 36,580 1.6 37,538 1.6 38,106 1.4 39,567 1.4 1.9 - ---------- ----- ---------- ----- ---------- ----- ---------- ----- 589,680 26.5 564,867 24.5 605,519 22.2 616,281 21.6 5.4 35,034 1.6 40,441 1.8 95,503 3.5 126,754 4.4 (13.1) 232,688 10.5 243,861 10.6 273,371 10.0 290,390 10.2 1.8 305,965 13.8 320,363 13.9 370,733 13.6 347,730 12.2 (.7) - ---------- ----- ---------- ----- ---------- ----- ---------- ----- 573,687 25.9 604,665 26.3 739,607 27.1 764,874 26.8 (1.3) 12,051 .5 11,830 .5 12,990 .5 15,407 .5 8.9 3,318 .1 3,760 .2 6,775 .2 7,745 .3 23.9 - ---------- ----- ---------- ----- ---------- ----- ---------- ----- 1,677,628 75.5 1,708,148 74.2 2,073,090 75.9 2,230,583 78.1 1.8 85,854 3.8 96,649 4.2 109,607 4.0 119,799 4.2 (16.0) 414,485 18.7 406,274 17.7 416,668 15.3 353,199 12.4 (5.1) - ---------- ----- ---------- ----- ---------- ----- ---------- ----- 500,339 22.5 502,923 21.9 526,275 19.3 472,998 16.6 (7.4) -- -- -- -- -- -- -- -- -- - ---------- ----- ---------- ----- ---------- ----- ---------- ----- 500,339 22.5 502,923 21.9 526,275 19.3 472,998 16.6 5.1 2,905 .1 12,772 .6 26,974 1.0 50,855 1.7 (29.1) 12,433 .6 17,038 .7 35,537 1.3 39,496 1.4 (28.8) 28,433 1.3 60,444 2.6 70,049 2.5 62,386 2.2 (.7) - ---------- ----- ---------- ----- ---------- ----- ---------- ----- 2,221,738 100.0 2,301,325 100.0 2,731,925 100.0 2,856,318 100.0 1.8 60,433 2.7 72,548 3.1 95,809 3.5 93,564 3.3 (8.8) 151,748 6.8 189,699 8.2 275,951 10.1 301,248 10.5 (4.4) 240,795 10.8 324,063 14.1 475,012 17.4 473,150 16.5 (4.8) 90,101 4.1 148,931 6.5 221,992 8.1 256,243 9.0 (15.3) - ---------- ----- ---------- ----- ---------- ----- ---------- ----- 543,077 24.4 735,241 31.9 1,068,764 39.1 1,124,205 39.3 (7.0) 14,503 .7 15,646 .7 16,834 .6 39,147 1.4 1.4 - ---------- ----- ---------- ----- ---------- ----- ---------- ----- 557,580 25.1 750,887 32.6 1,085,598 39.7 1,163,352 40.7 (6.7) 127,580 5.8 115,939 5.1 202,299 7.4 309,846 10.9 .4 14,693 .7 16,629 .7 19,985 .7 29,416 1.0 (1.1) 31,574 1.4 58,420 2.5 146,918 5.4 166,251 5.8 (5.9) - ---------- ----- ---------- ----- ---------- ----- ---------- ----- 173,847 7.9 190,988 8.3 369,202 13.5 505,513 17.7 (1.6) 69,785 3.1 13,183 .6 -- -- -- -- 37,800 1.7 11,970 .5 13,049 .5 15,249 .6 35.5 - ---------- ----- ---------- ----- ---------- ----- ---------- ----- 107,585 4.8 25,153 1.1 13,049 .5 15,249 .6 80.1 - ---------- ----- ---------- ----- ---------- ----- ---------- ----- 839,012 37.8 967,028 42.0 1,467,849 53.7 1,684,114 59.0 (1.3) - ---------- ----- ---------- ----- ---------- ----- ---------- ----- $1,382,726 62.2 $1,334,297 58.0 $1,264,076 46.3 $1,172,204 41.0 5.6 ========== ===== ========== ===== ========== ===== ========== ===== 7.46% 8.19% 9.63% 10.66% 2.82 3.44 5.17 6.28 - ---------- ---------- ---------- ---------- 4.64% 4.75% 4.46% 4.38% ========== ========== ========== ========== $ 50,178 $ 44,760 $ 54,882 $ 62,415 46,613 33,787 39,245 44,635 2,110 700 783 624 - ---------- ---------- ---------- ---------- $ 98,901 $ 79,247 $ 94,910 $ 107,674 ========== ========== ========== ==========
69 71 WACHOVIA CORPORATION AND SUBSIDIARIES STATISTICAL SUMMARY
1995 1994 1993 1992 1991 1990 ---- ---- ---- ---- ---- ---- AVERAGE YIELDS EARNED (taxable equivalent) Loans: Commercial ............................................................... 7.44% 6.03% 5.29% 5.96% 8.21% 9.90% Tax-exempt ............................................................... 9.81 8.99 9.05 8.67 9.95 10.88 Total commercial ...................................................... 7.86 6.66 6.17 6.65 8.65 10.15 Direct retail ............................................................ 9.23 8.30 8.68 11.32 12.89 13.30 Indirect retail .......................................................... 8.22 7.77 8.42 9.55 10.55 11.28 Credit card .............................................................. 12.35 11.05 11.75 14.53 16.66 16.93 Other revolving credit.................................................... 12.61 11.55 11.15 11.63 12.73 13.73 Total retail .......................................................... 10.71 9.65 10.08 11.79 13.14 13.57 Construction ............................................................. 9.82 9.26 7.45 7.78 9.36 10.34 Commercial mortgages ..................................................... 8.62 7.72 7.39 7.96 9.39 10.60 Residential mortgages ................................................... 8.36 7.78 8.10 8.89 10.15 10.82 Total real estate ..................................................... 8.59 7.85 7.76 8.42 9.75 10.66 Lease financing .......................................................... 8.73 7.83 8.90 10.01 10.43 10.70 Foreign .................................................................. 7.43 5.70 4.35 5.20 7.79 9.66 Total loans ........................................................... 8.86 7.90 7.79 8.53 10.07 11.11 Held-to-maturity securities: State and municipal securities ........................................... 11.84 12.53 12.46 12.38 12.48 12.63 Other investments ........................................................ 7.26 6.96 6.53 7.50 8.49 8.99 Available-for-sale securities: Other investments ........................................................ 6.79 5.24 -- -- -- -- Total investment securities ........................................... 7.26 6.56 7.11 8.11 9.10 9.70 Interest-bearing bank balances ............................................. 7.93 4.58 3.71 4.24 6.48 8.42 Federal funds sold and securities purchased under resale agreements ........................................ 5.93 3.91 3.15 3.52 5.95 8.23 Trading account assets ..................................................... 6.59 5.28 3.94 5.61 7.19 8.44 Total interest-earning assets ......................................... 8.43 7.51 7.46 8.19 9.63 10.66 AVERAGE RATES PAID Interest-bearing demand .................................................... 1.81% 1.63% 1.88% 2.55% 4.07% 4.47% Savings and money market savings ........................................... 3.67 2.69 2.53 3.26 5.19 6.18 Savings certificates ....................................................... 5.70 4.26 4.30 5.23 6.92 7.89 Large denomination certificates ............................................ 5.85 4.47 5.18 5.74 7.16 8.20 Total time deposits in domestic offices................................ 4.29 3.15 3.28 4.21 6.06 6.99 Time deposits in foreign offices .......................................... 5.59 4.32 3.11 3.70 5.81 8.00 Total time deposits ................................................... 4.34 3.18 3.28 4.20 6.06 7.02 Federal funds purchased and securities sold under repurchase agreements ......................................... 6.02 4.44 3.23 3.73 5.78 7.99 Commercial paper ........................................................... 5.51 3.94 3.02 3.54 5.74 8.05 Other short-term borrowed funds............................................. 6.03 4.24 3.25 4.23 6.58 8.36 Total short-term borrowed funds ....................................... 5.99 4.37 3.22 3.85 6.07 8.11 Bank notes.................................................................. 5.67 4.88 4.54 4.83 -- -- Other long-term debt ....................................................... 6.70 6.60 7.03 6.80 7.35 8.59 Total long-term debt................................................... 5.89 5.21 5.19 5.61 7.35 8.59 Total interest-bearing liabilities .................................... 4.99 3.77 3.43 4.15 6.07 7.32 Interest rate spread ....................................................... 3.44% 3.74% 4.03% 4.04% 3.56% 3.34% Net yield on interest-earning assets........................................ 4.16% 4.34% 4.64% 4.75% 4.46% 4.38% RATIOS (averages) Shareholders' equity to: Total assets ............................................................. 8.22% 8.36% 8.54% 8.16% 7.68% 7.34% Net loans ................................................................ 12.58 13.01 13.58 13.21 12.13 11.28 Deposits.................................................................. 14.06 13.88 12.84 11.37 10.93 10.55 Equity and long-term debt................................................. 41.03 41.58 58.07 85.27 93.27 92.65 Return on assets............................................................ 1.45 1.46 1.46 1.36 .72 1.13 Return on shareholders' equity ............................................. 17.67 17.41 17.13 16.69 9.33 15.45 Return on deposits ......................................................... 2.48 2.42 2.20 1.90 1.02 1.63 Dividends paid as a percentage of net income ............................... 39.08 39.05 38.91 39.42 63.78 37.84
70 72 WACHOVIA CORPORATION AND SUBSIDIARIES YEAR-END INFORMATION
1995 1994 1993 1992 1991 1990 ------- ------- ------- ------- ------- ------- CONDENSED BALANCE SHEET (millions) Cash and due from banks .................................................... $ 2,692 $ 2,670 $ 2,529 $ 2,628 $ 2,475 $ 3,586 Interest-bearing bank balances ............................................. 451 7 13 189 408 565 Federal funds sold and securities purchased under resale agreements ......................................... 144 202 691 479 546 591 Trading account assets ..................................................... 1,115 890 789 896 1,445 793 Investment securities: Available-for-sale......................................................... 7,410 3,538 -- -- -- -- Held-to-maturity........................................................... 1,620 4,185 7,879 6,486 6,265 5,273 Loans and net leases ....................................................... 29,270 25,899 22,986 21,097 20,643 21,255 Less unearned income on loans .............................................. 9 8 9 11 26 48 ------- ------- ------- ------- ------- ------- Total loans ........................................................... 29,261 25,891 22,977 21,086 20,617 21,207 Less allowance for loan losses ............................................. 409 406 405 380 360 270 ------- ------- ------- ------- ------- ------- Net loans ............................................................. 28,852 25,485 22,572 20,706 20,257 20,937 Premises and equipment...................................................... 628 543 503 444 435 429 Other assets ............................................................... 2,069 1,668 1,550 1,539 1,327 1,141 ------- ------- ------- ------- ------- ------- Total assets........................................................... $44,981 $39,188 $36,526 $33,367 $33,158 $33,315 ======= ======= ======= ======= ======= ======= Deposits in domestic offices ............................................... $25,608 $22,153 $22,545 $22,856 $22,602 $22,736 Deposits in foreign offices ................................................ 761 916 807 519 404 499 ------- ------- ------- ------- ------- ------- Total deposits ........................................................ 26,369 23,069 23,352 23,375 23,006 23,235 Federal funds purchased and securities sold under repurchase agreements .......................................... 5,850 5,898 4,741 3,714 4,002 3,867 Commercial paper ........................................................... 502 407 589 387 398 331 Other short-term borrowed funds ............................................ 1,721 1,007 1,091 849 2,201 2,473 Bank notes ................................................................. 4,088 3,953 2,370 758 -- -- Other long-term debt ....................................................... 1,335 838 591 439 171 164 Other liabilities .......................................................... 1,342 729 774 1,070 896 874 Shareholders' equity ....................................................... 3,774 3,287 3,018 2,775 2,484 2,371 ------- ------- ------- ------- ------- ------- Total liabilities and shareholders' equity ............................ $44,981 $39,188 $36,526 $33,367 $33,158 $33,315 ======= ======= ======= ======= ======= ======= LOAN PORTFOLIO (millions) Domestic borrowers: Commercial ................................................................ $ 9,753 $ 8,378 $ 6,727 $ 6,365 $ 6,396 $ 6,627 Tax exempt ................................................................ 2,238 1,810 1,959 1,952 1,993 2,065 Direct retail ............................................................. 755 750 716 673 723 796 Indirect retail............................................................ 2,544 2,340 2,429 2,109 1,983 2,022 Credit card ............................................................... 3,918 3,969 3,123 2,216 1,671 1,598 Other revolving credit .................................................... 354 343 333 327 302 297 Construction .............................................................. 746 553 494 464 637 1,197 Commercial mortgages ...................................................... 3,855 3,484 3,199 3,119 3,066 2,860 Residential mortgages...................................................... 4,214 3,821 3,767 3,663 3,660 3,506 Lease financing, net ...................................................... 494 189 157 125 116 138 ------- ------- ------- ------- ------- ------- Total ................................................................. 28,871 25,637 22,904 21,013 20,547 21,106 Foreign borrowers: Commercial and industrial ................................................. 390 254 73 73 56 92 Banks and other financial institutions .................................... -- -- -- -- 7 -- Governments and official institutions ..................................... -- -- -- -- 7 9 ------- ------- ------- ------- ------- ------- Total ................................................................. 390 254 73 73 70 101 ------- ------- ------- ------- ------- ------- Total loans ........................................................... $29,261 $25,891 $22,977 $21,086 $20,617 $21,207 ======= ======= ======= ======= ======= ======= LOAN PORTFOLIO (percentages) Commercial.................................................................. 41.0 39.4 37.8 39.4 40.7 41.0 Credit card ................................................................ 13.4 15.3 13.6 10.5 8.1 7.5 Other revolving credit ..................................................... 1.2 1.3 1.4 1.6 1.5 1.4 Other retail................................................................ 11.3 11.9 13.7 13.2 13.1 13.3 Real estate ................................................................ 30.1 30.4 32.5 34.4 35.7 35.7 Lease financing ............................................................ 1.7 .7 .7 .6 .6 .6 Foreign..................................................................... 1.3 1.0 .3 .3 .3 .5 ------- ------- ------- ------- ------- ------- Total ................................................................. 100.0 100.0 100.0 100.0 100.0 100.0 ======= ======= ======= ======= ======= =======
71 73 STOCK DATA - -------------------------------------------------------------------------------- The following charts present high and low trading ranges for the corporation's common stock, price to earnings ratios and data on cash dividends per share and cash dividend payouts for the most recent six years. Stock price trading ranges and price to earnings ratios for the most recent eight quarters also are provided. The Five-Year Total Return chart compares Wachovia, the S&P 500 Index and the Keefe, Bruyette & Woods (KBW) 50 Total Return Index in stock price appreciation and dividends, assuming quarterly reinvestment, from the base period December 31, 1990 through year-end 1995. The KBW 50 Index is a market COMMON STOCK PRICE RANGE* NYSE SYMBOL: WB CASH DIVIDENDS PER SHARE* Five-year compound growth rate = 11.0%
High Low ---- --- 1990 22 3/8 16 1/8 1990 $ .82 1991 30 20 1/4 1991 $ .92 1992 34 3/4 28 1/4 1992 $1.00 1993 40 1/2 31 7/8 1993 $1.11 1994 35 3/8 30 1/8 1994 $1.23 1995 48 1/4 32 1995 $1.38 *Prices represent those of Wachovia Corporation *Dividends per share represent those paid by Wachovia prior to merger. Corporation prior to merger.
COMMON STOCK PRICE/EARNINGS RATIOS* CASH DIVIDEND PAYOUT* (millions)
Cash dividends High Low paid % Payout ratio ---- --- ---- -------------- 1990 10.5 x 7.6 x 1990 $130.8 37.8% 1991 22.4 x 15.1 x 1991 $146.4 63.8% 1992 13.8 x 11.3 x 1992 $170.8 39.4% 1993 14.3 x 11.3 x 1993 $191.5 38.9% 1994 11.3 x 9.6 x 1994 $210.5 39.1% 1995 13.8 x 9.1 x 1995 $235.5 39.1% *Figures based on high and low common stock prices %Payout ratio (total dividends as a percentage for each year and annual net income per primary of net income) share as originally reported by Wachovia Corporation *Dividends include amounts paid by pooled companies. prior to merger.
- ----------------------------------------------------------------------------------------------------------------------------------- COMMON STOCK DATA - PER SHARE TABLE 19 - -----------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 ---- ---- ---- ---- ---- ---- Market value:* End of year................. $ 45 3/4 $ 32 1/4 $ 33 1/2 $ 34 1/8 $ 29 $ 20 7/8 High........................ 48 1/4 35 3/8 40 1/2 34 3/4 30 22 3/8 Low......................... 32 30 1/8 31 7/8 28 1/4 20 1/4 16 1/8 Book value.................... 22.15 19.23 17.61 16.18 14.56 14.07 Dividend*..................... 1.38 1.23 1.11 1.00 .92 .82 Price/earnings ratio**........ 13.1x 10.3x 11.8x 13.6x 21.7x 9.9x
*Information for years before 1991 represents that of Wachovia Corporation prior to merger **Based on end-of-year stock price and net income per primary share as originally reported by Wachovia Corporation prior to merger - -------------------------------------------------------------------------------- 72 74 capitalization weighted measure of total return for 50 of the largest U.S. banking companies including all money-center and most regional banks. Wachovia's common stock is listed on the New York Stock Exchange under the trading symbol of WB. The corporation is a member of the Standard & Poor's 500 Index of stocks and the S&P 500 Major Regional Banks Industry Group.
QUARTERLY COMMON STOCK PRICE RANGE 1994 1995 -------------- -------------- High Low High Low ---- --- ---- --- 1st Q 35 1/8 30 1/8 36 1/2 32 2nd Q 35 3/8 30 3/4 37 7/8 34 1/4 3rd Q 35 1/4 31 3/8 45 35 3/8 4th Q 34 1/2 31 1/2 48 1/4 43 1/8 QUARTERLY COMMON STOCK PRICE/EARNINGS RATIOS* 1994 1995 --------------- --------------- High Low High Low ---- --- ---- --- 1st Q 12.3 x 10.6 x 11.3 x 9.9 x 2nd Q 12.1 x 10.5 x 11.1 x 10.1 x 3rd Q 11.7 x 10.4 x 12.9 x 10.2 x 4th Q 11.0 x 10.1 x 13.8 x 12.3 x *Figures based on hiigh and low common stock prices for each period and net income per primary share for the 12 months ended on the last day of each period.
FIVE YEAR TOTAL RETURN* Wachovia S&P 500 KWB 50 Index -------- ------- ------------ 1990 100 100 100 1991 143.69 130.48 158.27 1992 174.21 140.41 201.68 1993 176.44 154.56 212.85 1994 176.35 156.60 201.99 1995 259.45 215.45 323.52 *Base period 12/31/90 = 100. Dividends reinvested. Data for the KBW 50 Index is weighted by market capitalization.
73 75 HISTORICAL COMPARATIVE DATA - -------------------------------------------------------------------------------- Six-year historical comparative data for Wachovia Corporation and the median of the 25 largest U.S. bank holding companies based on assets as of each year-end is presented in the following charts. The median is representative of the typical bank holding company within the comparison group. All data is as originally reported, not restated for pooling-of-interest mergers or acquisitions. The 25 largest U.S. banking companies is used as a current peer comparison for Wachovia although the corporation was not among this group in 1990.
RETURN ON ASSETS RETURN ON COMMON EQUITY (average) (average) 25 Largest 25 Largest Wachovia US Banks Wachovia US Banks -------- ---------- -------- ---------- 1990 1.23 % .57 % 1990 16.36 % 9.56 % 1991 .72 % .72 % 1991 9.33 % 10.49 % 1992 1.36 % .90 % 1992 16.69 % 14.18 % 1993 1.46 % 1.20 % 1993 17.13 % 16.94 % 1994 1.46 % 1.21 % 1994 17.41 % 16.10 % 1995 1.45 % 1.21 % 1995 17.67 % 16.77 % COMMON EQUITY TO ASSETS NET INTEREST INCOME* AS A PERCENTAGE (average) OF AVERAGE EARNING ASSETS 25 Largest 25 Largest Wachovia US Banks Wachovia US Banks -------- ---------- -------- ---------- 1990 7.55 % 4.82 % 1990 4.33 % 3.51 % 1991 7.68 % 5.13 % 1991 4.46 % 3.93 % 1992 8.16 % 6.16 % 1992 4.75 % 4.44 % 1993 8.54 % 6.57 % 1993 4.64 % 4.48 % 1994 8.36 % 6.86 % 1994 4.34 % 4.34 % 1995 8.22 % 7.00 % 1995 4.16 % 4.45 % *Taxable Equivalent NONINTEREST EXPENSE AS A PERCENTAGE NET LOAN LOSSES TO AVERAGE LOANS OF TOTAL ADJUSTED REVENUES* 25 Largest 25 Largest Wachovia US Banks Wachovia US Banks -------- ---------- -------- ---------- 1990 57.67 % 65.79 % 1990 .43 % 1.45 % 1991 62.51 % 67.40 % 1991 .99 % 1.55 % 1992 58.61 % 64.85 % 1992 .48 % 1.25 % 1993 57.05 % 62.54 % 1993 .31 % .75 % 1994 54.15 % 61.88 % 1994 .29 % .39 % 1995 54.23 % 61.72 % 1995 .37 % .44 % *Excluding mortgage servicing portfolio sale, subsidiary sale and securities transactions. NONPERFORMING ASSETS TO YEAR-END LOANS AND FORECLOSED PROPERTY 25 Largest Wachovia US Banks -------- ---------- 1990 .91 4.14 1991 1.50 4.78 1992 1.25 3.09 1993 .67 1.90 1994 .39 1.03 1995 .24 .80
74 76 MEMBER COMPANY DIRECTORS - ------------------------------------------------------------------------------- WACHOVIA BANK OF GEORGIA, N.A. D. GARY THOMPSON BRYAN D. LANGTON President and (Advisory Director) Chief Executive Officer Chairman of the Board and Chief Executive Officer G. JOSEPH PRENDERGAST Holiday Inn Worldwide Chairman of the Board BERNARD MARCUS F. DUANE ACKERMAN Chairman of the Board and Vice Chairman and Chief Executive Officer Chief Operating Officer The Home Depot, Inc. BellSouth Corporation JAMES F. MCDONALD L. M. BAKER, JR. President and President and Chief Executive Officer Chief Executive Officer Scientific-Atlanta, Inc. Wachovia Corporation DANIEL W. MCGLAUGHLIN CARL BOLCH, JR. President and Chairman of the Board and Chief Operating Officer Chief Executive Officer Equifax Inc. Racetrac Petroleum, Inc. D. RAYMOND RIDDLE JAMES E. BOSTIC, JR. Retired Chairman of the Board Senior Vice President National Service Industries, Inc. Environmental, Government Affairs and Communications S. STEPHEN SELIG III Georgia-Pacific Corporation Chairman of the Board and President MICHAEL C. CARLOS Selig Enterprises, Inc. Chairman of the Board and ALANA S. SHEPHERD Chief Executive Officer Secretary of the Board National Distributing Co., Inc. Shepherd Center, Inc. DAN T. CATHY President Chick-Fil-A International G. STEPHEN FELKER Chairman of the Board and Chief Executive Officer Avondale Mills, Inc. WACHOVIA BANK OF NORTH CAROLINA, N.A. J. WALTER MCDOWELL ESTELL C. LEE President and Chairman of the Board Chief Executive Officer and President The Lee Company L. M. BAKER, JR. Chairman of the Board G. JOSEPH PRENDERGAST Executive Vice President THOMAS M. BELK, JR. Wachovia Corporation Senior Vice President Belk Stores Services, Inc. ANDREW J. SCHINDLER H. C. BISSELL President and Chairman of the Board and Chief Executive Officer Chief Executive Officer R.J. Reynolds Tobacco Company The Bissell Companies, Inc. ROBERT L. TILLMAN FELTON J. CAPEL Chief Operating Officer Chairman of the Board Lowe's Companies, Inc. and President Century Associates of JOHN F. WARD North Carolina Senior Vice President Sara Lee Corporation WILLIAM CAVANAUGH, III Chief Executive Officer President and Hanes Group Chief Operating Officer Carolina Power & Light Company ANDERSON D. WARLICK President and BERT COLLINS Chief Operating Officer President and Parkdale Mills, Inc. Chief Executive Officer North Carolina Mutual DAVID J. WHICHARD, II Life Insurance Company Chairman The Daily Reflector RICHARD L. DAUGHERTY North Carolina Senior JOHN C. WHITAKER, JR. State Executive, Chairman of the Board and Vice President Worldwide Chief Executive Officer Manufacturing Inmar Enterprises, Inc. IBM PC Company IBM Corporation (Retired/Consultant) GEORGE W. HENDERSON President and Chief Executive Officer Burlington Industries, Inc. WACHOVIA BANK OF SOUTH CAROLINA, N.A. WILL B. SPENCE, JR. JAMES G. LINDLEY President and Chairman Emeritus Chief Executive Officer JOE A. PADGETT G. JOSEPH PRENDERGAST Retired Executive Vice President Chairman of the Board Wachovia Bank of South Carolina,N.A. L. M. BAKER, JR. W. M. SELF President and President and Chief Executive Officer Chief Executive Officer Wachovia Corporation Greenwood Mills, Inc. CHARLES J. BRADSHAW ROBERT S. SMALL, JR. President President Bradshaw Investments, Inc. AVTEX Properties, Inc. FRANK W. BRUMLEY J. GUY STEENROD President President The Brumley Company Roche Carolina Inc. W. T. CASSELS, JR. WILLIAM G. TAYLOR Chairman of the Board President Southeastern Freight Lines, Inc. The Springs Company THOMAS C. COXE, III BEATRICE R. THOMPSON, PH.D. Executive Vice President Coordinator of Psychological Services Sonoco Products Company Anderson School District Five FREDERICK B. DENT, JR. President Mayfair Mills, Inc. 75 77 WACHOVIA CORPORATION DIRECTORS AND OFFICERS - ------------------------------------------------------------------------------- DIRECTORS
L.M. BAKER, JR. THOMAS K.HEARN, JR. JAMES W. JOHNSTON President and President Vice Chairman Chief Executive Officer Wake Forest University RJR Nabisco, Inc. Chairman of the Board R.J. Reynolds Tobacco Company JOHN G. MEDLIN, JR. W. HAYNE HIPP WYNDHAM ROBERTSON Chairman of the Board President and Vice President, Communications Chief Executive Officer University of North Carolina The Liberty Corporation RUFUS C. BARKLEY, JR. ROBERT M. HOLDER, JR. HERMAN J. RUSSELL Chairman Chairman of the Board Chairman and Cameron & Barkley Company Holder Corporation Chief Executive Officer H.J. Russell & Company CRANDALL C. BOWLES DONALD R. HUGHES SHERWOOD H. SMITH, JR. Executive Vice President Consultant and Retired Chairman of the Board and Springs Industries, Inc. Vice Chairman of the Board Chief Executive Officer Burlington Industries, Inc. Carolina Power & Light Company JOHN L. CLENDENIN F. KENNETH IVERSON CHARLES MCKENZIE TAYLOR Chairman, President Chairman and Chairman of the Board and Chief Executive Officer Chief Executive Officer Taylor & Mathis, Inc. BellSouth Corporation Nucor Corporation Taylor & Mathis Properties LAWRENCE M. GRESSETTE, JR. Chairman, President and Chief Executive Officer SCANA Corporation PRINCIPAL CORPORATE OFFICERS L.M. BAKER, JR. W. DOUG KING ROBERT S. MCCOY, JR. President and Executive Vice President Executive Vice President Chief Executive Officer Consumer Services Chief Financial Officer MICKEY W. DRY WALTER E. LEONARD, JR. G. JOSEPH PRENDERGAST Executive Vice President Executive Vice President Executive Vice President Chief Credit Officer Operations/Technology General Banking HUGH M. DURDEN KENNETH W. MCALLISTER RICHARD B. ROBERTS Executive Vice President Executive Vice President Executive Vice President Corporate Services General Counsel/Administrative Treasurer
76 78 SHAREHOLDER INFORMATION - -------------------------------------------------------------------------------- CORPORATE HEADQUARTERS Wachovia Corporation 100 North Main Street 191 Peachtree Street, NE Winston-Salem, NC 27150 Atlanta, GA 30303 CORPORATE MAILING ADDRESSES AND TELEPHONE NUMBERS Wachovia Corporation P. O. Box 3099 P. O. Box 4148 Winston-Salem, NC 27150 Atlanta, GA 30302 910-770-5000 404-332-5000 NOTICE OF ANNUAL MEETING The Annual Meeting of Shareholders of Wachovia Corporation will be held Friday, April 26, 1996 at 10:30 a.m., in the North Raleigh Hilton, 3415 Wake Forest Road, Raleigh, NC. All shareholders are invited to attend. COMMON STOCK The common stock of the Corporation is traded on the New York Stock Exchange with a ticker symbol of WB. TRANSFER AGENT Wachovia Bank of North Carolina, N.A. Corporate Trust Department P. O. Box 3001 Winston-Salem, NC 27102 1-800-633-4236 SHAREHOLDER ACCOUNT ASSISTANCE Shareholders who wish to change the name, address or ownership of stock, report lost certificates, eliminate duplicate mailings of financial material or for other account reregistration procedures and assistance should contact the Transfer Agent at the address or phone number above. Use of your shareholder account number and a daytime phone number in all correspondence will be appreciated. DIVIDEND SERVICES Dividend Reinvestment and Common Stock Purchase Plan -- The plan provides common stockholders of record a regular way of investing cash dividends in additional shares at an average market price and/or investing optional cash payments without payment of brokerage commissions or service charges. Direct Deposit of Cash Dividends -- Direct deposit is a safe, fast and timesaving method of receiving cash dividends through automatic deposit on the date of payment to a checking, savings or money market account at any financial institution which participates in an Automated Clearing House. Information regarding these services can be obtained by contacting the Transfer Agent or Wachovia Shareholder Services at the address or phone number below. WACHOVIA SHAREHOLDER SERVICES CONTACT H. Jo Barlow Wachovia Corporation Shareholder Services P. O. Box 3099 910-732-5787 Winston-Salem, NC 27150 FINANCIAL INFORMATION Analysts, investors and others seeking financial information should contact the following either by phone or in writing to the corporate mailing address in Winston-Salem. Robert S. McCoy, Jr. James C. Mabry Chief Financial Officer Investor Relations 910-732-5926 910-732-5788 INDEPENDENT AUDITORS Ernst & Young LLP, Winston-Salem, NC 77 EX-23 5 AUDITORS' CONSENT 1 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Form S-8: Nos. 33-34386, 33-15706, 2-99538, 33-44191, 33-44386, 33-44394, 33-54094, 33-53325; Form S-3: Nos. 33-6280, 33-2232, 33-55839; Form S-4: No 333-1033) of Wachovia Corporation and in the related prospectuses of our report dated January 11, 1996, with respect to the consolidated financial statements of Wachovia Corporation incorporated by reference in this Annual Report (Form 10-K) for the year ended December 31, 1995. Ernst & Young LLP Winston-Salem, North Carolina March 21, 1996 EX-24 6 POWER OF ATTORNEY 1 EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: We, the undersigned directors of Wachovia Corporation, and each of us, do hereby make, constitute and appoint Kenneth W. McAllister and Alice Washington Grogan, and each of them (either of whom may act without the consent or joinder of the other), our attorneys-in-fact and agents with full power of substitution for us and in our name, place and stead, in any and all capacities, to execute for us and in our behalf the Annual Report on Form 10-K of Wachovia Corporation for the year ended December 31, 1995 and any and all amendments to the foregoing Report and any other documents and instruments incidental thereto, and to file the same, with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as we might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents and/or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, we the undersigned have executed this Power of Attorney this 8th day of February, 1996. /s/L. M. Baker, Jr. /s/Rufus C. Barkley, Jr. ----------------------------- ------------------------ L. M. Baker, Jr. Rufus C. Barkley, Jr. /s/Crandall C. Bowles /s/John L. Clendenin ----------------------------- ------------------------ Crandall C. Bowles John L. Clendenin /s/Lawrence M. Gressette, Jr. /s/Thomas K. Hearn, Jr. ----------------------------- ------------------------ Lawrence M. Gressette, Jr. Thomas K. Hearn, Jr. /s/W. Hayne Hipp /s/Robert M. Holder, Jr. ----------------------------- ------------------------ W. Hayne Hipp Robert M. Holder, Jr. /s/Donald R. Hughes /s/F. Kenneth Iverson ----------------------------- ------------------------ Donald R. Hughes F. Kenneth Iverson /s/James W. Johnston /s/John G. Medlin, Jr. ----------------------------- ------------------------ James W. Johnston John G. Medlin, Jr. /s/Wyndham Robertson /s/Herman J. Russell ----------------------------- ------------------------ Wyndham Robertson Herman J. Russell /s/Sherwood H. Smith, Jr. /s/Charles McKenzie Taylor ----------------------------- ------------------------ Sherwood H. Smith, Jr. Charles McKenzie Taylor EX-27 7 FINANCIAL DATA SCHEDULE
9 1,000 U.S. DOLLARS YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 1 2,692,318 451,279 144,105 1,114,926 7,409,825 1,619,480 1,721,222 29,261,153 408,808 44,981,314 26,368,757 8,073,268 1,342,504 5,423,028 0 0 851,793 2,921,964 44,981,314 2,384,919 562,347 72,464 3,019,730 823,454 1,579,107 1,440,623 103,791 (23,494) 1,203,596 868,868 602,543 0 0 602,543 3.50 3.49 4.16 53,547 48,970 0 0 406,132 134,499 33,384 408,808 334,526 3,697 70,585
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