-----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, H9viveCje1pvt0/c48N//azjFi9p2rPqfLLbhrmVcO25TuWAkQEDvFKx7oRMwe7e hEu4d17rDxY91gSlHGVMaQ== 0000950168-96-001448.txt : 19960813 0000950168-96-001448.hdr.sgml : 19960813 ACCESSION NUMBER: 0000950168-96-001448 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960812 SROS: NONE 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09021 FILM NUMBER: 96608726 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-Q 1 WACHOVIA CORPORATION 10-Q (WACHOVIA logo appears here) FINANCIAL SUPPLEMENT AND FORM 10-Q SECOND QUARTER 1996 WACHOVIA CORPORATION DIRECTORS AND OFFICERS DIRECTORS L. M. BAKER, JR. President and Chief Executive Officer JOHN G. MEDLIN, JR. Chairman of the Board RUFUS C. BARKLEY, JR. Chairman Cameron & Barkley Company CRANDALL C. BOWLES Executive Vice President Springs Industries, Inc. JOHN L. CLENDENIN Chairman, President and Chief Executive Officer BellSouth Corporation LAWRENCE M. GRESSETTE, JR. Chairman and Chief Executive Officer SCANA Corporation THOMAS K. HEARN, JR. President Wake Forest University W. HAYNE HIPP President and Chief Executive Officer The Liberty Corporation ROBERT M. HOLDER, JR. Chairman of the Board Holder Corporation DONALD R. HUGHES Consultant and Retired Vice Chairman of the Board Burlington Industries, Inc. JAMES W. JOHNSTON Retired Vice Chairman RJR Nabisco, Inc. Retired Chairman of the Board R.J. Reynolds Tobacco Company WYNDHAM ROBERTSON Writer and Retired Vice President, Communications University of North Carolina HERMAN J. RUSSELL Chairman and Chief Executive Officer H.J. Russell & Company SHERWOOD H. SMITH, JR. Chairman of the Board and Chief Executive Officer Carolina Power & Light Company CHARLES MCKENZIE TAYLOR Chairman of the Board Taylor & Mathis, Inc. Taylor & Mathis Properties JOHN C. WHITAKER, JR. Chairman and Chief Executive Officer Inmar Enterprises, Inc. PRINCIPAL CORPORATE OFFICERS L. M. BAKER, JR. President and Chief Executive Officer MICKEY W. DRY Executive Vice President Chief Credit Officer HUGH M. DURDEN Executive Vice President Corporate Services WALTER E. LEONARD, JR. Executive Vice President Operations/Technology KENNETH W. MCALLISTER Executive Vice President General Counsel/Administrative ROBERT S. MCCOY, JR. Executive Vice President Chief Financial Officer G. JOSEPH PRENDERGAST Executive Vice President General Banking RICHARD B. ROBERTS Executive Vice President Treasurer 2 SELECTED PERIOD-END DATA June 30 June 30 1996 1995 Banking offices: North Carolina........................ 219 218 Georgia............................... 126 127 South Carolina........................ 143 146 Total................................ 488 491 Automated banking machines: North Carolina........................ 342 314 Georgia............................... 215 196 South Carolina........................ 196 164 Total................................ 753 674 Employees (full-time equivalent)........ 16,150 15,707 Common stock shareholders of record..... 28,058 28,220 Common shares outstanding (thousands)... 166,798 170,400 COMMON STOCK DATA - PER SHARE
1996 1995 Second First Fourth Third Second Quarter Quarter Quarter Quarter Quarter Market value: Period-end............... $ 43 3/4 $ 44 3/4 $ 45 3/4 $ 43 1/8 $ 35 3/4 High..................... 46 1/4 48 3/8 48 1/4 45 37 7/8 Low...................... 40 7/8 41 1/4 43 1/8 35 3/8 34 1/4 Book value at period-end... 22.18 22.07 22.15 21.24 20.75 Dividend................... .36 .36 .36 .36 .33 Price/earnings ratio*...... 12.4X 12.6x 13.1x 12.4x 10.5x
*Based on most recent twelve months net income per primary share and period-end stock price FINANCIAL INFORMATION Analysts, investors and others seeking additional financial information about Wachovia Corporation or its member companies should contact the following either by phone or in writing. Robert S. McCoy, Jr., Chief Financial Officer, (910) 732-5926 James C. Mabry, Investor Relations Manager, (910) 732-5788 Wachovia Corporation P. O. Box 3099 Winston-Salem, NC 27150 Common Stock Listing - New York Stock Exchange, ticker symbol - WB 3 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL SUMMARY TABLE 1
Twelve Months Ended 1996 1995 Six Months Ended June 30 Second First Fourth Third Second June 30 1996 Quarter Quarter Quarter Quarter Quarter 1996 1995 SUMMARY OF OPERATIONS (thousands, except per share data) Interest income - taxable equivalent ........$3,241,768 $810,637 $802,120 $815,894 $813,117 $774,078 $1,612,757 $1,489,492 Interest expense ............................ 1,668,341 411,472 413,328 424,624 418,917 392,970 824,800 735,566 Net interest income - taxable equivalent .... 1,573,427 399,165 388,792 391,270 394,200 381,108 787,957 753,926 Taxable equivalent adjustment ............... 87,955 17,914 18,877 24,531 26,633 23,987 36,791 47,609 Net interest income ......................... 1,485,472 381,251 369,915 366,739 367,567 357,121 751,166 706,317 Provision for loan losses ................... 115,089 34,404 27,334 30,172 23,179 28,652 61,738 50,440 Net interest income after provision for loan losses .................. 1,370,383 346,847 342,581 336,567 344,388 328,469 689,428 655,877 Other operating revenue ..................... 739,404 198,595 184,105 186,289 170,415 166,304 382,700 323,397 Gain on sale of mortgage servicing portfolio .................................. -- -- -- -- -- 79,025 -- 79,025 Investment securities gains (losses) ....... 3,350 (219) 698 2,554 317 (26,236) 479 (26,365) Total other income .......................... 742,754 198,376 184,803 188,843 170,732 219,093 383,179 376,057 Personnel expense ........................... 627,156 160,162 161,618 152,078 153,298 149,987 321,780 294,950 Other expense ............................... 605,123 149,925 146,627 162,987 145,584 156,630 296,552 294,699 Total other expense ......................... 1,232,279 310,087 308,245 315,065 298,882 306,617 618,332 589,649 Income before income taxes .................. 880,858 235,136 219,139 210,345 216,238 240,945 454,275 442,285 Applicable income taxes* .................... 274,147 75,773 69,269 64,147 64,958 78,036 145,042 137,220 Net income ..................................$ 606,711 $159,363 $149,870 $146,198 $151,280 $162,909 $ 309,233 $ 305,065 Net income per common share: Primary .....................................$ 3.54 $ .94 $ .87 $ .85 $ .88 $ .94 $ 1.81 $ 1.77 Fully diluted ...............................$ 3.53 $ .94 $ .87 $ .85 $ .87 $ .95 $ 1.81 $ 1.77 Cash dividends paid per common share ........$ 1.44 $ .36 $ .36 $ .36 $ .36 $ .33 $ .72 $ .66 Cash dividends paid on common stock .........$ 244,508 $ 60,684 $ 61,089 $ 61,423 $ 61,312 $ 56,302 $ 121,773 $ 112,760 Cash dividend payout ratio .................. 40.3% 38.1% 40.8% 42.0% 40.5% 34.6% 39.4% 37.0% Average primary shares outstanding .......... 171,377 169,861 171,467 172,372 171,793 171,986 170,664 172,095 Average fully diluted shares outstanding .... 171,716 169,972 171,653 172,705 172,512 172,446 170,808 172,589 SELECTED AVERAGE BALANCES (millions) Total assets ................................$ 43,856 $ 44,956 $ 44,435 $ 43,477 $ 42,573 $ 40,876 $ 44,696 $ 39,894 Loans - net of unearned income .............. 28,943 30,004 29,218 28,470 28,097 27,203 29,611 26,714 Investment securities** .................... 8,729 8,668 8,795 8,676 8,778 8,276 8,732 7,946 Other interest-earning assets ............... 1,471 1,519 1,594 1,562 1,210 1,012 1,556 914 Total interest-earning assets ............... 39,143 40,191 39,607 38,708 38,085 36,491 39,899 35,574 Interest-bearing deposits ................... 20,263 20,335 20,666 20,705 19,352 18,388 20,500 17,874 Short-term borrowed funds ................... 8,049 8,216 8,055 7,332 8,593 7,869 8,136 7,631 Long-term debt .............................. 5,418 6,129 5,487 5,213 4,851 4,863 5,808 4,769 Total interest-bearing liabilities .......... 33,730 34,680 34,208 33,250 32,796 31,120 34,444 30,274 Noninterest-bearing deposits ................ 5,342 5,426 5,372 5,361 5,212 5,333 5,399 5,317 Total deposits .............................. 25,605 25,761 26,038 26,066 24,564 23,721 25,899 23,191 Shareholders' equity ........................ 3,592 3,644 3,687 3,576 3,463 3,345 3,666 3,299 RATIOS (averages) Annualized net loan losses to loans ......... .44% .46% .37% .42% .33% .42% .42% .36% Annualized net yield on interest-earning assets .................... 4.02 3.99 3.95 4.01 4.11 4.19 3.97 4.27 Shareholders' equity to: Total assets ................................ 8.19 8.11 8.30 8.22 8.13 8.18 8.20 8.27 Net loans ................................... 12.59 12.31 12.80 12.74 12.51 12.48 12.55 12.54 Annualized return on assets*** ............. 1.39 1.42 1.35 1.35 1.42 1.59 1.38 1.53 Annualized return on shareholders' equity*** .................... 17.01 17.49 16.26 16.36 17.47 19.48 16.87 18.49
* Income taxes applicable to securities transactions were $1,263, ($86), $278, $980, $91, ($9,580), $192 and ($9,647), respectively ** Reported at amortized cost; excludes pretax unrealized gains (losses) on securities available-for-sale of $108, $74, $188, $104, $65, $15, $131 and ($17), respectively ***Includes average unrealized gains (losses) on securities available-for- sale, net of tax, of $66, $45, $114, $64, $40, $9, $80 and ($10) million, respectively 4 RESULTS OF OPERATIONS OVERVIEW Wachovia Corporation ("Wachovia") is a southeastern interstate bank holding company with dual headquarters in Atlanta, Georgia, and Winston-Salem, North Carolina. Principal banking subsidiaries are Wachovia Bank of Georgia, N.A., Wachovia Bank of North Carolina, N.A., and Wachovia Bank of South Carolina, N.A. The First National Bank of Atlanta provides credit card services for Wachovia's affiliated banks. During the second quarter of 1996, the economy showed signs of improved but still moderate growth, on balance, with little evidence of inflation. While consumer and business spending strengthened, fresh concerns over consumer credit weakness appeared. Within the corporation's three primary operating states of Georgia, North Carolina and South Carolina, business conditions remained generally favorable. Seasonally adjusted unemployment rates for the quarter averaged 4.6 percent in Georgia, 4.3 percent in North Carolina and 5.6 percent in South Carolina compared with 5.4 percent for the nation. Wachovia's net income for the second quarter totaled $159.363 million or $.94 per fully diluted share. This compared with net income of $162.909 million or $.95 per fully diluted share in the same period of 1995 which included an after-tax gain of $47.385 million or $.27 per share from the sale of the corporation's mortgage servicing portfolio, an after-tax loss of $16.656 million or $.10 per share from restructuring of the investment securities portfolio to improve yields and after-tax expenses totaling $11.291 million or $.07 per share for other expenses related to severance costs, higher consulting fees and charitable contributions. For the first six months of 1996, net income totaled $309.233 million or $1.81 per fully diluted share versus $305.065 million or $1.77 per fully diluted share a year earlier. Annualized returns were 17.49 percent on shareholders' equity and 1.42 percent on assets for the quarter and 16.87 percent and 1.38 percent, respectively, for the first half. The equity and assets used in calculating returns include unrealized gains or losses, net of tax, on securities available-for-sale. Expanded discussion of operating results and the corporation's financial condition is presented in the following narrative and tables. 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 levels unless otherwise noted. 5 COMPONENTS OF EARNINGS PER PRIMARY SHARE TABLE 2
Three Months Ended Six Months Ended June 30 June 30 1996 1995 Change 1996 1995 Change Interest income - taxable equivalent ....................... $4.77 $4.50 $.27 $9.45 $8.65 $.80 Interest expense ........................................... 2.42 2.28 .14 4.83 4.27 .56 Net interest income - taxable equivalent ................... 2.35 2.22 .13 4.62 4.38 .24 Taxable equivalent adjustment .............................. .11 .14 (.03) .22 .28 (.06) Net interest income ........................................ 2.24 2.08 .16 4.40 4.10 .30 Provision for loan losses .................................. .20 .17 .03 .36 .29 .07 Net interest income after provision for loan losses ........................................... 2.04 1.91 .13 4.04 3.81 .23 Other operating revenue .................................... 1.17 .96 .21 2.24 1.88 .36 Gain on sale of mortgage servicing portfolio ............... -- .46 (.46) -- .46 (.46) Investment securities losses ............................... -- (.15) .15 -- (.15) .15 Total other income ......................................... 1.17 1.27 (.10) 2.24 2.19 .05 Personnel expense .......................................... .94 .87 .07 1.88 1.72 .16 Other expense .............................................. .88 .91 (.03) 1.74 1.71 .03 Total other expense ........................................ 1.82 1.78 .04 3.62 3.43 .19 Income before income taxes ................................. 1.39 1.40 (.01) 2.66 2.57 .09 Applicable income taxes .................................... .45 .46 (.01) .85 .80 .05 Net income ................................................. $ .94 $ .94 $ -- $1.81 $1.77 $.04
COMPUTATION OF EARNINGS PER COMMON SHARE TABLE 3 (thousands, except per share)
Three Months Ended Six Months Ended June 30 June 30 1996 1995 1996 1995 PRIMARY Average common shares outstanding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168,298 170,734 169,004 170,901 Dilutive common stock options - based on treasury stock method using average market price. . . . . . . . . . . . . . . . . . . . . . . . . 1,462 1,176 1,556 1,118 Dilutive common stock awards - based on treasury stock method using average market price. . . . . . . . . . . . . . . . . . . . . . . . . 101 76 104 76 Average primary shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . 169,861 171,986 170,664 172,095 Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $159,363 $162,909 $309,233 $305,065 Net income per common share - primary . . . . . . . . . . . . . . . . . . . . . . . . . $ .94 $ .94 $ 1.81 $ 1.77 FULLY DILUTED Average common shares outstanding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168,298 170,734 169,004 170,901 Dilutive common stock options - based on treasury stock method using higher of period-end market price or average market price . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,473 1,176 1,556 1,145 Dilutive common stock awards - based on treasury stock method using higher of period-end market price or average market price . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108 83 108 83 Convertible notes assumed converted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 453 140 460 Average fully diluted shares outstanding. . . . . . . . . . . . . . . . . . . . . . . . . 169,972 172,446 170,808 172,589 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $159,363 162,909 $309,233 $305,065 Add interest on convertible notes after taxes . . . . . . . . . . . . . . . . . . . . . . . . 20 96 43 192 Adjusted net income. . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . $159,383 $163,005 $309,276 $305,257 Net income per common share - fully diluted. . . . . . . . . . . . . . . . . . . . . . . . . . $ .94 $ .95 $ 1.81 $ 1.77
6 NET INTEREST INCOME Taxable equivalent net interest income for the second quarter rose $18.057 million or 4.7 percent year over year and increased $34.031 million or 4.5 percent for the first six months of 1996. Higher levels of interest-earning assets, primarily loans, fueled the gains in both periods which were moderated by a lower average earning yield and by increases in interest-bearing liabilities to support asset growth. Compared with the first quarter of 1996, taxable equivalent net interest income in the second quarter was up $10.373 million or 2.7 percent, reflecting solid loan growth and lower funding costs. The net yield on interest-earning assets (taxable equivalent net interest income as a percentage of average interest-earning assets) decreased 20 basis points for the second period versus a year earlier and 30 basis points for the first half but improved 4 basis points from the first three months of 1996. Taxable equivalent interest income rose $36.559 million or 4.7 percent for the second period and $123.265 million or 8.3 percent year to date. Interest- earning assets expanded $3.700 billion or 10.1 percent for the quarter and $4.325 billion or 12.2 percent for the first half, more than offsetting the effects of a 40 basis point and 31 basis point decline, respectively, in the average rate earned. Taxable equivalent interest income increased $8.517 million or 1.1 percent from the first quarter, pushed higher by a $584 million or 1.5 percent rise in interest-earning assets but moderated by a 4 basis point decrease in the average rate earned. Loan demand remained good. Loans expanded $2.801 billion or 10.3 percent for the quarter and $2.897 billion or 10.8 percent for the first six months. Gains were led by the commercial portfolio with retail loan growth masked partially by the transfer of $500 million in credit card receivables off the balance sheet through a securitization in the fourth quarter of 1995. Loans were up $786 million or 2.7 percent from the first three months of 1996. Commercial loans, including related real estate categories, increased $2.144 billion or 13.6 percent for the second quarter compared with a year earlier and $2.252 billion or 14.6 percent year to date. Growth in both periods was broad based, led by commercial loans made primarily to small business and middle- market companies, by commercial mortgages and by lease financing. The gains in lease financing reflected structured leverage lease transactions for municipalities. At June 30, 1996, commercial real estate loans, based on regulatory definitions, totaled $4.939 billion, representing 16.1 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 $4.130 billion, representing 13.5 percent of total loans, and construction loans were $809 million or 2.6 percent of the total. Comparable amounts one year earlier were $4.348 billion in commercial real estate, representing 15.4 percent of total loans, with $3.673 billion in commercial mortgages and $675 million in construction loans. Retail loans, including residential mortgages, expanded $657 million or 5.8 percent and $645 million or 5.7 percent for the second quarter and first six months, respectively. Increases were driven primarily by residential mortgages, particularly adjustable rate mortgages, and by indirect retail loans, which consists largely of automobile sales financing. Credit card outstandings were up modestly for both the quarter and 7 NET INTEREST INCOME AND AVERAGE BALANCES TABLE 4
Twelve Months Ended 1996 1995 Six Months Ended June 30 Second First Fourth Third Second June 30 1996 Quarter Quarter Quarter Quarter Quarter 1996 1995 NET INTEREST INCOME - TAXABLE EQUIVALENT (thousands) Interest income: Loans ................................. $2,511,658 $632,389 $619,722 $629,348 $630,199 $605,468 $1,252,111 $1,176,802 Investment securities .................. 635,594 154,395 157,631 160,381 163,187 151,695 312,026 281,905 Interest-bearing bank balances ......... 27,191 9,258 9,018 8,442 473 105 18,276 206 Federal funds sold and securities purchased under resale agreements ...... 11,674 3,155 3,250 3,310 1,959 763 6,405 1,965 Trading account assets ................. 55,651 11,440 12,499 14,413 17,299 16,047 23,939 28,614 Total ................................ 3,241,768 810,637 802,120 815,894 813,117 774,078 1,612,757 1,489,492 Interest expense: Interest-bearing demand ................ 53,822 10,916 12,669 15,392 14,845 14,412 23,585 28,779 Savings and money market savings ....... 258,068 64,932 64,980 65,731 62,425 61,595 129,912 112,173 Savings certificates ................... 381,798 91,685 91,467 98,647 99,999 96,773 183,152 171,643 Large denomination certificates ........ 144,204 32,863 39,634 43,028 28,679 20,226 72,497 40,237 Time deposits in foreign offices ....... 49,000 11,033 13,101 13,567 11,299 9,503 24,134 17,010 Short-term borrowed funds .............. 459,552 110,030 110,390 109,721 129,411 119,486 220,420 227,875 Long-term debt ......................... 321,897 90,013 81,087 78,538 72,259 70,975 171,100 137,849 Total ................................ 1,668,341 411,472 413,328 424,624 418,917 392,970 824,800 735,566 Net interest income .................... $1,573,427 $ 399,165 $ 388,792 $ 391,270 $394,200 $381,108 $787,957 $ 753,926 Annualized net yield on interest-earning assets ................ 4.02% 3.99% 3.95% 4.01% 4.11% 4.19% 3.97% 4.27% AVERAGE BALANCES (millions) Assets: Loans - net of unearned income ........$ 28,943 $ 30,004 $ 29,218 $28,470 $ 28,097 27,203 $ 29,611 $ 26,714 Investment securities .................. 8,729 8,668 8,795 8,676 8,778 8,276 8,732 7,946 Interest-bearing bank balances ......... 340 462 456 421 23 6 459 6 Federal funds sold and securities purchased under resale agreements ...... 208 232 241 225 133 51 236 64 Trading account assets ................. 923 825 897 916 1,054 955 861 844 Total interest-earning assets ......... 39,143 40,191 39,607 38,708 38,085 36,491 39,899 35,574 Cash and due from banks ............... 2,555 2,521 2,612 2,556 2,530 2,491 2,567 2,497 Premises and equipment ................ 615 643 633 606 578 563 638 555 Other assets .......................... 1,842 1,931 1,802 1,909 1,725 1,724 1,866 1,692 Unrealized gains (losses) on securities available-for-sale .................... 108 74 188 104 65 15 131 (17) Allowance for loan losses ............. (407) (404) (407) (406) (410) (408) (405) (407) Total assets ....................... $ 43,856 $44,956 $44,435 $43,477 $42,573 $40,876 $44,696 $39,894 Liabilities and shareholders' equity: Interest-bearing demand .............. $ 3,284 $ 3,272 $ 3,314 $ 3,317 $ 3,231 $3,218 $ 3,293 $ 3,253 Savings and money market savings ...... 7,114 7,505 7,285 6,985 6,689 6,415 7,395 6,238 Savings certificates .................. 6,555 6,487 6,401 6,631 6,698 6,712 6,444 6,317 Large denomination certificates ....... 2,408 2,222 2,675 2,797 1,939 1,407 2,448 1,455 Time deposits in foreign offices ...... 902 849 991 975 795 636 920 611 Short-term borrowed funds ............. 8,049 8,216 8,055 7,332 8,593 7,869 8,136 7,631 Long-term debt ........................ 5,418 6,129 5,487 5,213 4,851 4,863 5,808 4,769 Total interest-bearing liabilities ... 33,730 34,680 34,208 33,250 32,796 31,120 34,444 30,274 Demand deposits in domestic offices .... 5,333 5,419 5,365 5,349 5,199 5,316 5,392 5,296 Demand deposits in foreign offices ..... 5 2 4 7 8 7 3 6 Noninterest-bearing time deposits in domestic offices ...................... 4 5 3 5 5 10 4 15 Other liabilities ...................... 1,192 1,206 1,168 1,290 1,102 1,078 1,187 1,004 Shareholders' equity ................... 3,592 3,644 3,687 3,576 3,463 3,345 3,666 3,299 Total liabilities and shareholders' equity ............... $ 43,856 $44,956 $44,435 $43,477 $42,573 $40,876 $44,696 $39,894 Total deposits ........................ $ 25,605 $ 25,761 $26,038 $26,066 $24,564 $23,721 $25,899 $23,191
8 first half with underlying growth masked by the corporation's securitization of $500 million in credit card receivables in the last quarter of 1995. At June 30, 1996, managed credit card outstandings were $4.805 billion, including $625 million in net securitized loans, versus $4.161 billion in outstandings one year earlier, including $125 million in net securitized loans. Period-end loans by category at June 30, 1996 and the preceding four quarters are presented in the following table.
June 30 March 31 Dec. 31 Sept. 30 June 30 $ IN THOUSANDS 1996 1996 1995 1995 1995 Commercial ................................................... $10,280,931 $10,077,465 $ 9,753,450 $ 9,732,697 $ 9,899,670 Tax-exempt ................................................... 2,047,475 2,135,806 2,238,538 2,180,577 1,937,502 Total commercial ........................................... 12,328,406 12,213,271 11,991,988 11,913,274 11,837,172 Direct retail ................................................ 767,154 730,804 755,375 730,523 734,349 Indirect retail .............................................. 2,582,142 2,612,568 2,543,771 2,516,627 2,449,010 Credit card .................................................. 4,180,440 3,967,603 3,917,997 4,115,406 4,035,610 Other revolving credit ....................................... 358,636 349,897 353,727 350,918 345,197 Total retail ............................................... 7,888,372 7,660,872 7,570,870 7,713,474 7,564,166 Construction ................................................. 808,866 731,630 745,776 750,919 675,237 Commercial mortgages ......................................... 4,130,537 3,982,332 3,855,095 3,724,937 3,672,602 Residential mortgages ........................................ 4,405,219 4,256,396 4,213,556 4,165,402 3,987,349 Total real estate .......................................... 9,344,622 8,970,358 8,814,427 8,641,258 8,335,188 Lease financing .............................................. 644,087 583,403 493,756 421,878 199,781 Foreign ...................................................... 467,154 441,087 390,112 322,368 314,752 Total loans ............................................... $30,672,641 $29,868,991 $29,261,153 $29,012,252 $28,251,059
Investment securities increased $392 million or 4.7 percent for the second quarter and $786 million or 9.9 percent year to date but were modestly lower from the first quarter. Gains from year-earlier periods reflected higher levels of available-for-sale securities, with increases occurring both in U.S. government and agency securities and in mortgage backed securities. In the fourth quarter of 1995, the corporation reclassified held-to-maturity securities with a book value of $2.720 billion to available-for-sale securities, primarily contributing to the rise in available-for-sale securities. The corporation made the one-time reclassification 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." At June 30, 1996, securities available-for-sale totaled $7.171 billion and securities held-to-maturity were $1.482 billion. $ IN THOUSANDS Securities available-for-sale at market value: U.S. Government and agency............................ $ 5,436,835 Mortgage backed securities............................ 1,618,649 Other................................................. 115,768 Total securities available-for-sale............. 7,171,252 Securities held-to-maturity: Mortgage backed securities............................ 1,204,366 State and municipal................................... 276,001 Other................................................. 1,664 Total securities held-to-maturity.................... 1,482,031 Total investment securities ........................... $8,653,283 Securities held-to-maturity had a market value of $1.540 billion at June 30, 1996, representing a $58 million appreciation over book value. 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), had an unrealized gain of $39.651 million, pretax, and $24.066 million, net of tax, on the same 9 TAXABLE EQUIVALENT RATE/VOLUME VARIANCE ANALYSIS - SECOND QUARTER* TABLE 5
Variance Average Volume Average Rate Interest Attributable to 1996 1995 1996 1995 1996 1995 Variance Rate Volume (Thousands) (Millions) INTEREST INCOME Loans: $ 9,935 $ 9,247 6.97 7.60 Commercial . . . . . . . . . . . . . $ 172,156 $ 175,296 $ (3,140) ($ 15,315) $ 12,175 2,080 1,775 8.95 9.73 Tax-exempt . . . . . . . . . . . . . 46,281 43,061 3,220 (3,651) 6,871 12,015 11,022 7.31 7.95 Total commercial. . . . . . . . . . . 218,437 218,357 80 (18,418) 18,498 759 730 9.43 9.31 Direct retail. . . . . . . . . . . . 17,786 16,940 846 207 639 2,583 2,398 8.15 8.26 Indirect retail . . . . . . . . . . . 52,322 49,370 2,952 (680) 3,632 4,045 3,993 11.72 12.52 Credit card. . . . . . . . . . . . . 117,902 124,603 (6,701) (8,247) 1,546 354 342 12.13 12.75 Other revolving credit. . . . . . . . 10,688 10,853 (165) (553) 388 7,741 7,463 10.32 10.84 Total retail . . . . . . . . . . . . 198,698 201,766 (3,068) (10,145) 7,077 753 602 9.44 10.04 Construction . . . . . . . . . . . . 17,655 15,060 2,595 (944) 3,539 4,073 3,664 8.33 8.71 Commercial mortgages. . . . . . . . . 84,366 79,566 4,800 (3,614) 8,414 4,339 3,960 8.45 8.23 Residential mortgages . . . . . . . . 91,124 81,246 9,878 2,138 7,740 9,165 8,226 8.48 8.58 Total real estate. . . . . . . . . . 193,145 175,872 17,273 (2,099) 19,372 616 200 9.12 8.03 Lease financing. . . . . . . . . . . 13,974 4,013 9,961 606 9,355 467 292 7.01 7.51 Foreign . . . . . . . . . . . . . . . 8,135 5,460 2,675 (384) 3,059 30,004 27,203 8.48 8.93 Total loans. . . . . . . . . . . . . 632,389 605,468 26,921 (31,888) 58,809 Investment securities: Held-to-maturity: - 2,491 - 6.79 U.S. Government and agency. . . . . . - 42,167 (42,167) - (42,167) 1,215 1,506 8.13 8.09 Mortgage backed securities. . . . . . . 24,555 30,373 (5,818) 146 (5,964) 284 458 11.32 11.98 State and municipal. . . . . . . . . . 7,979 13,702 (5,723) (715) (5,008) 2 15 7.28 6.26 Other. . . . . . . . . . . . . . . . .. 42 236 (194) 33 (227) 1,501 4,470 8.73 7.76 Total securities held-to-maturity . . . 32,576 86,478 (53,902) 9,569 (63,471) Available-for-sale:** 5,417 2,769 6.80 7.01 U.S. Government and agency. . . . . . . 91,596 48,371 43,225 (1,482) 44,707 1,627 800 7.03 6.58 Mortgage backed securities. . . . . . 28,426 13,120 15,306 938 14,368 123 237 5.87 6.29 Other. . . . . . . . . . . . . . . . .. 1,797 3,726 (1,929) (233) (1,696) 7,167 3,806 6.84 6.87 Total securities available-for-sale . .121,819 65,217 56,602 (285) 56,887 8,668 8,276 7.16 7.35 Total investment securities. . . . . . 154,395 151,695 2,700 (4,091) 6,791 462 6 8.06 7.33 Interest-bearing bank balances. . . . . 9,258 105 9,153 11 9,142 Federal funds sold and securities purchased under 232 51 5.47 6.02 resale agreements. . . . . . . . . . 3,155 763 2,392 (75) 2,467 825 955 5.58 6.74 Trading account assets . . . . . . . . 11,440 16,047 (4,607) (2,560) (2,047) $40,191 $36,491 8.11 8.51 Total interest-earning assets. . . . . 810,637 774,078 36,559 (37,856) 74,415 INTEREST EXPENSE $ 3,272 $ 3,218 1.34 1.80 Interest-bearing demand. . . . . . . . 10,916 14,412 (3,496) (3,730) 234 7,505 6,415 3.48 3.85 Savings and money market savings. . . 64,932 61,595 3,337 (6,312) 9,649 6,487 6,712 5.68 5.78 Savings certificates. . . . . . . . . . 91,685 96,773 (5,088) (1,720) (3,368) 2,222 1,407 5.95 5.76 Large denomination certificates. . . . 32,863 20,226 12,637 674 11,963 Total time deposits in 19,486 17,752 4.14 4.36 domestic offices . . . . . . . . . . 200,396 193,006 7,390 (10,248) 17,638 849 636 5.23 5.99 Time deposits in foreign offices . . . 11,033 9,503 1,530 (1,316) 2,846 20,335 18,388 4.18 4.42 Total time deposits. . . . . . . . . . 211,429 202,509 8,920 (11,431) 20,351 Federal funds purchased and securities sold under 6,465 5,230 5.40 6.10 repurchase agreements . . . . . . . . 86,863 79,571 7,292 (9,830) 17,122 556 480 4.87 5.72 Commercial paper. . . . . . . . . . . . 6,737 6,834 (97) (1,091) 994 1,195 2,159 5.53 6.15 Other short-term borrowed funds . . . . 16,430 33,081 (16,651) (3,042) (13,609) Total short-term 8,216 7,869 5.39 6.09 borrowed funds . . . . . . . . . . . 110,030 119,486 (9,456) (14,415) 4,959 4,799 3,962 5.72 5.64 Bank notes . . . . . . . . . . . . . . 68,258 55,747 12,511 779 11,732 1,330 901 6.58 6.78 Other long-term debt . . . . . . . . . 21,755 15,228 6,527 (461) 6,988 6,129 4,863 5.91 5.85 Total long-term debt. . . . . . . . . . 90,013 70,975 19,038 713 18,325 $34,680 $31,120 4.77 5.06 Total interest-bearing liabilities . . 411,472 392,970 18,502 (23,645) 42,147 3.34 3.45 Interest rate spread Net yield on interest-earning assets 3.99 4.19 and net interest income . . . . . . $399,165 $381,108 $18,057 (18,817) 36,874
*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 of $74 million in 1996 and $15 million in 1995 10 TAXABLE EQUIVALENT RATE/VOLUME VARIANCE ANALYSIS - SIX MONTHS* TABLE 6
Variance Average Volume Average Rate Interest Attributable to 1996 1995 1996 1995 1996 1995 Variance Rate Volume (Millions) INTEREST INCOME (Thousands) Loans: $ 9,772 $ 8,971 7.05 7.58 Commercial . . . . . . . . . . . . . $ 342,373 $ 337,379 $ 4,994 ($23,954) $ 28,948 2,114 1,772 8.95 9.69 Tax-exempt . . . . . . . . . . . . . 94,110 85,138 8,972 (6,594) 15,566 11,886 10,743 7.38 7.93 Total commercial . . . . . . . . . . 436,483 422,517 13,966 (29,150) 43,116 746 731 9.39 9.10 Direct retail . . . . . . . . . . . . . 34,854 33,015 1,839 1,163 676 2,585 2,375 8.21 8.12 Indirect retail . . . . . . . . . . . 105,515 95,677 9,838 1,288 8,550 4,002 3,974 11.65 12.40 Credit card . . . . . . . . . . . . . 231,758 244,400 (12,642) (14,362) 1,720 354 341 12.25 12.64 Other revolving credit . . . . . . . 21,545 21,379 166 (620) 786 7,687 7,421 10.30 10.72 Total retail . . . . . . . . . . . . 393,672 394,471 (799) (14,658) 13,859 723 567 9.32 9.86 Construction . . . . . . . . . . . . 33,503 27,731 5,772 (1,509) 7,281 4,018 3,608 8.32 8.67 Commercial mortgages . . . . . . . . 166,173 155,154 11,019 (6,097) 17,116 4,285 3,906 8.46 8.20 Residential mortgages . . . . . . . . 180,328 158,900 21,428 5,613 15,815 9,026 8,081 8.47 8.53 Total real estate . . . . . . . . . . 380,004 341,785 38,219 (1,557) 39,776 573 196 9.33 7.99 Lease financing . . . . . . . . . . 26,588 7,754 18,834 1,532 17,302 439 273 7.05 7.61 Foreign . . . . . . . . . . . . . . . . 15,364 10,275 5,089 (777) 5,866 29,611 26,714 8.50 8.88 Total loans . . . . . . . . . . . . .1,252,111 1,176,802 75,309 (48,558) 123,867 Investment securities: Held-to-maturity: - 2,492 - 6.84 U.S. Government and agency . . . - 84,504 (84,504) - (84,504) 1,242 1,378 8.09 8.06 Mortgage backed securities . . . . . 49,997 55,097 (5,100) 378 (5,478) 296 482 11.23 12.10 State and municipal . . . . . . . . . 16,517 28,910 (12,393) (1,885) (10,508) 2 15 8.58 6.15 Other . . . . . . . . . . . . . . . 99 451 (352) 131 (483) 1,540 4,367 8.70 7.80 Total securities held-to-maturity . . . 66,613 168,962 (102,349) 17,896 (120,245) Available-for-sale:** 5,485 2,546 6.83 6.54 U.S. Government and agency . . . . 186,386 82,590 103,796 4,116 99,680 1,563 793 7.05 5.79 Mortgage backed securities . . . . . . .54,766 22,742 32,024 5,943 26,081 144 240 5.96 6.40 Other . . . . . . . . . . . . . . . 4,261 7,611 (3,350) (476) (2,874) 7,192 3,579 6.86 6.36 Total securities available-for-sale 245,413 112,943 132,470 9,868 122,602 8,732 7,946 7.19 7.15 Total investment securities . . . . . 312,026 281,905 30,121 2,034 28,087 459 6 8.00 7.25 Interest-bearing bank balances . . . . 18,276 206 18,070 25 18,045 Federal funds sold and securities purchased under 236 64 5.45 6.20 resale agreements . . . . . . . . . 6,405 1,965 4,440 (257) 4,697 861 844 5.59 6.83 Trading account assets . . . . . . . . 23,939 28,614 (4,675) (5,235) 560 $39,899 $35,574 8.13 8.44 Total interest-earning assets . . . 1,612,757 1,489,492 123,265 (52,966) 176,231 INTEREST EXPENSE $ 3,293 $ 3,253 1.44 1.78 Interest-bearing demand . . . . . . . 23,585 28,779 (5,194) (5,543) 349 7,395 6,238 3.53 3.63 Savings and money market savings . . 129,912 112,173 17,739 (2,637) 20,376 6,444 6,317 5.72 5.48 Savings certificates. . . . . . . . . 183,152 171,643 11,509 7,995 3,514 2,448 1,455 5.96 5.58 Large denomination certificates . . .. 72,497 40,237 32,260 3,024 29,236 Total time deposits in 19,580 17,263 4.20 4.12 domestic offices . . . . . . . . . . .409,146 352,832 56,314 8,035 48,279 920 611 5.28 5.61 Time deposits in foreign offices . . . 24,134 17,010 7,124 (1,017) 8,141 20,500 17,874 4.25 4.17 Total time deposits . . . . . . . . .. 433,280 369,842 63,438 8,083 55,355 Federal funds purchased and securities sold under 6,213 5,343 5.48 6.03 repurchase agreements . . . . . . . . 169,164 159,727 9,437 (15,070) 24,507 555 449 4.90 5.62 Commercial paper . . . . . . . . . .. 13,527 12,528 999 (1,708) 2,707 1,368 1,839 5.55 6.10 Other short-term borrowed funds . . . 37,729 55,620 (17,891) (4,607) (13,284) Total short-term 8,136 7,631 5.45 6.02 borrowed funds . . . . . . . . . . . 220,420 227,875 (7,455) (21,973) 14,518 4,477 3,900 5.72 5.60 Bank notes . . . . . . . . . . . . . . 127,416 108,337 19,079 2,734 16,345 1,331 869 6.60 6.85 Other long-term debt . . . . . . . . . 43,684 29,512 14,172 (1,032) 15,204 5,808 4,769 5.92 5.83 Total long-term debt . . . . . . . . 171,100 137,849 33,251 2,700 30,551 $34,444 $30,274 4.82 4.90 Total interest-bearing liabilities . . 824,800 735,566 89,234 (10,770) 100,004 3.31 3.54 Interest rate spread Net yield on interest-earning assets 3.97 4.27 and net interest income . . . . . . . $787,957 $753,926 $34,031 (53,636) 87,667
* 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 $131 million in 1996 and ($17) million in 1995 11 date. Average securities available-for-sale had an unrealized gain of $74.087 million, pretax, and $44.957 million, net of tax, for the second period and $130.859 million, pretax, and $79.672 million, net of tax, for the first half of 1996. Interest expense rose $18.502 million or 4.7 percent for the quarter and $89.234 million or 12.1 percent year to date. Higher levels of interest-bearing liabilities accounted for the increases in both periods which were moderated by a lower average rate paid, primarily in the second quarter. Average interest- bearing liabilities were up $3.560 billion or 11.4 percent for the second period and $4.170 billion or 13.8 percent for the first six months, while the average rate paid declined 29 basis points and 8 basis points, respectively. Compared with the first three months of 1996, interest expense in the second quarter decreased $1.856 million or under 1 percent, reflecting a 9 basis point drop in the average rate paid. Average interest-bearing liabilities were higher by $472 million or 1.4 percent from the first quarter. Interest-bearing time deposits increased $1.947 billion or 10.6 percent for the second period and $2.626 billion or 14.7 percent year to date. Growth in both periods occurred primarily in savings and money market savings and in large denomination certificates, with Wachovia's Premiere account, a federally insured savings account offering money market rates, responsible for most of the gains in savings and money market savings. Interest-bearing time deposits were lower by $331 million or 1.6 percent compared with the first quarter of 1996, primarily due to some runoff in large denomination certificates. Short-term borrowings rose $347 million or 4.4 percent for the quarter and $505 million or 6.6 percent for the first six months, reflecting higher levels primarily of federal funds purchased and securities sold under repurchase agreements. Commercial paper borrowings also expanded in both periods, while funding from other short-term borrowings, largely short-term bank notes, was reduced. Short-term borrowings were up $161 million or 2 percent from the first quarter. Short-term bank notes are part of Wachovia Bank of North Carolina's $16 billion bank note program, consisting of short- and medium-term bank notes. Originally offered to domestic investors only, the bank note program was replaced in April with a global note program as part of the corporation's long- term funding strategy. At June 30, 1996, short-term bank notes totaled $698 million with an average cost of 5.32 percent and an average maturity of 10 days versus $1.907 billion in outstandings with an average cost of 6.07 percent and an average maturity of 2.2 months one year earlier. Medium-term bank notes, classified in long-term debt, were $4.963 billion at second-quarter close 1996 and had an average cost of 5.62 percent and an average maturity of 1.2 years. Comparable amounts a year earlier were $3.979 billion in outstandings with an average cost of 5.54 percent and an average maturity of 1.5 years. Included in the $4.963 billion of medium-term bank notes at June 30, 1996 were $500 million of five-year floating rate bank notes issued in Europe in May. The notes were priced to yield three-month LIBOR plus 4 basis points to the investor and were rated Aa2 by Moody's and AA+ by Standard & Poor's. Long-term debt was higher by $1.266 billion or 26 percent for the second quarter and $1.039 billion or 21.8 percent year to date with increases occurring in both medium-term bank notes and in other long-term debt. Included in other long-term debt is $250 million in 30-year subordinated debentures with a 10-year put option issued in the fourth quarter of 1995. Compared with the first three months of 1996, long-term debt rose $642 million or 11.7 percent, reflecting expansion of medium-term bank notes. Gross deposits averaged $25.761 billion for the second period of 1996, up $2.040 billion or 8.6 percent from a year earlier, and $25.899 billion for the first half, higher by $2.708 billion or 11.7 percent. Collected deposits, net of float, averaged $23.953 billion for the quarter and $24.075 billion year to date, an increase of $1.968 billion or 8.9 percent and $2.606 billion or 12.1 percent, respectively, from the same periods in 1995. 12 ASSET AND LIABILITY MANAGEMENT AND INTEREST RATE SENSITIVITY 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. 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 200 basis points over 12 months is 7.5 percent. Management generally has maintained a risk position well within the policy guideline level. As of June 30, 1996, the model indicated the impact of a 200 basis point gradual rise in rates over 12 months would approximate a .1 percent decrease in net interest income, while a 200 basis point decline in rates over the same period would approximate a .05 percent increase 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 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. At June 30, 1996, the corporation had $1.523 billion notional amount of derivatives outstanding for asset and liability management purposes, all of which represent interest rate swaps. 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 group of transactions with the same counter-party 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 $11 million at June 30, 1996. The fair value of all asset and liability derivative positions 13 for which counterparties were exposed to the corporation amounted to $19 million on the same date. Fair value details and additional asset and liability derivative information are included in the accompanying tables. Estimated Fair Value of Asset and Liability Management Derivatives by Purpose
June 30, 1996 June 30, 1995 Notional Fair Value Fair Value Net Fair Value Notional Net Fair Value $ IN MILLIONS Value Gains (Losses) Gains (Losses) Value Gains (Losses) Convert floating rate liabilities to fixed: Swaps-pay fixed/receive floating................. $ 109 $ 1 $ (2) $ (1) $ 127 $ (3) Caps purchased-pay fixed/receive floating........ - - - - 15 - Convert fixed rate assets to floating: Swaps-pay fixed/receive floating................. 384 - (4) (4) 140 (1) Forward starting swaps-pay fixed/receive floating 39 - (2) (2) 284 (4) Convert fixed rate liabilities to floating: Swaps-receive fixed/pay floating................. 300 1 (11) (10) 200 (2) Convert term liabilities with quarterly rate resets to monthly: Swaps-receive floating/pay floating.............. 300 - - - - - Convert floating rate assets to fixed: Swaps-receive fixed/pay floating................. 116 - - - 219 - Index amortizing swaps-receive fixed/pay floating 275 9 - 9 410 13 Total derivatives ............................ $1,523 $11 ($19) $ (8) $1,395 $ 3
Maturity Schedule of Asset and Liability Management Derivatives June 30, 1996
Within Over Average One Two Three Four Five Five Life $ IN MILLIONS Year Years Years Years Years Years Total (Years) Interest rate swaps: Pay fixed/receive floating: Notional amount ......................$ 394 $ 12 $ 17 $ 20 $ 6 $ 44 $ 493 1.32 Weighted average rates received ....... 4.50% 5.58% 5.63% 5.58% 5.93% 5.56% 4.72% Weighted average rates paid ........... 7.48 6.04 6.95 6.79 9.08 7.78 7.44 Receive fixed/pay floating: Notional amount ......................$ 8 $ 101 $ 2 $ 101 $ 102 $ 102 $ 416 5.58 Weighted average rates received ....... 9.11% 6.78% 10.53 7.76% 6.47% 6.37% 6.91% Weighted average rates paid ........... 8.25 5.52 8.25 5.51 5.56 5.92 5.69 Receive floating/pay floating: Notional amount ....................... -- -- -- -- $ 300 -- $ 300 4.93 Weighted average rates received ........ -- -- -- -- 5.48% -- 5.48% Weighted average rates paid ............ -- -- -- -- 5.39 -- 5.39 Index amortizing swaps:* Receive fixed/pay floating: Notional amount ......................$ 26 $ 119 $ 83 $ 21 $ 26 -- $ 275 1.82 Weighted average rates received ....... 7.39% 8.10% 8.44% 8.42% 7.88% -- 8.14% Weighted average rates paid ........... 5.25 5.28 5.43 5.42 5.18 -- 5.32 Total interest rate swaps: Notional amount ........................$ 428 $ 232 $ 102 $ 142 $ 434 $ 146 $ 1,484 3.34 Weighted average rates received ........ 4.76% 7.40% 8.04% 7.56% 5.86% 6.12% 6.12% Weighted average rates paid ............ 7.36 5.43 5.73 5.68 5.46 6.48 6.15 Forward starting interest rate swaps: Notional amount ........................ -- -- -- -- -- $ 39 $ 39 7.77 Weighted average rates received ........ -- -- -- -- -- 8.03% 8.03% Total derivatives (notional amount) ..$ 428 $ 232 $ 102 $ 142 $ 434 $ 185 $ 1,523 3.45
* Maturity is based upon expected average lives rather than contractual lives. Asset and liability 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. 14 NONPERFORMING ASSETS At June 30, 1996, nonperforming assets were $72.645 million or .24 percent of period-end loans and foreclosed property. The total decreased $3.995 million or 5.2 percent from one year earlier and was down $4.907 million or 6.3 percent from March 31, 1996. Decreases from both periods reflected lower levels of both nonperforming loans and foreclosed properties. Included in the June 30, 1996 total were real estate nonperforming assets of $57.897 million or .62 percent of real estate loans and foreclosed real estate versus $53.558 million or .64 percent one year earlier and $63.937 million or .71 percent at March 31, 1996. Real estate nonperforming loans were $45.391 million at the end of the 1996 second quarter, $37.783 million one year earlier and $49.547 million at March 31, 1996. Commercial real estate nonperforming assets were $34.498 million or .70 percent of related loans and foreclosed real estate compared with $29.837 million or .69 percent at June 30, 1995 and $33.370 million or .71 percent at the end of the first quarter. Included in these totals were commercial real estate nonperforming loans of $27.392 million at June 30, 1996, $23.721 million one year earlier and $29.815 million at March 31, 1996. NONPERFORMING ASSETS AND CONTRACTUALLY PAST DUE LOANS TABLE 7 (thousands)
June 30 March 31 Dec. 31 Sept. 30 June 30 1996 1996 1995 1995 1995 NONPERFORMING ASSETS Cash-basis assets - domestic borrowers . . . . . $55,219* $57,867 $53,547 $57,524 $57,918 Restructured loans - domestic . . . . . . . . . . . . -** - - - - Total nonperforming loans. . . . . . . . . . . . 55,219 57,867 53,547 57,524 57,918 Foreclosed property: Foreclosed real estate . . . . . . . . . . . . . . 15,162 17,209 14,468 16,651 18,859 Less valuation allowance . . . . . . . . . . . . . 2,656 2,819 2,863 2,980 3,084 Other foreclosed assets. . . . . . . . . . . . . . 4,920 5,295 4,212 4,254 2,947 Total foreclosed property. . . . . . . . . . . . . 17,426 19,685 15,817 17,925 18,722 Total nonperforming assets . . . . . . . . . . . . $72,645*** $77,552 $69,364 $75,449 $76,640 Nonperforming loans to period-end loans . . . . . . . .18% .19% .18% .20% .21% Nonperforming assets to period-end loans and foreclosed property . . . . . . . . . . . . . . . . .24 .26 .24 .26 .27 Period-end allowance for loan losses times nonperforming loans . . . . . . . . . . . . . . . . 7.41X 7.07x 7.63x 7.10x 7.06x Period-end allowance for loan losses times nonperforming assets. . . . . . . . . . . . . . . . 5.63 5.27 5.89 5.42 5.33 CONTRACTUALLY PAST DUE LOANS (accruing loans past due 90 days or more) Domestic borrowers . . . . . . . . . . . . . . . . . $63,317 $57,415 $48,970 $47,058 $49,004
*Includes $9,374 of loans which have been defined as impaired per FASB Statement No. 114, Accounting for Impairment of a Loan **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 $19,923; includes $2,698 of nonperforming assets on which interest and principal are paid current PROVISION AND ALLOWANCE FOR LOAN LOSSES The provision for loan losses was $34.404 million for the second quarter and $61.738 million for the first six months, up $5.752 million or 20.1 percent and $11.298 million or 22.4 percent, respectively, from the same periods in 1995 and was higher by $7.070 million or 25.9 percent from the first quarter of 1996. 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. 15 Net loan losses were $34.327 million or .46 percent annualized of average loans for the quarter, up $5.808 million or 20.4 percent from $28.519 million or .42 percent of average loans a year earlier. For the first half of 1996, net loan losses totaled $61.541 million or .42 percent annualized of average loans, an increase of $13.602 million or 28.4 percent from $47.939 million or .36 percent in the same period of 1995. Higher consumer loan losses, primarily credit cards, accounted for the increases in both periods. Compared
ALLOWANCE FOR LOAN LOSSES (thousands) TABLE 8 1996 1995 Six Months Ended Second First Fourth Third Second June 30 Quarter Quarter Quarter Quarter Quarter 1996 1995 SUMMARY OF TRANSACTIONS Balance at beginning of period ................ $408,928 $408,808 $408,684 $408,633 $408,500 $408,808 $406,132 Additions from acquisitions .................... 200 -- -- -- -- 200 -- Provision for loan losses ...................... 34,404 27,334 30,172 23,179 28,652 61,738 50,440 Deduct net loan losses: Loans charged off: Commercial .................................... 324 65 1,662 431 1,872 389 2,190 Credit card .................................. 36,343 31,902 29,292 27,424 23,829 68,245 45,260 Other revolving credit ........................ 1,346 1,092 1,239 1,202 1,058 2,438 1,863 Other retail .................................. 4,840 5,495 4,747 3,609 3,528 10,335 6,940 Real estate ................................... 1,371 134 1,332 526 5,499 1,505 5,890 Lease financing ............................... 235 377 56 99 636 612 737 Foreign ....................................... -- -- -- -- -- -- -- Total ........................................ 44,459 39,065 38,328 33,291 36,422 83,524 62,880 Recoveries: Commercial .................................... 1,198 860 894 2,561 1,400 2,058 2,095 Credit card ................................... 4,599 4,024 3,365 3,207 3,186 8,623 6,389 Other revolving credit ........................ 290 283 278 273 267 573 589 Other retail .................................. 1,138 1,052 913 1,056 972 2,190 1,991 Real estate ................................... 2,866 5,578 2,804 3,021 2,037 8,444 3,798 Lease financing ............................... 41 54 26 45 41 95 71 Foreign ....................................... -- -- -- -- -- -- 8 Total ........................................ 10,132 11,851 8,280 10,163 7,903 21,983 14,941 Net loan losses ............................... 34,327 27,214 30,048 23,128 28,519 61,541 47,939 Balance at end of period* ................... $409,205 $408,928 $408,808 $408,684 $408,633 $409,205 $408,633 NET LOAN LOSSES (RECOVERIES) BY CATEGORY Commercial .................................... $ (874) $ (795) $ 768 $ (2,130) $ 472 $ (1,669) $ 95 Credit card .................................... 31,744 27,878 25,927 24,217 20,643 59,622 38,871 Other revolving credit ......................... 1,056 809 961 929 791 1,865 1,274 Other retail ................................... 3,702 4,443 3,834 2,553 2,556 8,145 4,949 Real estate .................................... (1,495) (5,444) (1,472) (2,495) 3,462 (6,939) 2,092 Lease financing ................................ 194 323 30 54 595 517 666 Foreign ........................................ - - - - - - (8) Total ....................................... $ 34,327 $ 27,214 $ 30,048 23,128 28,519 61,541 47,939 Net loan losses - excluding credit cards....... $ 2,583 $ (664) $ 4,121 $ (1,089) $ 7,876 $ 1,919 $ 9,068 ANNUALIZED NET LOAN LOSSES (RECOVERIES) TO AVERAGE LOANS BY CATEGORY Commercial...................................... (.03%) (.03%) .03% (.07%) .02% (.03%) -% Credit card .................................... 3.14 2.82 2.73 2.38 2.07 2.98 1.96 Other revolving credit ......................... 1.19 .92 1.10 1.08 .93 1.05 .75 Other retail ................................... .44 .54 .47 .32 .33 .49 .32 Real estate .................................... (.07) (.25) (.07) (.12) .17 (.15) .05 Lease financing ................................ .13 .24 .03 .09 1.19 .18 .68 Foreign ........................................ - - - - - - (.01) Total loans .................................... .46 .37 .42 .33 .42 .42 .36 Total loans - excluding credit cards ........... .04 (.01) .07 (.02) .14 .01 .08 Period-end allowance to outstanding loans..... 1.33 1.37 1.40 1.41 1.45 1.33 1.45
*Includes the related allowance for credit losses for impaired loans as defined in FASB 114, "Accounting by Creditors for Impairment of a Loan," of $791 at June 30, 1996, $883 at March 31, 1996, $916 at December 31, 1995, $916 at September 30, 1995 and $0 at June 30, 1995 16 with the first three months of 1996, net charge-offs in the second quarter were up $7.113 million or 26.1 percent, reflecting increased credit card losses and a combination of higher charge-offs and lower recoveries in real estate loans. Excluding credit cards, the loan portfolio had net losses of $2.583 million or .04 percent annualized of average loans for the quarter and $1.919 million or .01 percent year to date versus $7.876 million or .14 percent and $9.068 million or .08 percent in the same respective periods of 1995 and net recoveries of $664 thousand or .01 percent in the first three months of 1996. Credit card net loan losses for the quarter were $31.744 million or 3.14 percent annualized of average credit card receivables, up $11.101 million or 53.8 percent from a year earlier. For the first half, credit card net charge- offs totaled $59.622 million or 2.98 percent of average related outstandings, an increase of $20.751 million or 53.4 percent from the same period in 1995. Real estate loans had net recoveries of $1.495 million or .07 percent of average outstandings for the second period and $6.939 million or .15 percent year to date versus net loan losses of $3.462 million or .17 percent and $2.092 million or .05 percent, respectively, in 1995. Selected data on the corporation's managed credit card portfolio, which includes securitized loans, is presented in the following table. Managed Credit Card Data
1996 1995 Six Months Ended Second First Fourth Third Second June 30 $ IN THOUSANDS Quarter Quarter Quarter Quarter Quarter 1996 1995 Average credit card outstandings . . $4,670,000 $4,583,000 $4,286,000 $4,189,000 $4,118,000 $4,627,000 $4,099,000 Net loan losses. . . . . . . . . . . 36,733 32,359 29,164 24,832 20,955 69,092 39,376 Annualized net loan losses to average loans. . . . . . . . . . . . 3.15% 2.82% 2.72% 2.37% 2.04% 2.99% 1.92% Delinquencies (30 days or more) to period-end loans. . . . . . . . . 2.01 2.30 1.93 1.74 1.46 2.01 1.46
At June 30, 1996, the allowance for loan losses totaled $409.205 million, representing 1.33 percent of period-end loans and 741 percent of nonperforming loans. Comparable amounts were $408.633 million, 1.45 percent and 706 percent, respectively, one year earlier and $408.928 million, 1.37 percent and 707 percent, respectively, at March 31, 1996. NONINTEREST INCOME Total other operating revenue grew $32.291 million or 19.4 percent for the quarter and $59.303 million or 18.3 percent for the first six months. Gains in both periods were led by deposit account service charge revenues, investment fee income and electronic banking, with all categories increasing for both the quarter and first half except mortgage fee income and trading account profits. Included in the $17.774 million of other income for the second period is $9.575 million from the sale of the corporation's bond trustee business to The Bank of New York. Excluding this gain, total other operating revenue rose $22.716 million or 13.7 percent for the quarter and $49.728 million or 15.4 percent year to date and was higher by $4.915 million or 2.7 percent from the first three months of 1996. Deposit account service charge revenues increased $8.476 million or 16.2 percent for the second period and $16.193 million or 16 percent for the first half. Gains occurred primarily in overdraft charges, largely reflecting improved collections, and in commercial account analysis fees. Investment fee income rose $5.438 million or 100.6 percent for the quarter and $10.490 million or 99.1 percent year to date. Increases reflected growth primarily in mutual fund activity, loan syndications and administrative agent fees, along with higher levels of brokerage commissions. Electronic banking revenues, consisting of fees from debit card and ATM usage, grew $3.722 million or 42 percent for the quarter and $5.817 million or 36.1 percent for the first half. Gains were largely due to higher levels of debit card interchange income, as well as to fees for ATM usage by noncustomers. Credit card income was up $1.981 million or 6.2 percent for the three months and $5.559 million or 9.1 percent for the first six months. Net revenues received from cardholder payments on securitized loans, higher overlimit charge activity and increased interchange income accounted for the growth in both periods. Trust service revenues rose $1.297 million or 3.9 percent for the quarter and $4.761 million or 7.4 percent year to date. Growth occurred in the corporation's proprietary Biltmore mutual funds and in personal 17 trust services, reflecting stronger sales, higher market values for trust assets and increased fee schedules. Corporate trust fees were moderately lower. Trading account profits increased modestly for the second period but declined $2.664 million or 22.5 percent for the first half of 1996. Results in both periods primarily reflected unfavorable bond market conditions, driven by concerns over higher interest rates, as well as lower profits in foreign exchange trading. Mortgage fee income was down $2.258 million or 34.5 percent for the quarter and $6.311 million or 42.1 percent for the first six months, primarily due to the loss of servicing fee income from the sale of the corporation's mortgage servicing portfolio in June 1995. Declines were offset in part by higher levels of residential mortgage origination fees for both the quarter and first half of 1996. Remaining combined categories of total other operating revenue were up $13.545 million or 60.6 percent for the second three months and $25.458 million or 58.3 percent year to date. Insurance premiums and commissions grew $647 thousand or 19.1 percent for the quarter and $1.082 million or 16.2 percent for the first half, while bankers' acceptance and letter of credit fees were higher by $366 thousand or 6.4 percent and $705 thousand or 6.2 percent for the three- and six-month periods, respectively. Other service charges and fees rose $2.361 million or 42 percent for the quarter and $4.556 million or 37.9 percent year to date, primarily due to contractual revenues received for servicing the corporation's securitized loan portfolios. Other income increased $10.171 million or 133.8 percent and $19.115 million or 140.1 percent for the second quarter and first six months, respectively, principally reflecting the gain on the sale of the bond trustee business. Including investment securities sales and the sale of the corporation's mortgage servicing portfolio in June 1995, total noninterest income was down $20.717 million or 9.5 percent for the second quarter but was higher by $7.122 million or 1.9 percent year to date. Investment securities sales resulted in a net loss of $219 thousand for the quarter versus a net loss of $26.236 million a year earlier when the corporation sold $1.950 billion of securities available- for-sale at a loss to improve portfolio yields. For the first half of 1996, investment securities sales had a net gain of $479 thousand compared with a net loss of $26.365 million in the same period of 1995. NONINTEREST INCOME (thousands) TABLE 9
1996 1995 Six Months Ended Second First Fourth Third Second June 30 Quarter Quarter Quarter Quarter Quarter 1996 1995 Service charges on deposit accounts . . . . . . . . . $ 60,928 $ 56,598 $ 55,371 $ 52,409 $ 52,452 $117,526 $101,333 Fees for trust services . . . . . . . . . . . . . . . . 34,508 34,345 34,689 31,740 33,211 68,853 64,092 Credit card income - net of interchange payments . . . 33,848 32,522 32,291 31,180 31,867 66,370 60,811 Electronic banking . . . . . . . . . . . . . . . . . . 12,582 9,340 9,412 8,962 8,860 21,922 16,105 Investment fee income . . . . . . . . . . . . . . . . . 10,842 10,229 7,682 8,690 5,404 21,071 10,581 Mortgage fee income . . . . . . . . . . . . . . . . . . 4,289 4,401 4,050 4,269 6,547 8,690 15,001 Trading account profits - excluding interest . . . . . 5,698 3,452 8,238 5,646 5,608 9,150 11,814 Insurance premiums and commissions . . . . . . . . . . 4,032 3,748 3,422 3,044 3,385 7,780 6,698 Bankers' acceptance and letter of credit fees . . . . 6,109 5,898 6,003 5,885 5,743 12,007 11,302 Other service charges and fees . . . . . . . . . . . . . 7,985 8,590 7,054 5,609 5,624 16,575 12,019 Other income . . . . . . . . . . . . . . . . . . . . . . 17,774 14,982 18,077 12,981 7,603 32,756 13,641 Total other operating revenue . . . . . . . . . . . . 198,595 184,105 186,289 170,415 166,304 382,700 323,397 Gain on sale of mortgage servicing portfolio . . . . . . . - - - - 79,025 - 79,025 Investment securities gains (losses) . . . . . . . . . . (219) 698 2,554 317 (26,236) 479 (26,365) Total. . . . . . . . . . . . . . . . . . . . . . . . $198,376 $184,803 $188,843 $170,732 $219,093 $383,179 $376,057
NONINTEREST EXPENSE Total noninterest expense was up $3.470 million or 1.1 percent for the quarter and $28.683 million or 4.9 percent year to date. Increases in both periods occurred primarily in personnel expense, with combined net occupancy and equipment expense modestly higher and remaining other combined categories of noninterest expense down. Included in noninterest expense for the second quarter of 1995 was $18.100 million related to severance costs for consolidation efforts, higher consulting fees associated with strategic initiatives and charitable contributions. Compared with the first three months of 1996, noninterest expense was higher by $1.842 million or less than 1 percent. Noninterest expense represented 51.9 percent of total adjusted 18 revenues (taxable equivalent net interest income plus total other operating revenue) for the quarter and 52.8 percent for the first six months versus 56 percent and 54.7 percent in the same respective periods of 1995 and 53.8 percent in the first quarter of 1996. Total personnel expense rose $10.175 million or 6.8 percent for the second three months and $26.830 million or 9.1 percent for the first half. Salaries expense accounted for most of the growth in both periods, expanding $8.718 million or 7 percent for the quarter and $22.353 million or 9.2 percent year to date, primarily due to higher salary levels and increased incentive pay to compensate sales efforts. Employee benefits expense was up $1.457 million or 5.5 percent for the second period and $4.477 million or 8.4 percent for the first six months. Combined net occupancy and equipment expense increased $1.363 million or 2.8 percent and $4.519 million or 4.6 percent for the quarter and first half, respectively. Net occupancy expense rose $1.244 million or 5.9 percent for the three months and $3.732 million or 9.1 percent for the first six months, largely reflecting higher building depreciation and operating premise lease expenses. Equipment expense was up modestly for both the quarter and year to date. Remaining other combined categories of noninterest expense decreased $8.068 million or 7.5 percent for the second three months and $2.666 million or 1.4 percent for the first half of the year. Advertising and sales promotion expense grew $5.755 million or 59 percent for the quarter and $13.414 million or 70 percent year to date, largely due to increased credit card solicitation costs. Professional services expense rose $1.594 million or 17.4 percent for the second period and $5.610 million or 37.8 percent for the first six months, reflecting expenditures for ongoing consulting services related to strategic initiatives. Regulatory agency fees and other bank services expenses were down $14.361 million or 91.6 percent and $28.797 million or 92.4 percent for the quarter and first half, respectively, due to the reduction and then elimination of insurance premiums by the FDIC for well capitalized financial institutions. NONINTEREST EXPENSE (thousands) TABLE 10
1996 1995 Six Months Ended Second First Fourth Third Second June 30 Quarter Quarter Quarter Quarter Quarter 1996 1995 Salaries . . . . . . . . . . . . . . . . . . . . . . $132,438 $131,820 $129,673 $127,152 $123,720 $264,258 $241,905 Employee benefits . . . . . . . . . . . . . . . . . . . 27,724 29,798 22,405 26,146 26,267 57,522 53,045 Total personnel expense . . . . . . . . . . . . . . . 160,162 161,618 152,078 153,298 149,987 321,780 294,950 Net occupancy expense . . . . . . . . . . . . . . . . . 22,184 22,678 24,551 21,424 20,940 44,862 41,130 Equipment expense . . . . . . . . . . . . . . . . . . . 28,054 28,931 27,753 25,750 27,935 56,985 56,198 Postage and delivery . . . . . . . . . . . . . . . . . . 9,780 10,452 9,801 9,379 9,190 20,232 18,782 Outside data processing, programming and software . . . 11,179 10,704 11,966 9,959 10,664 21,883 20,561 Stationery and supplies . . . . . . . . . . . . . . . . 6,951 7,006 7,604 6,374 6,619 13,957 12,827 Advertising and sales promotion . . . . . . . . . . . . 15,502 17,071 16,869 14,334 9,747 32,573 19,159 Professional services . . . . . . . . . . . . . . . . . . 10,743 9,707 14,922 9,721 9,149 20,450 14,840 Travel and business promotion . . . . . . . . . . . . . . 5,335 4,237 6,051 4,474 5,110 9,572 9,169 Regulatory agency fees and other bank services . . . . . . 1,320 1,053 6,576 11,838 15,681 2,373 31,170 Amortization of intangible assets . . . . . . . . . . . . . 1,098 1,078 1,190 1,210 2,116 2,176 6,187 Foreclosed property expense . . . . . . . . . . . . . . . . 175 (126) 813 (146) 408 49 253 Other expense . . . . . . . . . . . . . . . . . . . . . . 37,604 33,836 34,891 31,267 39,071 71,440 64,423 Total . . . . . . . . . . . . . . . . . . . . . . . . $310,087 $308,245 $315,065 $298,882 $306,617 $618,332 $589,649 Overhead ratio . . . . . . . . . . . . . . . . . . . . . 51.9% 53.8% 54.6% 52.9% 56.0% 52.8% 54.7%
INCOME TAXES Applicable income taxes were lower by $2.263 million or 2.9 percent for the quarter and up $7.822 million or 5.7 percent for the first six months. 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 earned 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. 19 INCOME TAXES (thousands) TABLE 11
Three Months Ended Six Months Ended June 30 June 30 1996 1995 1996 1995 Income before income taxes. . . . . . . . . . . . . . . . . . . . . . $235,136 $ 240,945 $454,275 $442,285 Federal income taxes at statutory rate . . . . . . . . . . . . . . . . $ 82,297 $ 84,331 $158,996 $154,800 State and local income taxes - net of federal benefit . . . . . . . . . 3,365 (2,214) 6,255 (1,816) Effect of tax-exempt securities interest and other income . . . . . . .(10,204) (10,756) (20,596) (21,605) Other items. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 315 6,675 387 5,841 Total tax expense . . . . . . . . . . . . . . . . . . . . . . . . . $75,773 $ 78,036 $145,042 $137,220 Currently payable: Federal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 63,227 $ 90,228 $113,405 $152,745 Foreign. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168 57 264 124 State and local . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,524 8,778 5,729 10,713 Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66,919 99,063 119,398 163,582 Deferred: Federal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,545 (8,843) 22,111 (12,855) State and local . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,309 (12,184) 3,533 (13,507) Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,854 (21,027) 25,644 (26,362) Total tax expense . . . . . . . . . . . . . . . . . . . . . . .. . . $ 75,773 $ 78,036 $145,042 $137,220
FINANCIAL CONDITION AND CAPITAL RATIOS Total assets at June 30, 1996 were $46.049 billion. Interest-earning assets were $41.140 billion and loans were $30.673 billion. Comparable amounts one year earlier were $42.867 billion of assets, $38.329 billion of interest- earning assets and $28.251 billion of loans. At March 31, 1996, assets totaled $45.425 billion with $40.527 billion of interest-earning assets and $29.869 billion of loans. Deposits at second quarter close 1996 were $25.973 billion, including $20.515 billion of time deposits, representing 79 percent of the total. Deposits one year earlier were $23.892 billion with $18.530 billion of time deposits or 77.6 percent of the total, and at March 31, 1996 they were $25.909 billion, including $20.384 billion of time deposits or 78.7 percent of the total. Shareholders' equity at June 30, 1996 was $3.700 billion, an increase of $165 million or 4.7 percent from $3.535 billion a year earlier but lower by $29 million or less than 1 percent from the end of the 1996 first quarter. The total at June 30, 1996 included $24.066 million, net of tax, of unrealized gains on securities available-for-sale marked to fair market value under FASB 115 compared with $44.556 million, net of tax, one year earlier and $57.338 million, net of tax, at March 31, 1996. At its meeting on July 25, 1996, the corporation's board of directors declared a third quarter dividend of $.40 per share, payable September 3 to shareholders of record on August 6, 1996. The dividend is higher by 11.1 percent from $.36 per share paid in the same three months of 1995. For the year to date, the dividend will total $1.12 per share, an increase of 9.8 percent from $1.02 per share paid in 1995. The corporation was authorized by the board of directors on April 26, 1996 to repurchase up to 8 million shares of its common stock, replacing an earlier action on July 28, 1995 to repurchase up to 5 million shares. Share repurchase activity is part of the corporation's capital management strategy designed to enhance shareholder value over the long-term. In addition, repurchased shares will be used for various corporate purposes, including share issuance for the corporation's employee stock plans and dividend reinvestment plan. In the second quarter of 1996, the corporation repurchased a total of 2,577,400 shares of its common stock under the current and prior authorization at an average price of $43.521 per share for a cost of $112.172 million. As of June 30, 1996, 5,600,200 shares remained available for repurchase under the current authorization. Intangible assets at June 30, 1996 were $41.546 million. The total consisted of $33.312 million of goodwill, $6.186 million of deposit base intangibles, $990 thousand of purchased credit card intangibles and $1.058 million of other intangibles. Comparable amounts one year earlier were $41.492 million of intangible assets with $30.216 million of goodwill, $7.753 million of deposit base intangibles, $2.048 million of purchased 20 credit card intangibles and $1.475 million of other intangibles. On April 1, 1996, Wachovia Bank of Georgia, N.A., completed the acquisition of First National Bankshares of Henry County, Inc., of Stockbridge, exchanging .4024 of a share of Wachovia common stock for every share of First National Bankshares of Henry County, Inc., common stock. Wachovia issued 208,207 shares of common stock in the transaction. Effective January 1, 1996, the corporation prospectively adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed Of" (FASB 121). The adoption of FASB 121 did not have a material impact on the corporation's financial position or results of operations. In June 1996, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" (FASB 125), which provides new accounting and reporting standards for sales, securitization, and servicing of receivables and other financial assets and extinguishments of liabilities. The corporation is presently evaluating the effect of the standard which will be adopted, as required, for transactions occurring after December 31, 1996. 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 June 30, 1996, the corporation's Tier I to risk-adjusted assets ratio was 9.05 percent with total capital 13.04 percent of risk-adjusted assets. The Tier I leverage ratio was 8.12 percent. CAPITAL COMPONENTS AND RATIOS (thousands) TABLE 12
1996 1995 Second First Fourth Third Second Quarter Quarter Quarter Quarter Quarter Tier I capital: Common shareholders' equity. . . . . . . . . . . $ 3,699,612 $ 3,729,349 $ 3,773,757 $ 3,617,642 $ 3,535,313 Less ineligible intangible assets . . . . . . . . 33,312 29,099 29,472 29,844 30,216 Unrealized gains on securities available-for-sale, net of tax . . . . . . . . . . (24,066) (57,338) (116,113) (44,431) (44,556) Total Tier I capital. . . . . . . . . . . . . . . 3,642,234 3,642,912 3,628,172 3,543,367 3,460,541 Tier II capital: Allowable allowance for loan losses. . . . . . . . 409,205 408,928 408,808 408,684 408,633 Allowable long-term debt. . . . . . . . . . . . . . . 1,198,837 1,204,191 1,208,479 1,018,003 1,020,267 Tier II capital additions . . . . . . . . . . . . . 1,608,042 1,613,119 1,617,287 1,426,687 1,428,900 Total capital. . . . . . . . . . . . . . . . . . . $5,250,276 $5,256,031 $ 5,245,459 $4,970,054 $4,889,441 Risk-adjusted assets. . . . . . . . . . . . . . . . . $40,249,143 $38,803,497 $38,469,866 $38,011,712 $37,189,208 Quarterly average assets . . . . . . . . . . . . . . $44,956,032 $44,434,973 $43,477,038 $42,572,976 $40,875,958 Risk-based capital ratios: Tier I capital. . . . . . . . . . . . . . . . . . . . 9.05% 9.39% 9.43% 9.32% 9.31% Total capital . . . . . . . . . . . . . . . . . . . . 13.04 13.55 13.64 13.08 13.15 Tier I leverage ratio* . . . . . . . . . . . . . . . . 8.12 8.22 8.36 8.34 8.47 Shareholders' equity to total assets . . . . . . . . . 8.03 8.21 8.39 8.20 8.25
*Ratio excludes the average unrealized gains on securities available-for- sale, net of tax, of $44,957, $114,386, $63,884, $39,715 and $8,933, respectively 21 WACHOVIA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CONDITION
June 30 December 31 June 30 $ IN THOUSANDS 1996 1995 1995 ASSETS Cash and due from banks. . . . . . . . . . . . . . . . . . . . . .$ 2,606,453 $ 2,692,318 $ 2,629,502 Interest-bearing bank balances. . . . . . . . . . . . . . . . . . 473,037 451,279 5,893 Federal funds sold and securities purchased under resale agreements . . . . . . . . . . . . . . . . 301,561 144,105 14,571 Trading account assets . . . . . . . . . . . . . . . . . . . . . . 1,039,284 1,114,926 1,086,599 Securities available-for-sale. . . . . . . . . . . . . . . . . . . 7,171,252 7,409,825 4,455,755 Securities held-to-maturity (market value of $1,539,624, $1,721,222 and $4,651,867, respectively) . . . . . . . . . . . . 1,482,031 1,619,480 4,514,837 Loans and net leases . . . . . . . . . . . . . . . . . . . . . . . 30,680,028 29,269,825 28,258,874 Less unearned income on loans . . . . . . . . . . . . . . . . . . 7,387 8,672 7,815 Total loans. . . . . . . . . . . . . . . . . . . . . . . . . . . 30,672,641 29,261,153 28,251,059 Less allowance for loan losses. . . . . . . . . . . . . . . . . . 409,205 408,808 408,633 Net loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,263,436 28,852,345 27,842,426 Premises and equipment . . . . . . . . . . . . . . . . . . . . . . 648,948 628,153 574,623 Due from customers on acceptances . . . . . . . . . . . . . . . . 685,389 883,825 565,785 Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,377,705 1,185,058 1,177,488 Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . $46,049,096 $44,981,314 $42,867,479 LIABILITIES Deposits in domestic offices: Demand. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 5,457,626 $ 5,855,286 $ 5,354,199 Interest-bearing demand. . . . . . . . . . . . . . . . . . . . . 3,273,053 3,473,607 3,215,348 Savings and money market savings. . . . . . . . . . . . . . . . . 7,575,143 6,991,133 6,486,959 Savings certificates. . . . . . . . . . . . . . . . . . . . . . . 6,545,807 6,613,238 6,529,708 Large denomination certificates . . . . . . . . . . . . . . . . . 2,234,372 2,671,759 1,540,760 Noninterest-bearing time . . . . . . . . . . . . . . . . . . . . . 4,768 3,334 4,884 Total deposits in domestic offices . . . . . . . . . . . . . . . 25,090,769 25,608,357 23,131,858 Deposits in foreign offices: Demand. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241 5,766 7,221 Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 882,339 754,634 752,733 Total deposits in foreign offices. . . . . . . . . . . . . . . . 882,580 760,400 759,954 Total deposits . . . . . . . . . . . . . . . . . . . . . . . . .. 25,973,349 26,368,757 23,891,812 Federal funds purchased and securities sold under repurchase agreements . . . . . . . . . . . . . . . . 7,358,020 5,850,540 6,642,662 Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . .. 541,978 502,136 493,878 Other short-term borrowed funds . . . . . . . . . . . . . . . . . 1,054,813 1,720,592 2,256,661 Long-term debt: Bank notes. . . . . . . . . . . . . . . . . . . . . . . . . . . .. 4,963,154 4,088,326 3,978,718 Other long-term debt . . . . . . . . . . . . . . . . . . . . . . . 1,330,383 1,334,702 1,087,008 Total long-term debt . . . . . . . . . . . . . . . . . . . . . .. 6,293,537 5,423,028 5,065,726 Acceptances outstanding . . . . . . . . . . . . . . . . . . . . . . 685,389 883,825 565,785 Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . .. 442,398 458,679 415,642 Total liabilities. . . . . . . . . . . . . . . . . . . . . . . .. 42,349,484 41,207,557 39,332,166 SHAREHOLDERS' EQUITY Preferred stock, par value $5 per share: Authorized 50,000,000 shares; none outstanding . . . . . . . . . .. - - - Common stock, par value $5 per share: Issued 166,797,672, 170,358,504 and 170,400,054, respectively . . . . . . . . . . . . . . . . . . . .. 833,988 851,793 852,000 Capital surplus . . . . . . . . . . . . . . . . . . . . . . . . . 570,724 713,120 721,806 Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . 2,270,834 2,092,731 1,916,951 Unrealized gains on securities available-for-sale, net of tax. . . 24,066 116,113 44,556 Total shareholders' equity. . . . . . . . . . . . . . . . . . . . 3,699,612 3,773,757 3,535,313 Total liabilities and shareholders' equity. . . . . . . . . . . $46,049,096 $44,981,314 $42,867,479
22 WACHOVIA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Six Months Ended June 30 June 30 $ IN THOUSANDS, EXCEPT PER SHARE 1996 1995 1996 1995 INTEREST INCOME Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $621,346 $593,858 $1,229,631 $1,153,632 Securities available-for-sale: Other investments . . . . . . . . . . . . . . . . . . . . . . . . 117,861 61,433 237,135 106,035 Securities held-to-maturity: State and municipal . . . . . . . . . . . . . . . . . . . . . . . 5,531 9,269 11,414 19,475 Other investments . . . . . . . . . . . . . . . . . . . . . . . . . 24,597 69,756 50,096 133,994 Interest-bearing bank balances . . . . . . . . . . . . . . . . . . 9,258 105 18,276 206 Federal funds sold and securities purchased under resale agreements . . . . . . . . . . . . . . . . 3,155 763 6,405 1,965 Trading account assets . . . . . . . . . . . . . . . . . . . . . . . 10,975 14,907 23,009 26,576 Total interest income . . . . . . . . . . . . . . . . . . . . . . . 792,723 750,091 1,575,966 1,441,883 INTEREST EXPENSE Deposits: Domestic offices . . . . . . . . . . . . . . . . . . . . . . . . . 200,396 193,006 409,146 352,832 Foreign offices . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,033 9,503 24,134 17,010 Total interest on deposits . . . . . . . . . . . . . . . . . . . . .211,429 202,509 433,280 369,842 Short-term borrowed funds . . . . . . . . . . . . . . . . . . . . . . 110,030 119,486 220,420 227,875 Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,013 70,975 171,100 137,849 Total interest expense . . . . . . . . . . . . . . . . . . . . . . .411,472 392,970 824,800 735,566 NET INTEREST INCOME . . . . . . . . . . . . . . . . . . . . . . . . . 381,251 357,121 751,166 706,317 Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . 34,404 28,652 61,738 50,440 Net interest income after provision for loan losses . . . . . . . . . . . . . . . . . . . . . 346,847 328,469 689,428 655,877 OTHER INCOME Service charges on deposit accounts . . . . . . . . . . . . . . . . . 60,928 52,452 117,526 101,333 Fees for trust services . . . . . . . . . . . . . . . . . . . . . . . 34,508 33,211 68,853 64,092 Credit card income . . . . . . . . . . . . . . . . . . . . . . . . . . 33,848 31,867 66,370 60,811 Electronic banking . . . . . . . . . . . . . . . . . . . . . . . . . . 12,582 8,860 21,922 16,105 Investment fee income . . . . . . . . . . . . . . . . . . . . . . . . 10,842 5,404 21,071 10,581 Mortgage fee income . . . . . . . . . . . . . . . . . . . . . . . . . 4,289 6,547 8,690 15,001 Trading account profits . . . . . . . . . . . . . . . . . . . . . . . 5,698 5,608 9,150 11,814 Other operating income . . . . . . . . . . . . . . . . . . . . . . . . 35,900 22,355 69,118 43,660 Total other operating revenue . . . . . . . . . . . . . . . . . . . 198,595 166,304 382,700 323,397 Gain on sale of mortgage servicing portfolio . . . . . . . . . . . . . - 79,025 - 79,025 Investment securities gains (losses) . . . . . . . . . . . . . . . . (219) (26,236) 479 (26,365) Total other income . . . . . . . . . . . . . . . . . . . . . . . . 198,376 219,093 383,179 376,057 OTHER EXPENSE Salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132,438 123,720 264,258 241,905 Employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . 27,724 26,267 57,522 53,045 Total personnel expense . . . . . . . . . . . . . . . . . . . . . . 160,162 149,987 321,780 294,950 Net occupancy expense . . . . . . . . . . . . . . . . . . . . . . . . 22,184 20,940 44,862 41,130 Equipment expense . . . . . . . . . . . . . . . . . . . . . . . . . . 28,054 27,935 56,985 56,198 Other operating expense . . . . . . . . . . . . . . . . . . . . . . . 99,687 107,755 194,705 197,371 Total other expense . . . . . . . . . . . . . . . . . . . . . . . . 310,087 306,617 618,332 589,649 Income before income taxes . . . . . . . . . . . . . . . . . . . . . 235,136 240,945 454,275 442,285 Applicable income taxes . . . . . . . . . . . . . . . . . . . . . . . 75,773 78,036 145,042 137,220 NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $159,363 $162,909 $309,233 $305,065 Net income per common share: Primary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .94 $ .94 $ 1.81 $ 1.77 Fully diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .94 $ .95 $ 1.81 $ 1.77 Average shares outstanding: Primary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169,861 171,986 170,664 172,095 Fully diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . 169,972 172,446 170,808 172,589
23 WACHOVIA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Unrealized Securities Common Stock Capital Retained Gains $ IN THOUSANDS, EXCEPT PER SHARE Shares Amount Surplus Earnings (Losses) PERIOD ENDED JUNE 30, 1995 Balance at beginning of year. . . . . . . . . . . . . . 170,933,749 $854,669 $741,946 $1,727,527 $(37,635) Net income . . . . . . . . . . . . . . . . . . . . . . . 305,065 Cash dividends declared on common stock - $.66 a share. . . . . . . . . . . . . . . . . . . (112,760) Common stock issued pursuant to: Stock option and employee benefit plans. . . . . . . . . 428,203 2,141 9,437 Dividend reinvestment plan . . . . . . . . . . . . . . . 181,855 909 5,542 Conversion of debentures . . . . . . . . . . . . . . . . 41,989 210 594 Common stock acquired . . . . . . . . . . . . . . . . . . (1,185,742) (5,929) (35,678) Unrealized gains on securities available-for-sale, net of tax. . . . . . . . . . . . . . 82,191 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . (35) (2,881) Balance at end of period . . . . . . . . . . . . . . . . 170,400,054 $852,000 $721,806 $1,916,951 $44,556 PERIOD ENDED JUNE 30, 1996 Balance at beginning of year. . . . . . . . . . . . . . .170,358,504 $851,793 $713,120 $2,092,731 $116,113 Net income . . . . . . . . . . . . . . . . . . . . . . . 309,233 Cash dividends declared on common stock - $.72 a share. . . . . . . . . . . . . . . . . . . (121,773) Common stock issued pursuant to: Stock option and employee benefit plans. . . . . . . . . . 450,412 2,252 19,426 Dividend reinvestment plan . . . . . . . . . . . . . . . . 158,637 793 6,318 Conversion of debentures . . . . . . . . . . . . . . . . . 228,614 1,143 3,251 Acquisition of bank. . . . . . . . . . . . . . . . . . . . 208,207 1,041 9,003 Common stock acquired . . . . . . . . . . . . . . . . . . (4,606,702) (23,034) (180,393) Unrealized losses on securities available-for-sale, net of tax. . . . . . . . . . . . . . (92,047) Miscellaneous . . . . . . . . . . . . . . . . . . . . . . (1) (9,357) Balance at end of period. . . . . . . . . . . . . . . . .166,797,672 $833,988 $570,724 $2,270,834 $24,066
24 WACHOVIA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30 $ IN THOUSANDS 1996 1995 OPERATING ACTIVITIES Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . $ 309,233 $ 305,065 Adjustments to reconcile net income to net cash provided (used) by operations: Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,738 50,440 Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . 45,193 36,125 Deferred income taxes (benefit). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,644 (26,362) Investment securities (gains) losses. . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . (479) 26,365 Gain on sale of noninterest-earning assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . (661) (1,239) Gain on sale of mortgage servicing portfolio. . . . . . . . . . . . . . . . . . . . . . . .. . . . . - (79,025) Increase in accrued income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,871 28,006 Increase in accrued interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . (4,082) (36,672) (Decrease) increase in accrued interest payable . . . . . . . . . . . . . . . . . . . . . .. . . . . (19,878) 37,120 Net change in other accrued and deferred income and expense . . . . . . . . . . . . . . . . . . . . . (35,581) 39,496 Net trading account activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,642 (196,641) Net loans held for resale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . 141,684 (221,392) Net cash provided (used) by operating activities . . . . . . . . . . . . . . . . . . . . .. . . . . 615,324 (38,714) INVESTING ACTIVITIES Net (increase) decrease in interest-bearing bank balances. . . . . . . . . . . . . . . . . .. . . . . (21,758) 870 Net (increase) decrease in federal funds sold and securities purchased under resale agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (152,956) 187,035 Purchases of securities available-for-sale . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . .(595,924) (3,554,684) Purchases of securities held-to-maturity . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . (45,679) (533,109) Sales of securities available-for-sale . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . 133,921 2,245,946 Calls, maturities and prepayments of securities available-for-sale. . . . . . . . . . . . . . . . . . 554,070 497,582 Calls, maturities and prepayments of securities held-to-maturity. . . . . . . . . . . . . . . . . . . . 185,916 201,599 Net increase in loans made to customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,598,300) (2,189,945) Capital expenditures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .(68,726) (74,148) Proceeds from sales of premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,756 7,890 Proceeds from sale of mortgage servicing portfolio . . . . . . . . . . . . . . . . . . . . .. . . . . . . - 142,011 Net (increase) decrease in other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (143,860) 33,495 Business combinations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,814 - Net cash used by investing activities. . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . .(1,742,726) (3,035,458) FINANCING ACTIVITIES Net decrease in demand, savings and money market accounts. . . . . . . . . . . . . . . . . . . . . . (23,726) (209,452) Net (decrease) increase in certificates of deposit . . . . . . . . . . . . . . . . . . . . .. . . . . .(400,856) 1,032,006 Net increase in federal funds purchased and securities sold under repurchase agreements. . . . . . . 1,507,480 744,264 Net increase in commercial paper. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,842 87,172 Net (decrease) increase in other short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . (665,779) 1,249,321 Proceeds from issuance of bank notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,047,429 424,930 Maturities of bank notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,172,552) (400,722) Proceeds from issuance of other long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . - 248,012 Payments on other long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (211) (285) Common stock issued. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,464 12,013 Dividend payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (121,773) (112,760) Common stock repurchased. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (200,745) (39,729) Net increase (decrease) in other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,964 (1,211) Net cash provided by financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,041,537 3,033,559 DECREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (85,865) (40,613) Cash and cash equivalents at beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . . . 2,692,318 2,670,115 Cash and cash equivalents at end of period . . . . . . . . . . . .. . . . . . . . . . . . . . . . . .$2,606,453 $2,629,502 SUPPLEMENTAL DISCLOSURES Unrealized (losses) gains on securities available-for-sale: (Decrease) increase in securities available-for-sale . . . . . . . . . . . . . . . . . . . . . . . .$ (150,460) $ 134,504 Increase (decrease) in deferred taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,413 (52,313) (Decrease) increase in shareholders' equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (92,047) 82,191
25 1996 FORM 10-Q United States Securities and Exchange Commission Washington, DC 20549 Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended June 30, 1996 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 June 30, 1996, Wachovia Corporation had 166,797,672 shares of common stock outstanding. Wachovia Corporation (1) has 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. DOCUMENTS INCORPORATED BY REFERENCE Portions of the financial supplement for the quarter ended June 30, 1996 are incorporated by reference into Parts I and II as indicated in the table below. Except for parts of the Wachovia Corporation Financial Supplement expressly incorporated herein by reference, this Financial Supplement is not to be deemed filed with the Securities and Exchange Commission. PART I FINANCIAL INFORMATION Item 1 FINANCIAL STATEMENTS (UNAUDITED) PAGE Selected Period-End Data . . . . . . . . . . . . . 3 Common Stock Data - Per Share . . . . . . . . . 3 Consolidated Statements of Condition. . . . . . 22 Consolidated Statements of Income . . . . . . . 23 Consolidated Statements of Shareholders' Equity. . . . . . . . . . . . 24 Consolidated Statements of Cash Flows . . . . . 25 Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . 4-21 26 1996 FORM 10-Q - CONTINUED PART II OTHER INFORMATION Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the annual meeting of shareholders held on April 26, 1996, five directors were elected and the appointment of Ernst & Young LLP as independent auditors for 1996 was ratified. The distribution of shareholders' votes was as follows: Shares Voted Shares in Favor Withheld ELECTION OF DIRECTORS Leslie M. Baker, Jr. 141,406,528 1,098,767 Lawrence M. Gressette, Jr. 141,429,806 1,075,489 Thomas K. Hearn, Jr. 141,460,390 1,044,905 Herman J. Russell 141,102,916 1,402,379 John C. Whitaker, Jr. 141,307,190 1,198,105 RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS Shares Voted in Favor 141,659,814 Shares Voted Against 159,920 Abstentions 685,561 Item 6 EXHIBITS AND REPORTS ON FORM 8-K a) 4 Indenture dated as of March 1, 1993 between Wachovia Corporation and CoreStates Bank, National Association, as Trustee, relating to subordinated debt securities (Exhibit 4 to S-3 (Shelf) Registration Statement of Wachovia Corporation, File No. 333-06319). 11 "Computation of Earnings per Common Share" is presented as Table 3 on page 6 of the second quarter 1996 financial supplement. 19 "Unaudited Consolidated Financial Statements," listed in Part I, Item 1, do not include all information and footnootes required under generally accepted accounting principles. However, in the opinion of management, the profit and loss information presented in the interim financial statements reflects all adjustments necessary to present fairly the results of operations for the periods presented. Adjustments reflected in the second quarter of 1996 figures are of a normal, recurring nature. The results of operations shown in the interim statements are not necessarily indicative of the results that may be expected for the entire year. 27 Financial Data Schedule (for SEC purposes only). b) Reports on Form 8-K: No reports on Form 8-K were filed during the three months ended June 30, 1996. SIGNATURES Pursuant to the requirements of 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. WACHOVIA CORPORATION August 12, 1996 ROBERT S. McCOY, JR. August 12, 1996 DONALD K. TRUSLOW Robert S. McCoy, Jr. Donald K. Truslow Executive Vice President Comptroller and Chief Financial Officer 27 BULK RATE U.S. POSTAGE PAID Wachovia Corporation WACHOVIA P.O. Box 3099 CORPORATION Winston-Salem, NC 27150 EX-27 2 EXHIBIT 27
9 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 2,606,453 473,037 301,561 1,039,284 7,171,252 1,482,031 1,539,624 30,672,641 409,205 46,049,096 25,973,349 8,954,811 1,127,787 6,293,537 0 0 833,988 2,865,624 46,049,096 1,229,631 298,645 47,690 1,575,966 433,280 824,800 751,166 61,738 479 618,332 454,275 309,233 0 0 309,233 1.81 1.81 3.97 55,219 63,317 0 0 408,808 83,524 21,983 409,205 0 0 0
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