-----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, Q2GqldsCTE3bLfMokzkjBxtH09zGXQ9yLK1KMnG7veJlCWBC6P7Q2aRLkBPX3T78 mKWuEuce1MRQDCPSqssKLg== 0000950168-97-000687.txt : 19970327 0000950168-97-000687.hdr.sgml : 19970327 ACCESSION NUMBER: 0000950168-97-000687 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970326 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-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-09021 FILM NUMBER: 97563528 BUSINESS ADDRESS: STREET 1: 301 NORTH MAIN ST CITY: WINSTON SALEM STATE: NC ZIP: 27150 BUSINESS PHONE: 9197705000 MAIL ADDRESS: STREET 1: 301 NORTH MAIN ST CITY: WINSTON SALEM STATE: NC ZIP: 27150 FORMER COMPANY: FORMER CONFORMED NAME: FIRST WACHOVIA CORP DATE OF NAME CHANGE: 19910603 10-K405 1 WACHOVIA 10-K405 1996 FORM 10-K United States Securities and Exchange Commission Washington, DC 20549 Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Fiscal Year Ended December 31, 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 February 6, 1997, Wachovia Corporation had 163,441,575 shares of common stock outstanding. The aggregate market value of Wachovia Corporation common stock held by nonaffiliates on February 6, 1997 was approximately $9.433 billion and the number of shares held by nonaffiliates was 163,347,856. Wachovia Corporation has (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Indicate by check mark if disclosure of delinquent filers pursuant to item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Wachovia Corporation's Proxy Statement for its 1997 Annual Shareholders' Meeting, which will be filed with the Commission by April 30, 1997 are incorporated by reference into Part III of this report. Portions of the annual report to shareholders for the year ended December 31, 1996 are incorporated by reference into Parts I and II as indicated in the table below. Except for parts of the Wachovia Corporation Annual Report expressly incorporated herein by reference, this Annual Report is not to be deemed filed with the Securities and Exchange Commission. PART I PAGE Item 1 Business Description of Business............3, 14-41, 72-74 Subsidiaries of Wachovia Corporation...................................2 Average Balance Sheets/ Interest/Rates.................64-65, 68-69, 70 Volume and Rate Variance Analysis........................17, 40 Securities......................................19 Loans............................18, 26, 50-51, 71 Allowance for Loan Losses and Loan Loss Experience..............26-28, 40 Deposits......................20-21, 24, 64-65, 70 Return on Equity and Assets.....................70 Short-Term Borrowed Funds.......................24 Item 2 Properties.........................................2 Item 3 Legal Proceedings..............................57-58 Item 4 Submission of Matters to a Vote of Security Holders...........................None PART II Item 5 Market for Registrant's Common Equity and Related Stockholder Matters..........................72-73 Item 6 Selected Financial Data....................66-67, 71 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations................................14-41 Item 8 Financial Statements and Supplementary Data...........................35-63 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure....................................None PART III Item 10 Directors and Executive Officers of the Registrant.........Proxy Statement Item 11 Executive Compensation...............Proxy Statement Item 12 Security Ownership of Certain Beneficial Owners and Management.....................Proxy Statement Item 13 Certain Relationships and Related Transactions...........Proxy Statement PART IV Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K........................................3,8-12
1 SUBSIDIARIES OF WACHOVIA CORPORATION The following table sets forth the subsidiaries of Wachovia Corporation on December 31, 1996. The common stock of each of these subsidiaries is 100 percent owned by its parent. The financial statements of all subsidiaries are included in the consolidated statements of Wachovia Corporation and subsidiaries.
Organized under the Organized under the laws of the state laws of the state of: of: Wachovia Bank of North Carolina, N.A. the United States Wachovia Mortgage Company North Carolina Wachovia International New Salem, Inc. North Carolina Banking Corporation the United States* Wachovia Investments, Inc. North Carolina Wachovia Leasing Corporation North Carolina Wachovia Corporate Services, Inc. North Carolina Wachovia Auto Leasing Company Wachovia Operational Services of North Carolina North Carolina Corporation North Carolina Wachovia Insurance Services of Wachovia Trust Services, Inc. North Carolina North Carolina, Inc. North Carolina The First National Bank of Greenville Agricultural Credit Atlanta (Delaware) the United States Corporation North Carolina Wachovia Bank Card Services, Inc. Delaware City Loans, Inc. North Carolina First Atlanta Corporation Georgia WOC Company North Carolina FA Investment Company Georgia Wachovia Bank of Georgia, N.A. the United States Financial Life Insurance Company First Bank Building Corp. Georgia of Georgia Georgia First Atlanta Services Corporation Delaware The Wachovia Insurance Agency Wachovia Auto Leasing Company of Georgia, Inc. Georgia of Georgia Georgia FAIRCO Properties, Inc. Georgia WMCS, Inc. Georgia First Atlanta Lease Liquidating Corporation Georgia Wachovia Capital Associates, Inc. Georgia Wachovia Corporation of Florida Florida Wachovia Bank of South Carolina, N.A. the United States Wachovia Corporation of Alabama Alabama Wachovia Insurance Services of Wachovia Corporation of Tennessee Tennessee South Carolina, Inc. South Carolina Wachovia Capital Markets, Inc. Georgia First National Properties, Inc. South Carolina Wachovia International Capital Corporation Georgia South Carolina National OREO, Inc. South Carolina Southern Provident Life Insurance Company Arizona Atlantic Savings Bank, FSB the United States Atlantic Mortgage Corporation * Organized under the Chapter 25(a) of the Federal Reserve Act of South Carolina, Inc. South Carolina of the United States
PROPERTIES The principal offices of the Corporation and Wachovia Bank of North Carolina, N.A., are located at 100 North Main Street, Winston-Salem, North Carolina, where the company owns and occupies approximately 535,000 square feet of office space. Wachovia Bank of Georgia, N.A., occupies approximately 380,000 square feet of an office tower at 191 Peachtree Street, N.E., Atlanta, Georgia, under a lease expiring December 2008. Wachovia Bank of South Carolina, N.A., occupies approximately 15,660 square feet of office space in the Palmetto Center at 1426 Main Street, Columbia, South Carolina, under a lease expiring November 2003. The table on page 3 lists the number of banking offices. The Corporation's banking subsidiaries own in fee 342 offices while the others are leased or are located on leased land. The approximate lease terms range from one to fifty years on these properties. In addition, the Corporation's banking subsidiaries own in fee or lease a number of multistory office buildings which house supporting services. Other subsidiaries of the Corporation maintain leased office space in cities in which they conduct their respective operations. 2 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K Exhibits -- The index of exhibits has been filed as separate pages of the 1996 Form 10-K. Copies of the exhibit list or of Exhibits are available upon request to: Corporate Reporting, Wachovia Corporation, P.O. Box 3099, Winston-Salem, North Carolina 27150. A copying fee will be charged for the Exhibits. Financial Statement Schedules -- Omitted due to inapplicability or because the required information is shown in the Financial Statements or the Notes thereto. Reports on Form 8-K -- No reports on Form 8-K were filed during the year ended December 31, 1996. SIGNATURES Pursuant to the requirements to Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 19, 1997. WACHOVIA CORPORATION ROBERT S. McCOY, JR. Robert S. McCoy, Jr. Executive Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on March 19, 1997. L.M. BAKER, JR. L.M. Baker, Jr. President and Chief Executive Officer ROBERT S. McCOY, JR. Robert S. McCoy, Jr. Executive Vice President and Chief Financial Officer DONALD K. TRUSLOW Donald K. Truslow Comptroller The Directors of Wachovia Corporation (listed below) have executed a power of attorney appointing Kenneth W. McAllister, their attorney-in-fact, empowering him to sign this report on their behalf: John G. Medlin, Jr. James W. Johnston Rufus C. Barkley, Jr. Wyndham Robertson John L. Clendenin Herman J. Russell Lawrence M. Gressette, Jr. Sherwood H. Smith, Jr. Thomas K. Hearn, Jr. Charles McKenzie Taylor W. Hayne Hipp John C. Whitaker, Jr. Robert M. Holder, Jr. . Donald R. Hughes KENNETH W. McALLISTER Kenneth W. McAllister Attorney-in-Fact 3 PART III ITEM 10. Directors and Executive Officers of the Registrant The names, ages and positions of the executive officers of Wachovia as of January 31, 1997 are shown below along with their business experience during the past five years and the year of their employment with Wachovia and subsidiaries. Officers are elected annually by the Board of Directors and hold office for one year or until their successors are chosen and qualified. There are no family relationships between any of them, nor is there any arrangement or understanding between any officer and any other person pursuant to which the officer was selected. The required information for the directors is included in the Proxy Statement. Name, Age Business Experience During Past and Position Five Years and Year Employed - ------------ ---------------------------- L. M. Baker, Jr., 54 Chief Executive Officer of Wachovia President and Chief Corporation since January 1994; President Executive Officer Wachovia of Wachovia Corporation since 1993; Chief Corporation; Chairman of Operating Officer of Wachovia Corporation, the Board Wachovia Bank February - December 1993; Executive Vice of North Carolina, N.A.; President of Wachovia Corporation until Director of Wachovia January 1993; President and Chief Corporation, Wachovia Bank Executive Officer of Wachovia Corporation of Georgia, N.A., and of North Carolina, January 1990 - March Wachovia Bank of South 1993; President and Chief Executive Carolina, N.A. Officer of Wachovia Bank of North Carolina, N.A., January 1990 - May 1993; Executive Vice President of Wachovia Corporation of North Carolina until December 1989; Executive Vice President of Wachovia Bank of North Carolina, N.A. until December 1989. Employed in 1969. Mickey W. Dry, 57 Executive Vice President and Chief Credit Executive Vice President Officer of Wachovia Corporation since and Chief Credit Officer November 1989; Executive Vice President of Wachovia Corporation; Wachovia Bank of North Carolina, N.A. Executive Vice President since October 1989; Senior Vice President/ Wachovia Bank of North Group Executive of Wachovia Bank of North Carolina, N.A. Carolina, N.A. until 1989. Employed in 1961. 4 Item 10. Directors and Executive Officers of the Registrant (Continued) Name, Age Business Experience During Past and Position Five Years and Year Employed - ------------ ---------------------------- Hugh M. Durden, 53 Executive Vice President of Wachovia Executive Vice President Corporation since 1994; President of Wachovia Corporation, Wachovia Corporate Services, Inc. since Wachovia Bank of North July 1994; President of Wachovia Trust Carolina, N.A.; President Services, Inc., January-June 1994; Wachovia Corporate Services, Executive Vice President of Wachovia Inc. Bank of North Carolina, N.A.; Western Division Executive, Wachovia Bank of North Carolina, N.A., 1991-1994; Regional Vice President, Southern Region, Wachovia Bank of North Carolina, N.A., 1989-1991. Employed in 1972. Walter E. Leonard, Jr. 51 Executive Vice President of Wachovia Executive Vice President Corporation since October 1988; Wachovia Corporation, Executive Vice President of Wachovia Wachovia Bank of Georgia, Bank of Georgia, N.A.; President of N.A.; President Wachovia Wachovia Operational Services Corporation. Operational Services Employed in 1965. Corporation Kenneth W. McAllister, 48 Executive Vice President of Wachovia Executive Vice President Corporation since January 1994; General and General Counsel Counsel of Wachovia Corporation; Wachovia Corporation Secretary of Wachovia Corporation until October 1992. Employed in 1988. Robert S. McCoy, Jr., 58 Executive Vice President of Wachovia Executive Vice President and Corporation since January 1992; Chief Chief Financial Officer Financial Officer of Wachovia Corporation Wachovia Corporation since September 1992; Comptroller of Wachovia Corporation, January 1992 - August 1992; President of South Carolina National Corporation until 1992; Vice Chairman and Chief Financial Officer of Wachovia Bank of South Carolina, N.A., 1990 - 1992; Executive Vice President and Chief Financial Officer of Wachovia Bank of South Carolina, N.A., until 1990. Employed in 1984. 5 Item 10. Directors and Executive Officers of the Registrant (Continued) Name, Age Business Experience During Past and Position Five Years and Year Employed - ------------ ---------------------------- G. Joseph Prendergast, 51 Executive Vice President of Wachovia Executive Vice President Corporation since October 1988; Wachovia Corporation; Chairman of Wachovia Bank of Georgia, Chairman Wachovia Bank of N.A. since January 1994; Chairman Georgia, N.A. and Wachovia of Wachovia Bank of South Carolina, Bank of South Carolina, N.A.; N.A. since July 1995; President and Director Wachovia Bank Chief Executive Officer of Wachovia of Georgia, N.A., Wachovia Bank of Georgia, N.A., January 1993- Bank of North Carolina, N.A., January 1995; President and Chief and Wachovia Bank of South Executive Officer of Wachovia Carolina, N.A. Corporate Services, Inc. until July 1994; President and Chief Executive Officer of Wachovia Corporation of Georgia, January 1993- March 1993; Executive Vice President of Wachovia Bank of Georgia, N.A., 1989-1993; Executive Vice President of Wachovia Bank of North Carolina, N.A. until 1989. Employed in 1973. 6 Item 10. Directors and Executive Officers of the Registrant (Continued) Name, Age Business Experience During Past and Position Five Years and Year Employed - ------------ ---------------------------- Richard B. Roberts, 53 Executive Vice President and Executive Vice President and Treasurer of Wachovia Corporation Treasurer Wachovia since April 1990; Executive Vice Corporation; Executive Vice President of Wachovia Bank of President Wachovia Bank of North Carolina, N.A. North Carolina, N.A. Employed in 1967. Donald K. Truslow, 38 Comptroller of Wachovia Corporation Senior Vice President and since June 1996; Senior Vice Comptroller Wachovia President of Wachovia Corporation Corporation since April 1996; Executive Vice President, Wachovia Corporate Services, September 1995-April 1996; Executive Vice President and Chief Credit Officer, Wachovia Bank of South Carolina, N.A., January 1992- September 1995; Senior Vice President, Wachovia Bank of North Carolina, N.A., 1991. Employed in 1980. During the past five years, there have been no events under any bankruptcy act, no criminal proceedings and no judgments or injunctions material to an evaluation of the ability or integrity of any of Wachovia's executive officers, directors, or any persons nominated to become directors. 7 PART IV Item 14. Exhibits 3.1 Amended and Restated Articles of Incorporation of the registrant (Exhibit 3.1 to Report on Form 10-K of Wachovia Corporation for the fiscal year ended December 31, 1993, File No. 1-9021*). 3.2 Bylaws of the registrant as amended (Exhibit 3.2 to Quarterly Report on Form 10-Q of Wachovia Corporation for the quarter ended June 30, 1995, File No. 1-9021*). 4.1 Articles IV, VII, IX, X and XI of the registrant's Amended and Restated Articles of Incorporation (Included in Exhibit 3.1 hereto). 4.2 Article 1, Section 1.8, and Article 6 of the registrant's Bylaws (included in Exhibit 3.2 hereto). 4.3 Indenture dated as of May 15, 1986 between South Carolina National Corporation and Morgan Guaranty Trust Company of New York, as Trustee, relating to $35,000,000 principal amount of 6 1/2% Convertible Subordinated Debentures due in 2001 (Exhibit 28 to S-3 Registration Statement of South Carolina National Corporation, File No. 33-7710*). 4.4 First Supplemental Indenture dated as of November 26, 1991 by and among South Carolina National Corporation, Wachovia Corporation and Morgan Guaranty Trust Company of New York, as Trustee, amending the Indenture described in Exhibit 4.3 hereto (Exhibit 4.10 to Report on Form 10-K of Wachovia Corporation for the fiscal year ended December 31, 1991, File No. 1-9021*). 4.5 Indenture dated as of March 15, 1991 between South Carolina National Corporation and Bankers Trust Company, as Trustee, relating to certain unsecured subordinated securities (Exhibit 4(a) to S-3 Registration Statement of South Carolina National Corporation, File No. 33-39754*). 4.6 First Supplemental Indenture dated as of January 24, 1992 by and among South Carolina National Corporation, Wachovia Corporation and Bankers Trust Company, as Trustee, amending the Indenture described in Exhibit 4.5 hereto (Exhibit 4.12 to Report on Form 10-K of Wachovia Corporation for the fiscal year ended December 31, 1991, File No. 1-9021*). 4.7 Indenture dated as of August 22, 1989 between First Wachovia Corporation and The Philadelphia National Bank, as Trustee, relating to $300,000,000 principal amount of subordinated debt securities (Exhibit 4(c) to S-3 (Shelf) Registration Statement of First Wachovia Corporation, File No. 33-30721*). 4.8 First Supplemental Indenture, dated as of September 15, 1992 between Wachovia Corporation and CoreStates Bank, National Association, as Trustee, amending the Indenture described in Exhibit 4.7 hereto (Exhibit 4(d) to Report on Form 8 of Wachovia Corporation, filed on October 15, 1992, File No. 1-9021*). 8 Item 14. Exhibits (Continued) 4.9 Indenture dated as of March 1, 1993 between Wachovia Corporation and CoreStates Bank, National Association, as Trustee, relating to subordinated debt securities (Exhibit 4 to S-3 (Shelf) Registration Statement of Wachovia Corporation, File No. 333-06319*). 4.10 Indenture dated as of August 15, 1996 between Wachovia Corporation and The Chase Manhattan Bank, as Trustee, relating to senior securities (Exhibit 4 (a) of Post- Effective Amendment No. 1 to Form S-3 (Shelf) Registration Statement of Wachovia Corporation, File No. 33-6280*). 10.1 Deferred Compensation Plan of Wachovia Bank of North Carolina, N.A. (Exhibit 10.1 to Report on Form 10-K of Wachovia Corporation for the fiscal year ended December 31,1992, File No. 1-9021*). 10.2 1983 Amendment to Deferred Compensation Plan described in Exhibit 10.1 hereto (Exhibit 10.2 to Report on Form 10-K of Wachovia Corporation for the fiscal year ended December 31, 1992, File No. 1-9021*). 10.3 1986 Amendment to Deferred Compensation Plan described in Exhibit 10.1 hereto (Exhibit 10.9 to Report on Form 10-K of First Wachovia Corporation for the fiscal year ended December 31, 1986, File No. 1-9021*). 10.4 1986 Senior Management Stock Option Plan of Wachovia Corporation (Exhibit 10.20 to Report on Form 10-K of First Wachovia Corporation for the fiscal year ended December 31, 1986, File No. 1-9021*). 10.5 1987 Declaration of Amendment to 1986 Senior Management Stock Option Plan described in Exhibit 10.4 hereto (Exhibit 10.21 to Report on Form 10-K of First Wachovia Corporation for the fiscal year ended December 31, 1986, File No. 1-9021*). 10.6 1996 Declaration of Amendment to 1986 Senior Management Stock Option Plan as described in Exhibit 10.4 hereto. 10.7 Senior Management Incentive Plan of Wachovia Corporation as amended through April 22, 1994 (Exhibit 10.2 to Quarterly Report on Form 10-Q of Wachovia Corporation for the quarter ended March 31, 1994, File No. 1-9021*). 10.8 Retirement Savings and Profit-Sharing Benefit Equalization Plan of Wachovia Corporation (Exhibit 10.3 to Quarterly Report on Form 10-Q of Wachovia Corporation for the quarter ended June 30, 1995, File No. 1-9021*). 10.9 Employment Agreements between Wachovia Corporation and Messrs. L. M. Baker, Jr., Robert S. McCoy, Jr., G. Joseph Prendergast, Hugh M. Durden and Walter E. Leonard, Jr. (Exhibit 10.17 to Report on Form 10-K of First Wachovia Corporation for the fiscal year ended December 31, 1987, File No. 1-9021*). 10.10 Amendment to Employment Agreements described in Exhibit 10.9 hereto (Exhibit 10.14 to Report on Form 10-K of First Wachovia Corporation for the fiscal year ended December 31, 1990, File No. 1-9021*). 9 Item 14. Exhibits (Continued) 10.11 Amendment to Employment Agreements described in Exhibit 10.9 hereto with L.M. Baker, Jr., Robert S. McCoy, Jr., G. Joseph Prendergast and Walter E. Leonard, Jr. 10.12 Amendment to Employment Agreement described in Exhibit 10.9 hereto with Hugh M. Durden. 10.13 Agreement between Wachovia Corporation and Mr. John G. Medlin, Jr. (Exhibit 10.16 to Report on Form 10-K of Wachovia Corporation for the fiscal year ended December 31, 1993, File No. 1-9021*). 10.14 Amendment to Agreement between Wachovia Corporation and Mr. John G. Medlin, Jr. described in Exhibit 10.13 hereto(Exhibit 10.4 to Quarterly Report on Form 10-Q of Wachovia Corporation for the quarter ended June 30, 1995, File No. 1-9021*). 10.15 Executive Retirement Agreement between Wachovia Corporation and Mr. John G. Medlin, Jr.(Exhibit 10.18 to Report on Form 10-K of First Wachovia Corporation for the fiscal year ended December 31, 1987, File No. 1-9021*). 10.16 Amendment to Executive Retirement Agreement described in Exhibit 10.15 hereto (Exhibit 10.17 to Report on Form 10-K of Wachovia Corporation for the fiscal year ended December 31, 1991, File No. 1-9021*). 10.17 Amendment to Executive Retirement Agreement between Wachovia Corporation and Mr. John G. Medlin, Jr. (Exhibit 10.3 to Quarterly Report on Form 10-Q of Wachovia Corporation for the quarter ended September 30, 1993, File No. 1-9021*). 10.18 Amendment to Executive Retirement Agreement between Wachovia Corporation and Mr. John G. Medlin, Jr. (Exhibit 10.4 to Quarterly Report on Form 10-Q of Wachovia Corporation for the quarter ended September 30, 1993, File No. 1-9021*). 10.19 Executive Retirement Agreements between Wachovia Corporation and Messrs. L.M. Baker, Jr., G. Joseph Prendergast, Walter E. Leonard, Jr., and Hugh M. Durden, dated as of January 27, 1995 (Exhibit 10.1 to Quarterly Report on Form 10-Q of Wachovia Corporation for the quarter ended June 30, 1995, File No. 1-9021*). 10.20 Executive Retirement Agreement between Wachovia Corporation and Mr. Robert S. McCoy, Jr. (Exhibit 10.2 to Quarterly Report on Form 10-Q of Wachovia Corporation for the quarter ended June 30, 1995, File No. 1-9021*). 10.21 Amendment to Executive Retirement Agreements described in Exhibits 10.19 and 10.20 hereto. 10.22 Senior Management and Director Stock Plan of Wachovia Corporation (Exhibit 10 to Quarterly Report on Form 10-Q of First Wachovia Corporation for the quarter ended March 31, 1989, File No. 1-9021*). 10 Item 14. Exhibits (Continued) 10.23 1990 Declaration of Amendment to Senior Management and Director Stock Plan as described in Exhibit 10.22 hereto (Exhibit 10.17 to Report on Form 10-K of First Wachovia Corporation for fiscal year ended December 31, 1989, File No. 1-9021*). 10.24 1996 Declaration of Amendment to Senior Management and Director Stock Plan as described in Exhibit 10.22 hereto. 10.25 Deferred Compensation Plan for the Board of Directors of Wachovia Corporation (Exhibit 10.19 to Report on Form 10-K of First Wachovia Corporation for the fiscal year ended December 31, 1990, File No. 1-9021*). 10.26 1996 Declaration of Amendment to Deferred Compensation Plan for the Board of Directors of Wachovia Corporation described in Exhibit 10.25 hereto. 10.27 Retirement Pay Plan for Directors of Wachovia Corporation (Exhibit 10.21 to Report on Form 10-K of First Wachovia Corporation for the fiscal year ended December 31, 1990, File No. 1-9021*). 10.28 Amendment to Retirement Pay Plan for Directors of Wachovia Corporation described in Exhibit 10.27 hereto. 10.29 Deferred Compensation Plan dated as of January 19, 1987, as amended (Exhibit 10(c) to Report on Form 10-K of South Carolina National Corporation for the fiscal year ended December 31, 1986, File No. 0-7042*). 10.30 Amendment to Deferred Compensation Plan described in Exhibit 10.29 hereto (Exhibit 19(b) to Quarterly Report on Form 10-Q of South Carolina National Corporation for the quarter ended September 30, 1987, File No. 0-7042*). 10.31 Amendment to Deferred Compensation Plan described in Exhibit 10.29 hereto (Exhibit 10(d) to Report on Form 10-K of South Carolina National Corporation for the fiscal year ended December 31, 1988, File No. 0-7042*). 10.32 Amendment to Deferred Compensation Plan described in Exhibit 10.29 hereto (Exhibit 10.35 to Report on Form 10-K of Wachovia Corporation for the fiscal year ended December 31, 1993, File No. 1-9021*). 10.33 Agreement for Deferral of Directors' Fees (Exhibit 10(b) to S-14 Registration Statement of South Carolina National Corporation, No. 2-89011*). 10.34 Amendment to Agreement for Deferral of Directors' Fees described in Exhibit 10.33 hereto (Exhibit 10.39 to Report on Form 10-K of Wachovia Corporation for the fiscal year ended December 31, 1991, File No. 1-9021*). 10.35 Wachovia Corporation Stock Plan (Exhibit 4.1 to S-8 Registration Statement No. 033-53325*). 10.36 Amendment to Wachovia Corporation Stock Plan described in Exhibit 10.35 hereto. 10.37 Wachovia Corporation Director Deferred Stock Unit Plan. 11 Item 14. Exhibits (Continued) 10.38 Wachovia Corporation Incentive Plan Deferral Arrangement (Exhibit 10.35 to Report on Form 10-K of Wachovia Corporation for the fiscal year ended December 31, 1995, File No. 1-9021*). 10.39 Wachovia Corporation Executive Insurance Plan (Exhibit 10.36 to Report on Form 10-K of Wachovia Corporation for the fiscal year ended December 31, 1995, File No. 1-9021*). 10.40 Form 11-K of the Wachovia Corporation Retirement Savings and Profit-Sharing Plan, to be filed as an amendment to Form 10-K for the year ended December 31, 1996. 11 Computation of Earnings Per Share (Note O to 1996 Consolidated Financial Statements of Wachovia Corporation and Subsidiaries, page 61 of 1996 Annual Report to Shareholders*). 12 Statement setting forth computation of ratio of earnings to fixed charges. 13 Wachovia Corporation 1996 Annual Report to Shareholders, with the Report of Independent Auditors therein being manually signed in one copy by Ernst & Young LLP. (Except for those portions thereof which are expressly incorporated by reference herein, this report is not "filed" as a part of this Report on Form 10-K). 21 Subsidiaries of the Registrant (listed under "Subsidiaries of Wachovia Corporation" and included on page 2 of Report on Form 10-K for the fiscal year ended December 31, 1996*). 23 Consent of Ernst & Young LLP. 24 Power of Attorney. 27 Financial Data Schedule (for SEC purposes only). * Incorporated by reference. 12 EX-10 2 EXHIBIT 10.6 EXHIBIT 10.6 1996 DECLARATION OF AMENDMENT TO 1986 SENIOR MANAGEMENT STOCK OPTION PLAN OF FIRST WACHOVIA CORPORATION THIS DECLARATION OF AMENDMENT, made this 25th day of October, 1996, by WACHOVIA CORPORATION (the "Company"), to the 1986 Senior Management Stock Option Plan of First Wachovia Corporation (the "Plan"); R E C I T A L S: It is deemed advisable to amend the Plan in order for transactions made pursuant to the Plan to comply with the terms of Rule 16b-3, adopted pursuant to Section 16 of the Securities Exchange Act of 1934, as amended, and to remove certain plan restrictions which are no longer required by Rule 16b-3. NOW, THEREFORE, IT IS DECLARED that, effective as of October 25th, 1996, the Plan shall be amended as follows: 1. By deleting Paragraph 2(a) of the Plan and inserting the following in lieu thereof: "The Plan shall be administered by the Management Resources and Compensation Committee (the 'Committee') of the Board of Directors of the Corporation (the 'Board'). Each member of the Committee shall be a 'non-employee director,' as such term is defined in Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended (the 'Exchange Act'), or any successor rule. The Committee shall be comprised of no fewer than the minimum number of non-employee directors as may be required by Rule 16b-3." 2. By deleting Paragraph 7(b) of the Plan and inserting the following in lieu thereof: "An Option may be exercised by giving written notice of at least ten days to the Committee at such place as the Committee shall direct. Such notice shall specify the number of shares to be purchased pursuant to an option and the aggregate purchase price to be paid therefor, and shall be accompanied by the payment of such purchase price. Such payment shall be in the form of (i) cash; (ii) shares owned by the optionee at the time of exercise; (iii) funds borrowed from the Corporation or a related corporation or delivery at the time of exercise of a promissory note, subject to the provisions of Paragraph 10; or (iv) any combination of the foregoing. Shares tendered in payment on the exercise of an option shall be valued at their fair market value on the date of exercise, which shall be the price per share of the last sale of shares on the New York Stock Exchange on the last trading day prior to the date of exercise of the option; or, in the absence of such sale, the fair market value as determined in accordance with the applicable provisions of Section 20.2031-2 of the Federal Estate Tax Regulations or in any other manner consistent with the Code and accompanying regulations." 3. By deleting the first sentence of Paragraph 10 and inserting the following in lieu thereof: "An optionee may pay for shares received on the exercise of an option with funds borrowed by the optionee from the Corporation or a related corporation or by delivery of a promissory note for all or part of the purchase price." IN WITNESS WHEREOF, this Declaration of Amendment is executed on behalf of Wachovia Corporation as the day and year first above written. WACHOVIA CORPORATION By:_____________________________ Chief Executive Officer ATTEST: ___________________________ Secretary [Corporate Seal] 2 EX-10 3 EXHIBIT 10.11 EXHIBIT 10.11 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT, made as of the ______ day of ____________, 199_, by and between WACHOVIA CORPORATION (the "Corporation") and ___________ (the "Executive"); R E C I T A L S: The Corporation desires to secure the services of the Executive in its behalf or in behalf of one or more of its subsidiaries for which the Executive may render services hereunder from time to time, in accordance with the terms and conditions set forth herein. In addition, the Corporation desires to provide the Executive with an incentive to remain in the service of the Corporation or one or more of its subsidiaries by granting to the Executive compensation security as set forth herein should his employment be terminated by the Corporation without cause during the term of this Agreement. NOW, THEREFORE, the Corporation and the Executive hereby mutually agree as follows: 1. Employment. The Executive shall devote his working time exclusively to the performance of such services for the Corporation or one or more of its subsidiaries as may be assigned to him by the Corporation from time to time, and shall perform such services faithfully and to the best of his ability. Such services shall be rendered in a senior management or executive capacity and shall be of a type for which the Executive is suited by background and training. References herein to services rendered for the Corporation and compensation and benefits payable or provided by the Corporation shall include services rendered for and compensation and benefits payable or provided by an subsidiary of the Corporation. 2. Term of Agreement. The term of this Agreement shall commence on the date hereof and shall continue in effect until December 31, 199_; provided, however, that commencing on the first anniversary of this Agreement, and each anniversary thereafter, the term of this Agreement shall automatically be extended for one additional year unless at least 90 days prior to any such anniversary date either party shall notify the other in writing that it does not wish to extend the term of this Agreement beyond the then applicable expiration date. In no event, however, may the term of this Agreement extend beyond the Executive's sixtieth birthday. References herein to the "term" of this Agreement shall mean the original term plus any continuation as provided in this Section 2. The "term" shall not be deemed to refer to the Compensation Period described in Section 4. 3. Termination of Employment by the Corporation. The Corporation may terminate the employment of the Executive at any time for any reason; provided, that except as set forth in Sections 6 and 7, the Corporation will provide the Executive with Compensation Continuance to the extent described in Section 4 if the Executive's employment is involuntarily terminated. The Executive's employment shall be deemed to be involuntarily terminated if he is terminated by the Corporation for any reason other than for "cause" as defined in Section 6, or if he voluntarily terminates employment within six months after: (a) his base salary is reduced below its level in effect on the date hereof without the Executive's consent, or (b) the Corporation amends the [Executive or Supplemental] Retirement Agreement between the Corporation and the Executive dated ________________ (the "Retirement Agreement") without the Executive's consent, and such amendment reduces benefits to which the Executive would have been entitled had such amendment not been made, or (c) the duties assigned to the Executive are not of the status and type described in Section 1 and the Executive has not consented thereto. The Executive shall be deemed to have consented to any reduction described in (a) or (b), [or assignment described in (c),] unless he shall object thereto in writing within thirty days after he receives notice thereof. 4. Compensation Continuance. If the Executive's employment hereunder is involuntarily terminated as described in Section 3, he will be entitled to receive the cash compensation and benefits described in (a), (b) and (c) below (herein, "Compensation Continuance") for the period beginning with the date of such involuntary termination and ending with the earlier of (i) the third anniversary of the date of such termination, or (ii) the Normal Retirement Date of the Executive as defined in the Retirement Agreement (such period is referred to herein as the "Compensation Period"). The duration of the Compensation Period shall be affected by the fact that the term of this Agreement otherwise would end before such Period expires. The cash compensation and benefits are as follows: (a) Cash Compensation. The amount of cash compensation to be received monthly during the Compensation Period shall equal one-twelfth of the sum of (i) the Executive's highest annual rate of salary from the Corporation in effect during the 12-month period prior to his involuntary termination, plus (ii) the amount equal to the average of the annual amounts, if any, awarded to the Executive under the Corporation's Senior Management Incentive Plan for the three consecutive calendar years next preceding the year of such termination, plus (iii) the average of any annual contributions by the Corporation (excluding participant contributions) in behalf of the Executive under the Retirement Savings and Profit-Sharing Plan of Wachovia Corporation and the Wachovia Corporation Retirement Savings and Profit-Sharing Benefit Equalization Plan for the three consecutive -2- calendar years preceding the year of such termination. Each monthly payment of such cash compensation shall have deducted therefrom all payroll taxes and withholdings required by law. (b) Employee Benefits. During the Compensation Period the Executive shall be carried on the payroll of the Corporation, and shall be deemed to be continuing in the employment of the Corporation for the purpose of applying and administering employee benefit plans for the Corporation (other than any tax-qualified retirement plans) and individual contracts between the Corporation and the Executive providing supplemental or equalization payments or benefits with respect to the Executive. The Executive shall participate in any changes during the Compensation Period in benefit plans or programs applicable generally to employees of the Corporation, or to a class of employees which includes senior executives of the Corporation, but shall not have any right or option to participate in any such plan or program in which he was not a participant immediately prior to his involuntary termination of employment. Any individual contract between the Corporation and the Executive in effect at the time of his involuntary termination of employment may be terminated or amended by the Corporation to the extent permitted by the terms of such contract; provided, that during the Compensation Period the Corporation shall not, without the written consent of the Executive or except to the extent required by law, make any amendment to or terminate any one or more of the following individual contracts or plans as applied to the Executive: (i) the Retirement Agreement; (ii) the Wachovia Corporation Retirement Savings and Profit-Sharing Benefit Equalization Plan; and (iii) the Wachovia Corporation Retirement Income Benefit Enhancement Plan. The Corporation shall have no obligation to the Executive to make any change or improvement in any such contract during the Compensation Period even if the Corporation shall make changes or improvements during such period in similar contracts, if any, with other senior executives of the Corporation. (c) Acceleration of Stock Options and Restricted Awards. Immediately upon termination of the Executive's employment, all options previously granted to the Executive and outstanding on the date of termination to acquire shares of common stock of the Corporation shall become fully vested and exercisable (or subject to surrender) in full and all restricted awards shall be deemed to be earned in full; provided, that restricted awards based upon performance criteria or a combination -3- of performance criteria and continued service shall be deemed to be earned in accordance with the terms, conditions and procedures of the plan or plans pursuant to which any such restricted awards were granted. In the event that the Executive shall engage in full-time employment permitted hereunder for another employer or on a self-employed basis during the Compensation Period, his employment with the Corporation shall be deemed to have terminated for purposes of Section 4(b) as of the date he begins such full- time employment, but the payments in Section 4(a) shall continue for the remainder of the Compensation Period and the rights under Section 4(c) shall be applicable, in each case subject to the provisions of Section 7. 5. Voluntary Termination of Employment by the Executive. The Executive reserves the right to terminate his employment voluntarily at any time for any reason following at least six months' notice to the Corporation. If such notice shall be given, this Agreement shall terminate as of the effective date of termination as set forth in such notice (or the date six months from the date of receipt by the Corporation of such notice, if no effective date shall be set forth therein), unless sooner terminated as provided in Section 3, 6 or 8. The Executive shall be entitled to any form of Compensation Continuance as a result of such voluntary termination. 6. Termination for Cause. This Agreement shall immediately be terminated and neither party shall have any obligation hereunder (including but not limited to any obligation on the part of the Corporation to provide Compensation Continuance) if the Executive's employment is terminated for "cause." Termination for cause shall occur when termination results from the Executive's (a) criminal dishonesty, (b) refusal to perform his duties hereunder on substantially a full-time basis, (c) refusal to act in accordance with any specific substantive instructions of the Chief Executive Officer or the Board of Directors of the Corporation, or (d) engaging in conduct which could be materially damaging to the Corporation without a reasonable good faith belief that such conduct was in the best interests of the Corporation. The determination of whether a termination is for cause shall be made by the Compensation, Nominating and Organization Committee of the Board of Directors of the Corporation (the "Committee"), and such determination shall be final and conclusive on the Executive and all other persons affected thereby. 7. Executive's Obligation; Early Termination of Compensation Period. (a) During the Compensation Period, the Executive shall provide consulting services to the Corporation at such time -4- or times as the Corporation shall reasonably request, subject to appropriate notice and to reimbursement by the Corporation of all reasonable travel and other expenses incurred and paid by the Executive. In the event the Executive shall engage in full-time employment permitted hereunder during the Compensation Period for another employer or on a self-employed basis, his obligation to provide the consulting services hereunder shall be limited by the requirements of such employment. (b) The Executive shall not disclose to any other person any material information or trade secrets concerning the Corporation or any of its subsidiaries at any time during or after the Compensation Period. The Executive will at all times refrain from taking any action or making any statements, written or oral, which are intended to and do disparage the business, goodwill or reputation of the Corporation or any of its subsidiaries, or their respective directors, officers, executives or other employees, or which could adversely affect the morale of employees of the Corporation or any subsidiaries. (c) The Executive shall not, without the Corporation's written consent, engage in competitive employment at any time during the Compensation Period. The Executive shall be deemed to engage in competitive employment if he shall render services as an employee, officer, director, consultant or otherwise, for any employer which conducts a principal business or enterprise that competes directly with the Corporation or affiliate of the Corporation. (d) In the event that the Executive shall refuse to provide consulting services in accordance with paragraph (a), or shall materially violate terms and conditions of paragraph (b) or (c), the Corporation may, at its election, terminate the Compensation Period and Compensation Continuance to the Executive. The Corporation may also initiate any form of legal action it may deem appropriate seeking damages or injunctive relief with respect to any material violations of paragraph (a), (b) or (c). (e) The Committee shall be responsible for determining whether the Executive shall have violated this Section 7, and all such determinations of the Executive, the Committee will provide an advance -5- opinion as to whether a proposed activity would violate the provisions of paragraph (c). 8. Death and Disability. In the event that, during the term of this Agreement or during the Compensation Period, the Executive shall die or shall become entitled to benefits under the Corporation's Long-Term Disability Plan, this Agreement shall thereupon terminate and neither the Executive nor any other Person shall have any further rights or benefits hereunder (including anyrights to Compensation Continuance). 9. Other Severance Benefits. Except as otherwise provided in this Agreement, the Executive shall not be entitled to any form of severance benefits, including benefits otherwise payable under any of the Corporation's regular severance plans or policies, irrespective of the circumstances of his termination of employment. The Executive agrees that the payments and benefit provided hereunder, subject to the terms and conditions hereof, shall be in full satisfaction of any rights which he might otherwise have or claim by operation of law, by implied contract or otherwise, except for rights which he may have under the Corporation. 10. Waiver of Claims. In consideration of the obligations of the Corporation hereunder, the Executive unconditionally releases the Corporation, its directors, officers, employees and shareholders, from any and all claims, liabilities and obligations of any nature pertaining to termination of the Executive's employment by the Corporation, including but not limited to (a) any claims under federal, state or local laws prohibiting discrimination, including without limitation the Age Discrimination in Employment Act of 1967, as amended, or (b) any claims growing out of any alleged legal restrictions on the Corporation's right to terminate the Executive's employment, such as any alleged implied contract of employment or termination contrary to public policy. The Executive acknowledges that he has been advised to consult with an attorney prior to signing this Agreement, that he has had no less than twenty-one days to consider this Agreement prior to the executive hereof, and that he may revoke this Agreement at any time within seven days following the execution hereof. 11. Notices. All notices hereunder shall be in writing and deemed properly given if delivered by hand and receipted or if mailed by registered mail, return receipt requested. Notices to the Corporation shall be directed to the Secretary of the Corporation with a copy directed to the Chief Executive Officer. Notices to the Executive shall be directed to his last known address. -6- 12. Miscellaneous. (a) The waiver, whether express or implied, by either party of a violation of any of the provisions of this Agreement shall not operate or be construed as a waiver of any subsequent violation of any such provision. (b) No right, benefit or interest hereunder shall be subject to assignment, encumbrance, charge, pledge, hypothecation or set off in respect of any claim, debt or obligation, or similar process. (c) This Agreement may not be amended, modified or canceled except by written agreement of the parties. (d) In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions of this Agreement shall remain in full force and effect to the fullest extent permitted by law. (e) This Agreement shall be binding upon and inure to the benefit of the Executive and the Corporation, and their respective heirs, successorsand assigns. (f) No benefit or promise hereunder shall be secured by any specific assets of the Corporation. The Executive shall have only the rights of an unsecured general credit of the Corporation in seeking satisfaction of such benefits or promises. (g) This Agreement shall be governed by the construed in accordance with the laws of the State of North Carolina. (h) This Agreement sets forth the entire agreement and understanding of the parties hereto with respect to the matters covered hereby. -7- IN WITNESS WHEREOF, this Agreement has been executed by or in behalf of the parties hereto as of the date first above written. WACHOVIA CORPORATION By: _______________________________ Chief Executive Officer Attest: - ---------------------------- Secretary [Corporate Seal] ______________________________(Seal) Executive -8- EX-10 4 EXHIBIT 10.12 Exhibit 10.12 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT, made as of the 25th day of October, 1996, by and between WACHOVIA CORPORATION (the "Corporation") and HUGH M. DURDEN (the "Executive"); R E C I T A L S: The Corporation desires to secure the services of the Executive in its behalf or in behalf of one or more of its subsidiaries for which the Executive may render services hereunder from time to time, in accordance with the terms and conditions set forth herein. In addition, the Corporation desires to provide the Executive with an incentive to remain in the service of the Corporation or one or more of its subsidiaries by granting to the Executive compensation security as set forth herein should his employment be terminated by the Corporation without cause during the term of this Agreement. NOW, THEREFORE, the Corporation and the Executive hereby mutually agree as follows: 1. Employment. The Executive shall devote his working time exclusively to the performance of such services for the Corporation or one or more of its subsidiaries as may be assigned to him by the Corporation from time to time, and shall perform such services faithfully and to the best of his ability. Such services shall be rendered in a senior management or executive capacity and shall be of a type for which the Executive is suited by background and training. References herein to services rendered for the Corporation and compensation and benefits payable or provided by the Corporation shall include services rendered for and compensation and benefits payable or provided by any subsidiary of the Corporation. 2. Term of Agreement. The term of this Agreement shall commence on the date hereof and shall continue in effect until December 31, 1999; provided, however, that commencing on the first anniversary of this Agreement, and each anniversary thereafter, the term of this Agreement shall automatically be extended for one additional year unless at least 90 days prior to any such anniversary date either party shall notify the other in writing that it does not wish to extend the term of this Agreement beyond the then applicable expiration date. In no event, however, may the term of this Agreement extend beyond the Executive's sixtieth birthday. References herein to the "term" of this Agreement shall mean the original term plus any continuation as provided in this Section 2. The "term" shall not be deemed to refer to the Compensation Period described in Section 4. 3. Termination of Employment by the Corporation. The Corporation may terminate the employment of the Executive at any time for any reason; provided, that except as set forth in Sections 6 and 7, the Corporation will provide the Executive with Compensation Continuance to the extent described in Section 4 if the -1- Executive's employment is involuntarily terminated. The Executive's employment shall be deemed to be involuntarily terminated if he is terminated by the Corporation for any reason other than for "cause" as defined in Section 6, or if he voluntarily terminates employment within six months after: (a) his base salary is reduced below its level in effect on the date hereof without the Executive's consent, or (b) the Corporation amends the Executive Retirement Agreement between the Corporation and the Executive dated January 27, 1995 (the "Retirement Agreement"), without the Executive's consent, and such amendment reduces benefits to which the Executive would have been entitled had such amendment not been made, or (c) the duties assigned to the Executive are not of the status and type described in Section 1 and the Executive has not consented thereto. The Executive shall be deemed to have consented to any reduction described in (a) or (b), or assignment described in (c), unless he shall object thereto in writing within thirty days after he receives notice thereof. 4. Compensation Continuance. If the Executive's employment hereunder is involuntarily terminated as described in Section 3, he will be entitled to receive the cash compensation and benefits described in (a), (b) and (c) below (herein, "Compensation Continuance") for the period beginning with the date of such involuntary termination and ending with the earlier of (i) the third anniversary of the date of such termination, or (ii) the Normal Retirement Date of the Executive as defined in the Retirement Agreement (such period is referred to herein as the "Compensation Period"). The duration of the Compensation Period shall not be affected by the fact that the term of this Agreement otherwise would end before such Period expires. The cash compensation and benefits are as follows: (a) Cash Compensation. The amount of cash compensation to be received monthly during the Compensation Period shall equal one-twelfth of the sum of (i) the Executive's highest annual rate of salary from the Corporation in effect during the 12-month period prior to his involuntary termination, plus (ii) an amount equal to the average of the annual amounts, if any, awarded to the Executive under the Corporation's Senior Management Incentive Plan for the three consecutive calendar years next preceding the year of such termination, plus (iii) the average of any annual contributions by the Corporation (excluding participant contributions) in behalf of the Executive under the Retirement Savings and Profit-Sharing Plan of Wachovia Corporation and the Wachovia Corporation Retirement Savings and Profit-Sharing Benefit Equalization Plan for the three consecutive calendar years preceding the year of such termination. Each monthly payment of such cash compensation shall have deducted therefrom all payroll taxes and withholdings required by law. -2- (b) Employee Benefits. During the Compensation Period the Executive shall be carried on the payroll of the Corporation, and shall be deemed to be continuing in the employment of the Corporation for the purpose of applying and administering employee benefit plans of the Corporation (other than any tax-qualified retirement plans) and individual contracts between the Corporation and the Executive providing supplemental or equalization payments or benefits with respect to the Executive. The Executive shall participate in any changes during the Compensation Period in benefit plans or programs applicable generally to employees of the Corporation, or to a class of employees which includes senior executives of the Corporation, but shall not have any right or option to participate in any such plan or program in which he was not a participant immediately prior to his involuntary termination of employment. Any individual contract between the Corporation and the Executive in effect at the time of his involuntary termination of employment may be terminated or amended by the Corporation to the extent permitted by the terms of such contract; provided, that during the Compensation Period the Corporation shall not, without the written consent of the Executive or except to the extent required by law, make any amendment to or terminate any one or more of the following individual contracts or plans as applied to the Executive: (i) the Retirement Agreement; (ii) the Wachovia Corporation Retirement Savings and Profit-Sharing Benefit Equalization Plan; and (iii) the Wachovia Corporation Retirement Income Benefit Enhancement Plan. The Corporation shall have no obligation to the Executive to make any change or improvement in any such contract during the Compensation Period even if the Corporation shall make changes or improvements during such period in similar contracts, if any, with other senior executives of the Corporation. (c) Acceleration of Stock Options and Restricted Awards. Immediately upon termination of the Executive's employment, all options previously granted to the Executive and outstanding on the date of termination to acquire shares of common stock of the Corporation shall become fully vested and exercisable (or subject to surrender) in full and all restricted awards shall be deemed to be earned in full; provided, that restricted awards based upon performance criteria or a combination of performance criteria and continued service shall be deemed to be earned in accordance with the terms, conditions and procedures of the plan or plans pursuant to which any such restricted awards were granted. -3- In the event that the Executive shall engage in full-time employment permitted hereunder for another employer or on a self-employed basis during the Compensation Period, his employment with the Corporation shall be deemed to have terminated for purposes of Section 4(b) as of the date he begins such full-time employment, but the payments in Section 4(a) shall continue for the remainder of the Compensation Period and the rights under Section 4(c) shall be applicable, in each case subject to the provisions of Section 7. 5. Voluntary Termination of Employment by the Executive. The Executive reserves the right to terminate his employment voluntarily at any time for any reason following at least six months' notice to the Corporation. If such notice shall be given, this Agreement shall terminate as of the effective date of termination as set forth in such notice (or the date six months from the date of receipt by the Corporation of such notice, if no effective date shall be set forth therein), unless sooner terminated as provided in Section 3, 6 or 8. The Executive shall not be entitled to any form of Compensation Continuance as a result of such voluntary termination. 6. Termination for Cause. This Agreement shall immediately be terminated and neither party shall have any obligation hereunder (including but not limited to any obligation on the part of the Corporation to provide Compensation Continuance) if the Executive's employment is terminated for "cause." Termination for cause shall occur when termination results from the Executive's (a) criminal dishonesty, (b) refusal to perform his duties hereunder on substantially a full-time basis, (c) refusal to act in accordance with any specific substantive instructions of the Chief Executive Officer or the Board of Directors of the Corporation, or (d) engaging in conduct which could be materially damaging to the Corporation without a reasonable good faith belief that such conduct was in the best interests of the Corporation. The determination of whether a termination is for cause shall be made by the Management Resources and Compensation Committee of the Board of Directors of the Corporation (the "Committee"), and such determination shall be final and conclusive on the Executive and all other persons affected thereby. 7. Executive's Obligations; Early Termination of Compensation Period. (a) During the Compensation Period, the Executive shall provide consulting services to the Corporation at such time or times as the Corporation shall reasonably request, subject to appropriate notice and to reimbursement by the Corporation of all reasonable travel and other expenses incurred and paid by the Executive. In the event the Executive shall engage in full-time employment permitted hereunder during the Compensation Period for another employer or on a self-employed basis, his obligation to provide the consulting -4- services hereunder shall be limited by the requirements of such employment. (b) The Executive shall not disclose to any other person any material information or trade secrets concerning the Corporation or any of its subsidiaries at any time during or after the Compensation Period. The Executive will at all times refrain from taking any action or making any statements, written or oral, which are intended to and do disparage the business, goodwill or reputation of the Corporation or any of its subsidiaries, or their respective directors, officers, executives or other employees, or which could adversely affect the morale of employees of the Corporation or any subsidiaries. (c) The Executive shall not, without the Corporation's written consent, engage in competitive employment at any time during the Compensation Period. The Executive shall be deemed to engage in competitive employment if he shall render services as an employee, officer, director, consultant or otherwise, for any employer which conducts a principal business or enterprise that competes directly with the Corporation or affiliate of the Corporation. (d) In the event that the Executive shall refuse to provide consulting services in accordance with paragraph (a), or shall materially violate the terms and conditions of paragraph (b) or (c), the Corporation may, at its election, terminate the Compensation Period and Compensation Continuance to the Executive. The Corporation may also initiate any form of legal action it may deem appropriate seeking damages or injunctive relief with respect to any material violations of paragraph (a), (b) or (c). (e) The Committee shall be responsible for determining whether the Executive shall have violated this Section 7, and all such determinations shall be final and conclusive. Upon the request of the Executive, the Committee will provide an advance opinion as to whether a proposed activity would violate the provisions of paragraph (c). 8. Death and Disability. In the event that, during the term of this Agreement or during the Compensation Period, the Executive shall die or shall become entitled to benefits under the Corporation's Long-Term Disability Plan, this Agreement shall thereupon terminate and neither the Executive nor any other person shall have any further rights or benefits hereunder (including any rights to Compensation Continuance). -5- 9. Other Severance Benefits. Except as otherwise provided in this Agreement, the Executive shall not be entitled to any form of severance benefits, including benefits otherwise payable under any of the Corporation's regular severance plans or policies, irrespective of the circumstances of his termination of employment. The Executive agrees that the payments and benefit provided hereunder, subject to the terms and conditions hereof, shall be in full satisfaction of any rights which he might otherwise have or claim by operation of law, by implied contract or otherwise, except for rights which he may have under employee benefit plans of the Corporation or individual written contracts with the Corporation. 10. Waiver of Claims. In consideration of the obligations of the Corporation hereunder, the Executive unconditionally releases the Corporation, its directors, officers, employees and shareholders, from any and all claims, liabilities and obligations of any nature pertaining to termination of the Executive's employment by the Corporation, including but not limited to (a) any claims under federal, state or local laws prohibiting discrimination, including without limitation the Age Discrimination in Employment Act of 1967, as amended, or (b) any claims growing out of any alleged legal restrictions on the Corporation's right to terminate the Executive's employment, such as any alleged implied contract of employment or termination contrary to public policy. The Executive acknowledges that he has been advised to consult with an attorney prior to signing this Agreement, that he has had no less than twenty-one days to consider this Agreement prior to the execution hereof, and that he may revoke this Agreement at any time within seven days following the execution hereof. 11. Notices. All notices hereunder shall be in writing and deemed properly given if delivered by hand and receipted or if mailed by registered mail, return receipt requested. Notices to the Corporation shall be directed to the Secretary of the Corporation with a copy directed to the Chief Executive Officer. Notices to the Executive shall be directed to his last known address. -6- 12. Miscellaneous. (a) The waiver, whether express or implied, by either party of a violation of any of the provisions of this Agreement shall not operate or be construed as a waiver of any subsequent violation of any such provision. (b) No right, benefit or interest hereunder shall be subject to assignment, encumbrance, charge, pledge, hypothecation or set off in respect of any claim, debt or obligation, or similar process. (c) This Agreement may not be amended, modified or canceled except by written agreement of the parties. (d) In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions of this Agreement shall remain in full force and effect to the fullest extent permitted by law. (e) This Agreement shall be binding upon and inure to the benefit of the Executive and the Corporation, and their respective heirs, successors and assigns. (f) No benefit or promise hereunder shall be secured by any specific assets of the Corporation. The Executive shall have only the rights of an unsecured general creditor of the Corporation in seeking satisfaction of such benefits or promises. (g) This Agreement shall be governed by the construed in accordance with the laws of the State of North Carolina. (h) This Agreement sets forth the entire agreement and understanding of the parties hereto with respect to the matters covered hereby, and amends and supersedes any predecessor Employment Agreement between the parties hereto. -7- IN WITNESS WHEREOF, this Agreement has been executed by or in behalf of the parties hereto as of the date first above written. WACHOVIA CORPORATION By: ____________________________ Chief Executive Officer Attest: - --------------------------- Secretary [Corporate Seal] /s/ Hugh M. Durden (Seal) -------------------- Executive -8- EX-10 5 EXHIBIT 10.21 Exhibit 10.21 EXHIBIT A AMENDMENT TO EXECUTIVE RETIREMENT AGREEMENT AMENDMENT TO EXECUTIVE RETIREMENT AGREEMENT THIS AMENDMENT TO EXECUTIVE RETIREMENT AGREEMENT, made and entered into as of the _____ day of ___________, 1996, by and between Wachovia Corporation (the "Corporation"), a North Carolina corporation, and ____________________ (the "Executive"). R E C I T A L S: The Corporation and the Executive executed the Executive Retirement Agreement as of the _____ day of _____________, 19___ (the "Agreement"). It is deemed advisable to amend the Agreement to provide for the automatic vesting of the Supplemental Benefit upon a change of control of the Corporation, and to update the Agreement to reflect changes in the name of the Committee and the Equalization Plan as defined in the Agreement. In all other respects, the Agreement, as it may have been previously amended, is hereby ratified, confirmed and approved. NOW, THEREFORE, the Corporation and the Executive hereby agree that the Agreement shall be and hereby is amended, effective as of the date hereof, as follows: 1. In the Recitals, change the name of the "Compensation, Nominating and Organization Committee" to the "Management Resources and Compensation Committee." 2. Insert the following new material at the end of Section 7(a): "Notwithstanding the foregoing provisions of this Section 7(a), in the event of a change of control of the Corporation, the Executive shall be vested in the right to receive payment of the Supplemental Benefit under this Agreement, which right shall not be forfeited upon the termination of the Executive for any reason other than for cause as defined in this Section 7(a). In the event the employment of the Executive is terminated at any time following a change in control of the Corporation, the Supplemental Benefit and Spouse's Supplemental Benefit (if any) shall be paid commencing as of the later of the date of the termination of the Executive or the date the Executive attains (or would have attained but for death) the age of fifty-five. For the purposes herein, the term 'change of control' shall have the meaning given such term in the Wachovia Corporation Stock Plan, as it may be hereafter amended." 3. In Section 7(k), change the name of the "Wachovia Corporation Retirement Income Benefit Equalization Plan" to the "Wachovia Corporation Retirement Income Benefit Enhancement Plan." Change all references in the Agreement from the "Equalization Plan" to the "Enhancement Plan." 4. Insert the following new sentence at the end of Section 7(i): "Upon a change of control of the Corporation as defined in Section 7(a), this Agreement may not be amended or terminated without the express written consent of the Executive." IN WITNESS WHEREOF, this Amendment has been executed on behalf of the Corporation by its duly authorized officers and by the Executive as of the day and year first above written. WACHOVIA CORPORATION By: ________________________ Donald R. Hughes, Chairman Management Resources and Compensation Committee ATTEST: ______________________________ Secretary ____________________________ Executive 2 EX-10 6 EXHIBIT 10.24 Exhibit 10.24 1996 DECLARATION OF AMENDMENT TO THE FIRST WACHOVIA CORPORATION SENIOR MANAGEMENT AND DIRECTOR STOCK PLAN THIS DECLARATION OF AMENDMENT, made this 25th day of October, 1996, by WACHOVIA CORPORATION (the "Company"), to the First Wachovia Corporation Senior Management and Director Stock Plan (the "Plan"); R E C I T A L S: It is deemed advisable to amend the Plan in order for transactions made pursuant to the Plan to comply with the terms of Rule 16b-3, adopted pursuant to Section 16 of the Securities Exchange Act of 1934, as amended, and to remove certain plan restrictions which are no longer required by Rule 16b-3. NOW, THEREFORE, IT IS DECLARED that, effective as of October 25th, 1996, the Plan shall be amended as follows: 1. By deleting Section 2(a) of the Plan and inserting the following in lieu thereof: "The Plan shall be administered by the Management Resources and Compensation Committee (the 'Committee') of the Board of Directors of the Corporation (the 'Board'). Each member of the Committee shall be a 'non-employee director,' as such term is defined in Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended (the 'Exchange Act'), or any successor rule. The Committee shall be comprised of no fewer than the minimum number of non-employee directors as may be required by Rule 16b-3." 2. By deleting Section 6(b)(ii) of the Plan and inserting the following in lieu thereof: "An Option may be exercised by giving written notice of at least ten days to the Committee at such place as the Committee shall direct. Such notice shall specify the number of shares to be purchased pursuant to an Option and the aggregate purchase price to be paid therefor, and shall be accompanied by the payment of such purchase price. Such payment shall be in the form of (i) cash; (ii) shares owned by the Optionee at the time of exercise; (iii) delivery of a properly executed written notice of exercise to the Corporation and delivery to a broker of written notice of exercise and irrevocable instructions to promptly deliver to the Corporation the amount of sale or loan proceeds to pay the Option price; (iv) funds borrowed from a related corporation; or (v) any combination of the foregoing. Shares tendered in payment on the exercise of an Option shall be valued at their fair market value on the date of exercise, as determined by the Committee by applying the provisions of Section 6(a)(ii)." 3. By deleting the last sentence of Section 6(c) of the Plan. 4. By deleting subparagraphs (a), (b) and (c) of Section 8 of the Plan and inserting the following sentence at the end of Section 8: "Each Election must be made in writing to the Committee prior to the Tax Date." 5. By amending Section 13 of the Plan to delete the following sentence: "Notwithstanding the foregoing, shareholder approval shall be required for any other amendments which require such approval in order to secure an exemption from Section 16(b) of the Securities Exchange Act of 1934, as amended." IN WITNESS WHEREOF, this Declaration of Amendment is executed on behalf of Wachovia Corporation as the day and year first above written. WACHOVIA CORPORATION By: /s/ L. M. Baker, Jr. ----------------------------- Chief Executive Officer ATTEST: /s/ Alice Washington Grogan - --------------------------- Secretary [Corporate Seal] 2 EX-10 7 EXHIBIT 10.26 Exhibit 10.26 WACHOVIA CORPORATION Approval of Director Deferred Compensation Plan Amendments WHEREAS, Wachovia Corporation (the "Corporation") sponsors the Deferred Compensation Plan for the Board of Directors of Wachovia Corporation (the "Corporation Plan") and Wachovia Bank of North Carolina, N.A. (the "Bank") sponsors the Deferred Compensation Plan for the Board of Directors of Wachovia Bank and Trust Company, N.A. (the "Bank Plan") (the Corporation Plan and the Bank Plan are referred to collectively herein as the "Plans"); and WHEREAS, the Plans permit the members of the Board of Directors of the Corporation and the Bank to defer the payment of directors' fees; and WHEREAS, it is deemed advisable to amend the Plans to permit a participant who is a non-employee member of the Board of Directors of the Corporation (an "Eligible Director") to transfer the amounts deferred under the Plans to the Wachovia Corporation Director Deferred Stock Unit Plan (the "Stock Unit Plan") in exchange for stock units of equivalent value, to change the interest crediting rate to coincide with the rate credited to amounts deferred under other deferred compensation arrangements maintained by the Corporation and its affiliates, and to reflect the change in the name of the Committee which administers the Plans (and, in the case of the Bank Plan, to reflect the change in the name of the Bank); and WHEREAS, legal counsel to the Corporation has prepared declarations setting forth the required amendments, entitled "1996 Declaration of Amendment to Deferred Compensation Plan for the Board of Directors of Wachovia Corporation" and "1996 Declaration of Amendment to Deferred Compensation Plan for the Board of Directors of Wachovia Bank and Trust Company, N.A." (the "Declarations"), copies of which have been made available for examination by the members of the Management Resources and Compensation Committee of the Board of Directors of the Corporation; NOW, THEREFORE, BE IT RESOLVED, by the Management Resources and Compensation Committee of the Board of Directors of Wachovia Corporation, that the Plans shall be and hereby are amended as provided in the Declaration; and BE IT FURTHER RESOLVED, that each Eligible Director who has entered into a deferred compensation arrangement with the Corporation or any of its affiliates shall be permitted to transfer the deferred amounts to the Stock Unit Plan in exchange for stock units of equivalent value; and BE IT FURTHER RESOLVED, that the Declarations shall be and hereby are adopted and approved, and the proper officers of the Corporation (in the case of the Corporation Plan) and the Bank (in the case of the Bank Plan) shall be and hereby are authorized and directed to execute the Declarations and to take such other actions as may be deemed necessary or advisable to carry out the intent and purpose of this resolution. * * * * * * * THIS IS TO CERTIFY that the foregoing is a true and correct copy of resolutions duly adopted by the Management Resources and Compensation Committee of the Board of Directors of Wachovia Corporation effective as of the 25th day of October, 1996. By: /s/ Alice Washington Grogan --------------------------- Secretary [Corporate Seal] 1996 DECLARATION OF AMENDMENT TO DEFERRED COMPENSATION PLAN FOR THE BOARD OF DIRECTORS OF WACHOVIA CORPORATION THIS DECLARATION OF AMENDMENT, made the 25th day of October, 1996, by WACHOVIA CORPORATION (the "Corporation"), a North Carolina corporation with its principal office at Winston-Salem, North Carolina, to the Deferred Compensation Plan for the Board of Directors of Wachovia Corporation (the "Plan"). R E C I T A L S: It is deemed advisable to amend the Plan to permit a Participant to transfer the Deferral Amount under the Plan to the Wachovia Corporation Director Deferred Stock Unit Plan in exchange for stock units of equivalent value, to change the interest crediting rate to coincide with the rate credited to amounts deferred under other deferred compensation arrangements maintained by the Corporation, and to reflect the change in the name of the Committee which administers the Plan. NOW, THEREFORE, it is declared that the Plan shall be and hereby is amended, effective as of the date hereof except as otherwise provided, as follows: 1. In Section 3, delete from the first sentence "Compensation, Nominating and Organization Committee" and substitute therefor "Management Resources and Compensation Committee." 2. Effective January 1, 1997, delete from Section 4 the last sentence and insert therefor the following: "As of the last day of each calendar month as of which there are accrued and unpaid amounts deferred by a Participant (including after payments have commenced as provided in Sections 5 and 6), such unpaid amounts shall be credited with an amount equivalent to interest to be computed by multiplying such unpaid amounts by the rate determined in accordance with the provisions of Exhibit B attached hereto." 3. Delete Exhibit B to the Plan and substitute therefor the Exhibit B attached hereto. 4. Insert the following new Section 13 at the end of the Plan: "Section 13. Transfer of Deferral Amount. Each Participant who is a non-employee member of the Board of Directors of Wachovia as of August 1, 1996, may make a one-time election to transfer the Deferral Amount of the Participant to the Wachovia Corporation Director Deferred Stock Unit Plan (the "Stock Unit Plan"). Such election shall be made in the manner required by the Committee during the period beginning November 1, 1996, and ending January 31, 1997. A Participant making such election shall receive on February 1, 1997, a grant of stock units pursuant to the Stock Unit Plan having a value then equal to the Deferral Amount of the Participant determined as of January 31, 1997. Upon such transfer, the electing Participant shall have no further right under this Plan with respect to such Deferral Amount." IN WITNESS WHEREOF, this Declaration of Amendment has been executed in behalf of the Corporation as of the day and year first above stated. WACHOVIA CORPORATION By: /s/ L. M. Baker, Jr. --------------------------------- President Attest: /s/ Alice Washington Grogan - --------------------------- Secretary [Corporate Seal] 2 Exhibit B COMPUTATION OF AMOUNTS EQUIVALENT TO INTEREST As of the last day of each calendar month as of which there are accrued and unpaid amounts of deferred compensation, the Long-Term Applicable Federal Rate for the month shall be the rate used to compute the amount equivalent to interest credited for the month. The computed equivalent to interest shall be equal to the Long-Term Applicable Federal Rate for the month applied to the unpaid deferred compensation balance as of the last day of such month multiplied by a ratio, the numerator of which is the number of days in such month and the denominator of which is the number of days in that year. LONG-TERM APPLICABLE FEDERAL RATE The Long-Term Applicable Federal Rate shall be the rate as defined by Internal Revenue Code Section 1274(d) which is published each month in a Revenue Ruling issued by the Internal Revenue Service. The Long-Term Applicable Federal Rate is determined monthly by the Internal Revenue Service on the basis of the average market yield on outstanding marketable long-term obligations of the United States. EX-10 8 EXHIBIT 10.28 Exhibit 10.28 WACHOVIA CORPORATION Approval of Retirement Pay Plan for Board of Directors Amendment WHEREAS, Wachovia Corporation (the "Company") sponsors the Retirement Pay Plan for the Board of Directors of (First) Wachovia Corporation (the "Plan") for the benefit of its Eligible Directors; and WHEREAS, it is deemed advisable to amend the Plan to freezeparticipation for new directors who become Board members after July 31, 1996, toprovide a one-time opportunity for Eligible Directors who are currently serving the Board of Directors (the "Board") to transfer their Accrued Pension Value determined as of July 31, 1996 into the newly created Wachovia Corporation Director Deferred Stock Unit Plan (the "Stock Unit Plan"), and to rename it inresponse to the revisions made to the name of the Company since the adoption of the Plan; and WHEREAS, legal counsel to the Company has prepared a declaration setting forth the required amendments, entitled "First 1996 Declaration of Amendment to the Retirement Pay Plan for the Board of (First) Wachovia Corporation (the "Declaration"), a copy of which has been made available for examination by the members of the Board of Directors of the Company; NOW, THEREFORE BE IT RESOLVED, by the Board of Directors of Wachovia Corporation, that the Declaration shall be and hereby is approved and adopted, and the proper officers of the Company, acting for and in behalf of the Company, shall be and hereby are authorized and directed to execute the Declaration and to take such other actions as may be deemed necessary or advisable to carry out the intent and purpose of this resolution. * * * * * THIS IS TO CERTIFY that the foregoing is a true and correct copy of resolutions duly adopted by the Board of Directors of Wachovia Corporation effective as of the 25th day of July, 1996. By: /s/ Alice Washington Grogan --------------------------- Secretary [Corporate Seal] FIRST 1996 DECLARATION OF AMENDMENT TO THE RETIREMENT PAY PLAN FOR THE BOARD OF DIRECTORS OF (FIRST) WACHOVIA CORPORATION THIS DECLARATION OF AMENDMENT, made the 25th day of July, 1996, by Wachovia Corporation (the "Company"), a North Carolina corporation with its principal office in Winston-Salem, North Carolina, to the Retirement Pay Plan for the Board of Directors of (First) Wachovia Corporation (the "Plan"). R E C I T A L S: It is deemed advisable to amend the Plan to freeze participation to new directors who become Board members after July 31, 1996, to provide a one-time opportunity for Eligible Directors who are currently serving the Board of Directors (the "Board") to transfer their Accrued Pension Value determined as of July 31, 1996 into the newly created Wachovia Corporation Director Deferred Stock Unit Plan (the "Stock Unit Plan"), and to rename it in response to the revisions made to the name of the Company since the adoption of the Plan. NOW, THEREFORE, it is declared that the Plan shall be and hereby is amended, effective as of the date hereof, as follows: 1. Delete the name of the Plan in the first paragraph and replace it with the name: "Retirement Pay Plan for the Board of Directors of Wachovia Corporation." 2. Delete Section 2(a) in its entirety and replace it with the following: "(a) The director is a member of the Board after December 31, 1990 and elects to continue participation in the Plan through a valid election subsequent to July 31, 1996 or is currently drawing a Retirement Payment from the Plan. Effective July 31, 1996, there will be no future Eligible Directors. 3. Add a Section 10 to the Plan to read in its entirety as follows: "10. Effective July 31, 1996, the Eligible Directors currently serving on the Board will be provided a one-time, special transfer opportunity to transfer his or her Accrued Pension Value from the Plan to the Stock Unit Plan. If an Eligible Director authorizes the Company to transfer such an amount, through a valid election received by the end of the business day on October 31, 1996, the Eligible Director will no longer be an Eligible Director for this Plan after the date of the transfer foregoing all rights and privileges noted herein. The Accrued Pension Value will be determined under the greater of two approaches: a) a Project and Pro-Rate Method which determines the lump sum present value of the Retirement Payment which would be payable to the Eligible Director assuming he or she continues to serve as a director for the Company until the annual shareholder meeting following his or her sixty-seventh (67th) birthday (the "Presumed Retirement Date") and multiplying such benefit by the ratio of the director's Period of Service through July 31, 1996, determined in completed months and rounded to the next whole year to the Period of Service the director would have served at the Presumed Retirement Date; and b) a Straight Accrual Method which determines the lump sum present value of the Retirement Payment, payable upon retirement from the Board following his or her Presumed Retirement Date, but based on his or her Period of Service through July 31, 1996, determined in completed months and rounded to the next whole year. For purposes of determining the lump sum present value as of July 31, 1996, the payment period under the Project and Pro-Rate Method will be the Period of Service as of the Presumed Retirement Date counting the director's assumed service on the Board after July 31, 1996 through the Presumed Retirement Date, while the payment period under the Straight Accrual Method will be the Period of Service, rounded to the next integral year, determined as of July 31, 1996. The interest and mortality assumptions used to determine the lump sum present value will be those defined by the Retirement Income Plan of Wachovia Corporation for use in determining lump sum cash-out amounts in 1996. IN WITNESS WHEREOF, this Declaration of Amendment has been executed in behalf of the Company on the day and year first stated above. WACHOVIA CORPORATION By: /s/ L. M. Baker, Jr. -------------------- President Attest: /s/ Alice Washington Grogan - --------------------------- Secretary [Corporate Seal] EX-10 9 EXHIBIT 10.36 Exhibit 10.36 WACHOVIA CORPORATION STOCK PLAN (As Amended and Restated Effective October 25, 1996) WACHOVIA CORPORATION STOCK PLAN 1. Purpose. The purpose of the Wachovia Corporation Stock Plan (the "Plan") is to encourage and enable selected key employees of Wachovia Corporation (the "Corporation") and its subsidiaries, and nonemployee Directors of the Corporation, to acquire or to increase their holdings of common stock of the Corporation (the "Common Stock") and other proprietary interests in the Corporation in order to promote a closer identification of their interests with those of the Corporation and its shareholders, thereby further stimulating their efforts to enhance the efficiency, soundness, profitability, growth and shareholder value of the Corporation. This purpose will be carried out through the granting of benefits (collectively referred to herein as "Awards") to selected key employees and nonemployee Directors, including but not limited to the granting of incentive stock options ("Incentive Options"), nonqualified stock options ("Nonqualified Options"), stock appreciation rights ("SAR's"), restricted stock awards ("Restricted Stock Awards"), and restricted units ("Restricted Units") to selected key employees; and the granting of initial restricted stock awards ("Initial Director Awards") and annual restricted stock awards ("Annual Director Awards") to members of the Board of Directors (individually, a "Director") who are not employees of the Corporation or a related corporation. (Incentive Options and Nonqualified Options shall be referred to herein collectively as "Options." Restricted Stock Awards and Restricted Units shall be referred to herein collectively as "Restricted Awards." Initial Director Awards and Annual Director Awards shall be referred to herein collectively as "Director Awards.") 2. Administration of the Plan. (a) Subject to Section 11 herein, the Plan shall be administered by the Management Resources and Compensation Committee of the Board of Directors of the Corporation (the "Committee"). Each member of the Committee shall be a "non-employee director," as such term is defined in Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any successor rule. The Committee shall be comprised of no fewer than the minimum number of non-employee directors as may be required by Rule 16b-3. (b) Any action of the Committee with respect to the Plan may be taken by a written instrument signed by all of the members of the Committee and any such action so taken by written consent shall be as fully effective as if it had been taken by a majority of the members at a meeting duly held and called. Subject to the provisions of the Plan, and unless authority is granted to the Chief Executive Officer as provided in Section 2(c), the Committee shall have full and final authority in its discretion to take any action with respect to the Plan including, without limitation, the authority (i) to determine all matters relating to Awards, including selection of individuals to be granted Awards, the types of Awards, the number of shares of the Common Stock, if any, subject to an Award, and all terms, conditions, restrictions and limitations of an Award; (ii) to prescribe the form or forms of the Agreements evidencing any Awards granted under the Plan; (iii) to establish, amend and rescind rules and regulations for the administration of the Plan; and (iv) to construe and interpret the Plan and Agreements evidencing Awards granted under the Plan, to establish and interpret rules and regulations for administering the Plan and to make all other determinations deemed necessary or advisable for administering the Plan. (c) Notwithstanding Section 2(b), and subject to Section 11 herein, the Committee may delegate to the Chief Executive Officer of the Corporation the authority to grant Awards, and to make any or all of the determinations reserved for the Committee in the Plan and summarized in subsection (b)(i) with respect to such Awards, to any individual who, at the time of said grant or other determination (i) is not deemed to be an officer or Director of the Corporation within the meaning of Section 16 of the Exchange Act; (ii) is not deemed to be a Covered Employee; and (iii) is otherwise eligible under Section 5. 3. Effective Date. The effective date of the Plan is April 22, 1994 (the "Effective Date"). The Plan was amended and restated effective October 25, 1996. Awards may be granted under the Plan on and after the effective date, but not after April 21, 2004. 4. Shares of Stock Subject to the Plan. The shares of Common Stock that may be issued pursuant to Awards shall not exceed in the aggregate 6,000,000 shares of authorized but unissued shares of the Corporation. The Corporation hereby reserves sufficient authorized shares of Common Stock to meet the grant of Awards hereunder. Any shares subject to an Award which is subsequently forfeited, expires or is terminated may again be the subject of an Award granted under the Plan; provided, that if an Option or SAR shall be accepted for surrender by the Committee pursuant to the terms of the Plan, the shares subject thereto shall not thereafter be available for the granting of other Options or Awards. If there is any change in the shares of Common Stock because of a merger, consolidation or reorganization involving the Corporation or a related corporation, or if the Board of Directors of the Corporation declares a stock dividend or stock split distributable in shares of Common Stock, or if there is a change in the capital stock structure of the Corporation or a related corporation affecting the Common Stock, the number of shares of Common Stock reserved for issuance under the Plan shall be correspondingly adjusted, and the Committee shall make such adjustments to Awards or to any provisions of this Plan as the Committee deems equitable to prevent dilution or enlargement of Awards. 5. Eligibility. An Award may be granted only to an individual who satisfies the following eligibility requirements on the date the Award is granted: (a) With respect to the grant of Awards other than Director Awards, the individual is an employee of the Corporation or a related corporation. For this purpose, an individual shall be considered to be an "employee" only if there exists between the individual and the Corporation or a related corporation the legal and bona fide relationship of employer and employee. In determining whether such a relationship exists, the regulations of the United States Treasury Department relating to the determination of the employment relationship for the purpose of collection of income tax on wages at the source shall be applied. (b) With respect to the grant of an Award other than a Director Award, the individual, being otherwise eligible to receive an Award under this Section 5, (i) is a key -2- employee of the Corporation or a related corporation; and (ii) is selected by the Committee as an individual to whom a Restricted Award shall be granted (a "Grantee"), an individual to whom an Option shall be granted (an "Optionee"), or an individual to whom an SAR shall be granted (an "SAR Holder"). For the purposes herein, a "key employee" shall mean an employee of the Corporation or a related corporation who makes significant and important contributions to the Corporation or a related corporation. The Committee shall determine which employees qualify as key employees. (c) With respect to the grant of Incentive Options, the individual does not own, immediately before the time that the Incentive Option is granted, stock possessing more than ten percent of the total combined voting power of all classes of stock of the Corporation. For this purpose, an individual will be deemed to own stock which is attributable to him under Section 424(d) of the Internal Revenue Code of 1986, as amended (the "Code"). (d) With respect to the grant of a Director Award, the individual shall be eligible to receive such an Award under the provisions of Section 9. 6. Options. (a) Grant of Options. Subject to the limitations of the Plan, the Committee may in its sole and absolute discretion grant Options to such eligible key employees in such numbers, upon such terms and at such times as the Committee shall determine. Both Incentive Options and Nonqualified Options may be granted under the Plan. To the extent that an Option is designated as an Incentive Option but does not qualify as such under Section 422 of the Code, the Option (or portion thereof) shall be treated as a Nonqualified Option. (b) Option Price. The price per share at which an Option may be exercised (the "Option Price") shall be not less than the fair market value per share of the shares on the date the Option is granted. For this purpose, the following rules shall apply: (i) An Option shall be considered to be granted on the date that the Committee acts to grant the Option, or on any later date specified by the Committee as the effective date of the Option. (ii) The fair market value of the shares shall be determined in good faith by the Committee and shall be the price per share of the last sale of such shares on the New York Stock Exchange as reported in The Wall Street Journal for the last trading day prior to the date the Option is granted; or if there was no such sale on such trading day, the fair market value shall be determined in accordance with the applicable provisions of Section 20.2031-2 of the Federal Estate Tax Regulations, or in any other manner consistent with the Code and accompanying regulations. (iii) In no event shall there first become exercisable by the Optionee in any one calendar year Incentive Options granted by the Corporation or any related corporation with respect to shares having an aggregate fair market value (determined at the time an Incentive Option is granted) greater than $100,000. -3- (c) Option Period and Limitations on the Right to Exercise Options. (i) The period during which an Option may be exercised (the "Option Period") shall be determined by the Committee at the time the Option is granted. Such period shall not extend more than ten years from the date on which the Option is granted. Any Option or portion thereof not exercised before expiration of the Option Period shall terminate. (ii) An Option may be exercised by giving written notice to the Corporation at such place as the Committee shall direct. Such notice shall specify the number of shares to be purchased pursuant to an Option and the aggregate purchase price to be paid therefor, and shall be accompanied by the payment of such purchase price. Such payment shall be in the form of (A) cash; (B) shares of Common Stock owned by the Optionee at the time of exercise; (C) funds borrowed from a related corporation; (D) delivery of written notice of exercise to the Committee and delivery to a broker of written notice of exercise and irrevocable instructions to promptly deliver to the Corporation the amount of sale or loan proceeds to pay the Option Price; or (E) a combination of the foregoing methods. Shares tendered in payment on the exercise of an Option shall be valued at their fair market value on the date of exercise, as determined by the Committee by applying the provisions of Section 6(b)(ii). (iii) No Option shall be exercised unless the Optionee is, at the time of exercise, an employee, as described in Section 5(a), and has been an employee continuously since the date the Option was granted, subject to Section 12 herein and the following: (A) The employment relationship of an Optionee shall be treated as continuing intact for any period that the Optionee is on military or sick leave or other bona fide leave of absence; provided, that the period of such leave does not exceed ninety days or, if longer, as long as the Optionee's right to reemployment is guaranteed either by statute or by contract. The employment relationship of an Optionee shall also be treated as continuing intact while the Optionee is not in active service because of disability; provided, that shares acquired by the Optionee pursuant to exercise of an Incentive Option shall be subject to Sections 421 and 422 of the Code only if and to the extent that such exercise occurs within twelve months less one day following the date the Optionee's employment is considered to be terminated because of such disability under Section 422. The Committee shall determine whether there is a disability within the meaning of this section. (B) If the employment of an Optionee is terminated because of retirement, which shall mean termination on or after the date of his retirement as provided in Section 8(b)(ii), or because of early retirement under the Retirement Income Plan of Wachovia Corporation, or any successor plan thereto applicable to the Optionee (herein, "retirement"), or if the Optionee dies while he is an employee or after retirement, the Option may be exercised only to the extent exercisable on the date of the Optionee's retirement or death (the -4- "termination date"), except that the Committee, in its sole and absolute discretion, may accelerate the date that any Option which was not otherwise exercisable on the termination date shall be exercisable in whole or in part, without any obligation to accelerate such date with respect to other Options granted to the Optionee or to accelerate such date with respect to Options granted to any other Optionee, or to treat all Optionees similarly situated in the same manner. The Option must be exercised, if at all, prior to the earlier of: (1) the close of the period of twelve months next succeeding the termination date, or (2) the close of the Option Period. In the event of the Optionee's death, such Option shall be exercisable by such person or persons as shall have acquired the right to exercise the Option by will or by the laws of intestate succession. (C) If the employment of the Optionee is terminated for any reason other than as provided in subparagraph (B) above, his Option may be exercised only to the extent exercisable on the date of such termination of employment, except that the Committee, in its sole and absolute discretion, may accelerate the date that any Option which was not otherwise exercisable on the date of such termination of employment shall be exercised in whole or in part, without any obligation to accelerate such date with respect to other Options granted to the Optionee or to accelerate such date with respect to Options granted to any other Optionee, or to treat all Optionees similarly situated in the same manner. The Option must be exercised, if at all, prior to the earlier of: (1) the close of the period of three months less one day next succeeding the date of termination of employment, or (2) the close of the Option Period. If the Optionee dies following such termination of employment and prior to the earlier of the dates specified in (1) and (2) in the immediately preceding sentence, the Optionee shall be treated as having died while employed under subparagraph (B) above (treating for this purpose the Optionee's date of termination of employment as the termination date). (iv) A certificate or certificates for shares of Common Stock acquired upon exercise of an Option shall be issued in the name of the Optionee and distributed to the Optionee (or his beneficiary) as soon as practicable following receipt of notice of exercise. (d) Nontransferability of Options. (i) Options shall not be transferable other than by will, the laws of intestate succession or pursuant to a qualified domestic relations order (as defined by the Code, or Title I of the Employee Retirement Income Security Act ("ERISA"), or the rules thereunder). The designation of a beneficiary does not constitute a transfer. An option shall be exercisable during the Optionee's lifetime only by him or by his guardian or legal representative. (ii) If an Optionee is subject to Section 16 of the Exchange Act, shares of Common Stock acquired upon exercise of an Option may not, without the consent of the -5- Committee, be disposed of by the Optionee until the expiration of six months after the date the Option was granted. 7. Stock Appreciation Rights. (a) Grant of SAR's. Subject to the limitations of the Plan, the Committee may in its sole and absolute discretion grant SAR's to such eligible key employees in such numbers, upon such terms and at such times as the Committee shall determine. SAR's may be granted to an Optionee of an Option (hereinafter called a "related Option") with respect to all or a portion of the shares of Common Stock subject to the related Option (a "Tandem SAR") or may be granted separately to an eligible key employee (a "Freestanding SAR"). Subject to the limitations of the Plan, SAR's shall be exercisable in whole or in part upon notice to the Corporation upon such terms and conditions as are provided in the Agreement relating to the grant of the SAR. (b) Tandem SAR's. A Tandem SAR may be granted either concurrently with the grant of the related Option or (if the related Option is a Nonqualified Option) at any time thereafter prior to the complete exercise, termination, expiration or cancellation of such related Option. Tandem SAR's shall be exercisable only at the time and to the extent that the related Option is exercisable (and may be subject to such additional limitations on exercisability as the Committee may provide in the Agreement), and in no event after the complete termination or full exercise of the related Option. For purposes of determining the number of shares of Common Stock that remain subject to such related Option and for purposes of determining the number of shares of Common Stock in respect of which other Awards may be granted, upon the exercise of Tandem SAR's, the related Option shall be considered to have been surrendered to the extent of the number of shares of Common Stock with respect to which such Tandem SAR's are exercised. Upon the exercise or termination of the related Option, the Tandem SAR's with respect thereto shall be cancelled automatically to the extent of the number of shares of Common Stock with respect to which the related Option was so exercised or terminated. Subject to the limitations of the Plan, upon the exercise of a Tandem SAR, the SAR Holder shall be entitled to receive from the Corporation, for each share of Common Stock with respect to which the Tandem SAR is being exercised, consideration equal in value to the excess of the fair market value of a share of Common Stock (as determined in accordance with Section 6(b)(ii) herein) on the date of exercise over the related Option Price per share; provided, that the Committee may, in any Agreement granting Tandem SAR's, establish a maximum value payable for such SAR's. (c) Freestanding SAR's. The base price of a Freestanding SAR shall be not less than 100% of the fair market value of the Common Stock (as determined in accordance with Section 6(b)(ii) herein) on the date of grant of the Freestanding SAR. Subject to the limitations of the Plan, upon the exercise of a Freestanding SAR, the SAR Holder shall be entitled to receive from the Corporation, for each share of Common Stock with respect to which the Freestanding SAR is being exercised, consideration equal in value to the excess of the fair market value of a share of Common Stock on the date of exercise over the base price per share of such Freestanding SAR; provided, that the Committee may, in any Agreement granting Freestanding SAR's, establish a maximum value payable for such SAR's. -6- (d) Exercise of SAR's. (i) Subject to the terms of the Plan, SAR's shall be exercisable in whole or in part upon such terms and conditions as are provided in the Agreement relating to the grant of the SAR. The period during which an SAR may be exercisable shall not exceed ten years from the date of grant or, in the case of Tandem SAR's, such shorter Option Period as may apply to the related Option. Any SAR or portion thereof not exercised before expiration of the period stated in the Agreement relating to the grant of the SAR shall terminate. (ii) SAR's may be exercised by giving written notice to the Corporation at such place as the Committee shall direct. The date of exercise of the SAR shall mean the date on which the Corporation shall have received notice from the SAR Holder of the exercise of such SAR. (iii) No SAR may be exercised unless the SAR Holder is, at the time of exercise, an employee, as described in Section 5(a), and has been an employee continuously since the date the SAR was granted, subject to Section 12 and the provisions of Section 6(c)(iii) herein. (e) Consideration; Election. The consideration to be received upon the exercise of the SAR by the SAR Holder shall be paid in cash, shares of Common Stock (valued at fair market value on the date of exercise of such SAR in accordance with Section 6(b)(ii) herein) or a combination of cash and shares of Common Stock, as elected by the SAR Holder, subject to the discretion of the Committee and the terms of the applicable Agreement. The Corporation's obligation arising upon the exercise of the SAR may be paid currently or on a deferred basis with such interest or earnings equivalent as the Committee may determine. A certificate or certificates for shares of Common Stock acquired upon exercise of an SAR for shares shall be issued in the name of the SAR Holder and distributed to the SAR Holder (or his beneficiary) as soon as practicable following receipt of notice of exercise. No fractional shares of Common Stock will be issuable upon exercise of the SAR and, unless otherwise provided in the applicable Agreement, the SAR Holder will receive cash in lieu of fractional shares. (f) Limitations. The applicable Agreement may provide for a limit on the amount payable to the SAR Holder upon exercise of SAR's at any time or in the aggregate, for a limit on the number of SAR's that may be exercised by the SAR Holder in whole or in part for cash during any specified period, for a limit on the time periods during which the SAR Holder may exercise SAR's, and for such other limits on the rights of the SAR Holder and such other terms and conditions of the SAR as the Committee may determine, including, without limitation, a condition that the SAR may be exercised only in accordance with rules and regulations adopted by the Committee from time to time. Unless otherwise so provided in the applicable Agreement or the Plan, any such limit relating to a Tandem SAR shall not restrict the exercisability of the related Option. -7- (g) Nontransferability. (i) SAR's shall not be transferable other than by will, the laws of intestate succession or pursuant to a qualified domestic relations order (as defined by the Code, or Title I of ERISA or the rules thereunder). The designation of a beneficiary does not constitute a transfer. SAR's may be exercised during the SAR Holder's lifetime only by him or by his guardian or legal representative. (ii) If the SAR Holder is subject to Section 16 of the Exchange Act, shares of Common Stock acquired upon exercise of the SAR may not, without the consent of the Committee, be disposed of by the SAR Holder until the expiration of six months after the date the SAR was granted. 8. Restricted Awards. (a) Grant of Restricted Awards. Subject to the limitations of the Plan, the Committee may in its sole and absolute discretion grant Restricted Awards to such eligible key employees in such numbers, upon such terms and at such times as the Committee shall determine. A Restricted Award may consist of a Restricted Stock Award or a Restricted Unit, or both. Restricted Awards shall be payable in cash or whole shares of Common Stock (including Restricted Stock), or partly in cash and partly in whole shares of Common Stock, in accordance with the terms of the Plan and the sole and absolute discretion of the Committee. Restricted Awards payable in shares of Common Stock shall be granted only from shares reserved and then available for the granting of Awards under the Plan. The Committee may condition the grant or vesting, or both, of a Restricted Award upon the continued service of the Grantee for a certain period of time, attainment of such performance objectives as the Committee may determine, or upon a combination of continued service and performance objectives. The Committee shall determine the nature, length and starting date of the period during which the Restricted Award may be earned (the "Restriction Period") for each Restricted Award, which shall be as stated in the Agreement to which the Award relates. In the case of Restricted Awards based upon performance criteria, or a combination of performance criteria and continued service, the Committee shall determine the performance objectives to be used in valuing Restricted Awards and determine the extent to which such Awards have been earned. Performance objectives may vary from participant to participant and between groups of participants and shall be based upon such Corporation, business unit and/or individual performance factors and criteria as the Committee in its sole discretion may deem appropriate, including, but not limited to, earnings per share, return on equity, return on assets or total return to shareholders. Restriction Periods may overlap and participants may participate simultaneously with respect to Restricted Awards that are subject to different Restriction Periods, performance factors and performance criteria. The measure of whether and to what degree such objectives have been attained, and the resulting Awards to be paid, will be determined by the Committee. The earned portion of a Restricted Award may be paid currently or on a deferred basis with such interest as may be determined by the Committee, in its sole and absolute discretion. Payment may be made either in a lump sum payment or in annual installments commencing as soon as practicable after the end of the relevant Restriction Period, as determined by the Committee, in its sole and absolute discretion. -8- (b) Earning of Restricted Awards. A Restricted Award granted to a Grantee shall be deemed to be earned as of the first to occur of the completion of the Restriction Period, retirement of the Grantee, death or disability of the Grantee or acceleration of the Restricted Award, provided that, in the case of Restricted Awards based upon performance criteria or a combination of performance criteria and continued service, the Committee shall have sole discretion to determine if, and to what degree, the Restricted Awards shall be deemed earned at the end of the Restriction Period or upon the retirement, death or disability of the Grantee. In addition, the following rules shall also apply to the earning of Restricted Awards: (i) Completion of Restriction Period. For this purpose, a Restricted Award shall be deemed to be earned upon completion of the Restriction Period (except as otherwise provided herein for performance-based Restricted Awards). In order for a Restricted Award to be deemed earned, the Grantee must have been continuously employed during the Restriction Period. "Continuous employment" shall mean employment with any combination of the Corporation and one or more related corporations, and a temporary leave of absence with consent of the Corporation shall not be deemed to be a break in continuous employment. (ii) Retirement of the Grantee. For this purpose, the Grantee shall be deemed to have retired as of the earlier of (A) his normal retirement date under the Retirement Income Plan of Wachovia Corporation, or any successor plan thereto applicable to the Grantee, or (B) his retirement date under a contract, if any, between the Grantee and the Corporation providing for his retirement from the employment of the Corporation or a related corporation prior to such normal retirement date. (iii) Death or Disability of the Grantee. Except as otherwise provided herein for performance-based Restricted Awards, if the Grantee shall terminate continuous employment because of death or disability before a Restricted Award is otherwise deemed to be earned pursuant to this Section 8(b), the Grantee shall be deemed to have earned a percentage of the Award (rounded to the nearest whole share in the case of Restricted Awards payable in shares) determined by dividing the number of his full years of continuous employment then completed during the Restriction Period with respect to the Award by the number of years of such Restriction Period. (iv) Acceleration of Restricted Award by the Committee. Notwithstanding the provisions of this Section 8(b), the Committee, in its sole and absolute discretion, may accelerate the date that any Restricted Award shall be deemed to be earned in whole or in part, without any obligation to accelerate such date with respect to other Restricted Awards granted to the Grantee or to accelerate such date with respect to Restricted Awards granted to any other Grantee, or to treat all Grantees similarly situated in the same manner. (c) Forfeiture of Restricted Awards. If the employment of a Grantee shall be terminated for any reason, and the Grantee has not earned all or part of a Restricted Award pursuant to Section 8(b), such Award to the extent not then earned shall be forfeited immediately upon such termination and the Grantee shall have no further rights with respect thereto. -9- (d) Dividend and Voting Rights; Share Certificates. A Grantee shall have no dividend rights or voting rights with respect to shares reserved in his name pursuant to a Restricted Award payable in shares but not yet earned pursuant to Section 8(b). A certificate or certificates for shares of Common Stock representing a Restricted Award payable in shares shall be issued in the name of the Grantee and distributed to the Grantee (or his beneficiary) as soon as practicable following the date that the shares subject to the Award are earned as provided in Section 8(b). No certificate shall be issued hereunder in the name of the Grantee except to the extent the shares represented thereby have been earned. (e) Nontransferability. (i) The recipient of a Restricted Award payable in shares shall not sell, transfer, assign, pledge or otherwise encumber shares subject to the Award until the Restriction Period has expired or until all conditions to vesting have been met. (ii) Restricted Awards shall not be transferable other than by will, the laws of intestate succession or pursuant to a qualified domestic relations order (as defined by the Code, or Title I of ERISA or the rules thereunder). The designation of a beneficiary does not constitute a transfer. (iii) If a Grantee of a Restricted Award is subject to Section 16 of the Exchange Act, shares of Common Stock subject to such Award may not, without the consent of the Committee, be sold or otherwise disposed of within six months following the date of grant of such Award. 9. Director Awards. (a) Initial Award. Each nonemployee Director who is newly-elected or appointed to the Board of Directors on or after the Effective Date of the Plan shall receive a Director Award of 1,000 shares of Restricted Stock (an "Initial Director Award"). An Initial Director Award shall be deemed granted following the close of business of the Corporation on the date of the annual or special meeting of shareholders at which the Director was initially elected or the date of the Board of Directors meeting at which the Director was initially appointed. Such Initial Director Award shall be restricted for a period of three years and shall be deemed earned and shall vest on the third anniversary of the date of grant. A Director who is not a member of the Board of Directors on the date an Initial Director Award vests shall forfeit the Award. (b) Annual Award. Commencing with the 1994 annual meeting of shareholders and for each annual meeting thereafter, each nonemployee Director who has been a Director for at least a year shall receive an annual grant of 250 shares of Restricted Stock (an "Annual Director Award") following the close of business of the Corporation on the date of the annual meeting of shareholders. An Annual Director Award shall be restricted for a period of one year and shall be deemed earned and shall vest one year after the date of grant; provided, that a Director who is not a member of the Board of Directors at the time an Annual Director Award vests shall forfeit the Award. -10- (c) Dividends and Voting Rights. Directors shall have no dividend or voting rights with respect to shares subject to Director Awards until such Awards have vested. (d) Share Certificates. A certificate or certificate for shares of Common Stock representing a Director Award shall be issued in the name of the Director (or his beneficiary) and distributed to the Director (or his beneficiary) as soon as practicable following the date that the shares subject to the Director Award are vested as provided herein. No certificate shall be issued hereunder in the name of the Director except to the extent that the shares represented thereby have been vested. At the time the Director Award or a portion thereof is vested, the Director shall have full and immediate rights to the shares represented by such certificates (except to the extent of restrictions imposed by law). (e) Death, Disability or Retirement of Director. If the service of a Director as a member of the Board is terminated due to death, disability or retirement (in accordance with the policies of the Corporation then in effect for retirement of Directors), and the Director has not yet earned a Director Award as provided in Section 9(a) or (b), such Director Award shall be deemed to be fully vested. (f) Forfeiture. If the service of a Director as a member of the Board is terminated for any other reason, and the Director has not earned a Director Award as provided in Section 9(a) and (b), such Director Award shall be forfeited immediately upon such termination and the Director shall have no further rights with respect to such Director Award. (g) Nontransferability. (i) A recipient of a Director Award shall not sell, transfer, assign, pledge or otherwise encumber shares subject to a Director Award until all conditions, if any, subsequent to vesting have been met. (ii) Shares subject to a Director Award may not be sold or otherwise disposed of within six months following the date of grant of such Award. (h) Nonemployee Directors. For the purposes herein in (and notwithstanding the reference in Section 2(a) to non-employee directors for administrative purposes), a "nonemployee Director" shall mean a Director who is not an employee of the Corporation or a related corporation at the time of the grant of a Director Award and has never served as a senior officer of the Corporation or a related corporation. 10. Withholding. The Corporation shall withhold all required local, state and federal taxes from any amount payable in cash with respect to an Award. The Corporation shall require any recipient of an Award payable in shares of the Common Stock to pay to the Corporation in cash the amount of any tax or other amount required by any governmental authority to be withheld and paid over by the Corporation to such authority for the account of such recipient. Notwithstanding the foregoing, the recipient may satisfy such obligation in whole or in part, and any other local, state or federal income tax obligations -11- relating to such an Award, by electing (the "Election") to have the Corporation withhold shares of Common Stock from the shares to which the recipient is entitled. The number of shares to be withheld shall have a fair market value (determined in accordance with Section 6(b)(ii)) as of the date that the amount of tax to be withheld is determined (the "Tax Date") as nearly equal as possible to (but not exceeding) the amount of such obligations being satisfied. Each Election must be made in writing to the Committee prior to the Tax Date. 11. Performance-Based Compensation. To the extent to which it is necessary to comply with Section 162(m) of the Code and the regulations thereunder, the following provisions shall apply: (a) Compliance with Code Section 162(m). It is the intent of the Corporation that Awards conferred under the Plan to Covered Employees, as such term is defined in Section 14(f) herein, shall comply with the qualified performance-based compensation exception to employer compensation deductions set forth in Section 162(m) of the Code, and the Plan shall be construed in favor of meeting the requirements of Section 162(m) of the Code and the regulations thereunder to the extent possible. (b) Committee Authority and Composition. The Committee shall be authorized to establish performance goals for participants, certify satisfaction of performance goals and other material terms for participants, and to take such other action as may be necessary in order to qualify for the performance-based compensation exception. The Committee shall be comprised of two or more outside directors (as such term is defined in Section 162(m) of the Code and the regulations thereunder). Notwithstanding the foregoing, the committee authorized to take such actions may be comprised of a subcommittee of the Committee or other directors who qualify as outside directors (as such term is defined in Section 162(m) of the Code and the regulations thereunder), and the actions taken by such subcommittee or other group of outside directors shall be effective as the action of the Committee to the extent permitted by the Plan, Rule 16b-3 under the Exchange Act, and Section 162(m) of the Code and the regulations thereunder. (c) Limitations on Awards. (i) Subject to Sections 6, 7, and 8 herein: (A) In no event shall an employee be granted Options for more than 75,000 shares of Common Stock during any 12-month period; and (B) In no event shall an employee be granted SAR's for more than 75,000 shares of Common Stock during any 12-month period; (C) In no event shall an employee be granted Restricted Awards having an aggregate dollar value greater than $1,000,000 during any 12-month period; provided, however, that the limitations set forth in Section 11(c)(i) and (ii) shall be subject to adjustment as provided in Section 4 herein. -12- (ii) The Committee shall not have discretion to increase the amount of performance-based compensation payable to a participant in the Plan over the amount determined in accordance with the terms of the Plan. The Committee shall in any event have the discretion to reduce or eliminate the amount of an Award that would otherwise be payable to any participant in accordance with the terms of the Plan. (d) Change in Performance Goals. The material terms of the performance goal or goals pursuant to which Awards are to be made shall be disclosed to, and subject to the approval of, the shareholders of the Corporation. Material terms of a performance goal or goals, the targets of which may be changed by the Committee, shall be disclosed to and subject to the reapproval of, the shareholders of the Corporation upon a change of the material terms of the performance goal or goals by the Committee or as may be otherwise required by Section 162(m) of the Code or the regulations thereunder. 12. No Right or Obligation of Continued Employment. Nothing contained in the Plan shall require the Corporation or a related corporation to continue to employ a Grantee, Optionee or SAR Holder or to continue an individual as a member of the Board of Directors of the Corporation, nor shall any such individual be required to remain in the employment of the Corporation or a related corporation or on the Board of Directors of the Corporation. Except as otherwise provided in the Plan, Awards granted under the Plan to employees of the Corporation shall not be affected by any change in the duties or position of the participant, as long as such individual remains an employee of the Corporation or a related corporation. 13. Retirement Plans. In no event shall any amounts accrued, distributable or payable under the Plan be treated as compensation for the purpose of determining the amount of contributions or benefits to which any person shall be entitled under any retirement plan sponsored by the Corporation or a related corporation that is intended to be a qualified plan within the meaning of Section 401(a) of the Code. 14. Certain Definitions. For purposes of the Plan, the following terms shall have the meaning indicated: (a) "Agreement" means any written agreement or agreements between the Corporation and the recipient of an Award pursuant to the Plan relating to the terms, conditions and restrictions of Options, SAR's, Restricted Awards, Director Awards and any other Awards conferred herein. (b) "Covered employee" shall mean any individual who, on the last day of the taxable year, is (i) the chief executive officer of the Corporation or is acting in such capacity or (ii) among the four highest compensated officers (other than the chief executive officer), as determined in accordance with the executive compensation disclosure rules under the Exchange Act, unless otherwise provided in Section 162(m) of the Code or the regulations thereunder. -13- (c) "Disability" shall mean the inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death, or which has lasted or can be expected to last for a continuous period of not less than twelve months. (d) "Parent" or "parent corporation" shall mean any corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation if each corporation other than the Corporation owns stock possessing fifty percent or more of the total combined voting power of all classes of stock in another corporation in the chain. (e) "Predecessor" or "predecessor corporation" means a corporation which was a party to a transaction described in Section 424(a) of the Code (or which would be so described if a substitution or assumption under that Section had occurred) with the Corporation, or a corporation which is a parent or subsidiary of the Corporation, or a predecessor of any such corporation. (f) "Related corporation" means any parent, subsidiary or predecessor of the Corporation. (g) "Restricted Stock" shall mean shares of Common Stock which are subject to Director Awards or Restricted Awards payable in shares, the vesting of which is subject to restrictions set forth in the Plan or the Agreement relating to such Award. (h) "Subsidiary" or "subsidiary corporation" means any corporation (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation if each corporation other than the last corporation in the unbroken chain owns stock possessing fifty percent or more of the total combined voting power of all classes of stock in another corporation in the chain. 15. Amendment and Termination of the Plan. The Plan may be amended or terminated at any time by the Board of Directors of the Corporation; provided, that such amendment or termination shall not, without the consent of the recipient of an Award, adversely affect the rights of the recipient with respect to an Award previously granted; and provided further, that approval by the shareholders of the Corporation shall be required for any amendment which would (i) increase the number of shares of Common Stock which may be issued under the Plan, except to the extent of adjustments pursuant to Section 4; (ii) permit the granting of Awards to any member of the Committee (except for nondiscretionary Director Awards granted hereunder); or (iii) materially change the requirements for eligibility to be a recipient of an Award. 16. Restrictions on Shares. The Committee may impose such restrictions on any shares representing Awards and Options hereunder as it may deem advisable, including without limitation restrictions under the Securities Act of 1933, as amended, under the requirements of the New York Stock Exchange and under any Blue Sky or state securities laws applicable to such shares. The Committee may cause a restrictive legend to -14- be placed on any certificate issued pursuant to an Award hereunder in such form as may be prescribed from time to time by applicable laws and regulations or as may be advised by legal counsel. 17. Applicable Law. The Plan shall be governed by and construed in accordance with the laws of the State of North Carolina. 18. Shareholder Approval. The Plan is subject to approval by the shareholders of the Corporation on or before April 22, 1994. Awards granted prior to such shareholder approval shall be conditioned upon and shall be effective only upon approval of the Plan by such shareholders on or before such date. 19. Predecessor Plan. As of the Effective Date of the Plan, no further options or awards shall be granted under the Wachovia Corporation Senior Management and Director Stock Plan, as amended (the "Predecessor Plan"). The Predecessor Plan shall continue in effect and shall be applicable with respect to all options and awards issued or granted prior to the Effective Date under the Predecessor Plan. 20. Section 16(b) Compliance. It is the intention of the Corporation that the Plan shall comply in all respects with Rule 16b-3 under the Exchange Act, and, if any Plan provision is later found not to be in compliance with Section 16 of the Exchange Act, the provision shall be deemed null and void, and in all events the Plan shall be construed in favor of it meeting the requirements of Rule 16b-3. Notwithstanding anything in the Plan to the contrary, the Committee, in its sole and absolute discretion, may bifurcate the Plan so as to restrict, limit or condition the use of any provision of the Plan to participants who are officers or Directors subject to Section 16 of the Exchange Act without so restricting, limiting or conditioning the Plan with respect to other participants. 21. Change of Control. (a) Notwithstanding any other provision of the Plan to the contrary, in the event of a Change of Control (as defined in Section 21(b) herein): (i) All Options and SAR's outstanding as of the date of such Change of Control shall become fully exercisable, whether or not then otherwise exercisable. (ii) Any restrictions including but not limited to the Restriction Period applicable to any Restricted Award shall be deemed to have expired, and such Restricted Awards shall become fully vested and payable to the fullest extent of the original grant of the applicable Award. -15- (iii) The restrictions, if any, applicable to any Director Award shall be deemed to have expired, and such Director Awards shall be deemed earned immediately. (iv) Notwithstanding the foregoing, in the event of a merger, share exchange, reorganization or other business combination affecting the Corporation or a related corporation, the Committee may, in its sole and absolute discretion, determine that any or all Awards granted pursuant to the Plan shall not vest or become exercisable on an accelerated basis, if the Board of Directors or the surviving or acquiring corporation, as the case may be, shall have taken such action, including but not limited to the grant of substitute awards, as in the opinion of the Committee is equitable or appropriate to protect the rights and interests of participants under the Plan. For the purposes herein, the Committee authorized to make the determinations provided for in this Section 21(a)(iv) shall be appointed by the Board of Directors, two-thirds of the members of which shall have been Directors of the Corporation prior to the merger, share exchange, reorganization or other business combinations affecting the Corporation or a related corporation. (b) For the purposes herein, as "Change of Control" shall be deemed to have occurred on the earliest of the following dates: (i) The date any entity or person shall have become the beneficial owner of, or shall have obtained voting control over, thirty percent or more of the outstanding Common Stock of the Corporation; (ii) The date the shareholders of the Corporation approve a definitive agreement (A) to merge or consolidate the Corporation with or into another corporation, in which the Corporation is not the continuing or surviving corporation or pursuant to which any shares of Common Stock of the Corporation would be converted into cash, securities or other property of another corporation, other than a merger of the Corporation in which holders of Common Stock immediately prior to the merger have the same proportionate ownership of Common Stock of the surviving corporation immediately after the merger as immediately before, or (B) to sell or otherwise dispose of substantially all the assets of the Corporation; or (iii) The date there shall have been a change in a majority of the Board of Directors of the Corporation within a twelve month period unless the nomination for election by the Corporation's shareholders of each new director was approved by the vote of two-thirds of the directors then still in office who were in office at the beginning of the twelve month period. (For the purposes herein, the term "person" shall mean any individual, corporation, partnership, group, association or other person, as such term is defined in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, other than the Corporation, a subsidiary of the Corporation or any employee benefit plan(s) sponsored or maintained by the Corporation or any subsidiary thereof, and the term "beneficial owner" shall have the meaning given the term in Rule 13d-3 under the Exchange Act.) -16- IN WITNESS WHEREOF, this Wachovia Corporation Stock Plan, as amended and restated effective October 25, 1996, is, by the authority of the Board of Directors of the Corporation, executed in behalf of the Corporation, the 25th day of October, 1996. WACHOVIA CORPORATION By: /s/ L. M. Baker, Jr. ------------------------------------ Chief Executive Officer ATTEST: /s/ Alice Washington Grogan - ------------------------------------ Secretary [Corporate Seal] -17- EX-10 10 EXHIBIT 10.37 Exhibit 10.37 WACHOVIA CORPORATION Approval of Director Deferred Stock Unit Plan WHEREAS, in order to encourage and enable non-employee members of the Board of Directors (the "Board") of Wachovia Corporation (the "Company") to acquire or increase their proprietary interests in the Corporation based on the appreciation in the value of the Company's common stock (the "common stock"), the Board of Directors proposes to establish a Director Deferred Stock Unit Plan (the "Plan"); and WHEREAS, pursuant to the Plan, the terms and conditions of which are outlined herein, each eligible non-employee director would receive certain deferred stock unit awards ("awards"), which awards would entitle the recipient to a cash-only payment based on the value of the common stock at the time of settlement of the award upon the director's termination of service on the Board; NOW, THEREFORE, BE IT RESOLVED, that the Plan, be and it hereby is approved and adopted, and, further, that the grant of awards, the election by directors to transfer and defer certain accrued pension and retainer awards, the settlement of awards upon termination of service as a director and all other transactions contemplated by the Plan and as more specifically described below, be and they hereby are approved; RESOLVED FURTHER, that the Plan provides for the following types of awards, the grant of each of which be and it hereby is approved: (i) Persons who are non-employee directors as of the effective date of the Plan ("existing directors") shall receive the automatic quarterly award of such number of deferred stock units ("units") as may be purchased for $2,500 on each of February 1, May 1, August 1 and November 1 of each year (each such date being a "Quarterly Award Date"); (ii) Persons who become non-employee directors after the effective date of the Plan shall receive a quarterly award of units equal to that number of shares of common stock as may be purchased for $4,500 on each Quarterly Award Date; (iii) With respect to pension equivalent awards, (A) existing directors shall have the election to defer amounts accrued on their behalf as of August 1, 1996 under the Retirement Pay Plan for the Board of Directors of Wachovia Corporation into such number of units as may be purchased for the amount of such accrued pension value as of August 1, 1996 (with the grant made pursuant to such an election to be effective November 1, 1996); and (B) those existing directors who elect to transfer their accrued pension value shall receive a pension equivalent award on each Quarterly Award Date equal to such number of shares of common stock as may be purchased for $2,000; (iv) With respect to retainer awards, (A) non-employee directors may elect to defer all or a portion of their cash retainer fee by making a deferral election prior to the commencement of the calendar quarter for which the retainer fee is payable, and upon such election each such non-employee director shall receive an award of units on each Quarterly Award Date equal to the number of shares of common stock as could be purchased for the amount of the deferred cash retainer fee on the Quarterly Award Date; and (B) each non-employee director may make a one-time election to transfer amounts deferred on his behalf pursuant to the Deferred Compensation Plan for the Board of Directors of Wachovia Corporation (or other deferred compensation plans sponsored by one of the Company's subsidiaries for its directors) and to receive a deferred retainer award equal to that number of shares of common stock as may be purchased for the amount of the transferred account balance of the director as of the Quarterly Award Date coincident with or after the date of the election; and (v) Each non-employee director shall be granted dividend equivalent awards on units credited to his account, with the initial dividend equivalent award based on all units determined as of August 1, 1996; RESOLVED FURTHER, that the effective date of the Plan shall be August 1, 1996, with the quarterly awards provided for in subparagraph (i) of the preceding paragraph to be made that date, the pension equivalent awards described in subparagraph (iii) of the preceding paragraph to be determined as of August 1, 1996 and made effective November 1, 1996, and all other awards under the Plan to be effective on or after November 1, 1996; RESOLVED FURTHER, that awards granted pursuant to the Plan shall be entitled to settlement by a non-employee director upon the date that the service of the director as a member of the Board is terminated for any reason, at which time the director shall be entitled to settlement of the number of units credited to his account, and, further, that such settlement shall be made in a cash lump sum payment on the later of February 1 coincident with or next following the date of termination or the quarterly award date which follows by at least six months the last award granted to the non-employee director unless the director, at least 90 days before termination, elects to receive settlement in annual cash installments for a period of up to ten years commencing on the payment date; RESOLVED FURTHER, that upon a change of control of the Company, a non-employee director shall be entitled to settlement of all units then credited to his account; and RESOLVED FURTHER, that the proper officers and agents of the Company, acting for and in behalf of the Company, shall be and hereby are authorized and directed to execute and establish the Plan and to take such other actions as may be deemed necessary or advisable to carry out the intent and purpose of this resolution. * * * * 2 THIS IS TO CERTIFY that the foregoing is a true and correct copy of the resolutions duly adopted by the Board of Directors of Wachovia Corporation effective as of the 25th day of July, 1996. By: /s/ Alice Washington Grogan --------------------------- Secretary [Corporate Seal] 3 WACHOVIA CORPORATION DIRECTOR DEFERRED STOCK UNIT PLAN WACHOVIA CORPORATION DIRECTOR DEFERRED STOCK UNIT PLAN 1. Purpose. The purpose of the Wachovia Corporation Director Deferred Stock Unit Plan (the "Plan") is to encourage and enable members of the Board of Directors (the "Board") of Wachovia Corporation (the "Corporation") who are not employees of the Corporation or a related corporation to acquire or to increase their proprietary interests in the Corporation in order to promote a closer identification of their interests with those of the Corporation and its shareholders, thereby further stimulating their efforts to enhance the efficiency, soundness, profitability, growth and shareholder value of the Corporation. This purpose will be carried out through the granting of phantom stock units to eligible Directors, which, subject to the terms of the Plan, shall entitle the recipient to a cash-only payment based on the value of the common stock of the corporation (the "Common Stock"). No actual shares of Common Stock shall be issued under the Plan, and no participant shall be entitled to receive shares of Common Stock pursuant to the grant of awards hereunder. For purposes of the Plan, such phantom stock units (including fractional units rounded to two decimal places) are referred to individually as a "Unit" and collectively as "Units," and the grant of Units to a non-employee director as provided herein is referred to individually as an "Award" and collectively as "Awards." 2. Administration of the Plan. The Plan shall be administered by the Management Resources and Compensation Committee (the "Committee") of the Board of Directors of the Corporation. Any action of the Committee may be taken by a written instrument signed by all of the members of the Committee and any action so taken by written consent shall be as fully effective as if it had been taken by a majority of the members at a meeting duly called and held. Subject to the provisions of the Plan and to the extent necessary to preserve the availability of an exemption under Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), for transactions by persons subject to Section 16 of the Exchange Act, the Committee shall have full and final authority, in its discretion, to take action with respect to the Plan including, without limitation, the authority to (i) determine the terms and provisions of Awards made pursuant to the Plan; (ii) to establish, amend and rescind rules and regulations for the administration of the Plan; and (iii) to construe and interpret the Plan, the rules and regulations, and to make all other determinations deemed necessary or advisable for administering the Plan. 3. Effective Date. The effective date of the Plan shall be August 1, 1996 (the "Effective Date"). 4. Eligibility. An Award of Units may be made only to a Director who is a Non-Employee Director on the date of grant of the Award. For purposes of the Plan, a "Non-Employee Director" means a member of the Board (a "Director") who is not an employee of the Corporation or a related Corporation and has never served as a senior officer of the Corporation or a related corporation. 5. Grant of Awards. (a) Quarterly Grants. (i) Existing Directors. Each Non-Employee Director who was a member of the Board on the Effective Date (an "Existing Director") shall receive a quarterly Award of Units (a "Quarterly Award") on February 1, May 1, August 1, and November 1 of each year (a "Quarterly Award Date"), commencing on the Effective Date. The number of Units represented by each such Quarterly Award for each Existing Director shall be equal to that number of whole or fractional shares of the Common Stock of the Corporation as may be purchased for $2,500 on the Quarterly Award Date, based on the Fair Market Value (as defined in paragraph (d) of this Section 5) of the shares as determined on the Quarterly Award Date. (ii) New Directors. Each Non-Employee Director who becomes a member of the Board after the Effective Date (a "New Director") shall receive a Quarterly Award on each Quarterly Award Date occurring on or after the date the New Director becomes a member of the Board. The number of Units represented by each such Quarterly Award for each New Director shall be equal to that number of whole or fractional shares of the Common Stock of the Corporation as may be purchased for $4,500 on the Quarterly Award Date, based on the Fair Market Value of the shares as determined on the Quarterly Award Date. (b) Pension Equivalent Awards. (i) Pension Equivalent Award Election. Each Existing Director who elects pursuant to the Retirement Pay Plan for the Board of Directors of Wachovia Corporation (the "Retirement Pay Plan") to transfer the Accrued Pension Value of the Existing Director (as determined pursuant to the Retirement Pay Plan) to this Plan shall receive an Award of Units (a "Pension Equivalent Award") equal to that number of whole or fractional shares of the Common Stock of the Corporation as may be purchased for the amount of the Accrued Pension Value of the Existing Director as of the Effective Date, based on the Fair Market Value of the shares as determined on the Effective Date. Each such Pension Equivalent Award which is made as a result of an election by an Existing Director as described herein shall be determined as of the Effective Date and granted as of November 1, 1996. (ii) Quarterly Pension Equivalent Awards. Each Existing Director who makes the election to transfer the Accrued Pension Value to this Plan as provided in Section 5(b)(i) herein shall also receive an additional Pension Equivalent Award on each Quarterly Award Date (a "Quarterly Pension Equivalent Award") equal to that number of whole or fractional shares of the Common Stock of the Corporation as may be purchased for $2,000 on the Quarterly Award Date, based on the Fair Market Value of the shares as determined on the Quarterly Award Date. Notwithstanding the foregoing, however, the initial Quarterly Pension Equivalent Award shall be determined as of the Effective Date based on the Fair Market Value as of the Effective Date and shall be granted as of November 1, 1996. - 2 - (c) Deferral of Cash Retainer Fees. (i) Quarterly Deferred Retainer Award. Each Non-Employee Director may elect to defer all or a portion (in increments of 25%) of the retainer fee payable in cash to the Director (the "Cash Retainer Fee") by making a deferral election prior to the commencement of the calendar quarter for which such Cash Retainer Fee is payable. Each Non-Employee Director who makes the deferral election shall receive in lieu of the Cash Retainer Fee an Award of Units (the "Deferred Retainer Award") on each Quarterly Award Date as of which a deferred Cash Retainer Fee would otherwise be paid. The Deferred Retainer Award shall equal the number of whole or fractional shares of the Common Stock of the Corporation as may be purchased for the amount of the deferred Cash Retainer Fee on the Quarterly Award Date, based on the Fair Market Value of the shares as determined on the Quarterly Award Date. (ii) Deferred Compensation Plan Election. Each Existing Director who has previously elected to defer payment of the Cash Retainer Fee pursuant to the Deferred Compensation Plan for the Board of Directors of Wachovia Corporation or other deferred compensation plans sponsored by the Corporation's subsidiaries for its directors ("Deferred Compensation Plans") may make a one-time election to transfer the account balance of the Existing Director under the Deferred Compensation Plans to this Plan. Such election may be made by an Existing Director on or after November 1, 1996, but not later than January 31, 1997. A New Director having an account balance under a Deferred Compensation Plan may also make a one-time election to transfer such account balance to this Plan during a 60-day election period specified following the election of the Director to the Board. A Director who makes such election shall receive as of the Quarterly Award Date coincident with or next following such election a Deferred Retainer Award equal to that number of whole or fractional shares of the Common Stock of the Corporation as may be purchased for the amount of the transferred account balance of the Director as of such Quarterly Award Date, based on the Fair Market Value of the shares as determined on such Quarterly Award Date. (d) Fair Market Value. For purposes of this Plan, the "Fair Market Value" per share of the Common Stock shall equal the average price per share (rounded to four decimals) of the last sale of such shares on the New York Stock Exchange as reported in The Wall Street Journal for the last ten business days preceding the date such value is determined, unless otherwise stated. (e) Dividend Equivalent Grants. Each Non-Employee Director shall be granted an Award of Units ("Dividend Equivalent Awards") calculated by (i) multiplying the number of Units credited to a Non-Employee Director as of the record date for such dividend by the dividend then paid on a share of the Common Stock, then (ii) dividing that result by the average of the highest and lowest price per share of Common Stock on the New York Stock Exchange as reported in The Wall Street Journal for the date the dividend is paid (the "Dividend Payment Date"). Dividend Equivalent Awards will be granted to each Non-Employee Director as of the Quarterly Award Date coincident with or next following the Dividend Payment Date to which the Dividend Equivalent Award relates. Notwithstanding the foregoing, however, a Dividend Equivalent Award that relates to an Existing Director's Pension Equivalent Award and initial Quarterly Pension Equivalent Award shall be - 3 - determined based on the number of Units subject to such Awards as of the Effective Date, and such Dividend Equivalent Award shall be granted on November 1, 1996. (f) Director's Accounts. The Corporation shall establish an account for each Non-Employee Director (individually, a "Director's Account") to which the number of Units represented by each Quarterly Award, Pension Equivalent Award, Deferred Retainer Award and Dividend Equivalent Award shall be credited. (g) Vesting. The number of Units credited to a Director's Account pursuant to the grant of Awards shall be fully vested at all times. 6. Settlement. Upon the date that the service of a Non-Employee Director as a member of the Board is terminated for any reason (the "Termination Date"), the Non-Employee Director (or his beneficiary in the event of his death) shall be entitled to settlement of the number of Units credited to the Director's Account. The settlement shall occur on the later of (i) the February 1 coincident with or next following the Termination Date, or (ii) the Quarterly Award Date which follows by at least six months the last Award (other than a Dividend Equivalent Award) granted to the Non- Employee Director (the "Payment Date"). The settlement shall be made in a cash lump sum payment equal to the Fair Market Value per share of Common Stock as determined on the Payment Date, multiplied by the number of Units then credited to the Director's Account; provided, that the Non- Employee Director may at least 90 days prior to the Termination Date elect to receive the settlement in annual cash installments for a period of up to ten years beginning on the Payment Date and continuing on each anniversary thereof during the payment period (an "Installment Payment Date"). The amount of each annual installment payment shall be calculated by (x) multiplying the Fair Market Value per share of Common Stock as determined on the Installment Payment Date by the number of Units credited to the Director's Account on the Payment Date (as increased by the Units credited to the Director's Account for Dividend Equivalent Awards and decreased by the number of Units for which payment has been made since the Payment Date), then (y) dividing that result by the number of installment payments remaining in the payment period (including the installment payment due on such Installment Payment Date). 7. Non-transferability of Awards. Awards shall not be transferable (including by pledge or hypothecation) other than by will, the laws of intestate succession or pursuant to a qualified domestic relations order (as defined by the Internal Revenue Code, or Title I of the Employee Retirement Income Security Act or the rules thereunder). The designation of a beneficiary does not constitute a transfer. Further, to the extent required pursuant to Rule 16b-3 under the Exchange Act or any successor statute or rule, Awards granted under the Plan may not be settled or otherwise disposed of for a period of six months from the date of grant of the Award. 8. Beneficiary. Each Non-Employee Director may designate in writing a person or persons as beneficiary, which beneficiary shall be entitled to receive settlement of Awards to which the Non- Employee Director is otherwise entitled in the event of death. In the absence of such designation by a Non-Employee Director, and in the event of the Non-Employee Director's death, the estate of - 4 - the Non-Employee Director shall be treated as beneficiary for purposes of the Plan. The Committee shall have sole discretion to approve the form or forms of such beneficiary designation. 9. Unfunded Plan. The Plan, insofar as it provides for the grant of Awards, shall be unfunded and the Corporation shall not be required to segregate any assets that may at any time be represented by Awards made under the Plan. Any liability of the Corporation to any person with respect to any Award made under the Plan shall be based solely upon any contractual obligations that may be created pursuant to the Plan, and no term or provision in the Plan shall be construed to give any person any security, interest, lien or claim against any specific asset of the Corporation. Neither a Non-Employee Director nor his beneficiary shall have any rights under the Plan other than as a general creditor of the Corporation. 10. Effect on Service. Neither the adoption and operation of the Plan, nor the grant of Awards hereunder, shall confer upon any Non-Employee Director any right to continue in the service of the Corporation as a member of the Board or in any way affect the right of the Corporation to terminate the service of the Non-Employee Director at any time. 11. Amendment or Termination. The Plan may be amended, suspended or terminated by action of the Board at any time; provided, that (i) such amendment, suspension or termination shall not, without the consent of a Director, adversely affect the rights of the Director with respect to an Award previously granted; and (ii) in any event, no amendment, suspension or termination shall operate to change any previously established settlement date (as provided in Sections 6 and 14 herein). The term of the Plan shall end on the effective date of termination of the Plan by the Board. 12. Adjustment of Awards. If there is any change in the shares of Common Stock because of a merger, consolidation or reorganization involving the Corporation or a related corporation, or if the Board declares a stock dividend or stock split distributable in shares of Common Stock, or if there is a change in the capital stock structure of the Corporation or a related corporation affecting the Common Stock, the number of Units credited to a Director's Account shall be correspondingly adjusted, and the Committee shall make such adjustments to Awards or to any provisions of this Plan as the Committee deems equitable to prevent dilution or enlargement of Awards. 13. Applicable Law. Except as otherwise provided herein, the Plan shall be construed and enforced according to the laws of the State of North Carolina. 14. Change of Control. Upon a "Change of Control" of the Corporation (as determined by the General Counsel of the Corporation pursuant to the Wachovia Corporation Grantor Trust Agreement dated - 5 - November 3, 1995, as amended), a Non-Employee Director may elect to obtain settlement of the Units then credited to the Director's Account in the manner described in Section 6, treating for this purpose the date of the Change of Control as if it were the Termination Date of the Non-Employee Director. An election by a Non-Employee Director to obtain settlement pursuant to this Section 14 must be filed by the Non-Employee Director with the Committee at least six months prior to the Payment Date. Such an election will not affect the rights of the Non-Employee Director to continue participation in accordance with the terms of this Plan following the Change of Control. IN WITNESS WHEREOF, this Wachovia Corporation Deferred Stock Unit Plan has been executed in behalf of the Corporation effective as of the 1st day of August, 1996. WACHOVIA CORPORATION By: /s/ L. M. Baker, Jr. ---------------------------- Chief Executive Officer Attest: /s/ Alice Washington Grogan - ------------------------------------- Secretary [Corporate Seal] - 6 - EX-12 11 EXHIBIT 12 Exhibit 12 WACHOVIA CORPORATION RATIO OF EARNINGS TO FIXED CHARGES
1996 1995 1994 1993 1992 ---------- ---------- ---------- ---------- ---------- (A) Excluding interest on deposits Earnings: Income before income taxes $934,902 $868,868 $761,482 $687,540 $596,203 Less capitalized interest -- (1,530) (362) -- -- Fixed charges 804,019 768,982 512,717 296,396 232,226 ---------- ---------- ---------- ---------- ---------- Earnings as adjusted $1,738,921 $1,636,320 $1,273,837 $983,936 $828,429 ========== ========== ========== ========== ========== Fixed charges: Interest on purchased and other short term borrowed funds $431,094 $467,007 $272,572 $173,847 $190,988 Interest on long-term debt 359,946 288,646 226,584 107,585 25,153 Portion of rents representative of the interest factor (1/3) of rental expense 12,979 13,329 13,561 14,964 16,085 ---------- ---------- ---------- ---------- ---------- Fixed charges $804,019 $768,982 $512,717 $296,396 $232,226 ========== ========== ========== ========== ========== Ratio of earnings to fixed charges 2.16 X 2.13 X 2.48 X 3.32 X 3.57 X (B) Including interest on deposits: Adjusted earnings from (A) above $1,738,921 $1,636,320 $1,273,837 $983,936 $828,429 Add interest on deposits 881,562 823,454 539,232 557,580 750,887 ---------- ---------- ---------- ---------- ---------- Earnings as adjusted $2,620,483 $2,459,774 $1,813,069 $1,541,516 $1,579,316 ========== ========== ========== ========== ========== Fixed charges: Fixed charges from (A) above $804,019 $768,982 $512,717 $296,396 $232,226 Interest on deposits 881,562 823,454 539,232 557,580 750,887 ---------- ---------- ---------- ---------- ---------- Adjusted fixed charges $1,685,581 $1,592,436 $1,051,949 $853,976 $983,113 ========== ========== ========== ========== ========== Adjusted earnings to adjusted fixed 1.55 X 1.54 X 1.72 X 1.81 X 1.61 X charges
EX-13 12 EXHIBIT 13 1996 ANNUAL REPORT AND FORM 10-K WACHOVIA CONTENTS
Financial Highlights................................... 2 Wachovia Corporation................................... 3 Selected Year-End Data................................. 3 Letter to Shareholders................................. 4 Corporate Highlights................................... 12 Management's Discussion and Analysis of Financial Condition and Results of Operations..... 14 RESULTS OF OPERATIONS -- 1996 VS. 1995............... 15 SHAREHOLDERS' EQUITY AND CAPITAL RATIOS.............. 32 FOURTH QUARTER ANALYSIS.............................. 35 RESULTS OF OPERATIONS -- 1995 VS. 1994............... 39 Supervision and Regulation............................. 41 Management's Responsibility for Financial Reporting.... 42 Report of Independent Auditors......................... 42 Financial Statements................................... 43 Six-Year Financial Summaries........................... 64 Stock Data............................................. 72 Historical Comparative Data............................ 74 1996 Form 10-K......................................... 75 Member Company Directors............................... 78 Wachovia Corporation Directors and Officers............ 79 Shareholder Information................................ 80
FORWARD-LOOKING STATEMENTS The Private Securities Litigation Reform Law of 1995 evidences Congress' determination that the disclosure of forward-looking information is desirable for investors and encourages such disclosure by providing a safe harbor for forward-looking statements by corporate management. This Annual Report, including the Letter to Shareholders and the Management's Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements that involve risk and uncertainty. In order to comply with the terms of the safe harbor, the corporation notes that a variety of factors could cause the corporation's actual results and experience to differ materially from the anticipated results or other expectations expressed in the corporation's forward-looking statements. The risks and uncertainties that may affect the operations, performance, development, growth projections and results of the corporation's business include, but are not limited to, the growth of the economy, interest rate movements, timely development by the corporation of technology enhancements for its products and operating systems, the impact of competitive products, services and pricing, customer business requirements, Congressional legislation and similar matters. Readers of this report are cautioned not to place undue reliance on forward-looking statements which are subject to influence by the named risk factors and unanticipated future events. Actual results, accordingly, may differ materially from management expectations. 1 FINANCIAL HIGHLIGHTS
Percent 1996 1995 Change EARNINGS AND DIVIDENDS (thousands, except per share data) Net income....................................................................... $644,557 $602,543 7.0 Cash dividends paid on common stock.............................................. 254,458 235,495 8.1 Payout ratio (total cash dividends (division sign) net income)................................................................... 39.5% 39.1% Net income per common share: Primary........................................................................ $ 3.81 $ 3.50 8.9 Fully diluted.................................................................. $ 3.80 $ 3.49 8.9 Cash dividends paid per common share............................................. $ 1.52 $ 1.38 10.1 Average primary shares outstanding............................................... 169,094 172,089 (1.7) Average fully diluted shares outstanding......................................... 169,827 172,957 (1.8) Return on average assets......................................................... 1.43% 1.45% Return on average shareholders' equity........................................... 17.62 17.67 BALANCE SHEET DATA AT YEAR-END (millions, except per share data) Total assets..................................................................... $ 46,905 $ 44,981 4.3 Interest-earning assets.......................................................... 40,789 40,001 2.0 Loans -- net of unearned income.................................................. 31,283 29,261 6.9 Deposits......................................................................... 27,250 26,369 3.3 Interest-bearing liabilities..................................................... 35,570 34,001 4.6 Shareholders' equity*............................................................ 3,762 3,774 (.3) Shareholders' equity to total assets............................................. 8.02% 8.39% Risk-based capital ratios: Tier I capital................................................................. 9.34 9.43 Total capital.................................................................. 12.97 13.64 Per share: Book value..................................................................... $ 22.96 $ 22.15 3.7 Common stock closing price (NYSE).............................................. 56.50 45.75 23.5 Price/earnings ratio........................................................... 14.8X 13.1x
* Includes unrealized gains on securities available-for-sale of $42 million and $116 million net of tax, respectively 2 WACHOVIA CORPORATION Wachovia Corporation (Wachovia or the Corporation) is a southeastern interstate bank holding company maintaining dual headquarters in Atlanta, Georgia, and Winston-Salem, North Carolina. Principal banking subsidiaries are Wachovia Bank of Georgia, N.A., Atlanta; Wachovia Bank of North Carolina, N.A., Winston-Salem; and Wachovia Bank of South Carolina, N.A., Columbia. The First National Bank of Atlanta and Wachovia Bank Card Services, Inc., in Wilmington, Delaware, provide credit card services for Wachovia's affiliated banks. Page 76 provides a complete listing of the Corporation's subsidiaries and member companies. Major corporate and institutional relationships are managed by Wachovia Corporate Services, Inc., through banking offices in Georgia, North Carolina and South Carolina and through representative offices in Chicago, London, New York City and Tokyo. The Corporation maintains foreign branches at Grand Cayman through its banking subsidiaries and an Edge Act subsidiary in New York City. Wachovia Trust Services, Inc., provides fiduciary, investment management and related financial services for corporate, institutional and individual clients. Discount brokerage and investment advisory services are provided by Wachovia Investments, Inc., to customers primarily in Georgia, North Carolina and South Carolina. Wachovia Operational Services Corporation provides information processing and systems development for Wachovia's subsidiaries. The Corporation is involved in other financial services activities including residential mortgage origination, state and local government securities underwriting, sales and trading, foreign exchange, corporate finance and other money market services. SELECTED YEAR-END DATA
1996 1995 1994 1993 1992 1991 Trust assets (millions): Discretionary management.................. $ 23,520 $20,226 $17,084 $17,950 $16,147 $14,302 Total..................................... $100,095 $90,144 $78,972 $92,287 $85,806 $78,214 Banking offices: North Carolina............................ 220 219 216 223 222 224 Georgia................................... 123 124 127 129 134 135 South Carolina............................ 145 146 150 157 158 160 Total................................ 488 489 493 509 514 519 Automated banking machines: North Carolina............................ 351 328 297 251 221 210 Georgia................................... 222 204 189 180 173 164 South Carolina............................ 213 180 166 167 164 163 Total................................ 786 712 652 598 558 537 Employees (full time equivalent)............ 16,208 15,996 15,602 15,531 16,164 16,886 Common stock shareholders................... 32,638 28,027 28,779 28,079 26,706 29,806 Common shares outstanding (thousands) . . 163,844 170,359 170,934 171,376 171,471 85,323
3 LETTER TO SHAREHOLDERS "In an outstanding organization, there can be no resting on past successes. Today, each line of business in Wachovia is being tested." DEAR WACHOVIA SHAREHOLDER Wachovia performed well in 1996. Earnings grew as investment in critical strategic initiatives continued and good results from earlier actions became more evident. Employees across the company worked hard to build business volume, grow revenue, manage expenses and control risk. They succeeded admirably. Net income per fully diluted share was $3.80, up 8.9 percent from $3.49 in 1995. Net income totaled $644.6 million compared with $602.5 million, a gain of 7 percent. Good growth in net interest income and strong gains in other operating revenue accounted for the earnings increase. Average fully diluted shares declined by 3.1 million shares or 1.8 percent for the year, reflecting the corporation's share repurchase program. Wachovia's return on shareholders' equity was 17.6 percent, and the return on assets was 1.43 percent, in line with five-year averages of 17.3 percent and 1.43 percent, respectively. Average common equity to assets was 8.09 percent. While the company's $46.9 billion of assets at December 31 ranked 20th in size among the nation's top 25 banking companies, returns on common shareholders' equity and on assets ranked eighth, and its average common equity to assets was ninth. The corporation's senior debt was rated AA by Standard & Poor's and Aa3 by Moody's. Credit quality and expense management ratios remained strong. At December 31, nonperforming assets were .25 percent of loans and foreclosed property, the best among the 25 largest bank holding companies. The corporation's reserve coverage of nonperforming loans was 681 percent, the second best among this peer group. The corporation's overhead or efficiency ratio was 52.2 percent, also ranking second among these banks. Wachovia's performance in key measures compared with industry peers since 1991 is presented in a series of graphs on page 74. The total return on Wachovia's common stock, including price appreciation and dividends, was 27.6 percent for 1996. This compares with 41.5 percent for the Keefe, Bruyette & Woods Index of 50 money center and regional banks and 23 percent for the S&P 500 Index. The financial service business is in the midst of very challenging and exciting times. Challenging because performance risks are as great as they have ever been. Exciting because opportunities abound to do good things for customers and shareholders. We are invigorated by the possibilities and are aggressively building Wachovia for future growth. At the same time, we are respectful of the environment. At Wachovia, historic risk management is intact, the balance sheet remains solid and all over the institution people are working feverishly to get costs down. I am proud to report these results, achieved in the midst of substantial undertakings to make Wachovia stronger and even more competitive in the future. In an outstanding organization, there can be no resting on past successes. Today, each line of business in Wachovia is being tested. The practices and desires of our customers are changing. The delivery of service from 4 LETTER TO SHAREHOLDERS businesses to customers is changing. Methods of communication are changing. The capabilities of competitors are changing. The construct of the environment in which Wachovia operates is, most of all, profoundly changing. There has been no time in recent history like this one. This century, so rich in the drama of exploration, war, turmoil, struggle, and change, will end soon. But its ending will mark the beginning of a brilliant new age, an order based on information and acquisition of knowledge. The accumulation, storage, retrieval, communication and productive use of information will determine market, social, political and economic leadership in the years ahead. In the race for new power, old structures, old systems and old boundaries are tumbling. The traditional business of banking, in which we have done so well for so long, is in a protracted period of consolidation. I do not believe there will only be five big banks in the future, but there will be many fewer and most of the strongest competitors will be big. Wachovia also will grow and seek to offset any competitive heft by outstanding performance. The key to future success is excellent customer service, high performance and a sustained rate of above-average growth. A significant threat to high performance in our business may well lie outside of banking. Substantial encroachment has been made into our traditional customers by single-purpose, focused companies whose cost of market entry is low, whose service delivery is streamlined and effective, and who operate relatively free of the boundaries, burdens and regulations which shackle us. Many of these companies are new, having been built to serve a specific purpose. In fairness, they are also often highly entrepreneurial and flexible with higher strategic risk tolerance than traditional banks embrace. Also, in truth, many banks have not adapted to meet this competitive thrust. Too often, banks have ignored customer pleas for better service, more accurate and timely information, greater service flexibility, and rational pricing. What these competitors do not have is Wachovia's tradition of high service, personal relationship with customers and the ability to expand these relationships across a broad range of products. It may not be possible to beat these specialized vendors on the basis of price, but we are rarely beaten on service or on the distinctive Target marketing and on-line leads help a special sales force of bankers sharpen their focus on the right customer at the right time with the right product as part of the Profitable Relationship Optimization (PRO) strategy. (Picture of two women working on a computer and talking on the phone.) 5 LETTER TO SHAREHOLDERS Personal Financial Services sales teams with a variety of specialists are strengthening Wachovia's ability to more effectively serve the affluent market with a relationship-based strategy which provides a trustworthy financial advisor focused on integrating the way financial assets and services work with customer needs. value of comfort that comes from the customer knowing that his or her financial future is safely entrusted to Wachovia. Another factor affecting performance will be the general environment in which we operate. This clearly contains mixed blessings. On one hand, growth in traditional banking services will moderate. Real economic growth over time will slow, and with it, so will the expansion of credit. As inflation abates, so will interest rates. Deposits, as they have for some time, will continue to migrate to higher yielding instruments. While the natural growth in the economy will be moderate, there will be boundless opportunities to serve customers in new and exciting ways. The growth in financial markets and the fact that many individuals and corporations are still poorly served leads to substantial opportunities for Wachovia. Enormous wealth has been built in recent years, and corporate and individual customers need help managing these resources. Customers need to manage risk. We will sell them insurance and other useful performance products. Customers need to reduce expenses. They may look to us for assistance in controlling costs through operational excellence and superior use of technology. Customers need information. We have a great deal, can get more and can deliver it in applications they find useful. Customers need help in planning. In Wachovia, they have a planning partner they can trust. While there is still much to do, we are responding rapidly. Recently, I counted sixty-seven major strategic initiatives currently under way in Wachovia. The accompanying photographs and the Corporate Highlights section following this letter are an indication of the breadth of programs being carried out. It is marvelous testimony to our employees' patience and goodwill that so much change can be tolerated and our performance remain so good. In the challenging times ahead, we face an intriguing dilemma. We must transform ourselves into a high-performing, fast-moving and aggressive service company, while keeping a firm and uncompromising hand on the collar of risk. In the midst of product, service delivery and technological change, the potential allure of mergers and acquisitions, and the compelling need to grow, we must be in control. But make no mistake, the ultimate risk to future performance is failing to recognize and to act on the customer revolution now occurring. (Picture of a group of people working documents.) 6 LETTER TO SHAREHOLDERS "We will continue to examine attractive acquisition possibilities while moving forward with internal growth strategies." In recent years, we have built on traditional Wachovia strengths, including an excellent market position, reinforcing our culture of sound and prudent decision-making, and continuing to refine risk management skills and technological capabilities. Additionally, we have added a solid strategic direction, a streamlined organization and more efficiency in managing expenses. In 1994, we set forth a strategy to guide Wachovia for the remaining years of this decade. It was an ambitious plan designed to lift our performance compared with peer institutions. The plan assisted us in sharpening focus on lines of business with potential for good growth and strong profitability. It also clearly displayed those areas where we will have to work a little harder. The new strategic direction focused on five critical areas of activity. o Better managing our lines of business o Redirecting technology investment o Managing capital effectively o Pursuit of targeted acquisitions o Creating a growth culture in Wachovia Substantial progress has been made in four of these. We have moved away from lines of business where Wachovia did not enjoy an advantage. We have built strong strategies in other businesses and lifted growth expectations. Significant market and environmental changes have already occurred for several key lines of business since the completion of the study. Valuable partnerships and alliances have been created with other organizations to strengthen our product offerings and provide greater access to customers. In technology, our emphasis is shifting toward platforms that will help us grow. One of Wachovia's most challenging tasks is to balance technology needs, resources and priorities. Expanded dialogue concerning the use of technology in line with strategic intentions is taking place between leaders in systems, operations, lines of business and support elements. Important work has been done to analyze Wachovia's capital needs. In 1996, a share repurchase program was approved and 7.9 million shares were repurchased. In January 1997, the directors authorized the repurchase of an additional 10 million shares. In addition, excellent efforts are under way to more optimally use the balance sheet of the company and to enhance earnings and returns. With respect to mergers and acquisitions, we have looked at buying other banks and at possible mergers, being careful to seek opportunities that are financially attractive and consistent with the company's strategic direction. We will continue to examine attractive acquisition possibilities while moving forward with internal growth strategies. Recent success with consumer and corporate product initiatives leads us to believe that certain mergers could complement growth and accelerate the building of shareholder value. Certain actions are now needed to fulfill the strategic plan and lift the performance of the company to levels to which we aspire. Wachovia people have spent time together in recent months studying and reflecting on the elements which must be present for sustained growth and 7 LETTER TO SHAREHOLDERS "The Growth Initiatives program is exciting. It will, in concert with other elements of the strategic plan, be instrumental in lifting Wachovia's performance and insuring our vast potential for future success in a world which is being altered before our eyes." high performance. High performance organizations have certain qualities in common. They generally possess high aspirations, clear vision, strong motivation, supportive systems and processes, capable managers, breakthrough ideas, detailed action plans, sufficient resources, adequate skills, and thorough execution. All of these are present and part of Wachovia's culture. The questions we are asking internally are: Do we understand these and why they are important? Are we personally, professionally and passionately committed to ranking high in every one of these characteristics? Do we understand that the weakest link in this chain of ingredients will subdue performance to the weakest level? Can we change our company in ways that will assure us of continued success? There is under way within Wachovia a program of growth initiatives designed to create greater self-awareness on the part of business and service support units about this commitment to growth. The program is fundamentally simple, it is intellectually challenging, and it is financially rewarding. In stages, participants engage in a diagnostic process comparing themselves and their actions with high-performing growth companies. They develop action plans to correct areas of weakness and realign market efforts. They commit themselves to specific actions and to a higher rate of growth than previously thought possible. If these efforts are successful and the economy remains favorable, a higher growth rate is expected for the company. But the greatest dividends are more long-lasting. Within this company, bold Wachovia leaders are committing to higher rates of growth, changing their organizations to be more immediately responsive, subscribing to new initiatives and altering their view of operating missions. Most important, they are changing the way decisions are made in Wachovia, knocking down barriers to growth and fostering a contagious wave of enthusiasm that is sweeping across the organization. The Growth Initiatives program is exciting. It will, in concert with other elements of the strategic plan, be instrumental in lifting Wachovia's performance and insuring our vast potential for future success in a world which is being altered before our eyes. We live in a world of revolutionary change, of risk, upheaval and mystery. It is a world where the old rules of order are crumbling and new ones are posted on the Internet. It is a world rich in excitement and discovery, and it is heavy-laden with the delicious, heady aroma of possible success. Out of this world, from which the faint of heart must surely shrink, will come opportunities to match our real aspirations. Radical change and the expectation and anticipation of the turmoil flowing out of that process must become a daily and, not necessarily comfortable, challenge for our people. In the world which lies ahead, Wachovia must capitalize on its considerable strengths to continue its pattern of success, grow stronger, broaden capabilities and achieve the flexibility necessary to aggressively pursue new frontiers. It is perfectly acceptable to believe that we will use our formidable foundation to launch venture- 8 LETTER TO SHAREHOLDERS (Picture of a person working on a computer.) some probes into new lines of business, new areas of service, and new and vital areas of the dramatically awakening globe on which we live. It is reasonable to believe we can do all of this while ranking near the head of the class in which we are currently enrolled and while not losing our way or our values and principles. In a world where things we think about today may not be very relevant tomorrow, we will be flexible and tactically adept, changing pace as necessary. It is reasonable in this exciting environment to assume that we may not want to be limited to thinking of ourselves only as a financial services company. Our corporate purpose is to bring to customers solutions that are effective, reliable, relevant and of enduring competitive value. Wachovia will use its distinctive relationship orientation to provide these customers a broad array of high quality services conveniently, through diversified channels, and at a fair price. It will use its competencies in relationship and risk management to accelerate growth in lines of business where it can leverage these strengths. This approach will be delivered uniquely and effectively, using the considerable skills, experience, and talent of our employees. Wachovia also will accelerate development of knowledge capabilities and managerial practices to enable us to serve customers with greater speed and adaptability. At the core of our corporate purpose is winning profitable opportunities by being an outstanding provider of relationship-based services. Wachovia has growing and diversified revenue from a variety of exceptional customers. We will increase the number of customers and strengthen products offered to them. We will do so by diversifying delivery channels, improving the capability of business lines, creating new businesses, using technology strategically and strengthening sales performance. In order to grow and broaden capabilities, we will pursue joint ventures, strategic alliances and acquisitions. Our aspirations are to rank at or near the top of all relevant measures of bank and nonbank competition. In order to prevail in the complex times which lie ahead, we must move more quickly. We must continue our pattern of high revenue growth to gain greater resources for the opportunities to come. As we move toward the land of opportunity, we may need a little corporate heft of our own. Wachovia's Capital Markets area is moving aggressively to become a one-stop source of capital and funding solutions at all levels of a company's capital structure which favorably positions Wachovia as companies increasingly consolidate relationships they have with financial services providers. 9 LETTER TO SHAREHOLDERS (Picture of two people looking over a paper.) Wachovia's ability to meet corporate customers' growing need for an array of global services has been greatly enhanced by the recently announced alliance with HSBC Holdings plc to jointly market financial services. Our natural home is in the Southeast. By the end of this decade, our goal is to be the most preferred financial institution for consumers and institutions across this rich, expanding market area. We plan to have operations, offices and distinct capabilities in every market of our choice within the region. We will be a distinguished financial counselor for our customers. We want everyone to wish they could bank with Wachovia. By the end of this decade, Wachovia intends to enhance its superior position in corporate banking to rank number one or two in every local market served and within the top ten corporate banks on a national scale. We intend to retain our high national ranking in Treasury Services and cash management. We will be a sought-after, high-quality provider of capital market products, and we will move higher in the esteem of our corporate customers as a provider of technology-based services. Wachovia will, by the end of the decade, enjoy significant expansion and real operating capabilities in major global markets we choose through joint venture, strategic alliance and acquisition. A special effort will be made to study high-growth emerging markets to seek the possibility of expansion of Wachovia's successful domestic products for consumers and corporations. Our success and prowess in markets within the Southeast should give us growing confidence. We do consumer and corporate banking better than anyone else. It is time to consider moving beyond the Southeast. On a selected and choice basis within the next decade, Wachovia will construct a broader franchise across this nation. Work will continue in 1997 to examine markets of opportunity outside of our traditional home territory. Wachovia will sell information-based and processing services. A rich lode of information already exists within our reach. Through joint venture, strategic alliance, acquisition or internal development, Wachovia will, by the end of this decade, emerge as a high-quality, knowledge-based company offering technology-related products of value to corporate and individual customers. Finally, Wachovia must be larger. I believe it reasonable to propose that in the next three years, Wachovia conceivably could double its size and earnings through internal growth and acquisition. Our capabilities for technology 10 LETTER TO SHAREHOLDERS "The quality of services provided by that human being and the individual respect engendered by Wachovia will, even in a complex, new world, still make a difference." investment and new ventures will grow in measure with the size and scope of the new company. Our earnings and returns must remain exceptional. The resulting market capital will give us flexibility and enormous purchasing power. These goals will be difficult to achieve. They will require great change. They ultimately must result in the creation of a new, disciplined but entrepreneurial Wachovia, whose pathways are unobstructed in a rapidly changing world. A final and necessary acknowledgment is to declare again the critical importance of outstanding people. Without exception, in strong, well-managed companies, good ones are found. They possess a thirst for knowledge and willingness to learn. They explore new concepts. To them, no degree of risk is rationalized outside of prudent returns. They are responsible, making decisions readily and standing by them. They tell the truth. They achieve excellence. This describes the outstanding Wachovians who serve our customers today. In the exciting years ahead, we will hire, train, promote and inspire even better ones. Time and again when customers opine their willingness to deal with us in new and different ways, to forsake branches, to use computers, to manage financial affairs by phone, they are unanimous in stating a vitally important qualifier. At the end of the day, if they have an opportunity or problem, they want to talk to a human being, and they want to feel in control of their own destiny. The quality of services provided by that human being and the individual respect engendered by Wachovia will, even in a complex, new world, still make a difference. Wachovians offer unparalleled service to customers in ways these customers wish to be served. Service is locked up in our genes. In Wachovia, there is a promise to our customers: "We will always be there when you need us." We will be there in a relationship, providing solutions from a foundation of knowledge and trust. We have operated this way for years, and we will in the future. If a customer has a problem, a question or a concern, we will handle it. We talk this way, we operate this way, we live this way. For the customer, it is the promise, "We will be there for you at the end of the day." Portions of this letter were shared more fully with all 17,000 Wachovians in January in a recent special edition of Wachovia News. It lays out for our people the hopes, vision and even higher aspirations for Wachovia in the future. It also reaffirms our commitment to excellence, honesty, service and support for the human soul. Thank you for your continued support. Sincerely, /s/ L.M. Baker, Jr. L. M. Baker, Jr. Chief Executive Officer February 24, 1997 11 CORPORATE HIGHLIGHTS o HSBC Holdings plc and Wachovia Corporation announced in February 1997 the formation of an alliance to jointly market corporate financial services globally. The alliance significantly builds on an existing relationship between Wachovia and HSBC Holdings, providing broader product capabilities and geographical scope. Capabilities available to corporate customers under the expanded alliance will include trade services, such as import and export letters of credit; corporate banking services, such as local currency financing, cross-border and in-country cash management solutions; and structured and project financing, including government guaranteed financing. HSBC Holdings, headquartered in London, England, is among the world's largest banking and financial services companies with over 3,400 offices in 77 countries and assets totaling more than $368 billion at mid-year 1996. o In January 1997, Wachovia announced the signing of a definitive agreement to acquire a majority interest in Banco Portugues do Atlantico-Brasil S.A., a $100 million asset bank based in Sao Paulo, Brazil. The bank is engaged principally in corporate trade finance activity. Through the agreement, Wachovia will expand its corporate services capabilities to better facilitate the trade and international investment needs of multinational corporate customers conducting business in South America. The acquisition is expected to be completed in mid-1997. o Wachovia began private labeling of its treasury management services through a cash management servicing agreement announced with Wells Fargo. Under the arrangement, Wells Fargo will provide cash management services to its middle- and upper-market commercial customers under the Wells Fargo brand name using a Wachovia East Coast disbursing point and technology for providing check images. Private label arrangements will enable Wachovia to more quickly expand its market share opportunities, allowing the corporation to leverage its expertise in treasury management services, including advanced image technology capabilities, over a larger customer base. o Wachovia announced in September that it has entered the private equity business to serve more fully the funding needs of corporate clients. In conjunction with this move, Wachovia formed a relationship with Montreux Equity Partners, an investment firm specializing in making equity investments in companies seeking growth capital or buyout financing. The arrangement facilitates direct equity investments in private companies by Wachovia and private placements of equity for corporate clients. Wachovia's private equity activities initially will focus on small and medium-sized companies in the Southeast, while also considering attractive opportunities from across the business spectrum. o In the third quarter of 1996, Wachovia received approval from the Federal Reserve Board to establish Wachovia International Capital Corp., an international financial advisory services subsidiary. Wachovia International Capital Corp. will provide financial, investment, foreign exchange and tax advice to U.S. and foreign clients, primarily multinational companies. Offices will be maintained in Atlanta, Georgia, and Zurich, Switzerland. o Wachovia began in December the pilot test phase of sales lead generation for retail bankers using the corporation's Consolidated Customer Information File data base and Next Generation Branch Automation computer platform systems. The pilot phase is being conducted in the Piedmont area of North Carolina as 12 CORPORATE HIGHLIGHTS part of Wachovia's consumer banking strategy. Under the strategy, known as PRO for Profitable Relationship Optimization, bankers will receive from four to 16 sales leads daily. The leads are derived from an assessment of a targeted customer segment to determine the next most likely financial service needed by specific customers. o Wachovia initiated and completed in 1996 its Market Network Strategy project, designed to optimize the corporation's retail banking distribution network. Current and projected business opportunities for each market Wachovia serves were assessed with the aim of identifying the type and level of investment spending needed to best match present and future customer needs with appropriate delivery channels. Based on the study, Wachovia will custom fit its branch banking network to ensure operating profiles are consistent with market needs and demands. This will involve adding some new offices in selected growth markets while consolidating, selling or closing approximately 10 percent of the corporation's existing branch offices. Wachovia also will increase its network of ATMs and expand their functions while continuing to invest in Wachovia On-Call and the corporation's PC banking program. o Wachovia and Harris Teeter announced in January 1997 a multiyear agreement in principle to open in-store Wachovia banking branches and ATMs in Harris Teeter grocery stores in the Atlanta, Georgia, area. The in-store banking centers will be staffed by bankers who can open accounts, provide service, approve loans and sell financial products. The centers will offer the convenience of ATMs, electronic banking and Wachovia On-Call. o In March 1996, Wachovia opened its first banking office in Virginia. Located in Norfolk, the office serves customers in the attractive Hampton Roads area with a complete line of middle-market corporate banking, municipal finance, private banking, sales finance and statewide commercial mortgage services. In September, Wachovia opened an office in Jacksonville, Florida, through its subsidiary, Atlantic Savings Bank. The new Florida office provides consumer and mortgage loans, as well as some deposit services. o Wachovia's Visa Check card portfolio surpassed the 1 million card mark in the fourth quarter of 1996, making Wachovia the ninth largest Visa Check card issuer in the U.S. For 1996, Wachovia's Visa Check card activity represented over 33 million transactions compared with over 22 million transactions in 1995. Wachovia began issuing Visa Check cards to customers in August 1993. o Beginning in the first quarter of 1997, the corporation will expand its insurance business with a broader array and distribution of insurance products for individuals and small businesses. Life and disability insurance products will be sold through Wachovia Insurance Services of North Carolina, Inc., a subsidiary of Wachovia Corporation. Initial efforts will target employee, small business, private banking and trust markets in selected North Carolina cities, with programs directed to the mass market scheduled to start in the second quarter of 1997. Expansion into other North Carolina, South Carolina and Georgia markets will begin later in the year. Other insurance products such as long-term care and property and casualty insurance may be added at a later date. 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL SUMMARY TABLE 1
1996 1995 1994 1993 1992 1991 SUMMARY OF OPERATIONS (thousands, except per share data) Interest income -- taxable equivalent.......................... $3,297,231 $3,118,503 $2,462,454 $2,221,738 $2,301,325 $2,731,925 Interest expense...................... 1,672,602 1,579,107 1,038,388 839,012 967,028 1,467,849 Net interest income -- taxable equivalent.......................... 1,624,629 1,539,396 1,424,066 1,382,726 1,334,297 1,264,076 Taxable equivalent adjustment*........ 69,917 98,773 100,160 98,901 79,247 94,910 Net interest income................... 1,554,712 1,440,623 1,323,906 1,283,825 1,255,050 1,169,166 Provision for loan losses............. 149,911 103,791 71,763 92,652 119,420 293,000 Net interest income after provision for loan losses..................... 1,404,801 1,336,832 1,252,143 1,191,173 1,135,630 876,166 Other operating revenue............... 783,914 680,101 604,432 600,179 535,242 490,178 Gain on sale of mortgage servicing portfolio........................... -- 79,025 -- -- -- -- Gain on sale of subsidiary............ -- -- -- 8,030 19,486 -- Investment securities gains (losses)............................ 3,736 (23,494) 3,320 19,394 1,497 11,091 Total other income.................... 787,650 735,632 607,752 627,603 556,225 501,269 Personnel expense..................... 654,525 600,326 563,507 568,680 539,823 524,489 Other expense......................... 603,024 603,270 534,906 562,556 555,829 572,028 Total other expense................... 1,257,549 1,203,596 1,098,413 1,131,236 1,095,652 1,096,517 Income before income taxes............ 934,902 868,868 761,482 687,540 596,203 280,918 Applicable income taxes**............. 290,345 266,325 222,424 195,445 162,978 51,378 Net income............................ $ 644,557 $ 602,543 $ 539,058 $ 492,095 $ 433,225 $ 229,540 Net income per common share: Primary............................. $ 3.81 $ 3.50 $ 3.13 $ 2.83 $ 2.51 $ 1.34 Fully diluted....................... $ 3.80 $ 3.49 $ 3.12 $ 2.81 $ 2.48 $ 1.32 Cash dividends paid per common share............................... $ 1.52 $ 1.38 $ 1.23 $ 1.11 $ 1.00 $ .92 Cash dividends paid on common stock... $ 254,458 $ 235,495 $ 210,503 $ 191,488 $ 170,756 $ 146,404 Cash dividend payout ratio............ 39.5% 39.1% 39.1% 38.9% 39.4% 63.8% Average primary shares outstanding.... 169,094 172,089 172,339 173,941 172,641 171,481 Average fully diluted shares outstanding......................... 169,827 172,957 172,951 175,198 175,512 175,218 SELECTED AVERAGE BALANCES (millions) Total assets.......................... $ 45,229 $ 41,473 $ 37,029 $ 33,629 $ 31,832 $ 32,045 Loans -- net of unearned income....... 30,249 27,505 24,213 21,546 20,032 20,589 Investment securities................. 8,612 8,340 7,683 7,039 6,201 5,783 Other interest-earning assets......... 1,533 1,152 898 1,195 1,864 1,988 Total interest-earning assets......... 40,394 36,997 32,794 29,780 28,097 28,360 Interest-bearing deposits............. 20,772 18,960 16,931 17,019 17,884 17,924 Short-term borrowed funds............. 8,010 7,798 6,230 5,403 4,961 6,080 Long-term debt........................ 6,070 4,902 4,350 2,073 449 178 Total interest-bearing liabilities.... 34,852 31,660 27,511 24,495 23,294 24,182 Noninterest-bearing deposits.......... 5,453 5,302 5,384 5,354 4,947 4,595 Total deposits........................ 26,225 24,262 22,315 22,373 22,831 22,519 Shareholders' equity.................. 3,658 3,410 3,096 2,872 2,596 2,462 RATIOS (averages) Net loan losses to loans.............. .49% .37% .29% .31% .48% .99% Net yield on interest-earning assets.............................. 4.02 4.16 4.34 4.64 4.75 4.46 Shareholders' equity to: Total assets........................ 8.09 8.22 8.36 8.54 8.16 7.68 Net loans........................... 12.26 12.58 13.01 13.58 13.21 12.13 Return on assets...................... 1.43 1.45 1.46 1.46 1.36 .72 Return on shareholders' equity........ 17.62 17.67 17.41 17.13 16.69 9.33
Five-Year Compound Growth Rate SUMMARY OF OPERATIONS (thousands, except per share data) Interest income -- taxable equivalent.......................... 3.8% Interest expense...................... 2.6 Net interest income -- taxable equivalent.......................... 5.1 Taxable equivalent adjustment*........ (5.9) Net interest income................... 5.9 Provision for loan losses............. (12.5) Net interest income after provision for loan losses..................... 9.9 Other operating revenue............... 9.8 Gain on sale of mortgage servicing portfolio........................... Gain on sale of subsidiary............ Investment securities gains (losses)............................ (19.6) Total other income.................... 9.5 Personnel expense..................... 4.5 Other expense......................... 1.1 Total other expense................... 2.8 Income before income taxes............ 27.2 Applicable income taxes**............. 41.4 Net income............................ 22.9 Net income per common share: Primary............................. 23.2 Fully diluted....................... 23.5 Cash dividends paid per common share............................... 10.6 Cash dividends paid on common stock... 11.7 Cash dividend payout ratio............ Average primary shares outstanding.... (.3) Average fully diluted shares outstanding......................... (.6) SELECTED AVERAGE BALANCES (millions) Total assets.......................... 7.1 Loans -- net of unearned income....... 8.0 Investment securities................. 8.3 Other interest-earning assets......... (5.1) Total interest-earning assets......... 7.3 Interest-bearing deposits............. 3.0 Short-term borrowed funds............. 5.7 Long-term debt........................ 102.6 Total interest-bearing liabilities.... 7.6 Noninterest-bearing deposits.......... 3.5 Total deposits........................ 3.1 Shareholders' equity.................. 8.2 RATIOS (averages) Net loan losses to loans.............. Net yield on interest-earning assets.............................. Shareholders' equity to: Total assets........................ Net loans........................... Return on assets...................... Return on shareholders' equity........
*Taxable equivalent adjustments reflect federal income tax rates of 35% in 1996, 1995, 1994 and 1993 and 34% in 1992 and 1991 **Income taxes applicable to securities transactions were $1,522, ($8,576), $1,328, $7,472, $470 and $3,997, respectively 14 RESULTS OF OPERATIONS 1996 VS. 1995 OVERVIEW During 1996, the economy showed continued resilience in its sixth year of expansion. Growth progressed at an overall moderate rate and inflationary pressures remained low, while signs of strains from consumer indebtedness increased. Based on preliminary data, unemployment in the nation was 5.4 percent for the year compared with 5.6 percent in 1995. Within Wachovia Corporation's primary operating states of Georgia, North Carolina and South Carolina, economic conditions remained favorable with unemployment rates averaging 4.5 percent, 4.3 percent and 5.6 percent, respectively. Wachovia Corporation's consolidated net income for 1996 was $644.557 million or $3.80 per fully diluted share compared with $602.543 million or $3.49 per fully diluted share in 1995. The earnings increase reflected a higher level of net interest income, strong gains in other operating revenue and controlled expense growth. A reduction in average fully diluted shares outstanding under the corporation's share repurchase plan also contributed to the earnings rise on a per share basis. Net income represented returns of 17.62 percent on shareholders' equity and 1.43 percent on assets versus 17.67 percent and 1.45 percent, respectively, in 1995. Expanded discussion of operating results and the corporation's financial condition is presented in the following narrative with accompanying tables and charts. Interest income is stated on a taxable equivalent basis which is adjusted for the tax-favored status of earnings from certain loans and investments. References to changes in assets and liabilities represent daily average levels unless otherwise noted. The narrative should be read in conjunction with the Consolidated Financial Statements and Notes on pages 43 through 63. Expanded six-year financial data appears on pages 64 through 71. Net Income Per Share Net Income (fully diluted) (millions) (Chart appears here. (Chart appears here. Plot points are below.) Plot Points are below.) 91 92 93 94 95 96 91 92 93 94 95 96 1.32 2.48 2.81 3.12 3.49 3.80 229.5 433.2 492.1 539.1 602.5 644.6 NET INTEREST INCOME Taxable equivalent net interest income increased $85.233 million or 5.5 percent in 1996. Growth primarily reflected good gains in both commercial and consumer loans, with a lower average rate paid on interest-bearing liabilities also contributing to the rise, particularly in the latter half of the year. Moderating the increase were higher levels of interest-bearing liabilities to support interest-earning asset expansion and a reduced average rate earned on interest-earning assets. The net yield on interest- earning assets (taxable equivalent net interest income as a percentage of average interest-earning assets) decreased 14 basis points to 4.02 percent, reflecting a narrower interest rate spread and reduced 15 benefits from noninterest-bearing funding sources. The corporation anticipates a slightly higher net yield on interest-earning assets in 1997, which could be moderated by several factors, particularly if the earning asset mix changed due to slower than expected loan growth offset by a higher volume of lower yielding investment securities. Effective with the first quarter of 1996, factors used by the corporation for calculating taxable equivalent adjustments to interest income on tax free loans and investment securities were changed to reflect apportionment versus full allocation of respective state income tax rates. The change more accurately reflects earning asset income contribution and had the effect of reducing the taxable equivalent adjustment to net interest income. Prior period amounts have not been restated. If the new factors had been in effect in 1995, taxable equivalent net interest income in 1996 would have increased $103.464 million or 6.8 percent from 1995 compared with a reported increase of $85.233 million or 5.5 percent. In addition, the net yield on interest-earning assets would have declined 9 basis points versus the 14 basis points reported. Net Interest Income* (millions) (Chart appears here. Plot points are below.) 91 92 93 94 95 96 Interest Income* $2731.9 $2301.3 $2221.7 $2462.5 $3118.5 $3297.2 Interest expense $1467.8 $ 967.0 $ 839.0 $1038.4 $1579.1 $1672.6 Net interest income* $1264 $1334 $1383 $1424 $1539 $1625 COMPONENTS OF EARNINGS PER PRIMARY SHARE TABLE 2
Change 1996 1995 1994 1996/1995 Interest income -- taxable equivalent................................. $19.50 $18.12 $14.29 $1.38 Interest expense...................................................... 9.89 9.18 6.03 .71 Net interest income -- taxable equivalent............................. 9.61 8.94 8.26 .67 Taxable equivalent adjustment......................................... .41 .57 .58 (.16) Net interest income................................................... 9.20 8.37 7.68 .83 Provision for loan losses............................................. .89 .60 .42 .29 Net interest income after provision for loan losses................... 8.31 7.77 7.26 .54 Other operating revenue............................................... 4.64 3.95 3.51 .69 Gain on sale of mortgage servicing portfolio.......................... -- .46 -- (.46) Investment securities gains (losses).................................. .02 (.14) .02 .16 Total other income.................................................... 4.66 4.27 3.53 .39 Personnel expense..................................................... 3.87 3.49 3.27 .38 Other expense......................................................... 3.57 3.50 3.10 .07 Total other expense................................................... 7.44 6.99 6.37 .45 Income before income taxes............................................ 5.53 5.05 4.42 .48 Applicable income taxes............................................... 1.72 1.55 1.29 .17 Net income............................................................ $ 3.81 $ 3.50 $ 3.13 $ .31 Change 1995/1994 Interest income -- taxable equivalent................................. $3.83 Interest expense...................................................... 3.15 Net interest income -- taxable equivalent............................. .68 Taxable equivalent adjustment......................................... (.01) Net interest income................................................... .69 Provision for loan losses............................................. .18 Net interest income after provision for loan losses................... .51 Other operating revenue............................................... .44 Gain on sale of mortgage servicing portfolio.......................... .46 Investment securities gains (losses).................................. (.16) Total other income.................................................... .74 Personnel expense..................................................... .22 Other expense......................................................... .40 Total other expense................................................... .62 Income before income taxes............................................ .63 Applicable income taxes............................................... .26 Net income............................................................ $ .37
16 TAXABLE EQUIVALENT RATE/VOLUME VARIANCE ANALYSIS* TABLE 3
Variance Attributable Average Volume Average Rate Interest to 1996 1995 1996 1995 1996 1995 Variance Rate (Millions) INTEREST INCOME (Thousands) Loans: $ 9,837 $ 9,154 7.05 7.44 Commercial...................... $ 693,947 $ 681,206 $ 12,741 $(36,512) 2,042 1,968 8.88 9.81 Tax-exempt...................... 181,279 193,080 (11,801) (18,886) 11,879 11,122 7.37 7.86 Total commercial................ 875,226 874,286 940 (56,626) 758 734 9.41 9.23 Direct retail................... 71,369 67,803 3,566 1,328 2,565 2,444 8.29 8.22 Indirect retail................. 212,611 200,818 11,793 1,810 4,205 3,952 11.99 12.35 Credit card..................... 504,224 488,158 16,066 (14,591) 354 344 12.20 12.61 Other revolving credit.......... 43,235 43,390 (155) (1,409) 7,882 7,474 10.55 10.71 Total retail.................... 831,439 800,169 31,270 (11,893) 807 640 8.92 9.82 Construction.................... 72,015 62,823 9,192 (6,109) 4,152 3,676 8.30 8.62 Commercial mortgages............ 344,460 316,956 27,504 (12,317) 4,424 4,018 8.39 8.36 Residential mortgages........... 371,311 335,907 35,404 1,357 9,383 8,334 8.40 8.59 Total real estate............... 787,786 715,686 72,100 (16,243) 647 271 9.44 8.73 Lease financing................. 61,110 23,598 37,512 2,077 458 304 7.02 7.43 Foreign......................... 32,098 22,610 9,488 (1,325) 30,249 27,505 8.55 8.86 Total loans..................... 2,587,659 2,436,349 151,310 (85,523) Investment securities: Held-to-maturity: -- 2,275 -- 6.79 U.S. government and agency...... -- 154,571 (154,571) -- 1,197 1,446 8.04 8.01 Mortgage-backed securities...... 96,316 115,889 (19,573) 452 274 424 11.15 11.84 State and municipal............. 30,501 50,192 (19,691) (2,793) 2 15 8.80 5.77 Other........................... 193 832 (639) 295 Total securities 1,473 4,160 8.62 7.73 held-to-maturity........ 127,010 321,484 (194,474) 33,535 Available-for-sale:** 5,307 3,078 6.77 6.88 U.S. government and agency...... 359,306 211,766 147,540 (3,471) 1,568 901 7.03 6.61 Mortgage-backed securities...... 110,265 59,570 50,695 4,020 264 201 6.81 6.29 Other........................... 17,950 12,653 5,297 1,132 Total securities 7,139 4,180 6.83 6.79 available-for-sale...... 487,521 283,989 203,532 1,474 8,612 8,340 7.14 7.26 Total investment securities..... 614,531 605,473 9,058 (10,479) Interest-bearing bank 418 115 7.92 7.93 balances........................ 33,106 9,121 23,985 (12) Federal funds sold and securities purchased under 212 122 5.45 5.93 resale agreements............. 11,573 7,234 4,339 (636) 903 915 5.58 6.59 Trading account assets.......... 50,362 60,326 (9,964) (9,174) $40,394 $36,997 8.16 8.43 Total interest-earning assets... 3,297,231 3,118,503 178,728 (100,884) INTEREST EXPENS $ 3,298 $ 3,264 1.43 1.81 Interest-bearing demand......... 47,166 59,016 (11,850) (12,464) Savings and money market 7,650 6,540 3.58 3.67 savings......................... 273,832 240,329 33,503 (6,371) 6,499 6,492 5.69 5.70 Savings certificates............ 369,885 370,289 (404) (838) Large denomination 2,284 1,915 5.94 5.85 certificates.................... 135,737 111,944 23,793 1,879 Total time deposits in 19,731 18,211 4.19 4.29 domestic offices........ 826,620 781,578 45,042 (19,033) Time deposits in foreign 1,041 749 5.28 5.59 offices......................... 54,942 41,876 13,066 (2,413) 20,772 18,960 4.24 4.34 Total time deposits............. 881,562 823,454 58,108 (19,150) Federal funds purchased and securities sold under 6,199 5,264 5.41 6.02 repurchase agreements......... 335,290 316,759 18,531 (34,079) 596 505 4.88 5.51 Commercial paper................ 29,051 27,807 1,244 (3,421) Other short-term borrowed 1,215 2,029 5.49 6.03 funds........................... 66,753 122,441 (55,688) (10,159) Total short-term 8,010 7,798 5.38 5.99 borrowed funds.......... 431,094 467,007 (35,913) (48,307) 4,544 3,864 5.75 5.67 Bank notes...................... 261,174 219,035 42,139 3,034 1,526 1,038 6.47 6.70 Other long-term debt............ 98,772 69,611 29,161 (2,484) 6,070 4,902 5.93 5.89 Total long-term debt............ 359,946 288,646 71,300 2,010 Total interest-bearing $34,852 $31,660 4.80 4.99 liabilities............. 1,672,602 1,579,107 93,495 (61,362) 3.36 3.44 INTEREST RATE SPREAD NET YIELD ON INTEREST-EARNING ASSETS 4.02 4.16 AND NET INTEREST INCOME....... $1,624,629 $1,539,396 $ 85,233 (52,656)
Variance Attributable to Volume $ 49,253 7,085 57,566 2,238 9,983 30,657 1,254 43,163 15,301 39,821 34,047 88,343 35,435 10,813 236,833 (154,571) (20,025) (16,898) (934) (228,009) 151,011 46,675 4,165 202,058 19,537 23,997 4,975 (790) 279,612 614 39,874 434 21,914 64,075 15,479 77,258 52,610 4,665 (45,529) 12,394 39,105 31,645 69,290 154,857 137,889 *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 $94 million in 1996 and $34 million in 1995 17 INTEREST INCOME Taxable equivalent interest income was higher by $178.728 million or 5.7 percent, fueled by solid growth in interest-earning assets, primarily loans. Interest-earning assets advanced $3.397 billion or 9.2 percent, more than offsetting the impact of a 27 basis point decline in the average rate earned. Loans accounted for 81 percent of the growth in average interest-earning assets versus 78 percent in 1995, reflecting continued good loan demand and modest reduction of the investment securities portfolio in the latter half of the year. At December 31, 1996, loans represented 76.7 percent of total interest-earning assets and investment securities 19.9 percent compared with 73.2 percent and 22.6 percent, respectively, one year earlier. Average loans rose $2.744 billion or 10 percent for the year. Gains were led by the commercial portfolio but remained broad based, with all individual loan categories increasing. Growth in the consumer portfolio was moderated by the full-year impact in 1996 of a $500 million credit card securitization in late October 1995. For 1997, management anticipates still good but slightly more moderate loan growth, with the mix of commercial loans shifting more to small business, middle-market and real estate. Credit cards and residential mortgages, including home equity loans, are expected to continue to lead consumer loan growth. Commercial loans, including related real estate categories, expanded $1.930 billion or 12.1 percent in 1996. Increases were paced by regular commercial loans, by commercial mortgages and by lease financing. Good gains also were achieved in construction loans, fueled by continued building expansion in the corporation's large metropolitan markets, and in foreign loans. Tax-exempt loans were up modestly, impacted by portfolio runoff in the latter half of the year. The corporation anticipates further runoff in the portfolio in 1997, reflecting the reduced availability of tax-exempt borrowing and lending under current tax laws. At December 31, 1996, commercial real estate loans, based on regulatory definitions, were $5.329 billion, representing 17 percent of total loans. Commercial mortgages were $4.349 billion or 13.9 percent of total loans and construction loans were $980 million or 3.1 percent. 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. Comparable amounts at year-end 1995 were $4.601 billion of commercial real estate loans, representing 15.7 percent of total loans, with $3.855 billion of commercial mortgages and $746 million of construction loans, representing 13.2 percent and 2.5 percent, respectively, of the total loan portfolio. Also at December 31, 1996, the corporation had cross-border commitments, consisting primarily of loans, of $510 million or 1.09 percent of total assets compared with $406 million or .9 percent one year earlier. All of the corporation's cross-border commitments at December 31, 1996 and 1995 were extended to foreign financial institutions and corporations. There were no loans or commitments to foreign governments at either year end. SELECTED LOAN MATURITIES AND INTEREST SENSITIVITY TABLE 4 December 31, 1996 (thousands)
One Year One to Total or Less Five Years Commercial, financial and other........................ $ 9,661,757 $ 8,723,486 $ 740,059 Industrial revenue and other tax-exempt financing...... 1,936,785 1,031,800 344,233 Construction and land development...................... 979,649 838,268 141,381 Commercial mortgages................................... 4,349,438 2,128,681 900,051 Loans to domestic borrowers...................... 16,927,629 12,722,235 2,125,724 Loans to foreign borrowers............................. 435,704 288,107 147,597 Selected loans, net.............................. $17,363,333 $13,010,342 $2,273,321 Interest sensitivity: Loans with predetermined interest rates.............. $ 7,049,442 $ 3,376,604 $2,072,054 Loans with floating interest rates................... 10,313,891 9,633,738 201,267 Total............................................ $17,363,333 $13,010,342 $2,273,321 Over Five Years Commercial, financial and other........................ $ 198,212 Industrial revenue and other tax-exempt financing...... 560,752 Construction and land development...................... -- Commercial mortgages................................... 1,320,706 Loans to domestic borrowers...................... 2,079,670 Loans to foreign borrowers............................. -- Selected loans, net.............................. $2,079,670 Interest sensitivity: Loans with predetermined interest rates.............. $1,600,784 Loans with floating interest rates................... 478,886 Total............................................ $2,079,670
18 INVESTMENT SECURITIES TABLE 5 December 31 (thousands)
1996 Taxable 1995 Amortized Unrealized Unrealized Fair Average Equivalent Amortized Cost Gain Loss Value Maturity Yield* Cost (Yrs./Mos.) HELD-TO-MATURITY U.S. Treasury and other U.S. government agencies: Within one year..... $ -- $ -- $ -- $ -- $ -- One to five years... -- -- -- -- -- Five to ten years... -- -- -- -- -- Over ten years...... -- -- -- -- -- Total........... -- -- -- -- -- State and municipal: Within one year..... 9,128 87 3 9,212 11.27% 54,702 One to five years... 24,822 2,672 4 27,490 12.65 99,231 Five to ten years... 74,129 11,511 15 85,625 11.96 103,983 Over ten years...... 59,822 6,679 76 66,425 12.02 63,129 Total........... 167,901 20,949 98 188,752 8/3 12.05 321,045 Mortgage-backed: Within one year..... -- -- -- -- -- One to five years... 125,681 1,884 24 127,541 7.21 -- Five to ten years... 164,342 3,861 -- 168,203 6.85 192,917 Over ten years...... 814,332 40,982 374 854,940 8.61 1,105,018 Total........... 1,104,355 46,727 398 1,150,684 18/0 8.19 1,297,935 Other interest-earning investments: Within one year..... 5,399 43 -- 5,442 10.16 -- One to five years... 29,111 1,239 -- 30,350 10.10 250 Five to ten years... 37,711 2,482 -- 40,193 10.13 250 Over ten years...... 7,614 527 7 8,134 9.88 -- Total........... 79,835 4,291 7 84,119 5/10 10.10 500 Total held-to-maturity.. 1,352,091 71,967 503 1,423,555 16/0 8.82 1,619,480 AVAILABLE-FOR-SALE U.S. Treasury and other U.S. government agencies: Within one year..... 2,068,844 7,595 3,493 2,072,946 5.55 571,027 One to five years... 2,679,753 41,164 2,743 2,718,174 6.70 4,999,499 Five to ten years... 5,149 351 -- 5,500 8.91 251 Over ten years...... 11,166 4,692 -- 15,858 13.35 16,188 Total........... 4,764,912 53,802 6,236 4,812,478 1/4 6.24 5,586,965 Mortgage-backed: Within one year..... 7,270 140 -- 7,410 7.91 12,526 One to five years... 157,593 1,417 181 158,829 6.72 121,869 Five to ten years... 356,148 2,399 2,256 356,291 4.23 244,326 Over ten years...... 1,010,796 14,956 4,644 1,021,108 7.06 1,093,040 Total........... 1,531,807 18,912 7,081 1,543,638 15/0 6.38 1,471,761 Other interest-earning investments: Within one year..... -- -- -- -- 10 One to five years... 332,878 10 594 332,294 6.80 25,525 Five to ten years... -- -- -- -- 248 Over ten years...... -- -- -- -- 73,200 Total........... 332,878 10 594 332,294 2/8 6.80 98,983 Total available-for-sale interest-earning investments......... 6,629,597 72,724 13,911 6,688,410 4/7 6.30 7,157,709 Federal Reserve Bank stock and other investments......... 61,576 10,682 182 72,076 62,004 Total available-for-sale.. 6,691,173 83,406 14,093 6,760,486 7,219,713 Total portfolio..... $8,043,264 $155,373 $ 14,596 $8,184,041 $8,839,193 1995 1994 Fair Amortized Fair Value Cost Value HELD-TO-MATURITY U.S. Treasury and other U.S. government agencies: Within one year..... $ -- $ 3,486 $ 3,481 One to five years... -- 2,387,449 2,296,620 Five to ten years... -- 84,469 88,910 Over ten years...... -- 16,072 20,165 Total........... -- 2,491,476 2,409,176 State and municipal: Within one year..... 55,343 190,528 193,693 One to five years... 105,795 155,436 161,733 Five to ten years... 120,449 123,316 133,342 Over ten years...... 72,841 85,085 90,396 Total........... 354,428 554,365 579,164 Mortgage-backed: Within one year..... -- 1,709 1,689 One to five years... -- 158,964 153,913 Five to ten years... 197,342 212,624 201,934 Over ten years...... 1,168,952 751,253 754,798 Total........... 1,366,294 1,124,550 1,112,334 Other interest-earning investments: Within one year..... -- -- -- One to five years... 250 13,721 13,484 Five to ten years... 250 498 486 Over ten years...... -- -- -- Total........... 500 14,219 13,970 Total held-to-maturity.. 1,721,222 4,184,610 4,114,644 AVAILABLE-FOR-SALE U.S. Treasury and other U.S. government agencies: Within one year..... 576,392 861,302 853,695 One to five years... 5,129,215 1,652,408 1,607,213 Five to ten years... 266 -- -- Over ten years...... 23,272 -- -- Total........... 5,729,145 2,513,710 2,460,908 Mortgage-backed: Within one year..... 12,574 -- -- One to five years... 122,720 228,181 223,207 Five to ten years... 249,971 264,416 259,869 Over ten years...... 1,121,124 339,770 332,971 Total........... 1,506,389 832,367 816,047 Other interest-earning investments: Within one year..... 10 6,770 6,810 One to five years... 25,565 64,826 64,837 Five to ten years... 256 495 515 Over ten years...... 73,200 91,900 91,913 Total........... 99,031 163,991 164,075 Total available-for-sale interest-earning investments......... 7,334,565 3,510,068 3,441,030 Federal Reserve Bank stock and other investments......... 75,260 90,026 97,217 Total available-for-sale.. 7,409,825 3,600,094 3,538,247 Total portfolio..... $9,131,047 $7,784,704 $7,652,891
*Yields are presented on a fully taxable equivalent basis using the federal income tax rate and state tax rates, as applicable 19 Consumer loans, including residential mortgages, rose $814 million or 7.1 percent. Substantially all of the increase occurred in residential mortgages, credit cards and indirect retail loans, which consist primarily of automobile sales financing. Growth in residential mortgages reflected, in part, good gains in home equity loans, which increased throughout 1996 on a sequential month basis except during the first quarter. Credit card outstandings rose sequentially in 11 of the 12 months of 1996. At December 31, 1996, managed credit card receivables totaled $5.444 billion, including $625 million of net securitized loans. This compared with $4.543 billion, including $625 million of net securitized loans, one year earlier. Variable rate cards represented 84 percent and 91 percent of the portfolio at year-end 1996 and 1995, respectively. Additional information on the corporation's managed credit card receivables, including net loss data and delinquency ratios, is presented on page 27. Investment securities, the second largest category of interest-earning assets, increased $272 million or 3.3 percent. While the portfolio was up modestly for the year, portions were allowed to decline in the latter half of 1996 in conjunction with the corporation's balance sheet management. The portfolio is expected to be modestly smaller in 1997 than in 1996. Changes in the portfolio mix between held-to-maturity and available-for-sale securities reflect the reclassification in the fourth quarter of 1995 of securities held-to-maturity with a book value of $2.720 billion and a market value of $2.774 billion to securities available-for-sale. The one-time reclassification was permitted for year-end 1995 financial statements 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." The corporation made the reclassification primarily to provide additional flexibility in managing the investment securities portfolio. At December 31, 1996, securities available-for-sale totaled $6.760 billion and securities held-to-maturity were $1.352 billion. Average securities available-for-sale marked to fair market value had an unrealized gain of $93.556 million, pretax, and $57.086 million, net of tax, from changes in market value. The investment grade of the corporation's municipal portfolio remained good with 94.8 percent rated A or higher by Moody's at December 31, 1996 compared with 94.7 percent at year-end 1995. INTEREST EXPENSE Interest expense was up $93.495 million or 5.9 percent for the year. The increase reflected a $3.192 billion or 10.1 percent rise in interest-bearing liabilities moderated, in part, by a 19 basis point decline in the average rate paid. Time deposits and long-term debt accounted for substantially all of the year's growth in interest-bearing liabilities. To further broaden its funding base, the corporation is deploying a variety of sound debt and equity instruments while continuing innovative marketing for traditional funding sources. This includes the introduction of a global bank note program in the second quarter of the year, the issuance of senior debt and trust capital securities in the fourth quarter and greater reliance on money market instruments, such as the corporation's Premiere account. Management believes that continued flexibility and innovation will be required by financial institutions to attract future funding through deposit products and alternative sources. Discussion of the corporation's liquidity policies may be found beginning on page 25. Interest-bearing time deposits rose $1.812 billion or 9.6 percent. The increase was paced primarily by savings and money market savings, reflecting gains in Wachovia's Premiere account. The Premiere account is a federally insured savings account offering interest rates competitive with money market rates. Good growth also occurred in large denomination certificates and in foreign time deposits. Interest-bearing demand deposits and savings certificates expanded slightly for the year. Short-term borrowings increased modestly, rising $212 million or 2.7 percent. Gains occurred primarily in federal funds purchased and securities sold under repurchase agreements but were offset, in large part, by a reduction of other short-term borrowings, which consist mainly of short-term bank notes. Short-term bank notes are part of Wachovia Bank of North Carolina's $16 billion global bank note program, which began in April 1996 and consists of both short- and medium-term issues. At December 31, 1996, short-term bank notes totaled $515 million and had an average cost of 5.44 percent and an average maturity of 3.57 months compared with $1.413 billion in outstandings with an average cost of 5.86 percent and an average maturity of 1.04 months one year earlier. The decline in 20 short-term bank notes reflects management's decision to lengthen maturities of its debt instruments. Medium-term bank notes, classified as part of long-term debt, were $4.308 billion at December 31, 1996 and had an average cost of 5.81 percent and an average maturity of 1.81 years versus $4.088 billion, 5.77 percent and 1.23 years, respectively, at year-end 1995. Included in medium-term bank notes at December 31, 1996 were three issues placed in Europe during the year: $500 million of five-year floating rate notes issued in May; $100 million of two-year fixed rate notes issued in August; and $250 million of 12-year fixed rate notes issued in October. The five-year floating rate notes were priced to yield three-month LIBOR plus 4 basis points to the investor, while the 2- and 12-year fixed rate notes have coupon rates of 6.375 percent and 7 percent, respectively. All of the medium-term bank notes are rated Aa2 by Moody's and AA+ by Standard & Poor's. Long-term debt expanded $1.168 billion or 23.8 percent with growth occurring both in medium-term bank notes and in other long-term debt. Medium-term bank notes increased $680 million or 17.6 percent and other long-term debt rose $488 million or 47 percent. Included in other long-term debt at year-end 1996 was $200 million of senior debt fixed rate notes with a 10-year maturity issued in November and $300 million of 30-year trust capital securities issued in December. The senior debt notes have a coupon rate of 6.625 percent and were rated Aa3 by Moody's and AA by Standard & Poor's. The trust capital securities have a 7.64 percent coupon rate deductible as interest expense and were rated Aa3 by Moody's and A+ by Standard & Poor's. The trust capital securities qualify as part of regulatory Tier I capital under capital guidelines of the Federal Reserve Board. Gross deposits averaged $26.225 billion in 1996, up $1.963 billion or 8.1 percent from $24.262 billion in 1995. Collected deposits, net of float, averaged $24.375 billion for the year versus $22.498 billion in 1995, an increase of $1.877 billion or 8.3 percent. ASSET AND LIABILITY MANAGEMENT AND INTEREST RATE SENSITIVITY The goal of asset and liability management is to maintain high quality and consistent growth of net interest income with acceptable levels of risk to changes in interest rates. The corporation seeks to meet this goal by influencing the maturity and repricing characteristics of the various lending and deposit taking lines of business, by managing discretionary balance sheet asset and liability portfolios and by utilizing off-balance sheet financial instruments. Interest rate risk management is carried out by Funds Management which operates under policies established by the Finance Committee of the corporation's board of directors and the guidance of the Management Finance Committee. Rate risk, liquidity, capital positions and discretionary on- and off-balance sheet activity is reviewed quarterly by the Board Finance Committee. Interim oversight of the asset and liability function is provided through regular meetings of Funds Management managers and the Chief Financial Officer. Funds Management personnel carry out day-to-day activity within approved risk management guidelines and strategies. The corporation uses a number of tools to measure interest rate risk, including simulating net interest income under various rate scenarios, monitoring the change in present value of the asset and liability portfolios under the same rate scenarios and monitoring the difference or gap between rate sensitive assets and liabilities over various time periods. The rate sensitivity gap table on page 22 sets forth the volume of interest-earning assets and interest-bearing liabilities outstanding as of year-ends 1996 and 1995 which mature or are projected to reprice in each of the future time periods shown. The projected asset repricing volumes include management assumptions of prepayments of mortgage related assets and automobile financing. Also, the projected interest checking and savings and money market savings repricing volumes are based on management assumptions of the sensitivity of these accounts in relationship to changes in short-term money market interest rates. The sensitivity assumptions for these two deposit categories were reduced somewhat in 1996 compared with 1995. Since assets and liabilities within each interest sensitive period may not reprice by the same amount or at the same time, the following table may not be reflective of changes in net interest income which would result from changes in the general level of interest rates. 21 Interest Rate Sensitivity Gap Analysis
Interest Sensitive Period 7 to Over One $ IN MILLIONS 0 to 3 4 to 6 12 Total Within Year and December 31, 1996 Months Months Months One Year Nonsensitive Loans and net leases, net of unearned income....................... $19,453 $1,274 $1,757 $ 22,484 $ 8,799 Investment securities.............................................. 440 700 1,472 2,612 5,501 Interest-bearing bank balances..................................... 28 -- -- 28 -- Federal funds sold and securities purchased under resale agreements......................................................... 179 -- -- 179 -- Trading account assets............................................. 1,186 -- -- 1,186 -- Total earning assets......................................... 21,286 1,974 3,229 26,489 14,300 Interest-bearing demand............................................ 468 122 244 834 2,629 Savings and money market savings................................... 5,888 263 527 6,678 1,659 Savings certificates............................................... 1,553 1,444 1,071 4,068 2,369 Large denomination certificates.................................... 714 403 222 1,339 371 Time deposits in foreign offices................................... 1,156 29 -- 1,185 -- Federal funds purchased and securities sold under repurchase agreements......................................................... 6,263 15 -- 6,278 20 Commercial paper................................................... 706 -- -- 706 -- Other short-term borrowed funds.................................... 690 220 1 911 56 Bank notes......................................................... 2,514 150 275 2,939 1,369 Other long-term debt............................................... -- -- -- -- 2,159 Total interest-bearing liabilities........................... 19,952 2,646 2,340 24,938 10,632 Interest rate swaps................................................ (506) (91 ) (5 ) (602) 602 Interest sensitivity gap..................................... 828 (763 ) 884 $ 949 4,270 Cumulative interest sensitivity gap.......................... $ 828 $ 65 $ 949 $ 5,219 December 31, 1995 Loans and net leases, net of unearned income....................... $18,226 $1,162 $1,492 $ 20,880 $ 8,381 Investment securities.............................................. 416 316 681 1,413 7,617 Interest-bearing bank balances..................................... -- -- 446 446 5 Federal funds sold and securities purchased under resale agreements......................................................... 144 -- -- 144 -- Trading account assets............................................. 1,115 -- -- 1,115 -- Total earning assets......................................... 19,901 1,478 2,619 23,998 16,003 Interest-bearing demand............................................ 625 150 300 1,075 2,399 Savings and money market savings................................... 5,504 212 425 6,141 850 Savings certificates............................................... 2,053 1,308 1,088 4,449 2,164 Large denomination certificates.................................... 1,402 279 641 2,322 350 Time deposits in foreign offices................................... 748 6 1 755 -- Federal funds purchased and securities sold under repurchase agreements......................................................... 5,850 -- -- 5,850 -- Commercial paper................................................... 502 -- -- 502 -- Other short-term borrowed funds.................................... 1,674 1 18 1,693 28 Bank notes......................................................... 2,332 115 503 2,950 1,138 Other long-term debt............................................... -- -- -- -- 1,335 Total interest-bearing liabilities........................... 20,690 2,071 2,976 25,737 8,264 Interest rate swaps................................................ (202) 59 (31 ) (174) 174 Interest sensitivity gap..................................... (991) (534 ) (388 ) $ (1,913) 7,913 Cumulative interest sensitivity gap.......................... $ (991) ($1,525) ($1,913) $ 6,000 $ IN MILLIONS December 31, 1996 Total Loans and net leases, net of unearned income....................... $31,283 Investment securities.............................................. 8,113 Interest-bearing bank balances..................................... 28 Federal funds sold and securities purchased under resale agreements......................................................... 179 Trading account assets............................................. 1,186 Total earning assets......................................... 40,789 Interest-bearing demand............................................ 3,463 Savings and money market savings................................... 8,337 Savings certificates............................................... 6,437 Large denomination certificates.................................... 1,710 Time deposits in foreign offices................................... 1,185 Federal funds purchased and securities sold under repurchase agreements......................................................... 6,298 Commercial paper................................................... 706 Other short-term borrowed funds.................................... 967 Bank notes......................................................... 4,308 Other long-term debt............................................... 2,159 Total interest-bearing liabilities........................... 35,570 Interest rate swaps................................................ -- Interest sensitivity gap..................................... $ 5,219 Cumulative interest sensitivity gap.......................... December 31, 1995 Loans and net leases, net of unearned income....................... $29,261 Investment securities.............................................. 9,030 Interest-bearing bank balances..................................... 451 Federal funds sold and securities purchased under resale agreements......................................................... 144 Trading account assets............................................. 1,115 Total earning assets......................................... 40,001 Interest-bearing demand............................................ 3,474 Savings and money market savings................................... 6,991 Savings certificates............................................... 6,613 Large denomination certificates.................................... 2,672 Time deposits in foreign offices................................... 755 Federal funds purchased and securities sold under repurchase agreements......................................................... 5,850 Commercial paper................................................... 502 Other short-term borrowed funds.................................... 1,721 Bank notes......................................................... 4,088 Other long-term debt............................................... 1,335 Total interest-bearing liabilities........................... 34,001 Interest rate swaps................................................ -- Interest sensitivity gap..................................... $ 6,000 Cumulative interest sensitivity gap..........................
Note: Refer to page 21 for details on management's assumptions of the repricing characteristics of certain accounts without contractual maturity dates. Management believes that rate risk is best measured by simulation modeling which calculates expected net interest income based on projected interest-earning assets, interest-bearing liabilities, off-balance sheet financial instruments and interest rates. The corporation monitors exposure to a gradual change in rates of 200 basis points up or down over a rolling 12-month period and an interest rate shock of an instantaneous change in rates of 200 basis points up or down over the same period. From time to time, the model horizon is expanded to a 24-month period. The corporation policy limit for the maximum negative impact on net interest income from a gradual change in interest rates of 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 December 31, 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 1 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 22 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 December 31, 1996, the corporation had $1.906 billion notional amount of derivatives outstanding for asset and liability management purposes. Details on the maturity schedule on asset and liability management derivatives including notional amounts and average maturities are contained in the following table. Maturity Schedule of Asset and Liability Management Derivatives December 31, 1996
Within Over One Two Three Four Five Five Year Years Years Years Years Years Total $ IN MILLIONS Interest rate swaps: Pay fixed/receive floating: Notional amount........................... $345 $ 17 $ 38 $ 12 $ 2 $ 64 $ 478 Weighted average rates received........... 4.53% 5.77% 5.62 % 5.82 % 6.17% 5.52% 4.84% Weighted average rates paid............... 7.31 6.97 6.53 7.00 9.03 7.87 7.32 Receive fixed/pay floating: Notional amount........................... -- $ 152 $201 $ 53 $ 102 $ 352 $ 860 Weighted average rates received........... -- 6.57% 7.17 % 6.92 % 6.44% 6.82% 6.82% Weighted average rates paid............... -- 5.66 5.58 5.63 5.65 5.71 5.66 Receive floating/pay floating: Notional amount........................... -- -- -- -- $ 300 -- $ 300 Weighted average rates received........... -- -- -- -- 5.48% -- 5.48% Weighted average rates paid............... -- -- -- -- 5.56 -- 5.56 Index amortizing swaps:* Receive fixed/pay floating: Notional amount........................... $ 91 $ 133 $ 6 $ 18 $ 2 -- $ 250 Weighted average rates received........... 7.88% 8.50% 8.16 % 7.89 % 8.56% -- 8.22% Weighted average rates paid............... 5.68 5.55 5.62 5.68 5.53 -- 5.61 Total: Notional amount........................... $436 $ 302 $245 $83 $ 406 $ 416 $1,888 Weighted average rates received........... 5.25% 7.38% 6.95 % 6.98 % 5.74% 6.62% 6.29% Weighted average rates paid............... 6.98 5.68 5.73 5.84 5.61 6.19 6.08 Forward starting interest rate swaps: Notional amount........................... -- -- -- -- -- $ 18 $ 18 Weighted average rates paid............... -- -- -- -- -- 8.04% 8.04% TOTAL DERIVATIVES (NOTIONAL AMOUNT)..... $436 $ 302 $245 $83 $ 406 $ 434 $1,906 Average Life (Years) $ IN MILLIONS Interest rate swaps: Pay fixed/receive floating: Notional amount........................... 1.67 Weighted average rates received........... Weighted average rates paid............... Receive fixed/pay floating: Notional amount........................... 5.49 Weighted average rates received........... Weighted average rates paid............... Receive floating/pay floating: Notional amount........................... 4.43 Weighted average rates received........... Weighted average rates paid............... Index amortizing swaps:* Receive fixed/pay floating: Notional amount........................... 1.31 Weighted average rates received........... Weighted average rates paid............... Total: Notional amount........................... 3.80 Weighted average rates received........... Weighted average rates paid............... Forward starting interest rate swaps: Notional amount........................... 7.29 Weighted average rates paid............... TOTAL DERIVATIVES (NOTIONAL AMOUNT)..... 3.83
*Maturity is based upon expected average lives rather than contractual lives. Credit risk of off-balance sheet derivative financial instruments is equal to the fair value gain of the instrument if a counterparty fails to perform. The credit risk is normally a small percentage of the notional amount and fluctuates as interest rates move up or down. The corporation mitigates this risk by subjecting the transactions to the same rigorous approval and monitoring process as is used for on-balance sheet credit transactions, by dealing in the national market with highly rated counterparties, by executing transactions under International Swaps and Derivatives Association Master Agreements and by using collateral instruments to reduce exposure where appropriate. Collateral is delivered by either party when the fair value of a particular transaction or group of transactions with the same counterparty on a net basis exceeds an acceptable threshold of exposure. The threshold level is determined based on the strength of the individual counterparty. The fair value of all asset and liability derivative positions for which the corporation was exposed to counterparties totaled $14.058 million at December 31, 1996. The fair value of all asset and liability derivative positions for which counterparties were exposed to the corporation amounted to $15.275 million on the same date. Details of the net fair value loss of $1.217 million are included in Note J of Notes to Consolidated Financial Statements. 23 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 approximately offset unrealized derivatives gains and losses. The corporation uses derivative financial contracts to (1) swap floating rate assets or liabilities to fixed rate; (2) convert fixed rate assets or liabilities to floating rate; (3) hedge the interest rate spread between assets and liabilities; and (4) hedge the yield or rate on future transactions. These transactions serve to better match the repricing characteristics of various assets and liabilities, reduce spread risk, adjust overall rate sensitivity and enhance net interest income. LARGE DENOMINATION DEPOSITS TABLE 6 December 31, 1996 (thousands) > REMAINING MATURITIES Three months or less..... $ 712,536 Over three through six months............. 380,568 Over six through twelve months.......... 226,817 Over twelve months....... 390,140 Total................ $1,710,061 *Includes domestic office certificates of deposit of $100 or more SHORT-TERM BORROWED FUNDS TABLE 7 (thousands)
1996 1995 1994 Amount Rate Amount Rate Amount At year-end: Federal funds purchased and securities sold under repurchase agreements............................. $6,298,130 5.79% $5,850,540 5.01% $5,898,398 Commercial paper............................................... 706,226 4.69 502,136 4.26 406,706 Other borrowed funds........................................... 967,097 5.51 1,720,592 5.79 1,007,340 Total........................................................ $7,971,453 5.66 $8,073,268 5.13 $7,312,444 Average for the year: Federal funds purchased and securities sold under repurchase agreements............................. $6,198,566 5.41 $5,264,072 6.02 $5,051,124 Commercial paper*.............................................. 595,729 4.88 504,669 5.51 505,117 Other borrowed funds........................................... 1,215,008 5.49 2,029,094 6.03 674,593 Total........................................................ $8,009,303 5.38 $7,797,835 5.99 $6,230,834 Maximum month-end balance: Federal funds purchased and securities sold under repurchase agreements............................. $7,532,212 $6,642,662 $5,898,398 Commercial paper............................................... 706,226 563,779 571,347 Other borrowed funds........................................... 1,871,957 2,910,246 1,007,340 1994 Rate At year-end: Federal funds purchased and securities sold under repurchase agreements............................. 5.33% Commercial paper............................................... 5.09 Other borrowed funds........................................... 5.30 Total........................................................ 5.32 Average for the year: Federal funds purchased and securities sold under repurchase agreements............................. 4.44 Commercial paper*.............................................. 3.94 Other borrowed funds........................................... 4.24 Total........................................................ 4.37 Maximum month-end balance: Federal funds purchased and securities sold under repurchase agreements............................. Commercial paper............................................... Other borrowed funds...........................................
*Average interest rate for each year includes effect of fees paid on back-up lines of credit 24 Changing the repricing characteristics of liabilities to match the assets they support generally is accomplished through an interest rate swap whereby the corporation pays a fixed rate and receives a floating rate. This allows the corporation to acquire fixed rate assets without increasing exposure to rising interest rates. Converting fixed rate debt to a floating rate is accomplished generally by receiving fixed on an interest rate swap and paying floating. The corporation has used this type of transaction to convert long-term subordinated debt to a floating rate. This transaction increases liquidity by allowing a long-term liability to replace a short-term liability, yet have a rate that is consistent with and fluctuates with short-term rates. Receiving a fixed rate on an interest rate swap and paying a floating rate has the effect of converting floating rate assets to fixed rate assets. The results are essentially the same as acquiring a fixed rate security funded with a floating rate liability. Both transactions reduce asset sensitivity. The corporation has used this type of transaction to convert a portion of the floating rate credit card portfolio to fixed rates. Hedging the spread between the rate received and the rate paid on certain assets and liabilities can be achieved by the use of options contracts such as caps and floors. Changes in the yield or rate on anticipated future transactions can be hedged by purchasing or selling futures contracts on which change in price is highly correlated with the anticipated transaction. The corporation has used both futures contracts and options contracts to hedge spreads and anticipated transactions. LIQUIDITY MANAGEMENT The objective of liquidity management is to ensure the corporation is positioned to meet all immediate and future demands for cash. Liquidity management relies upon liquidity analysis, knowledge of historical trends over past credit and business cycles and forecasts of future conditions to achieve its objectives. Broad based sources of liquidity for the corporation include its high quality marketable or securitizable assets and liabilities which are readily accepted in the marketplace. Asset liquidity is provided by securities which, by their maturity structure or marketability, can produce cash flows that result in enhanced liquidity and by loans which may be securitized. The corporation generates additional cash through the liability side of the balance sheet from the growth of deposits and the issuance of bank notes and other forms of debt and equity securities. Wachovia's ability to attract a variety of funds rests on the corporation's strength of capital, reputation, credit ratings, high quality assets and diverse banking networks. At December 31, 1996, Wachovia's common equity represented 8.02 percent of assets. Wachovia's strong capital position is reflected in its credit ratings and remains central in its ability to raise additional funds at attractive rates through short-term borrowings and long-term debt. At year-end 1996, the corporation's senior debt was rated Aa3 by Moody's and AA by Standard & Poor's. Subordinated debt was rated A1 and AA- by Moody's and Standard & Poor's, respectively. Commercial paper was rated P-1 by Moody's and A-1+ by Standard & Poor's. In addition to seeking to maintain liquidity through a strong balance sheet and performance that assures market acceptance, the corporation limits through policy and internal guidelines the level, maturity and concentrations of noncore funding sources. Net purchased funds under current policy guidelines are limited to 50 percent of long-term assets. Long-term assets include net loans and leases, investment securities with remaining maturities over one year and net foreclosed real estate. Net purchased funds are currently substantially below the policy guideline. To insure against concentrations by maturity, the corporation has established policy limits for the cumulative percentage of purchased funds that mature overnight, within 30 days and within 90 days. Significant concentrations of funds by single sources and by type of borrowing category also are monitored. Asset liquidity is assured through maintaining significant amounts of investment securities in the available-for-sale portfolio. These securities may be sold at any time to provide needed liquidity or for other reasons. Liquidity also is available from loan assets which are readily securitizable and from the corporation's unused available lines of credit. Management regularly reviews the liquidity position under normal business conditions and under significant market disruption or stress conditions. Results of these reviews are presented to the Management Finance Committee and Board Finance Committee quarterly. 25 NONPERFORMING ASSETS Nonperforming assets at December 31, 1996 were $77.490 million or .25 percent of loans and foreclosed property. The total was higher by $8.126 million or 11.7 percent from year-end 1995, reflecting increased levels both of cash basis loans and other foreclosed assets, which consist primarily of repossessed automobiles. The ratio of nonperforming assets to loans and foreclosed property of .25 percent at December 31, 1996 remained essentially unchanged from .24 percent one year earlier. The corporation historically has maintained relatively low levels of problem assets due to strong underwriting standards, consistent credit reviews and an aggressive loan charge-off policy. Real estate nonperforming assets included in the December 31, 1996 total were $59.109 million or .59 percent of real estate loans and foreclosed real estate. This compared with $55.181 million or .63 percent at year-end 1995, an increase of $3.928 million or 7.1 percent. Real estate nonperforming assets at December 31, 1996 included $49.898 million of real estate nonperforming loans versus $43.576 million one year earlier. Commercial real estate nonperforming assets were $30.556 million or .57 percent of related loans and foreclosed real estate, down $354 thousand or 1.1 percent from $30.910 million or .67 percent at year-end 1995. Commercial real estate nonperforming loans included in these amounts were $27.080 million at December 31, 1996 and $27.163 million one year earlier. NONPERFORMING ASSETS AND CONTRACTUALLY PAST DUE LOANS TABLE 8 December 31 (thousands)
1996 1995 1994 1993 1992 NONPERFORMING ASSETS Cash-basis assets -- domestic borrowers.......... $60,066* $53,547 $ 78,712 $108,882 $173,977 Restructured loans -- domestic................... --** -- -- 80 117 Total nonperforming loans.................. 60,066 53,547 78,712 108,962 174,094 Foreclosed property: Foreclosed real estate......................... 11,326 14,468 22,900 51,701 93,555 Less valuation allowance....................... 2,115 2,863 4,026 9,168 5,082 Other foreclosed assets........................ 8,213 4,212 2,931 3,406 2,842 Total foreclosed property.................. 17,424 15,817 21,805 45,939 91,315 Total nonperforming assets................. $77,490*** $69,364 $100,517 $154,901 $265,409 Nonperforming loans to year-end loans............ .19% .18% .30% .47% .83% Nonperforming assets to year-end loans and foreclosed property........................ .25 .24 .39 .67 1.25 Year-end allowance for loan losses times nonperforming loans...................... 6.81X 7.63x 5.16x 3.72x 2.18x Year-end allowance for loan losses times nonperforming assets..................... 5.28 5.89 4.04 2.61 1.43 CONTRACTUALLY PAST DUE LOANS (accruing loans past due 90 days or more) Domestic borrowers............................... $58,842 $48,970 $ 37,010 $ 44,897 $ 49,277 1991 NONPERFORMING ASSETS Cash-basis assets -- domestic borrowers.......... $240,578 Restructured loans -- domestic................... 604 Total nonperforming loans.................. 241,182 Foreclosed property: Foreclosed real estate......................... 69,957 Less valuation allowance....................... 2,837 Other foreclosed assets........................ 2,609 Total foreclosed property.................. 69,729 Total nonperforming assets................. $310,911 Nonperforming loans to year-end loans............ 1.17% Nonperforming assets to year-end loans and foreclosed property........................ 1.50 Year-end allowance for loan losses times nonperforming loans...................... 1.49x Year-end allowance for loan losses times nonperforming assets..................... 1.16 CONTRACTUALLY PAST DUE LOANS (accruing loans past due 90 days or more) Domestic borrowers............................... $ 88,158
*Includes $16,170 of loans which have been defined as impaired per Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan" (FASB 114) **Excludes $199 of loans which have been renegotiated at market rates and have been reclassified to performing status ***Net of cumulative corporate and commercial real estate charge-offs and foreclosed real estate write-downs totaling $12,931; includes $3,962 of nonperforming assets on which interest and principal are paid current PROVISION AND ALLOWANCE FOR LOAN LOSSES The provision for loan losses was $149.911 million, slightly exceeding net loan losses for the year and increasing $46.120 million or 44.4 percent from the 1995 level. The provision reflects management's assessment of the adequacy of the allowance for loan losses to absorb potential write-offs in the loan portfolio due to a deterioration in credit conditions or change in risk profile. Factors considered in this assessment include growth and mix of the loan portfolio, current and anticipated economic conditions, historical credit loss experience and changes in borrowers' financial positions. The 26 adequacy of the allowance also is assessed by management based on the corporation's practice to aggressively recognize problem credits and generally match charge-offs through the provision. Net loan losses were $149.622 million or .49 percent of average loans, up $48.507 million or 48 percent from $101.115 million or .37 percent of average loans in 1995. The increase reflected higher losses in consumer loans, principally credit cards. Excluding credit cards, net loan losses were $16.138 million or .06 percent of average loans compared with $12.100 million or .05 percent in 1995, an increase of $4.038 million or 33.4 percent. Net loan losses are expected to continue to rise in 1997 at approximately the same percent as in 1996, driven principally by higher credit card charge-offs and by more moderate loan recoveries. The higher losses anticipated in credit cards reflect management's expectation that bankruptcies and delinquencies will continue to increase industry wide. If the economy should slow considerably from its present level and bankruptcies increased significantly, loan losses could be higher than presently anticipated. Credit card net charge-offs for the year were $133.484 million or 3.17 percent of average credit card receivables, higher by $44.469 million or 50 percent from $89.015 million or 2.25 percent of average outstandings in 1995. Net losses in other retail loans, associated with direct and indirect retail loans, were $18.043 million or .54 percent of average related receivables, up $6.707 million or 59.2 percent from $11.336 million or .36 percent in 1995. Partially moderating the rise in net charge-offs were higher net recoveries in real estate loans. Real estate net recoveries totaled $8.142 million or .09 percent of average real estate loans in 1996 versus 1.875 million or .02 percent 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 $ IN THOUSANDS
1996 1995 1994 Average credit card outstandings............................ $4,830,000 $4,168,000 $3,549,000 Net loan losses............................................. 153,624 93,372 58,485 Net loan losses to average loans............................ 3.18% 2.24% 1.65% Delinquencies (30 days or more) to period-end loans......... 2.14 2.15 1.31
Note: The corporation had no securitized credit card loans prior to 1994. At December 31, 1996, the allowance for loan losses was $409.297 million, representing 1.31 percent of year-end loans and 681 percent of nonperforming loans. This compared with $408.808 million, 1.40 percent and 763 percent, respectively, one year earlier. Allowance for Loan Losses (millions) (Chart appears here. Plot points are below.) 91 92 93 94 95 96 Year end loan loss allowance $360.2 $379.6 $404.8 $406.1 $408.8 $409.3 Allowance times nonperforming loans 1.49x 2.18x 3.72x 5.16x 7.63x 6.81x Earnings Coverage of Net Loan Losses (excluding mortgage servicing portfolio sale, subsidiary sale and securities tranactions) (Chart appears here. Plot points are below.) 91 92 93 94 95 96 Earnings before income taxes and provision for loan losses (millions) $562.8 $694.6 $752.8 $829.9 $917.1 $1081.1 Number of times earnings covered net loan losses 2.77x 7.29x 11.17x 11.78x 9.07x 7.23x Loan Loss Experience (millions) (Chart appears here. Plot points are below.) 91 92 93 94 95 96 Credit Card $65.359 $56.795 $52.675 $58.434 $89.015 $133.484 Commercial $56.490 $ .559 $ 1.220 $ 7.206 $(1.267) $ (.825) Real estate $55.463 $21.249 $ 5.821 $(5.310) $(1.875) $ (8.142) Other $25.687 $16.642 $ 7.695 $10.099 $15.242 $ 25.105 Net loan losses to average loans .99% .48% .31% .29% .37% .49% 27 ALLOWANCE FOR LOAN LOSSES TABLE 9 (thousands)
1996 1995 1994 1993 1992 SUMMARY OF TRANSACTIONS Balance at beginning of year................. $408,808 $406,132 $404,798 $379,557 $360,193 Additions from acquisitions.................. 200 -- -- -- -- Allowance of company sold.................... -- -- -- -- (4,811) Provision for loan losses.................... 149,911 103,791 71,763 92,652 119,420 Deduct net loan losses: Loans charged off: Commercial............................... 3,588 4,283 12,883 6,792 13,153 Credit card.............................. 151,668 101,976 69,728 62,991 67,863 Other revolving credit................... 7,062 4,304 3,715 3,922 4,627 Other retail............................. 22,948 15,296 11,409 8,431 17,221 Real estate.............................. 2,510 7,748 4,705 14,514 27,041 Lease financing.......................... 1,635 892 226 458 668 Foreign.................................. -- -- -- -- 960 Total.................................. 189,411 134,499 102,666 97,108 131,533 Recoveries: Commercial............................... 4,413 5,550 5,677 5,572 12,594 Credit card.............................. 18,184 12,961 11,294 10,316 11,068 Other revolving credit................... 1,452 1,140 1,059 1,029 1,024 Other retail............................. 4,905 3,960 3,956 3,791 5,481 Real estate.............................. 10,652 9,623 10,015 8,693 5,792 Lease financing.......................... 183 142 204 264 322 Foreign.................................. -- 8 32 32 7 Total.................................. 39,789 33,384 32,237 29,697 36,288 Net loan losses............................ 149,622 101,115 70,429 67,411 95,245 Balance at end of year*...................... $409,297 $408,808 $406,132 $404,798 $379,557 NET LOAN LOSSES (RECOVERIES) BY CATEGORY Commercial................................... $ (825) $ (1,267) $ 7,206 $ 1,220 $ 559 Credit card.................................. 133,484 89,015 58,434 52,675 56,795 Other revolving credit....................... 5,610 3,164 2,656 2,893 3,603 Other retail................................. 18,043 11,336 7,453 4,640 11,740 Real estate.................................. (8,142) (1,875) (5,310) 5,821 21,249 Lease financing.............................. 1,452 750 22 194 346 Foreign...................................... -- (8) (32) (32) 953 Total.................................. $149,622 $101,115 $ 70,429 $ 67,411 $ 95,245 Net loan losses -- excluding credit cards.... $ 16,138 $ 12,100 $ 11,995 $ 14,736 $ 38,450 NET LOAN LOSSES (RECOVERIES) TO AVERAGE LOANS BY CATEGORY Commercial................................... (.01%) (.01%) .08% .02% .01% Credit card.................................. 3.17 2.25 1.66 2.03 3.20 Other revolving credit....................... 1.58 .92 .80 .88 1.12 Other retail................................. .54 .36 .23 .16 .44 Real estate.................................. (.09) (.02) (.07) .08 .30 Lease financing.............................. .22 .28 .01 .14 .29 Foreign...................................... -- -- (.03) (.04) 1.32 Total loans.................................. .49 .37 .29 .31 .48 Total loans -- excluding credit cards........ .06 .05 .06 .08 .21 Year-end allowance to outstanding loans...... 1.31% 1.40% 1.57% 1.76% 1.80% Earnings coverage of net loan losses**....... 7.23X 9.07x 11.78x 11.17x 7.29x ALLOCATION OF ALLOWANCE FOR LOAN LOSSES*** Commercial................................... $ 89,654 $ 87,765 $ 88,682 $ 89,431 $ 92,279 Credit card.................................. 150,491 110,400 109,615 78,264 54,584 Other revolving credit....................... 6,132 5,544 5,368 4,958 4,718 Other retail................................. 28,030 27,816 32,084 33,748 28,113 Real estate.................................. 75,628 101,335 108,354 111,960 113,996 Lease financing.............................. 3,685 1,666 2,211 2,018 1,994 Foreign...................................... 3,702 3,697 3,830 931 715 Unallocated.................................. 51,975 70,585 55,988 83,488 83,158 Total.................................. $409,297 $408,808 $406,132 $404,798 $379,557 1991 SUMMARY OF TRANSACTIONS Balance at beginning of year................. $269,916 Additions from acquisitions.................. 276 Allowance of company sold.................... -- Provision for loan losses.................... 293,000 Deduct net loan losses: Loans charged off: Commercial............................... 61,089 Credit card.............................. 72,386 Other revolving credit................... 5,154 Other retail............................. 26,251 Real estate.............................. 58,089 Lease financing.......................... 1,614 Foreign.................................. 675 Total.................................. 225,258 Recoveries: Commercial............................... 4,599 Credit card.............................. 7,027 Other revolving credit................... 721 Other retail............................. 6,545 Real estate.............................. 2,626 Lease financing.......................... 263 Foreign.................................. 478 Total.................................. 22,259 Net loan losses............................ 202,999 Balance at end of year*...................... $360,193 NET LOAN LOSSES (RECOVERIES) BY CATEGORY Commercial................................... $ 56,490 Credit card.................................. 65,359 Other revolving credit....................... 4,433 Other retail................................. 19,706 Real estate.................................. 55,463 Lease financing.............................. 1,351 Foreign...................................... 197 Total.................................. $202,999 Net loan losses -- excluding credit cards.... $137,640 NET LOAN LOSSES (RECOVERIES) TO AVERAGE LOANS BY CATEGORY Commercial................................... .69% Credit card.................................. 4.19 Other revolving credit....................... 1.48 Other retail................................. .72 Real estate.................................. .73 Lease financing.............................. 1.08 Foreign...................................... .23 Total loans.................................. .99 Total loans -- excluding credit cards........ .72 Year-end allowance to outstanding loans...... 1.75% Earnings coverage of net loan losses**....... 2.77x ALLOCATION OF ALLOWANCE FOR LOAN LOSSES*** Commercial................................... $ 89,055 Credit card.................................. 44,655 Other revolving credit....................... 6,193 Other retail................................. 25,303 Real estate.................................. 128,216 Lease financing.............................. 2,159 Foreign...................................... 1,382 Unallocated.................................. 63,230 Total.................................. $360,193
*Includes the related allowance for credit losses for impaired loans as defined in FASB 114, "Accounting by Creditors for Impairment of a Loan," of $1,960 at December 31, 1996 and $916 at December 31, 1995 **Earnings before income taxes and provision for loan losses excluding mortgage servicing portfolio sale, subsidiary sale and securities transactions ***The allocation of the allowance for loan losses above represents an estimate based on historical loss experience, individual credits, economic conditions and other judgmental factors. Since any allocation is judgmental and involves consideration of many factors, the allocation may be more or less than the charge-offs that may ultimately occur. The entire allowance is available for charge-offs in any category of loans. See page 71 for percentages of loan categories to total loans. 28 NONINTEREST INCOME Total other operating revenue for 1996 increased $103.813 million or 15.3 percent. Gains reflected stronger sales efforts, focused technology enhancements and some new fee pricing, with all categories of total other operating revenue advancing except mortgage fee income and trading account profits. Strong results were achieved particularly in deposit account service charges, credit card fee income, investment fee income and electronic banking revenue. Total other operating revenue for 1996 included a $12.496 million gain from the sale of the corporation's bond trustee business. Excluding this one-time gain, total other operating revenue rose $91.317 million or 13.4 percent for the year. Management anticipates total other operating revenue to increase at a slightly more moderate rate in 1997 based primarily on a continued favorable economy generating higher business volume. Revenue is expected to build as the year progresses reflecting the impact of new corporate growth initiatives. Deposit account service charge revenues grew $33.255 million or 15.9 percent, reflecting increases primarily in overdraft charges, commercial analysis fees and insufficient funds charges. Improved collections, including automation of procedures, largely accounted for the rise in overdraft charges, while expanded sales contributed to the growth in commercial analysis fees. Credit card fee income expanded $14.856 million or 12 percent. Gains were driven principally by good growth in interchange income, higher revenues from overlimit charges and increased net revenues received in the form of excess servicing fees on securitized loans. Active credit card accounts, including those under management, were 2.035 million at December 31, 1996 versus 1.805 million at year-end 1995, an increase of 230 thousand or 12.7 percent. Investment fee income rose $15.525 million or 57.6 percent. Increased sales of mutual funds through the corporation's investment counselors, greater loan syndication activity and higher brokerage commission income primarily accounted for the strong growth. The corporation's Biltmore family of mutual funds had assets of $3.739 billion at December 31, 1996 compared with $2.905 billion one year earlier. Electronic banking revenues, consisting of fees from debit card and ATM usage, increased $13.627 million or 39.5 percent. Gains reflected good growth in debit card interchange income as well as new access fees for noncustomer ATM usage assessed beginning in 1996. NONINTEREST INCOME TABLE 10 (thousands)
1996 1995 1994 1993 1992 Service charges on deposit accounts....................... $242,368 $209,113 $196,149 $202,885 $189,537 Fees for trust services................................... 137,841 130,521 128,100 120,030 109,504 Credit card income -- net of interchange payments......... 139,138 124,282 111,925 101,780 78,068 Electronic banking........................................ 48,106 34,479 24,683 14,840 12,936 Investment fee income..................................... 42,478 26,953 14,092 16,619 13,013 Mortgage fee income....................................... 16,984 23,320 33,224 39,101 40,078 Trading account profits (losses) -- excluding interest.... 22,819 25,698 9,502 22,445 (2,916) Insurance premiums and commissions........................ 17,030 13,164 11,679 11,847 15,002 Bankers' acceptance and letter of credit fees............. 25,347 23,190 23,168 19,668 20,141 Student loan servicing.................................... -- -- -- 5,535 33,250 Other service charges and fees............................ 32,589 24,682 18,109 17,456 18,636 Other income.............................................. 59,214 44,699 33,801 27,973 7,993 Total other operating revenue....................... 783,914 680,101 604,432 600,179 535,242 Gain on sale of mortgage servicing portfolio.............. -- 79,025 -- -- -- Gain on sale of subsidiary................................ -- -- -- 8,030 19,486 Investment securities gains (losses)...................... 3,736 (23,494) 3,320 19,394 1,497 Total............................................... $787,650 $735,632 $607,752 $627,603 $556,225 1991 Service charges on deposit accounts....................... $170,827 Fees for trust services................................... 102,665 Credit card income -- net of interchange payments......... 62,814 Electronic banking........................................ 10,590 Investment fee income..................................... 13,302 Mortgage fee income....................................... 28,608 Trading account profits (losses) -- excluding interest.... 17,846 Insurance premiums and commissions........................ 12,819 Bankers' acceptance and letter of credit fees............. 14,232 Student loan servicing.................................... 31,470 Other service charges and fees............................ 18,216 Other income.............................................. 6,789 Total other operating revenue....................... 490,178 Gain on sale of mortgage servicing portfolio.............. -- Gain on sale of subsidiary................................ -- Investment securities gains (losses)...................... 11,091 Total............................................... $501,269
29 Trust service revenues were higher by $7.320 million or 5.6 percent. Increased sales of personal trust services, changes in fee schedules and higher market values for trust assets under management primarily accounted for the gain. Corporate trust fees, which were impacted by the April sale of the bond trustee business, were modestly lower for the year. At December 31, 1996, trust assets totaled $100.095 billion, including $23.520 billion under management. This compared with $90.144 billion, including $20.226 billion under management, at year-end 1995. Mortgage fee income decreased $6.336 million or 27.2 percent, primarily reflecting the loss of servicing fee income from the June 1995 sale of the corporation's mortgage servicing portfolio. Partially offsetting the decline were higher levels of mortgage origination fees and increased gains on sales of mortgage servicing rights. Trading account profits were down $2.879 million or 11.2 percent. Weak bond market conditions in the early months of 1996 reduced trading account income, while foreign exchange income remained lower for the year. Remaining combined categories of total other operating revenue were higher by $28.445 million or 26.9 percent. Insurance premiums and commissions rose $3.866 million or 29.4 percent, while bankers' acceptance and letter of credit fees were up $2.157 million or 9.3 percent. Other service charges and fees grew $7.907 million or 32 percent, principally reflecting contractual revenues received for servicing the corporation's securitized loan portfolios. Other income, which includes revenues from corporate financing activities, was higher by $14.515 million or 32.5 percent. Included in other income for 1996 was the $12.496 million gain on the sale of the bond trustee business. Including sales of investment securities, total noninterest income increased $52.018 million or 7.1 percent. Investment securities sales had net gains of $3.736 million in 1996 versus net losses of $23.494 million in 1995. The net losses in 1995 resulted principally from restructuring of the available-for-sale securities portfolio to improve yields. Total noninterest income for 1995 also included a $79.025 million gain from the sale of the corporation's mortgage servicing portfolio. NONINTEREST EXPENSE Total noninterest expense was up $53.953 million or 4.5 percent for the year. Growth in personnel expense, primarily salaries, accounted for substantially all the increase, with combined net occupancy and equipment expense rising moderately and remaining combined categories of noninterest expense decreasing slightly. The corporation's overhead ratio measuring noninterest expense as a percentage of total adjusted revenues (taxable equivalent net interest income and total other operating revenue) declined 202 basis points from 54.2 percent in 1995 to 52.2 percent in 1996. The decrease reflected both continued good expense management and expanded revenues for the year. Management anticipates total noninterest expense to rise at a higher percentage rate in 1997, driven largely by the level of increases in personnel costs and other expenses for the corporation's growth initiatives. Expense projections for 1997 exclude the impact of conversion costs associated with making the corporation's systems year 2000 compliant. The corporation is managing the conversion of its computer systems so that they will be fully operable for date recognition and data processing when the year 2000 occurs. The total cost for this conversion is estimated by management to be between $40 million and $50 million, with substantially all of the cost expected to be recognized in 1997. Total personnel expense grew $54.199 million or 9 percent. Salaries expense rose $44.497 million or 8.9 percent as head count in growing business lines increased and the corporation added to its salesforce personnel. At December 31, 1996, full-time equivalent employees totaled 16,208 compared with 15,996 at year-end 1995. Benefits expense was up $9.702 million or 9.5 percent, reflecting higher payroll taxes associated with an expanded salaries base and increased retirement benefits costs. 30 NONINTEREST EXPENSE TABLE 11 (thousands)
1996 1995 1994 1993 1992 Salaries.................................. $ 543,227 $ 498,730 $ 464,790 $ 455,621 $ 451,193 Employee benefits......................... 111,298 101,596 98,717 113,059 88,630 Total personnel expense............. 654,525 600,326 563,507 568,680 539,823 Net occupancy expense..................... 89,582 87,105 80,911 82,070 80,673 Equipment expense......................... 114,861 109,701 106,508 102,246 100,916 Postage and delivery...................... 40,018 37,962 35,163 38,160 37,036 Outside data processing, programming and software................................ 44,699 42,486 35,211 38,613 33,082 Stationery and supplies................... 26,100 26,805 24,558 25,344 26,342 Advertising and sales promotion........... 60,304 50,362 34,067 38,141 27,911 Professional services..................... 38,285 39,483 20,493 17,144 18,412 Travel and business promotion............. 20,460 19,694 16,254 15,563 13,578 Regulatory agency fees and other bank services . . ........................... 8,730 49,584 62,345 63,822 64,361 Amortization of intangible assets......... 4,362 8,587 18,693 28,001 34,423 Foreclosed property expense............... (96) 920 (4,288) 7,654 9,755 Other expense............................. 155,719 130,581 104,991 105,798 109,340 Total............................... $1,257,549 $1,203,596 $1,098,413 $1,131,236 $1,095,652 Overhead ratio............................ 52.2% 54.2% 54.1% 57.0% 58.6% 1991 Salaries.................................. $ 443,273 Employee benefits......................... 81,216 Total personnel expense............. 524,489 Net occupancy expense..................... 75,729 Equipment expense......................... 99,569 Postage and delivery...................... 38,188 Outside data processing, programming and software................................ 30,671 Stationery and supplies................... 28,507 Advertising and sales promotion........... 22,139 Professional services..................... 25,786 Travel and business promotion............. 13,641 Regulatory agency fees and other bank services . . ........................... 60,963 Amortization of intangible assets......... 51,756 Foreclosed property expense............... 15,655 Other expense............................. 109,424 Total............................... $1,096,517 Overhead ratio............................ 62.5%
Combined net occupancy and equipment expense rose $7.637 million or 3.9 percent. Net occupancy expense was up $2.477 million or 2.8 percent, largely due to higher building depreciation expense and increased operating premise lease costs. Equipment expense grew $5.160 million or 4.7 percent, driven primarily by higher depreciation expense and equipment maintenance costs for branches and operation centers. Remaining combined categories of noninterest expense decreased $7.883 million or 1.9 percent. Regulatory agency fees and other bank service expense was down $40.854 million or 82.4 percent due to the elimination by the FDIC of insurance premiums for well capitalized financial institutions. Savings realized from the elimination of insurance premiums were offset by higher spending in areas primarily related to the corporation's growth initiatives. These included advertising and sales promotion expense as well as outside data processing, programming and software expense. On September 30, 1996, Congress enacted legislation mandating a one-time assessment to recapitalize the Savings Association Insurance Fund. The impact of this legislation was not material to the corporation's noninterest expense or results of operations. INCOME TAXES Applicable income taxes for the year were higher by $24.020 million or 9 percent. Income taxes computed at the statutory rate are reduced primarily by the interest earned on state and municipal debt securities and industrial revenue obligations. Also, within certain limitations, one-half of the interest income 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. NEW ACCOUNTING STANDARDS 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). Adoption of FASB 121 was not material. 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, securitizations, and servicing of receivables and other financial assets and extinguishments of liabilities. 31 FASB 125 is effective for transactions occurring after December 31, 1996, except for certain transactions which have been delayed until after December 31, 1997. This standard will be adopted as required in 1997 and 1998, and is not expected to have a material impact on the corporation's financial position or results of operations. SHAREHOLDERS' EQUITY AND CAPITAL RATIOS At December 31, 1996, shareholders' equity was $3.762 billion compared with $3.774 billion one year earlier. Included in shareholders' equity was $42.462 million, net of tax, of unrealized gains on securities available-for-sale marked to fair market value versus $116.113 million, net of tax, at year-end 1995. The reduction in shareholders' equity at December 31, 1996 from one year earlier of $12 million or less than 1 percent primarily reflected the impact of the corporation's increased share repurchase activity. During 1996, the corporation repurchased a total of 7,931,100 shares under two separate authorizations at an average price of $47.208 per share for a total cost of $374.408 million. This compared with a total of 1,755,500 shares that were repurchased in 1995. On January 24, 1997, the corporation was authorized by the board of directors to repurchase up to 10 million additional shares of its common stock, replacing the most recent authorization approved on April 26, 1996 to repurchase up to 8 million shares. Share repurchase activity will remain governed by the corporation's capital management strategy to deploy capital in a prudent and competent manner designed to enhance shareholder value over the long-term. 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. CAPITAL COMPONENTS AND RATIOS TABLE 12 December 31 (thousands)
1996 1995 1994 1993 1992 Tier I capital: Common shareholders' equity........... $ 3,761,832 $ 3,773,757 $ 3,286,507 $ 3,017,947 $ 2,774,767 Trust capital securities.............. 300,000 -- -- -- -- Less ineligible intangible assets..... 32,474 29,472 30,961 32,451 33,941 Unrealized (gains) losses on securities available-for-sale, net of tax...... (42,462) (116,113) 37,635 -- -- Total Tier I capital.............. 3,986,896 3,628,172 3,293,181 2,985,496 2,740,826 Tier II capital: Allowable allowance for loan losses... 409,297 408,808 406,132 384,032 348,887 Allowable long-term debt.............. 1,138,041 1,208,479 830,782 583,738 344,983 Tier II capital additions......... 1,547,338 1,617,287 1,236,914 967,770 693,870 Total capital..................... $ 5,534,234 $ 5,245,459 $ 4,530,095 $ 3,953,266 $ 3,434,696 Risk-adjusted assets.................... $42,669,628 $38,469,866 $35,573,896 $30,701,782 $27,880,304 Quarterly average assets................ $45,737,397 $43,477,038 $38,146,370 $35,419,829 $32,518,351 Risk-based capital ratios: Tier I capital........................ 9.34% 9.43% 9.26% 9.72% 9.83% Total capital......................... 12.97 13.64 12.73 12.88 12.32 Tier I leverage ratio*.................. 8.73% 8.36% 8.63% 8.44% 8.44% Shareholders' equity to total assets.... 8.02% 8.39% 8.39% 8.26% 8.32% 1991 Tier I capital: Common shareholders' equity........... $ 2,484,414 Trust capital securities.............. -- Less ineligible intangible assets..... 33,198 Unrealized (gains) losses on securities available-for-sale, net of tax...... -- Total Tier I capital.............. 2,451,216 Tier II capital: Allowable allowance for loan losses... 332,528 Allowable long-term debt.............. 136,682 Tier II capital additions......... 469,210 Total capital..................... $ 2,920,426 Risk-adjusted assets.................... $26,583,836 Quarterly average assets................ $32,180,449 Risk-based capital ratios: Tier I capital........................ 9.22% Total capital......................... 10.99 Tier I leverage ratio*.................. 7.62% Shareholders' equity to total assets.... 7.49%
*Ratio excludes the average unrealized gains (losses) on securities available-for-sale, net of tax, of $45,135, $63,884 and ($26,581), respectively The corporation's internal capital generation rate (net income less dividends as a percentage of average equity) was 10.7 percent in 1996 versus 10.8 percent in 1995. Wachovia's book value at December 31, 1996 was $22.96 compared with $22.15 one year earlier, an increase of 3.7 percent. 32 Intangible assets at year-end 1996 totaled $39.360 million, consisting of $32.474 million of goodwill, $5.441 million of deposit base intangibles, $596 thousand of purchased credit card intangibles and $849 thousand of other intangibles. Intangible assets one year earlier were $39.093 million, with $29.472 million of goodwill, $6.932 million of deposit base intangibles, $1.422 million of purchased credit card intangibles and $1.267 million of other intangibles. The increase in goodwill at December 31, 1996 reflected the corporation's acquisition of First National Bankshares of Henry County, Inc., on April 1, 1996. Regulatory agencies divide capital into Tier I (consisting of shareholders' equity and certain cumulative preferred stock instruments 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 Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (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 at least one-half consisting of tangible common shareholders' equity and a minimum Tier I leverage ratio of 3 percent. Banks which meet or exceed a Tier I ratio of 6 percent, a total capital ratio of 10 percent and a Tier I leverage ratio of 5 percent are considered well-capitalized by regulatory standards. At December 31, 1996, the corporation's Tier I to risk-adjusted assets ratio was 9.34 percent with total capital 12.97 percent of risk-adjusted assets. The Tier I leverage ratio was 8.73 percent. The capital ratios at year-end 1996 include the issuance of $300 million of trust capital securities by the corporation in December 1996. In January 1997, the corporation issued an additional $300 million of trust capital securities. All of the corporation's banks are well-capitalized. DIVIDENDS Cash dividends paid in 1996 totaled $254.458 million, increasing $18.963 million or 8.1 percent from $235.495 million paid in 1995. The payout ratio of cash dividends paid to net income was 39.5 percent in 1996 and 39.1 percent in 1995. Cash dividends paid per common share were $1.52 versus $1.38 per common share paid in 1995, a rise of 10.1 percent. At its meeting on January 24, 1997, the corporation's board of directors declared a first quarter dividend of $.40 per share, payable March 3, 1997 to shareholders of record on February 6. The dividend is higher by 11.1 percent from $.36 per share paid in the same period of 1996. Additional dividend information is presented on page 72. Year-End Shareholders' Equity Per Share Five-year compound growth rate = 9.5% (Chart appears here. Plot points are below.) 91 92 93 94 95 96 14.56 16.18 17.61 19.23 22.15 22.96 33 QUARTERLY FINANCIAL SUMMARY TABLE 13
1996 1995 Fourth Third Second First Fourth Third Second Quarter Quarter Quarter Quarter Quarter Quarter Quarter SUMMARY OF OPERATIONS (thousands, except per share data) Interest income -- taxable equivalent....................... $842,365 $842,109 $810,637 $802,120 $815,894 $813,117 $774,078 Interest expense................... 421,079 426,723 411,472 413,328 424,624 418,917 392,970 Net interest income -- taxable equivalent....................... 421,286 415,386 399,165 388,792 391,270 394,200 381,108 Taxable equivalent adjustment...... 16,246 16,880 17,914 18,877 24,531 26,633 23,987 Net interest income................ 405,040 398,506 381,251 369,915 366,739 367,567 357,121 Provision for loan losses.......... 47,443 40,730 34,404 27,334 30,172 23,179 28,652 Net interest income after provision for loan losses.................. 357,597 357,776 346,847 342,581 336,567 344,388 328,469 Other operating revenue............ 203,436 197,778 198,595 184,105 186,289 170,415 166,304 Gain on sale of mortgage servicing portfolio........................ -- -- -- -- -- -- 79,025 Investment securities gains (losses)......................... 2,864 393 (219) 698 2,554 317 (26,236) Total other income................. 206,300 198,171 198,376 184,803 188,843 170,732 219,093 Personnel expense.................. 167,236 165,509 160,162 161,618 152,078 153,298 149,987 Other expense...................... 155,502 150,970 149,925 146,627 162,987 145,584 156,630 Total other expense................ 322,738 316,479 310,087 308,245 315,065 298,882 306,617 Income before income taxes......... 241,159 239,468 235,136 219,139 210,345 216,238 240,945 Applicable income taxes*........... 70,431 74,872 75,773 69,269 64,147 64,958 78,036 Net income......................... $170,728 $164,596 $159,363 $149,870 $146,198 $151,280 $162,909 Net income per common share: Primary.......................... $ 1.02 $ .98 $ .94 $ .87 $ .85 $ .88 $ .94 Fully diluted.................... $ 1.02 $ .97 $ .94 $ .87 $ .85 $ .87 $ .95 Cash dividends paid per common share . . $ .40 $ .40 $ .36 $ .36 $ .36 $ .36 $ .33 Cash dividends paid on common stock . . $ 66,016 $ 66,669 $ 60,684 $ 61,089 $ 61,423 $ 61,312 $ 56,302 Cash dividend payout ratio......... 38.7% 40.5% 38.1% 40.8% 42.0% 40.5% 34.6% Average primary shares outstanding...................... 167,118 167,966 169,861 171,467 172,372 171,793 171,986 Average fully diluted shares outstanding . . 167,281 168,354 169,972 171,653 172,705 172,512 172,446 SELECTED AVERAGE BALANCES (millions) Total assets....................... $ 45,737 $ 45,778 $ 44,956 $ 44,435 $ 43,477 $ 42,573 $ 40,876 Loans -- net of unearned income.... 31,101 30,660 30,004 29,218 28,470 28,097 27,203 Investment securities**............ 8,251 8,734 8,668 8,795 8,676 8,778 8,276 Other interest-earning assets...... 1,409 1,611 1,519 1,594 1,562 1,210 1,012 Total interest-earning assets...... 40,761 41,005 40,191 39,607 38,708 38,085 36,491 Interest-bearing deposits.......... 21,211 20,873 20,335 20,666 20,705 19,352 18,388 Short-term borrowed funds.......... 7,668 8,099 8,216 8,055 7,332 8,593 7,869 Long-term debt..................... 6,206 6,454 6,129 5,487 5,213 4,851 4,863 Total interest-bearing liabilities...................... 35,085 35,426 34,680 34,208 33,250 32,796 31,120 Noninterest-bearing deposits....... 5,604 5,408 5,426 5,372 5,361 5,212 5,333 Total deposits..................... 26,815 26,281 25,761 26,038 26,066 24,564 23,721 Shareholders' equity............... 3,671 3,631 3,644 3,687 3,576 3,463 3,345 RATIOS (averages) Annualized net loan losses to loans............................ .61% .53% .46% .37% .42% .33% .42% Annualized net yield on interest-earning assets.......... 4.11 4.03 3.99 3.95 4.01 4.11 4.19 Shareholders' equity to: Total assets..................... 8.03 7.93 8.11 8.30 8.22 8.13 8.18 Net loans........................ 11.96 12.00 12.31 12.80 12.74 12.51 12.48 Annualized return on assets........ 1.49 1.44 1.42 1.35 1.35 1.42 1.59 Annualized return on shareholders' equity........................... 18.60 18.13 17.49 16.26 16.36 17.47 19.48 1995 First Quarter SUMMARY OF OPERATIONS (thousands, except per share data) Interest income -- taxable equivalent....................... $715,414 Interest expense................... 342,596 Net interest income -- taxable equivalent....................... 372,818 Taxable equivalent adjustment...... 23,622 Net interest income................ 349,196 Provision for loan losses.......... 21,788 Net interest income after provision for loan losses.................. 327,408 Other operating revenue............ 157,093 Gain on sale of mortgage servicing portfolio........................ -- Investment securities gains (losses)......................... (129) Total other income................. 156,964 Personnel expense.................. 144,963 Other expense...................... 138,069 Total other expense................ 283,032 Income before income taxes......... 201,340 Applicable income taxes*........... 59,184 Net income......................... $142,156 Net income per common share: Primary.......................... $ .83 Fully diluted.................... $ .82 Cash dividends paid per common share . . $ .33 Cash dividends paid on common stock . . $ 56,458 Cash dividend payout ratio......... 39.7% Average primary shares outstanding...................... 172,205 Average fully diluted shares outstanding . . 172,760 SELECTED AVERAGE BALANCES (millions) Total assets....................... $ 38,902 Loans -- net of unearned income.... 26,219 Investment securities**............ 7,612 Other interest-earning assets...... 815 Total interest-earning assets...... 34,646 Interest-bearing deposits.......... 17,354 Short-term borrowed funds.......... 7,390 Long-term debt..................... 4,674 Total interest-bearing liabilities...................... 29,418 Noninterest-bearing deposits....... 5,302 Total deposits..................... 22,656 Shareholders' equity............... 3,253 RATIOS (averages) Annualized net loan losses to loans............................ .30% Annualized net yield on interest-earning assets.......... 4.36 Shareholders' equity to: Total assets..................... 8.36 Net loans........................ 12.60 Annualized return on assets........ 1.46 Annualized return on shareholders' equity........................... 17.48
*Income taxes applicable to securities transactions were $1,181, $149, ($86), $278, $980, $91, ($9,580) and ($67), respectively **Reported at amortized cost; excludes pretax unrealized gains (losses) on securities available-for-sale of $74, $40, $74, $188, $104, $65, $15 and ($49), respectively 34 FOURTH QUARTER ANALYSIS The corporation's net income per fully diluted share was $1.02 in the fourth quarter of 1996, rising 19.9 percent from $.85 per share in the same three months of 1995. Net income totaled $170.728 million, up 16.8 percent from $146.198 million a year earlier, and represented annualized returns of 18.60 percent on shareholders' equity and 1.49 percent on assets. The increase in earnings was driven by good growth in net interest income, solid advances in other operating revenue and steady expense management, with fewer shares outstanding also contributing to the rise on a per share basis. Taxable equivalent net interest income grew $30.016 million or 7.7 percent, reflecting higher levels of interest-earning assets, principally loans, and a lower average rate paid on interest-bearing liabilities. Interest-earning assets rose $2.053 billion or 5.3 percent, more than offsetting the impact of a 14 basis point decline in the average rate earned. Loans were up $2.631 billion or 9.2 percent, led by credit cards, commercial mortgages, regular commercial loans and residential mortgages. Good growth also occurred in lease financing, construction loans and foreign loans, while tax-exempt loans declined due to portfolio runoff. Interest-bearing liabilities were higher by $1.835 billion or 5.5 percent, with long-term debt increasing $993 million or 19 percent and interest-bearing time deposits rising $506 million or 2.4 percent. The average rate paid on interest-bearing liabilities decreased 30 basis points. Quarterly Net Income Per Share, 1996 (fully diluted) (Chart appears here. Plot points appear here.) 1st Q 2nd Q 3rd Q 4th Q .87 .94 .97 1.02 Quarterly Net Income Per Share 1995 (fully diluted) (Chart appears here. Plot points appear here.) 1st Q 2nd Q 3rd Q 4th Q .82 .95 .87 .85 COMPONENTS OF EARNINGS PER PRIMARY SHARE TABLE 14
1996 1995 Fourth Fourth Quarter Quarter Change Interest income -- taxable equivalent.................................... $5.04 $4.73 $.31 Interest expense......................................................... 2.52 2.46 .06 Net interest income -- taxable equivalent................................ 2.52 2.27 .25 Taxable equivalent adjustment............................................ .09 .14 (.05) Net interest income...................................................... 2.43 2.13 .30 Provision for loan losses................................................ .29 .18 .11 Net interest income after provision for loan losses...................... 2.14 1.95 .19 Other operating revenue.................................................. 1.22 1.08 .14 Investment securities gains.............................................. .01 .02 (.01) Total other income....................................................... 1.23 1.10 .13 Personnel expense........................................................ 1.00 .88 .12 Other expense............................................................ .93 .95 (.02) Total other expense...................................................... 1.93 1.83 .10 Income before income taxes............................................... 1.44 1.22 .22 Applicable income taxes.................................................. .42 .37 .05 Net income............................................................... $1.02 $ .85 $.17
35 TAXABLE EQUIVALENT RATE/VOLUME VARIANCE ANALYSIS -- FOURTH QUARTER* TABLE 15
Variance Attributable Average Volume Average Rate Interest to 1996 1995 1996 1995 1996 1995 Variance Rate (Millions) INTEREST INCOME (Thousands) Loans: $ 9,828 $ 9,365 7.07 7.30 Commerical..................... $174,765 $172,285 $ 2,480 $(5,586) 1,950 2,204 8.78 9.35 Tax-exempt..................... 43,042 51,934 (8,892) (3,037) 11,778 11,569 7.36 7.69 Total commercial........... 217,807 224,219 (6,412) (10,148) 774 742 9.45 9.40 Direct retail.................. 18,400 17,593 807 87 2,527 2,532 8.29 8.20 Indirect retail................ 52,682 52,305 377 485 4,542 3,797 12.30 12.33 Credit card.................... 140,445 118,019 22,426 (286) 355 349 12.17 12.50 Other revolving credit......... 10,863 11,011 (148) (312) 8,198 7,420 10.79 10.64 Total retail............... 222,390 198,928 23,462 2,727 950 725 8.26 9.77 Construction................... 19,729 17,857 1,872 (3,016) 4,348 3,789 8.33 8.60 Commercial mortgages........... 91,081 82,129 8,952 (2,634) 4,599 4,167 8.27 8.48 Residential mortgages.......... 95,602 89,073 6,529 (2,260) 9,897 8,681 8.30 8.64 Total real estate.......... 206,412 189,059 17,353 (7,676) 763 452 10.23 9.44 Lease financing................ 19,622 10,749 8,873 942 465 348 6.93 7.29 Foreign........................ 8,097 6,393 1,704 (325) 31,101 28,470 8.63 8.77 Total loans................ 674,328 629,348 44,980 (10,313) Investment securities: Held-to-maturity: -- 1,637 -- 6.80 U.S. government and agency... -- 28,038 (28,038) -- 1,128 1,474 7.97 7.96 Mortgage-backed securities... 22,591 29,561 (6,970) 36 248 338 11.02 11.33 State and municipal.......... 6,871 9,657 (2,786) (254) 2 12 10.13 5.12 Other........................ 54 160 (106) 85 Total securities 1,378 3,461 8.52 7.73 held-to-maturity......... 29,516 67,416 (37,900) 6,162 Available-for-sale:** 4,918 3,954 6.67 7.08 U.S. government and agency... 82,512 70,545 11,967 (4,230) 1,562 1,106 6.98 7.20 Mortgage-backed securities... 27,411 20,067 7,344 (623) 393 155 7.68 6.00 Other........................ 7,581 2,353 5,228 797 Total securities 6,873 5,215 6.80 7.07 available-for-sale....... 117,504 92,965 24,539 (3,633) Total investment 8,251 8,676 7.09 7.33 securities....................... 147,020 160,381 (13,361) (5,277) 276 421 7.93 7.95 Interest-bearing bank balances... 5,501 8,442 (2,941) (21) Federal funds sold and securities purchased under 138 225 5.44 5.84 resale agreements.............. 1,893 3,310 (1,417) (210) 995 916 5.45 6.25 Trading account assets........... 13,623 14,413 (790) (1,946) Total interest-earning $40,761 $38,708 8.22 8.36 assets........................... 842,365 815,894 26,471 (14,176) INTEREST EXPENSE $ 3,354 $ 3,317 1.43 1.84 Interest-bearing demand.......... 12,044 15,392 (3,348) (3,510) Savings and money market 8,072 6,985 3.71 3.73 savings.......................... 75,359 65,731 9,628 (353) 6,510 6,631 5.66 5.90 Savings certificates............. 92,584 98,647 (6,063) (4,157) Large denomination 1,989 2,797 5.89 6.10 certificates..................... 29,470 43,028 (13,558) (1,415) Total time deposits in 19,925 19,730 4.18 4.48 domestic offices......... 209,457 222,798 (13,341) (15,416) Time deposits in foreign 1,286 975 5.30 5.52 offices.......................... 17,132 13,567 3,565 (555) 21,211 20,705 4.25 4.53 Total time deposits........ 226,589 236,365 (9,776) (15,191) Federal funds purchased and securities sold under 5,925 4,686 5.25 6.01 repurchase agreements.......... 78,235 70,970 7,265 (9,650) 666 561 4.84 5.39 Commercial paper................. 8,110 7,625 485 (823) Other short-term borrowed 1,077 2,085 5.39 5.92 funds............................ 14,604 31,126 (16,522) (2,533) Total short-term 7,668 7,332 5.24 5.94 borrowed funds........... 100,949 109,721 (8,772) (13,477) 4,397 3,889 5.81 5.77 Bank notes....................... 64,221 56,589 7,632 376 1,809 1,324 6.45 6.58 Other long-term debt............. 29,320 21,949 7,371 (437) 6,206 5,213 6.00 5.98 Total long-term debt....... 93,541 78,538 15,003 253 Total interest-bearing $35,085 $33,250 4.77 5.07 liabilities.............. 421,079 424,624 (3,545) (25,822) 3.45 3.29 INTEREST RATE SPREAD NET YIELD ON INTEREST-EARNING ASSETS 4.11 4.01 AND NET INTEREST INCOME........ $421,286 $391,270 $30,016 9,455 Variance Attributable to Volume $ 8,066 (5,855) 3,736 720 (108) 22,712 164 20,735 4,888 11,586 8,789 25,029 7,931 2,029 55,293 (28,038) (7,006) (2,532) (191) (44,062) 16,197 7,967 4,431 28,172 (8,084) (2,920) (1,207) 1,156 40,647 162 9,981 (1,906) (12,143) 2,075 4,120 5,415 16,915 1,308 (13,989) 4,705 7,256 7,808 14,750 22,277 20,561
*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 $104 million in 1995 36 QUARTERLY ALLOWANCE FOR LOAN LOSSES TABLE 16 (thousands)
1996 1995 Fourth Third Second First Fourth Third Second Quarter Quarter Quarter Quarter Quarter Quarter Quarter SUMMARY OF TRANSACTIONS Balance at beginning of period.................... $409,271 $409,205 $408,928 $408,808 $408,684 $408,633 $408,500 Additions from acquisitions.............. -- -- 200 -- -- -- -- Provision for loan losses... 47,443 40,730 34,404 27,334 30,172 23,179 28,652 Deduct net loan losses: Loans charged off: Commercial.............. 451 2,748 324 65 1,662 431 1,872 Credit card............. 44,640 38,783 36,343 31,902 29,292 27,424 23,829 Other revolving credit................ 2,834 1,790 1,346 1,092 1,239 1,202 1,058 Other retail............ 7,057 5,556 4,840 5,495 4,747 3,609 3,528 Real estate............. 814 191 1,371 134 1,332 526 5,499 Lease financing......... 675 348 235 377 56 99 636 Foreign................. -- -- -- -- -- -- -- Total................. 56,471 49,416 44,459 39,065 38,328 33,291 36,422 Recoveries: Commercial.............. 1,689 666 1,198 860 894 2,561 1,400 Credit card............. 4,982 4,579 4,599 4,024 3,365 3,207 3,186 Other revolving credit................ 384 495 290 283 278 273 267 Other retail............ 1,336 1,379 1,138 1,052 913 1,056 972 Real estate............. 633 1,575 2,866 5,578 2,804 3,021 2,037 Lease financing......... 30 58 41 54 26 45 41 Foreign................. -- -- -- -- -- -- -- Total................. 9,054 8,752 10,132 11,851 8,280 10,163 7,903 Net loan losses........... 47,417 40,664 34,327 27,214 30,048 23,128 28,519 Balance at end of period*... $409,297 $409,271 $409,205 $408,928 $408,808 $408,684 $408,633 NET LOAN LOSSES (RECOVERIES) BY CATEGORY Commercial.................. $ (1,238) $ 2,082 $ (874) $ (795) $ 768 $ (2,130) $ 472 Credit card................. 39,658 34,204 31,744 27,878 25,927 24,217 20,643 Other revolving credit...... 2,450 1,295 1,056 809 961 929 791 Other retail................ 5,721 4,177 3,702 4,443 3,834 2,553 2,556 Real estate................. 181 (1,384) (1,495) (5,444) (1,472) (2,495) 3,462 Lease financing............. 645 290 194 323 30 54 595 Foreign..................... -- -- -- -- -- -- -- Total................. $ 47,417 $ 40,664 $ 34,327 $ 27,214 $ 30,048 $ 23,128 $ 28,519 Net loan losses -- excluding credit cards.............. $ 7,759 $ 6,460 $ 2,583 $ (664) $ 4,121 $ (1,089) $ 7,876 ANNUALIZED NET LOAN LOSSES (RECOVERIES) TO AVERAGE LOANS BY CATEGORY Commercial.................. (.04%) .07% (.03%) (.03%) .03% (.07%) .02% Credit card................. 3.49 3.20 3.14 2.82 2.73 2.38 2.07 Other revolving credit...... 2.76 1.46 1.19 .92 1.10 1.08 .93 Other retail................ .69 .50 .44 .54 .47 .32 .33 Real estate................. .01 (.06) (.07) (.25) (.07) (.12) .17 Lease financing............. .34 .17 .13 .24 .03 .09 1.19 Foreign..................... -- -- -- -- -- -- -- Total loans................. .61 .53 .46 .37 .42 .33 .42 Total loans -- excluding credit cards.............. .12 .10 .04 (.01) .07 (.02) .14 Period-end allowance to outstanding loans......... 1.31% 1.30% 1.33% 1.37% 1.40% 1.41% 1.45% 1995 First Quarter SUMMARY OF TRANSACTIONS Balance at beginning of period.................... $406,132 Additions from acquisitions.............. -- Provision for loan losses... 21,788 Deduct net loan losses: Loans charged off: Commercial.............. 318 Credit card............. 21,431 Other revolving credit................ 805 Other retail............ 3,412 Real estate............. 391 Lease financing......... 101 Foreign................. -- Total................. 26,458 Recoveries: Commercial.............. 695 Credit card............. 3,203 Other revolving credit................ 322 Other retail............ 1,019 Real estate............. 1,761 Lease financing......... 30 Foreign................. 8 Total................. 7,038 Net loan losses........... 19,420 Balance at end of period*... $408,500 NET LOAN LOSSES (RECOVERIES) BY CATEGORY Commercial.................. $ (377) Credit card................. 18,228 Other revolving credit...... 483 Other retail................ 2,393 Real estate................. (1,370) Lease financing............. 71 Foreign..................... (8) Total................. $ 19,420 Net loan losses -- excluding credit cards.............. $ 1,192 ANNUALIZED NET LOAN LOSSES (RECOVERIES) TO AVERAGE LOANS BY CATEGORY Commercial.................. (.01%) Credit card................. 1.84 Other revolving credit...... .57 Other retail................ .31 Real estate................. (.07) Lease financing............. .15 Foreign..................... (.01) Total loans................. .30 Total loans -- excluding credit cards.............. .02 Period-end allowance to outstanding loans......... 1.53%
*Includes the related allowance for credit losses for impaired loans as defined in FASB 114, "Accounting by Creditors for Impairment of a Loan," of $1,960, $1,453, $791, $883, $916, $916, $0 and $2,070, respectively 37 The provision for loan losses was $47.443 million, up $17.271 million or 57.2 percent from $30.172 million in the 1995 fourth quarter. Net loan losses were $47.417 million or .61 percent annualized of average loans compared with $30.048 million or .42 percent a year earlier. The rise in net loan losses was driven by higher charge-offs, principally in credit cards. Excluding credit cards, net loan losses were $7.759 million or .12 percent of average loans versus $4.121 million or .07 percent a year earlier. Credit card net losses on a managed basis, including securitized loans, were $45.162 million or 3.50 percent of averaged managed receivables compared with $29.164 million or 2.72 percent in the fourth quarter of 1995. Managed credit card receivables for the 1996 fourth period averaged $5.167 billion versus $4.286 billion a year earlier. Total other operating revenue increased $17.147 million or 9.2 percent. Growth was led by deposit account service charges, which expanded $7.193 million or 13 percent, electronic banking revenue, which rose $3.862 million or 41 percent, investment fee income, up $3.580 million or 46.6 percent, and credit card fee income, which grew $3.388 million or 10.5 percent. Included in total other operating revenue was $2.921 million received as final payment on the sale of the corporation's bond trustee business. Excluding this gain, total other operating revenue was higher by $14.226 million or 7.6 percent. Total noninterest expense was up $7.673 million or 2.4 percent, reflecting increases in personnel expense, principally salaries. Total personnel expense grew $15.158 million or 10 percent. Salaries expense rose $11.669 million or 9 percent and benefits expense increased $3.489 million or 15.6 percent as the corporation expanded its sales and work forces. Combined net occupancy and equipment expense declined $1.713 million or 3.3 percent due to lower net occupancy costs, primarily renovation spending. Remaining combined categories of noninterest expense were down $5.772 million or 5.2 percent, reflecting reduced expenses largely in professional services, regulatory agency fees and other bank services, and advertising. The corporation's overhead ratio was 51.7 percent compared with 54.6 percent in the same three months of 1995. NONINTEREST INCOME TABLE 17 (thousands)
1996 1995 Fourth Third Second First Fourth Third Second Quarter Quarter Quarter Quarter Quarter Quarter Quarter Service charges on deposit accounts . $ 62,564 $ 62,278 $ 60,928 $ 56,598 $ 55,371 $ 52,409 $ 52,452 Fees for trust services........ 35,116 33,872 34,508 34,345 34,689 31,740 33,211 Credit card income -- net of interchange payments......... 35,679 37,089 33,848 32,522 32,291 31,180 31,867 Electronic banking............. 13,274 12,910 12,582 9,340 9,412 8,962 8,860 Investment fee income.......... 11,262 10,145 10,842 10,229 7,682 8,690 5,404 Mortgage fee income............ 4,195 4,099 4,289 4,401 4,050 4,269 6,547 Trading account profits -- excluding interest........... 7,593 6,076 5,698 3,452 8,238 5,646 5,608 Insurance premiums and commissions.................. 4,584 4,666 4,032 3,748 3,422 3,044 3,385 Bankers' acceptance and letter of credit fees.................. 6,656 6,684 6,109 5,898 6,003 5,885 5,743 Other service charges and fees......................... 7,641 8,373 7,985 8,590 7,054 5,609 5,624 Other income................... 14,872 11,586 17,774 14,982 18,077 12,981 7,603 Total other operating revenue................ 203,436 197,778 198,595 184,105 186,289 170,415 166,304 Gain on sale of mortgage servicing portfolio.................... -- -- -- -- -- -- 79,025 Investment securities gains (losses) . 2,864 393 (219) 698 2,554 317 (26,236) Total.................... $206,300 $198,171 $198,376 $184,803 $188,843 $170,732 $219,093 1995 First Quarter Service charges on deposit accounts . $ 48,881 Fees for trust services........ 30,881 Credit card income -- net of interchange payments......... 28,944 Electronic banking............. 7,245 Investment fee income.......... 5,177 Mortgage fee income............ 8,454 Trading account profits -- excluding interest........... 6,206 Insurance premiums and commissions.................. 3,313 Bankers' acceptance and letter of credit fees.................. 5,559 Other service charges and fees......................... 6,395 Other income................... 6,038 Total other operating revenue................ 157,093 Gain on sale of mortgage servicing portfolio.................... -- Investment securities gains (losses) . (129) Total.................... $156,964
38 NONINTEREST EXPENSE TABLE 18 (thousands)
1996 1995 Fourth Third Second First Fourth Third Second Quarter Quarter Quarter Quarter Quarter Quarter Quarter Salaries....................... $141,342 $137,627 $132,438 $131,820 $129,673 $127,152 $123,720 Employee benefits.............. 25,894 27,882 27,724 29,798 22,405 26,146 26,267 Total personnel expense................ 167,236 165,509 160,162 161,618 152,078 153,298 149,987 Net occupancy expense.......... 21,559 23,161 22,184 22,678 24,551 21,424 20,940 Equipment expense.............. 29,032 28,844 28,054 28,931 27,753 25,750 27,935 Postage and delivery........... 9,813 9,973 9,780 10,452 9,801 9,379 9,190 Outside data processing, programming and software..... 11,477 11,339 11,179 10,704 11,966 9,959 10,664 Stationery and supplies........ 6,131 6,012 6,951 7,006 7,604 6,374 6,619 Advertising and sales promotion.................... 13,289 14,442 15,502 17,071 16,869 14,334 9,747 Professional services.......... 9,662 8,173 10,743 9,707 14,922 9,721 9,149 Travel and business promotion.................... 5,959 4,929 5,335 4,237 6,051 4,474 5,110 Regulatory agency fees and other bank services.......... 2,576 3,781 1,320 1,053 6,576 11,838 15,681 Amortization of intangible assets....................... 1,091 1,095 1,098 1,078 1,190 1,210 2,116 Foreclosed property expense.... 225 (370) 175 (126) 813 (146) 408 Other expense.................. 44,688 39,591 37,604 33,836 34,891 31,267 39,071 Total.................... $322,738 $316,479 $310,087 $308,245 $315,065 $298,882 $306,617 Overhead ratio................. 51.7% 51.6% 51.9% 53.8% 54.6% 52.9% 56.0% 1995 First Quarter Salaries....................... $118,185 Employee benefits.............. 26,778 Total personnel expense................ 144,963 Net occupancy expense.......... 20,190 Equipment expense.............. 28,263 Postage and delivery........... 9,592 Outside data processing, programming and software..... 9,897 Stationery and supplies........ 6,208 Advertising and sales promotion.................... 9,412 Professional services.......... 5,691 Travel and business promotion.................... 4,059 Regulatory agency fees and other bank services.......... 15,489 Amortization of intangible assets....................... 4,071 Foreclosed property expense.... (155) Other expense.................. 25,352 Total.................... $283,032 Overhead ratio................. 53.4%
RESULTS OF OPERATIONS 1995 VS. 1994 Consolidated net income for 1995 was $602.543 million or $3.49 per fully diluted share compared with $539.058 million or $3.12 per fully diluted share in 1994. Net income represented returns of 17.67 percent on shareholders' equity and 1.45 percent on assets compared with 17.41 percent and 1.46 percent, respectively, a year earlier. Taxable equivalent net interest income rose $115.330 million or 8.1 percent, fueled by strong loan growth and a higher average rate earned on interest-earning assets. Moderating the increase were greater levels of interest-bearing liabilities and a rise in the average rate paid. The net yield on interest-earning assets declined 18 basis points to 4.16 percent. Taxable equivalent interest income grew $656.049 million or 26.6 percent. Interest-earning assets increased $4.203 billion or 12.8 percent, while the average rate earned rose 92 basis points. Loans accounted for most of the rise in interest-earning assets, increasing $3.292 billion or 13.6 percent. Commercial loans, including related real estate categories, expanded $2.547 billion or 18.9 percent, with gains strongest in regular commercial loans and commercial mortgages. Consumer loans, including residential mortgages, were up $745 million or 6.9 percent, led primarily by credit cards and residential mortgages. In the fourth quarter the corporation securitized $500 million of credit card receivables, impacting loan growth comparisons for the year. Interest expense was higher by $540.719 million or 52.1 percent, reflecting the impact of 122 basis point rise in the average cost of funds and a $4.149 billion or 15.1 percent increase in interest-bearing liabilities. Interest-bearing time deposits grew $2.029 billion or 12 percent, led by savings certificates, savings and money market savings and large denomination certificates. Short-term borrowings rose $1.568 billion or 25.1 percent, reflecting increased issuance of short-term bank notes, while long-term debt was up $552 million or 12.7 percent. 39 The following table summarizes the changes in taxable equivalent interest income and interest expense due to changes in rates and volumes between 1995 and 1994. Changes which are not due solely to rate or volume are allocated proportionately to rate and volume.
1995 over 1994 Attributable to $ IN THOUSANDS Rate Volume Increase (decrease) in interest income: Loans............................................................... $245,875 $276,849 Investment securities: Held-to-maturity: State and municipal............................................. (3,907) (20,970) Other investments............................................... 7,472 29,263 Available-for-sale: Other investments............................................... 62,782 26,631 Interest-bearing bank balances...................................... 731 7,793 Federal funds sold and securities purchased under resale agreements......................................................... 3,111 (3,559) Trading account assets.............................................. 10,336 13,642 Total interest-earning assets................................... 320,749 335,300 Increase in interest expense: Total deposits in domestic offices.................................. 203,351 61,313 Time deposits in foreign offices.................................... 7,678 11,880 Short-term borrowed funds........................................... 115,633 78,802 Long-term debt...................................................... 31,458 30,604 Total interest-bearing liabilities.............................. 368,072 172,647 Increase in net interest income....................................... $ IN THOUSANDS Total Increase (decrease) in interest income: Loans............................................................... $522,724 Investment securities: Held-to-maturity: State and municipal............................................. (24,877) Other investments............................................... 36,735 Available-for-sale: Other investments............................................... 89,413 Interest-bearing bank balances...................................... 8,524 Federal funds sold and securities purchased under resale agreements......................................................... (448) Trading account assets.............................................. 23,978 Total interest-earning assets................................... 656,049 Increase in interest expense: Total deposits in domestic offices.................................. 264,664 Time deposits in foreign offices.................................... 19,558 Short-term borrowed funds........................................... 194,435 Long-term debt...................................................... 62,062 Total interest-bearing liabilities.............................. 540,719 Increase in net interest income....................................... $115,330
At December 31, 1995, nonperforming assets were $69.364 million or .24 percent of loans and foreclosed property, down $31.153 million or 31 percent from year-end 1994. The provision for loan losses for the year was $103.791 million, up $32.028 million or 44.6 percent from $71.763 million in 1994, and exceeded net charge-offs by $2.676 million. Net loan losses totaled $101.115 million or .37 percent of average loans compared with $70.429 million or .29 percent in 1994, an increase of $30.686 million or 43.6 percent. The allowance for loan losses at December 31, 1995 was $408.808 million, representing 1.40 percent of loans and 763 percent of nonperforming loans versus $406.132 million, 1.57 percent and 516 percent, respectively, one year earlier. Total other operating revenue rose $75.669 million or 12.5 percent. The increase was fueled primarily by good gains in deposit account service charges and credit card fee income, expanded trading account profits and solid growth in investment fee income and electronic banking revenue. Deposit account service charge revenue was up $12.964 million or 6.6 percent, and credit card fee income grew $12.357 million or 11 percent. Trading account profits increased $16.196 million, while investment fee income expanded $12.861 million or 91.3 percent. Electronic banking revenues were higher by $9.796 million or 39.7 percent. Included in total noninterest income for 1995 was a gain of $79.025 million from the sale of the corporation's mortgage servicing portfolio and investment securities losses of $23.494 million, principally from restructuring available-for-sale securities to improve yields. Total noninterest expense grew $105.183 million or 9.6 percent, reflecting moderate increases in both personnel expense and combined net occupancy and equipment expense along with higher spending associated primarily with the corporation's strategic initiatives. Total personnel expense rose $36.819 million or 6.5 percent, principally reflecting increased salary costs. Combined net occupancy and equipment expense was up $9.387 million or 5 percent. Remaining combined categories of noninterest expense rose $58.977 million or 17 percent, driven primarily by consulting fees in professional services, increased advertising and sales promotion initiatives, and higher spending for outside data processing, programming and software. 40 SUPERVISION AND REGULATION Wachovia Corporation is a registered bank holding company under the Bank Holding Company Act of 1956 (BHC Act) and is subject to the supervision of, and regulation by, the Board of Governors of the Federal Reserve System (FRB). In addition to the provisions of the BHC Act, state banking commissions serve in a supervisory and regulatory capacity with respect to the bank holding company activities. Wachovia Corporation is also a savings and loan holding company registered under the Home Owners' Loan Act of 1933 (HOLA), as amended by the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), and is subject to examination, supervision and reporting requirements of the Office of Thrift Supervision (OTS). Various state and federal laws govern the activities of the Corporation's banking affiliates. As federally insured national banks, Wachovia Bank of North Carolina, National Association, Wachovia Bank of Georgia, National Association, Wachovia Bank of South Carolina, National Association, and The First National Bank of Atlanta are subject to the regulation, supervision and reporting requirements of the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC). The banking subsidiaries are directly affected by the actions of the FRB as it attempts to manage the money supply and credit availability in the economy. The Corporation's nonbanking subsidiaries are subject to a variety of state and federal laws. For example, the Corporation's discount brokerage and investment advisory subsidiary is subject to supervision and regulation by the Securities and Exchange Commission (SEC), the National Association of Securities Dealers, Inc., state securities regulators and the various exchanges through which it conducts business. The Corporation's insurance subsidiaries are subject to the insurance laws of the states in which they are active. All nonbanking subsidiaries are supervised by the FRB. Federal law regulates transactions among Wachovia Corporation and its affiliates, including the amount of banking affiliates' loans to or investments in nonbank affiliates and the amount of advances to third parties collateralized by securities of the affiliate. In addition, various requirements and restrictions under federal and state laws regulate the operations of the Corporation's banking affiliates, requiring the maintenance of reserves against deposits, limiting the nature of loans and interest that may be charged thereon, restricting investments, and other activities. Under FRB policy, the Corporation is expected to act as a source of financial strength to, and commit resources to support, each of its subsidiary banks. In addition, FIRREA provides that a depository institution insured by the FDIC can be held liable by the FDIC for any loss incurred or reasonably expected to be incurred in connection with the default of a commonly controlled FDIC insured depository institution. Under the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA), federal banking regulators are required to take prompt corrective action in respect of depository institutions that do not meet minimum capital requirements. FDICIA also imposes substantial examination, audit and reporting requirements on insured depository institutions. Among other requirements, the regulation requires a revision of risk-based capital standards. These standards are required to incorporate interest rate risk, market risk, concentration of credit risk and the risks of nontraditional activities. See Shareholders' Equity and Capital Ratios on pages 32 and 33. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the Act) has introduced a process that will enable nationwide interstate banking through bank subsidiaries and interstate bank mergers. Effective September 29, 1995, the bill allows adequately capitalized and managed bank holding companies to acquire control of a bank in any state subject to concentration limits. Beginning June 1, 1997, banks will be permitted to merge with one another across state lines. A state could authorize such mergers earlier than June 1, 1997. In contrast, a state also could choose to opt-out of interstate branching by enacting legislation before June 1, 1997. The legislation preserves state laws which require that a bank must be in existence for a minimum period of time before being acquired as long as the requirement is five years or less. The legislation has immediate relevance for the banking industry due to increased competitive forces from institutions which may consolidate through mergers and those which may move into new markets through enhanced opportunities to branch across state lines. During January 1997, the Corporation's Board of Directors and each of the Boards of Directors of Wachovia Bank of Georgia, Wachovia Bank of South Carolina and Wachovia Bank of North Carolina approved a plan of merger whereby Wachovia Bank of Georgia and Wachovia Bank of South Carolina would be merged with and into Wachovia Bank of North Carolina, which, as the survivor, would change its name to Wachovia Bank, National Association. The resulting bank will continue to operate in the states currently served. The proposed merger will build on the many efficiencies already achieved through standardization of operations and delivery systems and will result in additional cost savings from consolidated financial reporting and reduced regulatory fees. The proposed merger, which is subject to regulatory approvals, is currently expected to take place on or after June 1, 1997 pursuant to the authority of the Act. Separately the Act also permits bank subsidiaries to act as agents for certain purposes for each other across state lines. These agency powers became available on September 29, 1995. Effective January 2, 1996, Wachovia Bank of Georgia, Wachovia Bank of North Carolina and Wachovia Bank of South Carolina entered into a mutual agreement to act as agents for each other, thereby making significant interstate banking services available to all customers in their three states. There have been a number of legislative and regulatory proposals that would have an impact on the operation of bank holding companies and their banks. Due to continued changes in the regulatory environment, additional legislation aimed at banking industry reform is likely to continue. While the potential effects of legislation currently under consideration cannot be measured with any degree of certainty, the Corporation is unaware of any pending legislative reforms or regulatory activities which would materially affect its financial position or operating results in the foreseeable future. 41 MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING The management of Wachovia Corporation is responsible for the preparation of the financial statements, related financial data and other information in this annual report. The financial statements are prepared in accordance with generally accepted accounting principles and include amounts based on management's estimates and judgment where appropriate. Financial information appearing throughout this annual report is consistent with the financial statements. In meeting its responsibility both for the integrity and fairness of these statements and information, management depends on the accounting system and related internal control structures that are designed to provide reasonable assurances that transactions are authorized and recorded in accordance with established procedures and that assets are safeguarded and proper and reliable records are maintained. The concept of reasonable assurance is based on the recognition that the cost of an internal control structure should not exceed the related benefits. As an integral part of the internal control structure, the corporation maintains a professional staff of internal auditors who monitor compliance with and assess the effectiveness of the internal control structure and coordinate audit coverage with the independent auditors. The Audit Committee of Wachovia's Board of Directors, composed solely of outside directors, meets regularly with the corporation's management, internal auditors, independent auditors and regulatory examiners to review matters relating to financial reporting, internal control structure and the nature, extent and results of the audit effort. The independent auditors, internal auditors and banking regulators have direct access to the Audit Committee with or without management present. The financial statements have been audited by Ernst & Young LLP, independent auditors, who render an independent professional opinion on management's financial statements. Their appointment was recommended by the Audit Committee, approved by the Board of Directors and ratified by the shareholders. Their examination provides an objective assessment of the degree to which the corporation's management meets its responsibility for financial reporting. Their opinion on the financial statements is based on auditing procedures which include reviewing internal control structures and performing selected tests of transactions and records as they deem appropriate. These auditing procedures are designed to provide a reasonable level of assurance that the financial statements are fairly presented in all material respects. REPORT OF INDEPENDENT AUDITORS The Board of Directors Wachovia Corporation We have audited the consolidated statements of condition of Wachovia Corporation and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Wachovia Corporation and subsidiaries at December 31, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. As discussed in Note C to the financial statements, in 1994, the Corporation changed its method of accounting for certain investment securities. /s/ Ernst & Young LLP Winston-Salem, North Carolina January 15, 1997 42 WACHOVIA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CONDITION
December 31 $ IN THOUSANDS 1996 1995 ASSETS Cash and due from banks......................................................................... $ 3,367,673 $2,692,318 Interest-bearing bank balances.................................................................. 27,871 451,279 Federal funds sold and securities purchased under resale agreements............................................................. 179,426 144,105 Trading account assets.......................................................................... 1,185,688 1,114,926 Securities available-for-sale................................................................... 6,760,486 7,409,825 Securities held-to-maturity (fair value of $1,423,555 in 1996 and $1,721,222 in 1995)............................................................... 1,352,091 1,619,480 Loans and net leases............................................................................ 31,290,905 29,269,825 Less unearned income on loans................................................................... 7,713 8,672 Total loans................................................................................ 31,283,192 29,261,153 Less allowance for loan losses.................................................................. 409,297 408,808 Net loans.................................................................................. 30,873,895 28,852,345 Premises and equipment.......................................................................... 644,000 628,153 Due from customers on acceptances............................................................... 957,109 883,825 Other assets.................................................................................... 1,556,276 1,185,058 Total assets............................................................................... $ 46,904,515 $44,981,314 LIABILITIES Deposits in domestic offices: Demand........................................................................................ $ 6,115,540 $5,855,286 Interest-bearing demand....................................................................... 3,462,952 3,473,607 Savings and money market savings.............................................................. 8,337,329 6,991,133 Savings certificates.......................................................................... 6,436,437 6,613,238 Large denomination certificates............................................................... 1,710,061 2,671,759 Noninterest-bearing time...................................................................... 2,974 3,334 Total deposits in domestic offices......................................................... 26,065,293 25,608,357 Deposits in foreign offices: Demand........................................................................................ -- 5,766 Time.......................................................................................... 1,184,829 754,634 Total deposits in foreign offices.......................................................... 1,184,829 760,400 Total deposits............................................................................. 27,250,122 26,368,757 Federal funds purchased and securities sold under repurchase agreements.............................................................. 6,298,130 5,850,540 Commercial paper................................................................................ 706,226 502,136 Other short-term borrowed funds................................................................. 967,097 1,720,592 Long-term debt: Bank notes.................................................................................... 4,307,802 4,088,326 Other long-term debt.......................................................................... 2,159,099 1,334,702 Total long-term debt....................................................................... 6,466,901 5,423,028 Acceptances outstanding......................................................................... 957,109 883,825 Other liabilities............................................................................... 497,098 458,679 Total liabilities.......................................................................... 43,142,683 41,207,557 Off-balance sheet items, commitments and contingent liabilities -- Notes I, J and L SHAREHOLDERS' EQUITY Preferred stock, par value $5 per share: Authorized 50,000,000 shares; none outstanding................................................ -- -- Common stock, par value $5 per share: Issued 163,844,198 shares in 1996 and 170,358,504 shares in 1995.............................. 819,221 851,793 Capital surplus................................................................................. 424,873 713,120 Retained earnings............................................................................... 2,475,276 2,092,731 Unrealized gains on securities available-for-sale, net of tax................................... 42,462 116,113 Total shareholders' equity................................................................. 3,761,832 3,773,757 Total liabilities and shareholders' equity................................................. $ 46,904,515 $44,981,314
See notes to consolidated financial statements 43 WACHOVIA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31 $ IN THOUSANDS, EXCEPT PER SHARE 1996 1995 1994 INTEREST INCOME Loans............................................................................ $2,544,658 $2,384,919 $1,864,082 Securities available-for-sale: Other investments.............................................................. 472,108 268,106 182,440 Securities held-to-maturity: State and municipal............................................................ 21,039 34,023 50,122 Other investments.............................................................. 96,509 260,218 223,691 Interest-bearing bank balances................................................... 33,106 9,121 597 Federal funds sold and securities purchased under resale agreements.............................................. 11,573 7,234 7,682 Trading account assets........................................................... 48,321 56,109 33,680 Total interest income..................................................... 3,227,314 3,019,730 2,362,294 INTEREST EXPENSE Deposits: Domestic offices............................................................... 826,620 781,578 516,914 Foreign offices................................................................ 54,942 41,876 22,318 Total interest on deposits................................................ 881,562 823,454 539,232 Short-term borrowed funds........................................................ 431,094 467,007 272,572 Long-term debt................................................................... 359,946 288,646 226,584 Total interest expense.................................................... 1,672,602 1,579,107 1,038,388 NET INTEREST INCOME.............................................................. 1,554,712 1,440,623 1,323,906 Provision for loan losses........................................................ 149,911 103,791 71,763 Net interest income after provision for loan losses.............................. 1,404,801 1,336,832 1,252,143 OTHER INCOME Service charges on deposit accounts.............................................. 242,368 209,113 196,149 Fees for trust services.......................................................... 137,841 130,521 128,100 Credit card income............................................................... 139,138 124,282 111,925 Electronic banking............................................................... 48,106 34,479 24,683 Investment fee income............................................................ 42,478 26,953 14,092 Mortgage fee income.............................................................. 16,984 23,320 33,224 Trading account profits.......................................................... 22,819 25,698 9,502 Other operating income........................................................... 134,180 105,735 86,757 Total other operating revenue............................................. 783,914 680,101 604,432 Gain on sale of mortgage servicing portfolio..................................... -- 79,025 -- Investment securities gains (losses)............................................. 3,736 (23,494) 3,320 Total other income........................................................ 787,650 735,632 607,752 OTHER EXPENSE Salaries......................................................................... 543,227 498,730 464,790 Employee benefits................................................................ 111,298 101,596 98,717 Total personnel expense................................................... 654,525 600,326 563,507 Net occupancy expense............................................................ 89,582 87,105 80,911 Equipment expense................................................................ 114,861 109,701 106,508 Other operating expense.......................................................... 398,581 406,464 347,487 Total other expense....................................................... 1,257,549 1,203,596 1,098,413 Income before income taxes....................................................... 934,902 868,868 761,482 Applicable income taxes.......................................................... 290,345 266,325 222,424 NET INCOME....................................................................... $ 644,557 $ 602,543 $ 539,058 Net income per common share: Primary........................................................................ $ 3.81 $ 3.50 $ 3.13 Fully diluted.................................................................. $ 3.80 $ 3.49 $ 3.12 Average shares outstanding: Primary........................................................................ 169,094 172,089 172,339 Fully diluted.................................................................. 169,827 172,957 172,951
See notes to consolidated financial statements 44 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) YEAR ENDED DECEMBER 31, 1994 Balance at beginning of year.......................... 171,375,772 $856,879 $761,573 $1,399,495 $ -- Net income............................................ 539,058 Cash dividends declared on common stock -- $1.23 a share.............................. (210,503) Common stock issued pursuant to: Stock option and employee benefit plans............. 714,648 3,573 14,560 Dividend reinvestment plan.......................... 357,015 1,785 9,895 Conversion of debentures............................ 162,777 814 2,290 Common stock acquired................................. (1,676,463) (8,382) (46,178) Unrealized losses on securities available-for-sale, net of tax...................... (37,635) Miscellaneous......................................... (194) (523) Balance at end of year................................ 170,933,749 $854,669 $741,946 $1,727,527 $(37,635) YEAR ENDED DECEMBER 31, 1995 Balance at beginning of year.......................... 170,933,749 $854,669 $741,946 $1,727,527 $(37,635) Net income............................................ 602,543 Cash dividends declared on common stock -- $1.38 a share.............................. (235,495) Common stock issued pursuant to: Stock option and employee benefit plans............. 800,751 4,004 16,023 Dividend reinvestment plan.......................... 349,310 1,747 11,719 Conversion of debentures............................ 165,885 829 2,355 Common stock acquired................................. (1,890,517) (9,453) (60,026) Unrealized gains on securities available-for-sale, net of tax...................... 153,748 Miscellaneous......................................... (674) (3) 1,103 (1,844) Balance at end of year................................ 170,358,504 $851,793 $713,120 $2,092,731 $116,113 YEAR ENDED DECEMBER 31, 1996 Balance at beginning of year.......................... 170,358,504 $851,793 $713,120 $2,092,731 $116,113 Net income............................................ 644,557 Cash dividends declared on common stock -- $1.52 a share.............................. (254,458) Common stock issued pursuant to: Stock option and employee benefit plans............. 728,615 3,643 25,758 Dividend reinvestment plan.......................... 302,393 1,512 12,878 Conversion of debentures............................ 312,594 1,563 4,444 Acquisition of bank................................. 208,207 1,041 9,003 Common stock acquired................................. (8,066,115) (40,331) (340,865) Unrealized losses on securities available-for-sale, net of tax...................... (73,651) Miscellaneous......................................... 535 (7,554) Balance at end of year................................ 163,844,198 $819,221 $424,873 $2,475,276 $ 42,462
See notes to consolidated financial statements 45 WACHOVIA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31 $ IN THOUSANDS 1996 1995 1994 OPERATING ACTIVITIES Net income......................................................................... $ 644,557 $ 602,543 $ 539,058 Adjustments to reconcile net income to net cash provided by operations: Provision for loan losses........................................................ 149,911 103,791 71,763 Depreciation and amortization.................................................... 96,335 90,547 107,502 Deferred income taxes............................................................ 50,933 3,919 12,440 Investment securities ( gains) losses............................................ (3,736) 23,494 (3,320) Gain on sale of mortgage servicing portfolio..................................... -- (79,025) -- Gain on sale of noninterest-earning assets....................................... (1,709) (5,699) (5,316) Increase (decrease) in accrued income taxes...................................... 16,526 6,995 (1,059) Decrease (increase) in accrued interest receivable............................... 29,300 (64,872) (31,041) (Decrease) increase in accrued interest payable.................................. (33,335) 67,061 11,509 Net change in other accrued and deferred income and expense...................... (6,525) 44,195 (19,337) Net change in trading account activities......................................... (70,762) (224,968) (101,179) Net change in loans held for resale.............................................. 534,624 (333,075) 259,083 Net cash provided by operating activities...................................... 1,406,119 234,906 840,103 INVESTING ACTIVITIES Net decrease (increase) in interest-bearing bank balances.......................... 423,408 (444,516) 5,715 Net (increase) decrease in federal funds sold and securities purchased under resale agreements................................................ (30,821) 57,501 489,500 Purchases of securities available-for-sale......................................... (991,932) (4,035,218) (1,131,114) Purchases of securities held-to-maturity........................................... (45,679) (665,727) (588,873) Sales of securities available-for-sale............................................. 322,657 2,398,468 73,062 Calls, maturities and prepayments of securities available-for-sale................. 1,226,270 715,181 1,185,413 Calls, maturities and prepayments of securities held-to-maturity................... 318,205 508,830 544,099 Net increase in loans made to customers............................................ (2,695,615) (3,143,478) (3,255,879) Capital expenditures............................................................... (201,722) (185,796) (147,870) Proceeds from sales of premises and equipment...................................... 99,259 31,433 36,789 Proceeds from sales of mortgage servicing portfolio................................ -- 142,011 -- Net increase in other assets....................................................... (397,779) (46,431) (128,411) Business combinations.............................................................. 2,814 -- -- Net cash used by investing activities.......................................... (1,970,935) (4,667,742) (2,917,569) FINANCING ACTIVITIES Net increase (decrease) in demand, savings and money market accounts............... 1,584,238 1,051,063 (621,400) Net (decrease) increase in certificates of deposit................................. (732,047) 2,248,436 338,260 Net increase (decrease) in federal funds purchased and securities sold under repurchase agreements................................................. 447,590 (47,858) 1,157,115 Net increase (decrease) in commercial paper........................................ 204,090 95,430 (182,472) Net (decrease) increase in other short-term borrowings............................. (753,495) 713,252 (83,783) Proceeds from issuance of bank notes............................................... 2,465,005 1,349,812 2,095,479 Maturities of bank notes........................................................... (2,246,242) (1,216,044) (515,425) Proceeds from issuance of other long-term debt..................................... 807,516 496,387 247,887 Payments on other long-term debt................................................... (429) (491) (352) Common stock issued................................................................ 25,826 24,115 25,339 Dividend payments.................................................................. (254,458) (235,495) (210,503) Common stock repurchased........................................................... (376,716) (65,032) (52,908) Net increase in other liabilities.................................................. 69,293 41,464 20,816 Net cash provided by financing activities...................................... 1,240,171 4,455,039 2,218,053 INCREASE IN CASH AND CASH EQUIVALENTS.............................................. 675,355 22,203 140,587 Cash and cash equivalents at beginning of year..................................... 2,692,318 2,670,115 2,529,528 Cash and cash equivalents at end of year........................................... $3,367,673 $2,692,318 $2,670,115 SUPPLEMENTAL DISCLOSURES Unrealized (losses) gains on securities available-for-sale: (Decrease) increase in securities available-for-sale............................. $ (120,797) $ 251,958 $ (61,847) Increase (decrease) in deferred taxes............................................ 47,146 (98,210) 24,212 (Decrease) increase in shareholders' equity...................................... (73,651) 153,748 (37,635)
See notes to consolidated financial statements 46 WACHOVIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS $ IN THOUSANDS NOTE A -- ACCOUNTING POLICIES NATURE OF OPERATIONS -- The Corporation is a southeastern interstate bank holding company maintaining dual headquarters in Atlanta, Georgia, and Winston-Salem, North Carolina. Principal banking subsidiaries are Wachovia Bank of Georgia, N.A., Atlanta; Wachovia Bank of North Carolina, N.A., Winston-Salem; and Wachovia Bank of South Carolina, N.A., Columbia. The First National Bank of Atlanta in Wilmington, Delaware, provides credit card services for Wachovia's affiliated banks. In addition to general commercial banking, the Corporation and its subsidiaries are engaged in trust and investment management, residential mortgage origination, leasing, state and local government securities underwriting, foreign exchange, corporate finance and other money market services. PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements include the accounts of Wachovia Corporation and its subsidiaries after elimination of all material intercompany balances and transactions. USE OF ESTIMATES -- The financial statements are prepared in accordance with generally accepted accounting principles which require management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. CASH AND DUE FROM BANKS -- The Corporation considers cash and due from banks, all of which are maintained in financial institutions, as cash and cash equivalents for purposes of the Consolidated Statements of Cash Flows. TRADING INSTRUMENTS -- The Corporation maintains trading positions in both derivative and nonderivative (or cash) financial instruments. Trading cash instruments are held for distribution through retail sales or in anticipation of market movements and are carried at fair value. Gains and losses, both realized and unrealized, are included in trading account profits (losses). Interest revenue arising from cash financial instruments is included in interest income-trading account assets. Trading cash instruments are comprised primarily of securities backed by the U.S. Treasury and various federal agencies and state and local governmental bodies. Trading derivative financial instruments are customer oriented, and trading positions are established as necessary to accommodate customers' requirements. Gains and losses from securities, trading derivatives and foreign exchange activities are included in trading account profits (losses), while gains and losses from interest rate derivatives are included in other operating income. INVESTMENT SECURITIES HELD-TO-MATURITY AND AVAILABLE-FOR-SALE -- Management determines the appropriate classification of debt securities at the time of purchase. Debt securities are classified as held-to-maturity when the Corporation has the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are stated at amortized cost. Debt securities not classified as held-to-maturity or trading, and marketable equity securities are classified as available-for-sale and are stated at fair value. Unrealized gains and losses, net of tax, on available-for-sale securities are recorded in a separate component of shareholders' equity. The amortized cost of debt securities classified as held-to-maturity or available-for-sale is adjusted for amortization of premiums and accretion of discounts to maturity, or in the case of mortgage backed securities, over the estimated life of the security. Such amortization is included in interest income from investments. The specific identification method is used to determine realized gains and losses on sales of securities, which are reported as investment securities gains and losses. RISK MANAGEMENT INSTRUMENTS -- Interest rate swaps and options (caps and floors) are used as part of the Corporation's overall interest rate risk management and are designated as hedges of interest-bearing assets and liabilities. Amounts receivable or payable under interest rate swap and option agreements are recognized in interest income. If a derivative financial instrument designated as a hedge is terminated early, any resulting gain or loss is deferred and amortized to net interest income over the remaining periods originally covered by the instrument. LOANS AND ALLOWANCE FOR LOAN LOSSES -- Loans are carried at their principal amount outstanding, except for loans held for resale which are carried at the lower of cost or market. Interest on loans is accrued and recorded as interest income based upon the principal amount outstanding. Except for revolving credit loans, the recognition of interest income is discontinued when a loan becomes 90 days past due as to principal and interest or when, in management's judgment, the interest will not be collectible in the normal course of business. When interest accruals are discontinued, the balance of accrued interest is reversed. Management may elect to continue the accrual of interest when the estimated net realizable value of collateral is sufficient to cover the principal balance and accrued interest and the loan is in the process of collection. Interest is accrued on revolving credit loans until payments become 120 days delinquent, at which time the outstanding principal balance and accrued unpaid interest is charged off. The allowance is maintained at a level believed to be adequate by management to absorb potential losses in the loan portfolio. Management's determination of the adequacy of the allowance is based on an evaluation of the portfolio, past loan loss experience, current domestic and international economic conditions, volume, growth and composition of the loan portfolio, and other risks inherent in the portfolio. PREMISES AND EQUIPMENT -- Premises, equipment and leasehold improvements are stated at cost less accumulated depreciation and amortization. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets. Leasehold improvements are amortized on a straight-line basis over the shorter of the life of the leasehold asset or the lease term. INTANGIBLE ASSETS -- The excess of cost over net assets and identifiable intangible assets, including deposit base intangibles, of acquired businesses is amortized on a straight-line basis over the estimated periods benefited. 47 WACHOVIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued $ IN THOUSANDS NOTE A -- ACCOUNTING POLICIES -- Concluded IMPAIRMENT OF LONG-LIVED ASSETS -- 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. INCOME TAXES -- The Corporation applies Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (FASB 109). Under FASB 109, deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Each subsidiary provides for income taxes based on its contribution to income taxes (benefit) of the consolidated group. The Corporation and its subsidiaries file a consolidated tax return. ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES -- 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, securitizations, and servicing of receivables and other financial assets and extinguishments of liabilities. FASB 125 is effective for transactions occurring after December 31, 1996, except those provisions relating to repurchase agreements, securities lending and other similar transactions and pledged collateral, which have been delayed until after December 31, 1997 by FASB 127, "Deferral of the Effective Date of Certain Provisions of FASB Statement No. 125, an amendment of FASB Statement No. 125." These standards will be adopted as required in 1997 and 1998, and are not expected to have a material impact on the Corporation's financial position or results of operations. STOCK-BASED COMPENSATION -- The Corporation applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Corporation's stock at the date of grant over the amount an employee must pay to acquire the stock. Compensation cost for stock awards and appreciation rights is recorded based on the market price at the end of the period. In October 1995, Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (FASB 123), was issued and encourages, but does not require, adoption of a fair value method of accounting for employee stock-based compensation plans. As permitted by FASB 123, the Corporation has elected to disclose the pro forma net income and net income per share as if the fair value method had been applied in measuring compensation cost. NOTE B -- FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used by the Corporation in estimating its fair value disclosures for financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rates and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. Also, the fair value estimates are based on pertinent information available to management as of December 31, 1996 and 1995. Such amounts have not been comprehensively revalued for purposes of these financial statements since those dates and therefore, current estimates of fair value may differ significantly from the amounts presented. TRADING ACCOUNT ASSETS -- Fair values are based on quoted market prices as recognized in the statements of condition. INVESTMENT SECURITIES -- Fair values are based on quoted market prices. If a quoted market price is not available, fair value is estimated using market prices for similar securities. LOANS -- For credit card, equity lines and other loans with short-term or variable rate characteristics, the carrying value reduced by an estimate of credit losses inherent in the portfolio is a reasonable estimate of fair value. The fair value of all other loans is estimated by discounting their future cash flows using interest rates currently being offered for loans with similar terms, reduced by an estimate of credit losses inherent in the portfolio. The discount rates used are commensurate with the interest rate and prepayment risks involved for the various types of loans. DEPOSITS -- The fair values disclosed for demand deposits (e.g., interest- and noninterest-bearing demand, savings and money market savings) are equal to the amounts payable on demand at the reporting date (i.e., their carrying amounts). Fair values for certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated monthly maturities. LONG-TERM DEBT -- Fair values are estimated using discounted cash flow analyses, based on the Corporation's current incremental borrowing rates for similar types of borrowing arrangements. Many of the Corporation's assets and liabilities are short-term financial instruments whose carrying amounts reported in the statement of condition approximate fair value. These items include cash and due from banks, interest-bearing bank balances, federal funds sold and securities purchased under resale agreements, due from customers on acceptances, short-term borrowed funds, acceptances outstanding, and the financial instruments included in other assets and liabilities. The estimated fair values of the Corporation's remaining 48 WACHOVIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued $ IN THOUSANDS NOTE B -- FAIR VALUE OF FINANCIAL INSTRUMENTS -- Concluded on-balance sheet financial instruments as of December 31 are summarized below.
1996 Carrying Estimated Value Fair Value Financial assets: Trading account assets............ $ 1,185,688 $ 1,185,688 Investment securities............. 8,112,577 8,184,041 Loans, net of allowance for loan losses.......................... 30,873,895 31,681,930 Financial liabilities: Deposits.......................... 27,250,122 27,412,562 Long-term debt.................... 6,466,901 6,526,002
1995 Carrying Estimated Value Fair Value Financial assets: Trading account assets............ $ 1,114,926 $ 1,114,926 Investment securities............. 9,029,305 9,131,047 Loans, net of allowance for loan losses.......................... 28,852,345 29,148,815 Financial liabilities: Deposits.......................... 26,368,757 26,532,636 Long-term debt.................... 5,423,028 5,582,409
OFF-BALANCE SHEET INSTRUMENTS -- Fair values are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties' credit standing for loan commitments and letters of credit, and the estimated amount the Corporation would receive or pay to terminate or replace the contract at current market rates for the remainder of the off-balance sheet instruments. See Notes I and J for additional information about off-balance sheet financial instruments. The estimated fair values of the Corporation's off-balance sheet financial instruments as of December 31 are summarized below. The amounts for commitments and letters of credit are presented as negative in order to represent the approximate cost the Corporation would incur to pay third parties to assume these commitments. Interest rate contract fair values and other off-balance sheet financial instruments represent the net fair value gain or loss of the contracts.
1996 1995 Estimated Estimated Fair Value Fair Value Unfunded commitments to extend credit.......................... ($ 40,736) ($ 62,291) Letters of credit........................ (41,469) (31,239) Interest rate contracts issued for trading purposes................... 3,997 4,063 Interest rate contracts held for purposes other than trading............ (1,217) 6,873 Other off-balance sheet financial instruments issued or held for trading or lending purposes............ 3,647 2,601
This presentation excludes certain financial instruments and all nonfinancial instruments. The disclosures also do not include certain intangible assets, such as customer relationships, deposit base intangibles and goodwill. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Corporation. NOTE C -- INVESTMENT SECURITIES The aggregate amortized cost, fair value, and gross unrealized gains and losses of investment securities as of December 31 were as follows:
1996 1995 Amortized Unrealized Unrealized Fair Amortized Unrealized Cost Gains Losses Value Cost Gains Held-to-Maturity State and municipal..................... $ 167,901 $ 20,949 $ 98 $ 188,752 $ 321,045 $ 33,595 Mortgage backed......................... 1,104,355 46,727 398 1,150,684 1,297,935 68,891 Other................................... 79,835 4,291 7 84,119 500 -- $1,352,091 $ 71,967 $ 503 $1,423,555 $1,619,480 $102,486 Available-for-Sale U.S. Treasury and other agencies........ $4,764,912 $ 53,802 $ 6,236 $4,812,478 $5,586,965 $148,413 Mortgage backed......................... 1,531,807 18,912 7,081 1,543,638 1,471,761 35,079 Other................................... 332,878 10 594 332,294 98,983 48 Equity.................................. 61,576 10,682 182 72,076 62,004 13,365 $6,691,173 $ 83,406 $ 14,093 $6,760,486 $7,219,713 $196,905 1995 Unrealized Fair Losses Value Held-to-Maturity State and municipal..................... $ 212 $ 354,428 Mortgage backed......................... 532 1,366,294 Other................................... -- 500 $ 744 $1,721,222 Available-for-Sale U.S. Treasury and other agencies........ $6,233 $5,729,145 Mortgage backed......................... 451 1,506,389 Other................................... -- 99,031 Equity.................................. 109 75,260 $6,793 $7,409,825
49 WACHOVIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued $ IN THOUSANDS NOTE C -- INVESTMENT SECURITIES -- Concluded The amortized cost and estimated fair value of investment securities at December 31, 1996, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations.
Amortized Fair Cost Value Held-to-Maturity Due in one year or less............... $ 14,527 $ 14,654 Due after one year through five years............................... 179,614 185,381 Due after five years through ten years............................... 276,182 294,021 Due after ten years................... 881,768 929,499 Total........................... 1,352,091 1,423,555 Available-for-Sale Due in one year or less............... 2,076,114 2,080,356 Due after one year through five years............................... 3,170,224 3,209,297 Due after five years through ten years............................... 361,297 361,791 Due after ten years................... 1,021,962 1,036,966 Total........................... 6,629,597 6,688,410 No contractual maturity............... 61,576 72,076 Total........................... 6,691,173 6,760,486 Total investment securities..... $8,043,264 $8,184,041
Proceeds, gross gains and gross losses realized from the sales, calls and prepayments of available-for-sale securities for December 31 were as follows:
1996 1995 Proceeds................................ $322,657 $2,398,468 Gross gains............................. 5,964 3,790 Gross losses............................ 2,228 27,284
Trading account assets are reported at fair value with net unrealized gains (losses) of $55, ($63) and ($177) included in earnings during 1996, 1995 and 1994, respectively. At December 31, 1996 and 1995, investment securities with a carrying value of $6,062,611 and $4,360,792, respectively, were pledged as collateral to secure public deposits and for other purposes. There were no obligations of any one issuer exceeding 10 percent of consolidated shareholders' equity at December 31, 1996. On December 1, 1995, the Corporation reclassified securities with an amortized cost of $2,720,000 (fair value $2,774,000) from held-to-maturity to available-for-sale. The reclassification was made pursuant to a reassessment of the investment securities portfolio based on the issuance of a special report by the Financial Accounting Standards Board "A Guide to Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities." In accordance with the report, business entities were allowed a one time reclassification of the investment securities portfolio between November 15, 1995 and December 31, 1995. There were no transfers of held-to-maturity securities during 1996, nor were there any sales of held-to-maturity securities in 1996 or 1995. Effective January 1, 1994, the Corporation prospectively adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (FASB 115). NOTE D -- LOANS AND ALLOWANCE FOR LOAN LOSSES Loans at December 31 are summarized as follows:
1996 1995 Commercial: Commercial, financial and other... $ 9,661,757 $ 9,753,450 Tax-exempt........................ 1,936,785 2,238,538 Retail: Direct............................ 782,478 755,375 Indirect.......................... 2,491,029 2,543,771 Credit card....................... 4,819,197 3,917,997 Other revolving credit............ 359,594 353,727 Real estate: Construction...................... 979,649 745,776 Commercial mortgages.............. 4,349,438 3,855,095 Residential mortgages............. 4,644,858 4,213,556 Lease financing -- net.............. 822,703 493,756 Foreign............................. 435,704 390,112 Total loans -- net............ $31,283,192 $29,261,153
Loans at December 31 that had been placed on a cash basis and those on which the contractual rate of interest had been reduced below market are summarized below.
1996 1995 Cash-basis assets -- domestic.............. $60,066 $53,547 Restructured loans......................... -- -- Total nonperforming loans............ $60,066 $53,547 Interest income which would have been recorded pursuant to original terms: Domestic................................. $ 6,828 $ 6,280 Interest income recorded: Domestic................................. $ 2,891 $ 3,430
Loans totaling $199 at December 31, 1996, which have been restructured at market rates and have been returned to accrual status, are not included in the nonperforming loan total. Foregone interest on these balances is included in the above presentation. At December 31, 1996, the Corporation had no significant outstanding commitments to lend additional funds to borrowers owing cash-basis and restructured loans. 50 WACHOVIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued $ IN THOUSANDS NOTE D -- LOANS AND ALLOWANCE FOR LOAN LOSSES -- Concluded Changes in the allowance for loan losses for the three years ended December 31, 1996 were as follows:
1996 1995 1994 Balance at beginning of year........................ $408,808 $406,132 $404,798 Additions from acquisitions... 200 -- -- Provision for loan losses..... 149,911 103,791 71,763 Recoveries on loans previously charged off................. 39,789 33,384 32,237 Loans charged off............. (189,411) (134,499) (102,666) Balance at end of year........ $409,297 $408,808 $406,132
Loans totaling $7,587, $4,678 and $13,051 were transferred to foreclosed real estate during 1996, 1995 and 1994, respectively. It is the policy of the Corporation to review each prospective credit in order to determine an adequate level of security or collateral to obtain prior to making the loan. The type of collateral will vary and ranges from liquid assets to real estate. The Corporation's access to collateral, in the event of borrower default, is assured through adherence to state lending laws and the Corporation's sound lending standards and credit monitoring procedures. The Corporation regularly monitors its credit concentrations on loan purpose, industry and customer bases. At year-end, there were no significant credit concentrations within these categories. See Note I for discussion of off-balance sheet credit risk. The Corporation's subsidiaries have granted loans and extended letters of credit to certain directors and executive officers of the Corporation and its subsidiaries and to their associates. The aggregate amount of loans was $518,816, $489,383 and $399,023 at December 31, 1996, 1995 and 1994, respectively. During 1996, $583,228 in new loans were made, and repayments totaled $553,715. Outstanding standby letters of credit to related parties totaled $31,646, $22,531 and $34,934 at December 31, 1996, 1995 and 1994, respectively. Related party loans are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated persons and do not involve more than the normal risk of collectibility. Loans held for sale at December 31 along with activity during the period are summarized as follows:
1996 1995 Balance at beginning of year........ $ 762,820 $ 429,745 Originations /purchases............. 16,571,860 19,800,424 Sales /transfers.................... (17,106,484) (19,467,349) Balance at end of year.............. $ 228,196 $ 762,820
At December 31, 1996, impaired loans totaled $16,170, comprised of $10,235 of loans with no allowance for loan losses and $5,935 of loans with a related allowance of $2,038. The average recorded investment in impaired loans during the year ended December 31, 1996 was approximately $11,793. The Corporation recognized no cash-basis interest income on impaired loans during 1996. Effective January 1, 1995, the Corporation prospectively adopted Statement of Financial Accounting Standard No. 114, "Accounting by Creditors for Impairment of a Loan" (FASB 114). This standard defines a loan as impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans are measured at the present value of expected future cash flows using the loan's initial effective interest rate or the fair value of the collateral for certain collateral dependent loans. The adoption of FASB 114 did not have a material impact on the Corporation's financial position or results of operations. During 1995, the Corporation securitized $500 million of credit card receivables. A securitization involves the transfer of a pool of assets to a master trust which issues and sells certificates to investors representing a pro rata interest in the underlying assets. The securitization has been recorded as a sale in accordance with Statement of Financial Accounting Standards No. 77, "Reporting by Transferors for Transfers of Receivables with Recourse." The Corporation recorded no gain or loss at the time of sale, due to the relatively short average life of the credit card loans. As a result of this transaction, amounts that would have been a component of net interest income and the provision for loan losses are instead recorded, net of the interest expense on the trust certificates, as credit card income. NOTE E -- PREMISES, EQUIPMENT AND LEASES Premises and equipment at December 31 are summarized as follows:
1996 1995 Land.................................. $ 92,279 $ 88,168 Premises.............................. 422,397 404,045 Equipment............................. 674,330 636,100 Leasehold improvements................ 72,412 70,917 1,261,418 1,199,230 Less accumulated depreciation and amortization.................... 617,418 571,077 Total premises and equipment.... $ 644,000 $ 628,153
The annual minimum rentals under the terms of the Corporation's noncancelable operating leases as of December 31, 1996 are as follows:
1997................................................ $ 40,573 1998................................................ 36,207 1999................................................ 31,790 2000................................................ 29,335 2001................................................ 27,068 Thereafter.......................................... 118,325 Total minimum lease payments.................. $283,298
The net rental expense for all operating leases amounted to $43,694 in 1996, $43,137 in 1995 and $43,491 in 1994. Certain leases have various renewal options and require increased rentals under cost of living escalation clauses. 51 WACHOVIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued $ IN THOUSANDS NOTE F -- CREDIT ARRANGEMENTS, SHORT-TERM BORROWED FUNDS AND CERTIFICATES OF DEPOSIT At December 31, 1996 and 1995, lines of credit arrangements aggregating $300,000 and $200,000, respectively, were available to the Corporation from unaffiliated banks. Commitment fees were 8 basis points in 1996 and 10 basis points in 1995; compensating balances are not required. The unused portion of these banking arrangements principally serves as commercial paper back-up lines. There were no borrowings outstanding under credit arrangements during 1996 or 1995. Federal funds purchased and securities sold under repurchase agreements generally mature within one to four days from the transaction date. Securities sold under repurchase agreements are delivered to either broker-dealers or to custodian accounts for customers. The broker-dealers may have sold, loaned or otherwise disposed of such securities to other parties in the normal course of their operations, and have agreed to resell to the Corporation identical securities at the maturity of the agreements. Other borrowed funds consist of term federal funds purchased, treasury tax and loan deposits and short-term bank notes and are generally repaid within seven to 120 days from the transaction date. Information concerning short-term borrowed funds is included in Table 7 of Management's Discussion and Analysis of Financial Condition and Results of Operations. The aggregate amount of large denomination certificates, each with a minimum denomination of $100, was $1,710,061 and $2,671,759 at December 31, 1996 and 1995, respectively. The scheduled maturities of certificates of deposit subsequent to December 31, 1996 are $5,385,303 in 1997, $2,209,640 in 1998, $208,681 in 1999, $260,928 in 2000 and $84,920 thereafter. NOTE G -- LONG-TERM DEBT Long-term debt at December 31 is summarized as follows:
1996 Bank notes, net of discount of $5,948 and $3,473 in 1996 and 1995, respectively (a)......................... $4,307,802 Other long-term debt: 7.0% subordinated debt securities due in 1999, net of discount of $1,343 and $1,741 in 1996 and 1995, respectively (b)........................................................................................ 298,657 6.375% subordinated debt securities due in 2003, net of discount of $1,346 and $1,518 in 1996 and 1995, respectively (b)........................................................................................ 248,654 9.65% subordinated capital notes due in 2001 (b).......................................................... 25,490 6.8% subordinated notes due in 2005, net of discount of $320 and $347 in 1996 and 1995, respectively (b)..................................................................................................... 249,680 6.375% subordinated notes due in 2009, net of discount of $284 and $299 in 1996 and 1995, respectively (b)..................................................................................................... 249,716 6.605% subordinated notes due in 2025 (b)................................................................. 250,000 5.664% mandatorily redeemable securities due in 1999 (c).................................................. 331,100 Wachovia Capital Trust I-7.64% Capital Securities due in 2027 (d)......................................... 300,000 6.625% senior notes due in 2006, net of discount of $858.................................................. 199,142 Other..................................................................................................... 6,660 Total other long-term debt............................................................................ 2,159,099 Total long-term debt.................................................................................. $6,466,901 1995 Bank notes, net of discount of $5,948 and $3,473 in 1996 and 1995, respectively (a)......................... $4,088,326 Other long-term debt: 7.0% subordinated debt securities due in 1999, net of discount of $1,343 and $1,741 in 1996 and 1995, respectively (b)........................................................................................ 298,259 6.375% subordinated debt securities due in 2003, net of discount of $1,346 and $1,518 in 1996 and 1995, respectively (b)........................................................................................ 248,482 9.65% subordinated capital notes due in 2001 (b).......................................................... 25,488 6.8% subordinated notes due in 2005, net of discount of $320 and $347 in 1996 and 1995, respectively (b)..................................................................................................... 249,653 6.375% subordinated notes due in 2009, net of discount of $284 and $299 in 1996 and 1995, respectively (b)..................................................................................................... 249,701 6.605% subordinated notes due in 2025 (b)................................................................. 250,000 5.664% mandatorily redeemable securities due in 1999 (c).................................................. - Wachovia Capital Trust I-7.64% Capital Securities due in 2027 (d)......................................... - 6.625% senior notes due in 2006, net of discount of $858.................................................. - Other..................................................................................................... 13,119 Total other long-term debt............................................................................ 1,334,702 Total long-term debt.................................................................................. $5,423,028
(a) Wachovia Bank of North Carolina has an ongoing bank note program under which the bank may offer an aggregate principal amount of up to $16 billion. The notes can be issued as fixed or floating rate notes and with terms of 30 days to 15 years. Bank notes with original maturities of one year or less are included in other short-term borrowed funds. Bank notes with original maturities greater than one year are classified as long-term debt. Originally offered to domestic investors only, the bank note program was replaced in April 1996 with a global bank note program. Interest rates on long-term notes ranged from 4.5% to 7.75% and 4.44% to 7.75% with maturities ranging from 1997 to 2008 and 1996 to 2002 at December 31, 1996 and 1995, respectively. The average rates were 5.81% and 5.77% with average maturities of 1.81 years and 1.23 years at December 31, 1996 and 1995, respectively. (b) Obligation qualifies for inclusion in the determination of total capital under the Risk-Based Capital guidelines. (c) In July 1996, a consolidated subsidiary issued 5.664% of mandatorily redeemable securities due in 1999. The sole asset of the subsidiary is a loan to the Corporation. The security is guaranteed by $332,227 of the Corporation's available-for-sale securities. (d) In December 1996, Wachovia Capital Trust I (WCT I), a consolidated subsidiary, issued $300,000 7.64% Capital Securities due in 2027. WCT I invested the proceeds of the Capital Securities, together with $9,280 paid by the Corporation for WCT I's Common Securities, in $309,280 of the Corporation's 7.64% Junior Subordinated Deferrable Interest Debentures. WCT I's sole asset is the Junior Subordinated Deferrable Interest Debentures which matures in 2027. The Corporation has fully and unconditionally guaranteed all of WCT I's obligations under the Capital Securities. Additionally, the Capital Securities qualify for inclusion in Tier I capital under the Risk-Based Capital guidelines. The principal maturities of long-term debt subsequent to December 31, 1996 are $2,315,538 in 1997, $325,092 in 1998, $1,150,165 in 1999, $695 in 2000, $825,313 in 2001 and $1,850,098 thereafter. Interest paid on deposits and other borrowings was $1,705,937 in 1996, $1,512,046 in 1995 and $1,026,879 in 1994. 52 WACHOVIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued $ IN THOUSANDS NOTE H -- CAPITAL STOCK The authorized capital stock of the Corporation consists of 500,000,000 common shares and 50,000,000 preferred shares. At December 31, 1996, 22,947,821 common shares were reserved for the conversion of notes and issuance for employee benefit plans and the dividend reinvestment plan. On April 26, 1996, the Corporation's Board of Directors authorized the repurchase of up to 8 million shares of common stock. Repurchased shares will be used for various corporate purposes, including the issuance of shares for employee benefit plans and the dividend reinvestment plan. During the year, the Corporation repurchased 7,931,100 shares pursuant to stock repurchase authorizations. In January 1997, the Board of Directors replaced the April 26, 1996 authorization with an authorization to repurchase up to 10 million additional shares of common stock. The Corporation has one active stock option plan, the 1994 Wachovia Corporation Stock Plan. Under this Plan, up to 6 million shares of common stock are authorized to be granted to selected key employees and nonemployee directors in the form of incentive and nonqualified stock options, stock appreciation rights (SARS), restricted stock awards and restricted units. Since the inception, a total of 3,200,383 options, 415,857 awards and 75,000 SARS have been granted. In addition, the 1989 and 1986 Plans (Predecessor Plans) of the Corporation continue to have options outstanding which may be exercised. The Corporation's stock plans provide for the granting of options or awards for the purchase or issuance of 8,979,942 shares at 100% of the fair market value of the stock at the date of the grant. A committee of the Board of Directors determines such times options and awards shall be granted and exercised and the term of the exercise period (not to exceed 10 years). The Plan awards officers shares of restricted stock earned contingent upon both a performance requirement and time period requirement (5 years). Additionally, newly elected nonemployee directors are granted a one-time award of 1,000 shares of restricted stock to be earned over a three-year period and nonemployee directors are awarded 250 shares of restricted stock annually which are earned over a one-year period. The Corporation follows APB 25 and related interpretations to account for its employee stock options and awards. Accordingly, compensation cost is measured as the excess, if any, of the quoted market price of the Corporation's stock at the date of grant over the amount an employee must pay to acquire the stock. The compensation cost relating to performance-based awards was $4,522, $1,975 and $1,397 during 1996, 1995 and 1994, respectively. At December 31, 1996 and 1995, deferred compensation related to director and management awards was $12,335 and $4,781, respectively. Pro forma information regarding net income and earnings per share is required by FASB 123 and has been determined as if the Corporation had accounted for its stock-based compensation plans using the fair value method. The effects of applying FASB 123 to the pro forma compensation cost is not likely to be representative of pro forma net income for future years, since it excludes consideration of pro forma compensation expense for grants made prior to 1995. The estimated fair value of stock-based compensation is amortized to expense over the vesting period. The fair value of stock-based compensation was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 1996 and 1995, respectively: risk-free interest rates of 5.67% and 7.70%; dividend yields of 3.38% and 3.36%; volatility factors of the expected market price of the Corporation's common stock of .20 and .21; a weighted-average expected life of the option of 6.5 years and an assumed annual forfeiture rate of 2%. The Corporation's pro forma information is presented below:
1996 1995 As Reported Pro Forma As Reported Pro Forma Net income........... $ 644,557 $641,008 $ 602,543 $600,872 Primary net income per common share... 3.81 3.80 3.50 3.50 Fully diluted net income per common share.............. 3.80 3.78 3.49 3.49
Activity in the option and award plans during 1996, 1995 and 1994 is summarized as follows:
Options and Awards Available Outstanding Option Price for Grant Awards Options Per Share January 1, 1994..... 892,068 206,316 4,161,808 $5.41-37.00 Authorized under 1994 plan....... 6,000,000 -- -- Granted........... (920,600) 64,000 856,600 31.25-34.625 Exercised......... -- (36,728) (483,212) 5.41-33.125 Canceled.......... (35,468) -- -- Forfeited......... 3,000 (8,000) (74,780) 19.75-34.625 Total December 31, 1994.............. 5,939,000 225,588 4,460,416 5.41-37.00 Granted........... (1,098,770) 109,750 989,020 33.75-36.875 Exercised......... -- (60,898) (750,651) 5.41-34.625 Forfeited......... 22,700 (1,674) (75,988) 18.3855-34.625 Total December 31, 1995.............. 4,862,930 272,766 4,622,797 12.50-36.875 Granted........... (1,596,870) 242,107 1,354,763 24.85-47.125 Exercised......... -- (68,366) (687,365) 12.50-43.75 Forfeited......... 55,940 (2,500) (76,260) 28.25-43.75 Total December 31, 1996.............. 3,322,000 444,007 5,213,935 15.4165-47.125
The following table summarizes information concerning currently outstanding and exercisable options.
Options Outstanding Weighted Average Options Exercisable Remaining Weighted Weighted Contractual Average Average Range of Number Life Exercise Number Exercise Exercise Prices Outstanding (Years) Price Exercisable Price $15.4165-25.00 1,263,928 3.22 $19.57 1,259,347 $19.57 28.25-34.625 2,711,907 6.83 33.12 1,167,629 32.39 36.875-47.125 1,238,100 9.09 43.77 14,440 43.64 5,213,935 2,441,416
53 WACHOVIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued $ IN THOUSANDS NOTE I -- OFF-BALANCE SHEET TRADING AND LENDING ACTIVITIES The Corporation maintains positions in a variety of financial instruments with off-balance sheet risk to accommodate customers' financing objectives and management of interest rate and foreign currency risk. The Corporation maintains active trading positions in foreign exchange forward contracts and manages credit risk through the establishment of offsetting sell positions, as well as standard limit and monitoring procedures. The Corporation maintains a trading portfolio of interest rate swap and option (caps and floors) contracts and foreign exchange options consisting of generally matched, offsetting contracts with customers and market counterparties. Off-balance sheet financial instruments involve, in varying degrees, exposure to credit and interest rate risk in excess of the amount recognized in the statements of financial condition. The Corporation follows the same credit policies and careful underwriting practices in making commitments and conditional obligations as it does for on-balance sheet instruments. In those instances where collateral is necessary to support financial instrument credit risk, the Corporation assures its ability to access borrower's collateral, in the event of default, through strict adherence to corporate lending policy and applicable state lending laws. DERIVATIVE FINANCIAL INSTRUMENTS HELD OR ISSUED FOR TRADING PURPOSES -- The amounts disclosed below represent the year end notional and fair value of derivative financial instruments held or issued for trading purposes and the average fair value during the year. Notional principal amounts are often used to express the volume of these transactions but do not represent the much smaller amounts potentially subject to credit risk. The Corporation's credit exposure to off-balance sheet derivative financial instruments is represented by the fair value gain of the instrument if a counterparty fails to perform. Options written do not expose the Corporation to credit risk, except to the extent of the underlying risk in the debt instrument that the Corporation may be obligated to acquire under certain written put options. The present value of purchased caps and floors in a gain position represents the Corporation's potential credit exposure. The Corporation controls credit risk of these instruments through adherence to credit approval policies, monetary limits and monitoring procedures. Entering into these instruments involves not only credit risk but also interest rate and foreign currency risk associated with unmatched positions. The Corporation controls the interest rate and foreign currency risk inherent in the derivative trading portfolio by entering into offsetting positions or by using other hedging techniques. Risks are further mitigated for those instruments that trade on organized exchanges, as the exchanges provide oversight and determine who may buy and sell such instruments.
1996 1995 Notional Fair Value Fair Value Average Notional Fair Value Value Gains (Losses) Fair Value Value Gains U.S. dollar interest rate contracts as intermediary: Interest rate swaps-pay fixed....... $2,238,309 $ 8,351 ($12,926) $ (31) $2,081,318 $ 4,501 Interest rate swaps-pay floating.... 2,298,809 16,353 (7,786) 54 2,087,317 36,290 Interest rate caps and floors written........................... 698,219 1,228 -- 25 761,947 461 Interest rate caps and floors purchased......................... 696,219 -- (1,222) (25) 761,947 2,923 Securities trading activities: Commitments to purchase securities, futures and forward contracts..... 284,160 457 (782) 69 409,238 2,749 Commitments to sell securities, futures and forward contracts..... 497,745 957 (452) 219 326,259 396 Net options written to purchase or sell securities................ 196,000 -- (72) (3) 81,000 -- Foreign exchange trading activities: Commitments to purchase foreign exchange.................. 1,480,039 70,338 (8,816) 12,692 791,502 6,391 Commitments to sell foreign exchange.......................... 1,478,494 11,694 (69,686) (10,657) 778,582 9,550 Foreign exchange options written.... 15,323 119 (3) 44 2,462 21 Foreign exchange options purchased......................... 6,111 3 (108) (36) 2,462 -- 1995 Fair Value Average (Losses) Fair Value U.S. dollar interest rate contracts as intermediary: Interest rate swaps-pay fixed....... ($33,553) $9,650 Interest rate swaps-pay floating.... (2,920) (6,344) Interest rate caps and floors written........................... (3,403) (2,161) Interest rate caps and floors purchased......................... (236) 2,085 Securities trading activities: Commitments to purchase securities, futures and forward contracts..... (229) 1,367 Commitments to sell securities, futures and forward contracts..... (2,671) (1,096) Net options written to purchase or sell securities................ (44) (5) Foreign exchange trading activities: Commitments to purchase foreign exchange.................. (7,818) 7,639 Commitments to sell foreign exchange.......................... (5,773) (4,721) Foreign exchange options written.... -- 32 Foreign exchange options purchased......................... (20) (29)
INTEREST RATE SWAPS -- These transactions generally involve the exchange of fixed and floating rate payments without the exchange of the underlying principal amounts. Payments made or received under swap contracts are accrued based on contractual terms and are reported as other operating income. The related accrued amounts receivable or payable to customers or counterparties are included in other assets or liabilities. Revenues from the customer portfolio represent a small profit margin on intermediated transactions. The difference in the fair value of the offsetting contracts is not material. At December 31, 1996, the weighted average maturity of pay-fixed swaps and receive-fixed swaps held in the customer portfolio was 2.8 years. Under pay-fixed swap agreements, the Corporation paid interest at a weighted average fixed rate of 6.20% and received interest at a weighted average floating rate of 5.54% (based on year-end rates). Under receive-fixed swap agreements, the Corporation received interest at a weighted average fixed rate of 6.29% and paid interest at a weighted average floating rate of 5.56% (based on year-end rates). 54 WACHOVIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued $ IN THOUSANDS NOTE I -- OFF-BALANCE SHEET TRADING AND LENDING ACTIVITIES -- Concluded INTEREST RATE CAPS AND FLOORS -- These instruments are written by the Corporation to enable its customers to transfer, modify, or reduce their interest rate risk exposure. In a cap or floor contract, the purchaser pays a premium at the initiation of the contract for the right to receive payments if market interest rates are greater than the strike price of a cap or less than the strike price of a floor. Payments made or received under cap or floor contracts are accrued based on contractual terms and are reported as other operating income. COMMITMENTS TO PURCHASE AND SELL SECURITIES, FUTURES AND FORWARD CONTRACTS -- These instruments are contracts for delayed delivery of securities or money market instruments in which the seller agrees to deliver a specified instrument at a specified price or yield at a specified date. Commitments to purchase and sell securities, futures and forward contracts used in securities trading operations are recognized currently at market value and are reported as trading account profits (losses). NET OPTIONS WRITTEN TO PURCHASE AND SELL FOREIGN EXCHANGE -- Forward commitments involve the purchase or sale of foreign currency amounts for delivery at a specified future date. Payments on forward commitments are exchanged on the delivery date based upon the exchange rate in the contract. Forward commitments to purchase and sell foreign exchange are recognized at market value and are reported as other operating income. FOREIGN EXCHANGE OPTIONS -- These agreements represent rights to purchase or sell foreign currency at a predetermined price at a future date. The purchaser pays a premium at the initiation of the contract for the right to exchange a specified amount at the contract's exchange rate at the maturity of the option. Revenues from the derivative trading portfolio are shown below.
1996 1995 1994 Interest rate contracts.......... $ 3,071 $ 4,332 $ 1,411 Securities activities............ 2,772 (7,569) 7,219 Foreign exchange activities...... 10,130 11,834 5,827 Total...................... $15,973 $ 8,597 $14,457
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS ISSUED FOR LENDING ACTIVITIES -- The Corporation issues off-balance sheet financial instruments as part of its commercial and consumer lending activities. The contract amounts of these instruments represent potential credit risk at December 31 as shown below.
1996 1995 Commercial and consumer lending activities: Unfunded commitments to extend credit................... $33,726,544 $26,145,025 Standby letters of credit......... 5,622,341 4,139,181 Commercial and similar letters of credit............... 135,946 149,006 Participations in bankers' acceptances..................... 5,438 5,625
COMMITMENTS TO EXTEND CREDIT -- These are legally binding contracts to lend to a customer, provided there is no contract violation. These commitments have fixed termination dates and generally require payment of a fee. As most commitments expire prior to being drawn, the amounts shown do not necessarily represent the future cash requirements of the contracts. Credit worthiness is evaluated and in some instances collateral is obtained to support the borrowing. At December 31, 1996 and 1995, approximately 14% and 13%, respectively, of unfunded commitments to extend credit were supported by collateral. Of the total unfunded commitment amounts presented, approximately 28% in 1996 and 27% in 1995 were comprised of cancelable credit card commitments, and approximately 9% in 1996 and 5% in 1995 were represented by real estate commitments. STANDBY, COMMERCIAL AND SIMILAR LETTERS OF CREDIT -- These instruments are conditional commitments issued by the Corporation guaranteeing the performance of a customer to a third party. These guarantees are issued primarily to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending credit to customers and is subject to the Corporation's underwriting process. At December 31, 1996 and 1995, approximately 2% and 3%, respectively, of these instruments were supported by collateral. There were no significant concentrations of letters of credit to any one group of borrowers at either year-end. PARTICIPATION IN BANKERS' ACCEPTANCES -- These instruments represent risk participation in time drafts drawn by customers under a committed multibank credit facility. These drafts have been accepted and remarketed by other financial institutions. Under the terms of these arrangements, the Corporation may be required to reimburse the accepting financial institution for the Corporation's pro rata share of any payment default by the customer. 55 WACHOVIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued $ IN THOUSANDS NOTE J -- OFF-BALANCE SHEET RISK MANAGEMENT ACTIVITIES The Corporation uses a variety of off-balance sheet financial instruments as part of its overall interest rate risk management process. The Corporation's principal objective of asset/liability management activities is to provide maximum levels of net interest income while maintaining acceptable levels of interest rate and liquidity risk and facilitating the Corporation's funding needs. Accordingly, the Corporation uses a combination of derivative financial instruments, including interest rate swaps, futures and options with indices that correlate to on-balance sheet instruments to modify the repricing characteristics of interest-earning assets and interest-bearing liabilities. During 1995, the Corporation entered into financial futures contracts to mitigate the interest rate risk associated with the favorable renewal terms of certain certificates of deposit issued earlier in the year. The futures contracts are accounted for as a hedge of anticipated transactions; accordingly, the resulting gain or loss is deferred and recognized as an adjustment of interest expense over the term of the renewed certificates. The amounts disclosed below represent the period-end notional and fair value of derivative financial instruments held for risk management purposes. The Corporation's credit exposure to off-balance sheet derivative financial instruments is represented by the fair value gain of the instrument if a counterparty fails to perform.
1996 1995 Notional Fair Value Fair Value Notional Fair Value Value Gains (Losses) Value Gains Convert floating rate liabilities to fixed: Swaps -- pay fixed/receive floating............ $ 72,239 $ 625 $ (1,576) $ 119,719 $ 232 Convert fixed rate assets to floating: Swaps -- pay fixed/receive floating............ 404,815 -- (6,288) 418,430 -- Forward starting swaps -- pay fixed/ receive floating............................. 18,200 -- (984) 38,570 -- Convert fixed rate liabilities to floating: Swaps -- receive fixed/pay floating............ 650,000 4,060 (5,477) 200,000 4,889 Convert liabilities with quarterly rate resets to monthly: Swaps -- receive floating/pay floating......... 300,000 -- (348) -- -- Convert floating rate assets to fixed: Swaps -- receive fixed/pay floating............ 210,359 3,242 (602) 218,750 1,597 Index amortizing swaps -- receive fixed/ pay floating................................. 250,000 6,131 -- 325,000 14,426 Total interest rate swaps and options...... 1,905,613 14,058 (15,275) 1,320,469 21,144 Financial futures contracts -- hedge of certificate of deposit renewal.............. -- -- -- 1,025,000 140 Total derivatives.......................... $1,905,613 $ 14,058 ($15,275) $2,345,469 $ 21,284 Fair Value (Losses) Convert floating rate liabilities to fixed: Swaps -- pay fixed/receive floating............ $ (3,519) Convert fixed rate assets to floating: Swaps -- pay fixed/receive floating............ (5,958) Forward starting swaps -- pay fixed/ receive floating............................. (4,284) Convert fixed rate liabilities to floating: Swaps -- receive fixed/pay floating............ -- Convert liabilities with quarterly rate resets to monthly: Swaps -- receive floating/pay floating......... -- Convert floating rate assets to fixed: Swaps -- receive fixed/pay floating............ (643) Index amortizing swaps -- receive fixed/ pay floating................................. -- Total interest rate swaps and options...... (14,404) Financial futures contracts -- hedge of certificate of deposit renewal.............. (7) Total derivatives.......................... ($14,411)
There are no deferred losses resulting from terminated swap contracts at December 31, 1996; deferred losses on terminated swap contracts of $6,020 at December 31, 1995 are included in other assets. 56 WACHOVIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued $ IN THOUSANDS NOTE K -- INCOME TAXES The provision for income taxes is summarized below. Included in these amounts are income taxes (benefits) related to securities transactions of $1,522, ($8,576) and $1,328 in 1996, 1995 and 1994, respectively. The Corporation made income tax payments of $222,750 in 1996, $254,866 in 1995 and $211,345 in 1994.
1996 1995 1994 Currently payable: Federal..................... $228,820 $250,086 $202,685 Foreign..................... 542 288 147 State and local............. 10,050 12,032 7,152 Total currently payable................. 239,412 262,406 209,984 Deferred: Federal..................... 52,294 11,607 13,241 State....................... (1,361) (7,688) (801) Total deferred.......... 50,933 3,919 12,440 Total tax expense....... $290,345 $266,325 $222,424
The reasons for the difference between consolidated income tax expense and the amount computed by applying the statutory federal income tax rate of 35% to income before taxes were as follows:
1996 1995 1994 Income before income taxes.... $934,902 $868,868 $761,482 Federal income taxes at statutory rate.............. $327,216 $304,104 $266,519 State and local income taxes, net of federal benefit...... 5,648 2,824 4,128 Effect of tax-exempt securities interest and other income................ (34,840) (46,398) (48,217) Other items................... (7,679) 5,795 (6) Total tax expense....... $290,345 $266,325 $222,424
Under FASB 109, deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Corporation's deferred tax assets and liabilities are as follows:
Deferred Tax Assets 1996 1995 Allowance for loan losses................ $158,439 $156,531 Accrued liabilities...................... 15,030 17,342 Other.................................... 27,309 22,330 Gross deferred tax assets.......... $200,778 $196,203
Deferred Tax Liabilities 1996 1995 Unrealized gains on securities available-for-sale..................... $ 26,852 $ 73,998 Depreciation............................. 42,525 36,586 Lease financing.......................... 94,162 45,913 Other.................................... 16,655 15,300 Gross deferred tax liabilities..... $180,194 $171,797 Net deferred tax asset............. $ 20,584 $ 24,406
Management believes that the Corporation will fully realize the net deferred tax asset as of December 31, 1996 based on the Corporation's refundable taxes from carryback years, as well as its current level of operating income. NOTE L -- CASH, DIVIDEND, LOAN RESTRICTIONS, CAPITAL RATIOS AND CONTINGENT LIABILITIES In the normal course of business, the Corporation and its subsidiaries enter into agreements, or are subject to regulatory requirements, that result in cash, debt and dividend restrictions. A summary of the most restrictive items follows. The Corporation's banking subsidiaries are required to maintain average reserve balances with the Federal Reserve Bank. The average amount of those reserve balances for the year ended December 31, 1996 was approximately $277,740. Under current Federal Reserve regulations, the banking subsidiaries also are limited in the amount they may loan to their affiliates, including the Corporation. Loans to a single affiliate may not exceed 10% and loans to all affiliates may not exceed 20% of the bank's capital, surplus and undivided profits plus the allowance for loan losses. Based on these limitations, approximately $445,697 was available for loans to the Corporation at December 31, 1996. The approval of the Comptroller of the Currency is required if the total of all dividends declared by a national bank in any calendar year exceeds the bank's net profits, as defined, for that year combined with its retained net profits for the preceding two calendar years. Under this formula, the banking subsidiaries cannot distribute as dividends to the Corporation in 1997, without the approval of the Comptroller of the Currency, more than $462,790 plus an additional amount equal to the banks' retained net profits for 1997 up to the date of any dividend declaration. As a result of the above dividend and loan restrictions, approximately $2,862,406 of consolidated net assets of the Corporation's banking subsidiaries at December 31, 1996 was restricted from transfer to the Corporation in the form of cash dividends, loans or advances. 57 WACHOVIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued $ IN THOUSANDS NOTE L -- CASH, DIVIDEND, LOAN RESTRICTIONS, CAPITAL RATIOS AND CONTINGENT LIABILITIES -- Concluded The Corporation and its banking subsidiaries are subject to various regulatory capital requirements administered by the federal banking agencies. Under the capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation and its banking subsidiaries must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Corporation's financial statements. The Corporation and its banking subsidiaries are required to maintain minimum Tier I capital, total risk-based capital and Tier I leverage ratios of 4%, 8% and 3%, respectively. Management believes the Corporation and its banking subsidiaries meet all capital adequacy requirements to which they are subject. At December 31, 1996, the most recent notification from the Comptroller of the Currency categorized the Corporation's banking subsidiaries as well capitalized under the regulatory framework for prompt corrective action. To be well capitalized, the banking subsidiaries must maintain minimum Tier I capital, total risk-based capital and Tier I leverage ratios of 6%, 10% and 5%, respectively. There are no conditions or events since that notification that management believes have changed the banking subsidiaries' well capitalized status. The actual capital amounts and ratios for the Corporation and its principal banking subsidiaries at December 31 are presented in the following table.
1996 1995 Amount Ratio Amount Ratio Wachovia Corporation Tier I capital.... $3,986,896 9.34% $3,628,172 9.43% Total risk-based capital......... 5,534,234 12.97 5,245,459 13.64 Tier I leverage... 3,986,896 8.73 3,628,172 8.36 Wachovia Bank of North Carolina, N.A. Tier I capital.... $1,776,758 8.96% $1,663,733 9.41% Total risk-based capital......... 2,059,244 10.38 1,961,691 11.10 Tier I leverage... 1,776,758 6.77 1,663,733 6.62 Wachovia Bank of Georgia, N.A. Tier I capital.... $1,320,917 6.96% $1,234,576 7.27% Total risk-based capital......... 2,025,442 10.67 1,948,816 11.48 Tier I leverage... 1,320,917 7.24 1,234,576 7.43 Wachovia Bank of South Carolina, N.A. Tier I capital.... $ 496,823 11.08% $ 544,359 12.89% Total risk-based capital......... 514,113 11.46 572,889 13.56 Tier I leverage... 496,823 6.86 544,359 7.67
The Corporation and its subsidiaries are defendants in certain legal proceedings arising in connection with their business. In the opinion of management and general counsel, the ultimate resolution of those proceedings will result in no material adverse effect on the Corporation's financial position and results of operations. There are no known situations where the Corporation has an environmental contingency that will materially affect the financial position or results of operations. 58 WACHOVIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued $ IN THOUSANDS NOTE M -- PENSION AND OTHER POSTRETIREMENT BENEFITS The Corporation maintains a defined benefit pension plan which covers substantially all employees. The plan provides pension benefits that are based on the employee's length of credited service and final average compensation as defined in the plan. The pension expense of the plan is determined using the projected unit credit method. The Corporation's policy is to fund amounts allowable for federal income tax purposes. The following table sets forth the funded status of the Corporation's defined benefit pension plan and the amounts recognized in the Consolidated Statements of Condition at December 31.
1996 1995 Actuarial present value of accumulated benefit obligation: Vested................................. $363,638 $364,059 Nonvested.............................. 26,909 30,186 Total.............................. $390,547 $394,245 Actuarial present value of projected benefit obligation for service rendered to date....................... ($448,151) ($444,786) Plan assets at fair value -- primarily listed stocks, fixed income securities and collective funds....................... 527,851 491,760 Plan assets in excess of projected benefit obligation..................... 79,700 46,974 Unrecognized net actuarial (gain) loss... (6,706) 38,005 Unrecognized prior service cost.......... (16,601) (19,097) Unrecognized transition asset............ (33,511) (39,716) Pension asset recorded in Consolidated Statements of Condition................ $ 22,882 $ 26,166
Net pension benefit included the following components.
1996 1995 1994 Service cost -- benefits earned during the period.............. $18,460 $12,746 $14,486 Interest cost on projected benefit obligation............. 32,207 29,018 26,477 Actual (return) loss on plan assets......................... (60,882) (98,474) 3,466 Net amortization and deferral.... 13,499 56,594 (47,587) Net periodic pension cost (benefit)...................... $ 3,284 $ (116) $(3,158)
The rates used in determining the actuarial present value of the projected benefit obligation were as follows:
1996 1995 Discount rates................................ 7.75% 7.25% Rates of increase in compensation levels...... 5% 5%
The expected long-term rate of return on plan assets used to determine the net periodic pension benefit was 8% for 1996, 1995 and 1994. The Corporation also sponsors separate unfunded nonqualified pension plans that provide certain officers with defined pension benefits in excess of limits imposed on qualified plans by federal tax law and for certain compensation not covered in the qualified plans. The following table summarizes the plans at December 31.
1996 1995 Actuarial present value of accumulated benefit obligation: Vested................................... $35,278 $29,865 Nonvested................................ 703 4,504 Total................................ $35,981 $34,369 Actuarial present value of projected benefit obligation for service rendered to date......................... ($46,801) ($44,352) Unrecognized net actuarial loss............ 12,519 14,039 Unrecognized transition obligation......... 342 391 Unrecognized prior service cost............ 5,986 6,760 Pension liability recorded in Consolidated Statements of Condition.................. ($27,954) ($23,162)
Net pension cost included the following components.
1996 1995 1994 Service cost -- benefits earned during the period................. $1,083 $ 769 $ 576 Interest cost on projected benefit obligation................ 3,240 3,035 2,523 Net amortization and deferral....... 2,006 1,528 1,178 Net periodic pension cost........... $6,329 $5,332 $4,277
The rates used in determining the actuarial present value of the projected benefit obligation were as follows:
1996 1995 Discount rates................................ 7.75% 7.25% Rates of increase in compensation levels...... 5% 5%
The Corporation also provides supplemental benefits to substantially all employees through defined contribution plans designed to encourage participants to save on a regular basis and to provide such participants with deferred compensation and additional performance incentive. Total expense relating to 59 WACHOVIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued $ IN THOUSANDS NOTE M -- PENSION AND OTHER POSTRETIREMENT BENEFITS -- Concluded these plans, which represented the Corporation's matching and discretionary contributions, was $17,190 in 1996, $16,478 in 1995 and $16,131 in 1994. Employee participants may elect to contribute from 1% to 10% of base salary, with the Corporation matching 50% of each participant's contribution up to a maximum employer contribution of 3% of base salary. The plans provide for additional contributions of up to 3% of salary in accordance with a preestablished formula based on certain earnings performance criteria and also for special discretionary employer contributions of up to 4% of each eligible employee's base salary as approved annually by the Board of Directors. The Corporation and its subsidiaries provide certain health care benefits for retired employees. Substantially all of the employees may become eligible for these benefits if they reach normal retirement age while working for the Corporation or its subsidiaries. The benefits are provided through self-insured plans administered by insurance companies whose premiums are based on the claims paid during the year. The following table presents the status of the plan as of December 31.
1996 1995 Accumulated postretirement benefit obligation: Retirees................................. ($36,681) ($32,517) Fully eligible active plan participants........................... (4,843) (10,249) Other active plan participants........... (10,340) (12,156) Total................................ (51,864) (54,922) Plan assets at fair value -- primarily insurance contracts...................... 12,786 11,000 Unrecognized net actuarial gain............ (18,042) (14,293) Unrecognized transition obligation......... 50,432 53,585 Unrecognized prior service cost............ 683 740 Accrued postretirement benefit cost........ $(6,005) $(3,890)
Net periodic postretirement benefit cost included the following components.
1996 1995 1994 Service cost........................ $ 901 $ 724 $ 851 Interest cost....................... 3,837 3,954 3,494 Actual return on plan assets........ (770) -- -- Amortization of gain................ (474) (707) (646) Amortization of transition obligation over 20 years.......... 3,152 3,152 3,152 Amortization of prior service cost.............................. 57 57 -- Net periodic postretirement benefit cost...................... $6,703 $7,180 $6,851
The annual assumed rate of increase in health care costs used in determining the accumulated postretirement benefit obligation and net periodic postretirement benefit costs for 1996, 1995 and 1994 were 8% for retirees under age 65 and 6% for retirees age 65 and over. These rates are assumed to remain constant for each of these categories of retirees. The health care cost trend rate assumption has a significant effect on the amounts reported. Increasing the assumed health care cost trend rates by one percentage point would increase the accumulated postretirement benefit obligation for the plan as of December 31, 1996 and 1995 by $1,858 and $1,372, respectively, and the aggregate of the service and interest cost of the net periodic postretirement benefit cost for 1996, 1995 and 1994 by $135, $117 and $131, respectively. The discount rates used in determining the accumulated postretirement benefit obligations at December 31, 1996 and 1995 were 7.75% and 7.25%, respectively. 60 WACHOVIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued $ IN THOUSANDS NOTE N -- SELECTED INCOME STATEMENT INFORMATION The components of other operating income and expense for the three years ended December 31, 1996 were as follows:
1996 1995 Other operating income: Insurance premiums and commissions.......................................................... $ 17,030 $ 13,164 Bankers' acceptance and letter of credit fees............................................... 25,347 23,190 Other service charges and fees.............................................................. 32,589 24,682 Other income................................................................................ 59,214 44,699 Total other operating income............................................................ $134,180 $105,735 Other operating expense: Postage and delivery........................................................................ $ 40,018 $ 37,962 Outside data processing, programming and software........................................... 44,699 42,486 Stationery and supplies..................................................................... 26,100 26,805 Advertising and sales promotion............................................................. 60,304 50,362 Professional services....................................................................... 38,285 39,483 Travel and business promotion............................................................... 20,460 19,694 Regulatory agency and other bank services................................................... 8,730 49,584 Amortization of intangible assets........................................................... 4,362 8,587 Foreclosed property expense................................................................. (96) 920 Other expense............................................................................... 155,719 130,581 Total other operating expense........................................................... $398,581 $406,464 1994 Other operating income: Insurance premiums and commissions.......................................................... $ 11,679 Bankers' acceptance and letter of credit fees............................................... 23,168 Other service charges and fees.............................................................. 18,109 Other income................................................................................ 33,801 Total other operating income............................................................ $ 86,757 Other operating expense: Postage and delivery........................................................................ $ 35,163 Outside data processing, programming and software........................................... 35,211 Stationery and supplies..................................................................... 24,558 Advertising and sales promotion............................................................. 34,067 Professional services....................................................................... 20,493 Travel and business promotion............................................................... 16,254 Regulatory agency and other bank services................................................... 62,345 Amortization of intangible assets........................................................... 18,693 Foreclosed property expense................................................................. (4,288) Other expense............................................................................... 104,991 Total other operating expense........................................................... $347,487
NOTE O -- EARNINGS PER SHARE
Year Ended December 31 1996 1995 Primary (thousands, except per share) Average common shares outstanding............................................................. 167,255 170,635 Dilutive common stock options -- based on treasury stock method using average market price.... 1,713 1,366 Dilutive common stock awards -- based on treasury stock method using average market price..... 126 88 Average primary shares outstanding............................................................ 169,094 172,089 Net income.................................................................................... $644,557 $602,543 Per share amount.............................................................................. $ 3.81 $ 3.50 Fully Diluted (thousands, except per share) Average common shares outstanding............................................................. 167,255 170,635 Dilutive common stock options -- based on treasury stock method using period-end market price if higher than average market price................................................... 2,292 1,802 Dilutive common stock awards -- based on treasury stock method using period-end market price if higher than average market price................................................... 185 115 Convertible long-term debt assumed converted.................................................. 95 405 Average fully diluted shares outstanding...................................................... 169,827 172,957 Net income.................................................................................... $644,557 $602,543 Add interest on convertible long-term debt, net of tax........................................ 65 330 Adjusted net income........................................................................... $644,622 $602,873 Per share amount.............................................................................. $ 3.80 $ 3.49 1994 Primary (thousands, except per share) Average common shares outstanding............................................................. 171,110 Dilutive common stock options -- based on treasury stock method using average market price.... 1,152 Dilutive common stock awards -- based on treasury stock method using average market price..... 77 Average primary shares outstanding............................................................ 172,339 Net income.................................................................................... $539,058 Per share amount.............................................................................. $ 3.13 Fully Diluted (thousands, except per share) Average common shares outstanding............................................................. 171,110 Dilutive common stock options -- based on treasury stock method using period-end market price if higher than average market price................................................... 1,152 Dilutive common stock awards -- based on treasury stock method using period-end market price if higher than average market price................................................... 77 Convertible long-term debt assumed converted.................................................. 612 Average fully diluted shares outstanding...................................................... 172,951 Net income.................................................................................... $539,058 Add interest on convertible long-term debt, net of tax........................................ 513 Adjusted net income........................................................................... $539,571 Per share amount.............................................................................. $ 3.12
61 WACHOVIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued $ IN THOUSANDS NOTE P -- WACHOVIA CORPORATION (PARENT COMPANY ONLY) INFORMATION The following is a condensed statement of financial condition of the parent company at December 31.
1996 1995 Assets Cash on demand deposit with bank subsidiary.......................... $ 17 $ 3 Interest-bearing bank balances with bank subsidiaries.............. 1,107,089 713,765 Securities available-for-sale......... 371,517 42,139 Demand loans to nonbank subsidiaries........................ 474,383 324,900 Capital notes receivable from bank subsidiaries................... 776,395 776,980 Investments in: Bank subsidiaries................... 3,717,051 3,622,267 Nonbank subsidiaries................ 187,330 105,009 Other assets.......................... 115,087 126,402 Total assets.................... $6,748,869 $5,711,465 Liabilities and Shareholders' Equity Parent company commercial paper....... $ 706,226 $ 502,136 Subordinated capital notes (includes $693,297 from nonbank subsidiaries in 1996; none in 1995).............. 2,015,664 1,327,783 6.625% senior notes due 2006.......... 199,142 -- Demand loans from bank and bank holding company subsidiaries........ 18,015 58,746 Other liabilities..................... 47,990 49,043 Shareholders' equity.................. 3,761,832 3,773,757 Total liabilities and shareholders' equity.......... $6,748,869 $5,711,465
The principal maturities of the parent company's long-term debt subsequent to December 31, 1996 are $682,674 in 1999, $25,660 in 2000, none in 2001 and $1,506,472 thereafter. The operating results of the parent company for the three years ended December 31, 1996 are shown below.
1996 1995 1994 Income Dividends from: Bank subsidiaries........... $478,600 $233,700 $306,770 Nonbank subsidiaries........ 800 52,075 3,902 Interest from subsidiaries.... 104,823 89,278 61,089 Other interest income......... 16,877 571 468 Other income.................. 39,922 33,589 30,382 Total income............ 641,022 409,213 402,611 Expense Interest on short-term borrowed funds.............. 29,051 27,807 19,880 Interest on long-term debt.... 92,752 67,309 52,586 Interest paid to subsidiaries................ 15,488 4,781 2,419 Other expense................. 31,237 25,823 23,218 Total expense........... 168,528 125,720 98,103 Income before income taxes and equity in undistributed net income of subsidiaries...... 472,494 283,493 304,508 Applicable income taxes (benefit)................... (6,698) (1,177) (2,527) Income before equity in undistributed net income of subsidiaries............. 479,192 284,670 307,035 Equity in undistributed net income of subsidiaries................ 165,365 317,873 232,023 Net income.............. $644,557 $602,543 $539,058
62 WACHOVIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Concluded $ IN THOUSANDS NOTE P -- WACHOVIA CORPORATION (PARENT COMPANY ONLY) INFORMATION -- Concluded The cash flows for the parent company for the three years ended December 31, 1996 were as follows:
1996 1995 1994 Operating Activities Net income.................... $644,557 $602,543 $539,058 Adjustments to reconcile net income: Deferred income taxes (benefit)................. 150 1,056 (927) (Decrease) increase in accrued income taxes...... (978) (449) 2,456 Increase in accrued interest receivable....... (8,617) (1,915) (4,792) Net change in other accrued and deferred income and expense................... 784 8,959 4,352 Equity in undistributed net income of subsidiaries.... (165,365) (317,873) (232,023) Net cash provided by operations............ 470,531 292,321 308,124 Investing Activities Net increase in interest-bearing bank balances.................... (393,324) (381,999) (253,883) Purchases of securities available-for-sale.......... (312,610) (4,128) (8,287) Sales of securities available-for-sale.......... 4,429 7,538 2,429 Net decrease (increase) in demand loans to nonbank subsidiaries................ (149,483) 47,708 298,894 Capital notes issued to bank subsidiaries........... -- (250,000) (150,000) Capital notes repaid by bank subsidiaries........... 585 30,000 -- Net (increase) decrease in other assets............. 26,771 (54,137) 1,486 Equity investment in subsidiaries................ (68,252) (55,551) (80,000) Net cash used by investing activities............ (891,884) (660,569) (189,361) Financing Activities Net increase in demand loans from subsidiaries........... 626,981 52,873 52,855 Net (decrease) increase in commercial paper............ 204,090 95,430 (182,472) Proceeds from long-term debt........................ 196,106 496,387 247,800 (Decrease) increase in other liabilities................. (462) (54) 1,140 Issuance of stock............. 25,826 24,115 25,339 Dividend payments............. (254,458) (235,495) (210,503) Common stock repurchased...... (376,716) (65,032) (52,908) Net cash provided (used) by financing activities............ 421,367 368,224 (118,749) Increase (decrease) in cash... 14 (24) 14 Cash at beginning of year..... 3 27 13 Cash at end of year........... $ 17 $ 3 $ 27
1996 1995 1994 Noncash investing and financing activities: Common stock issued on conversion of long-term debt.................... $6,007 $3,184 $3,104
On December 1, 1995, South Carolina National Corporation was merged into Wachovia Corporation; the assets and liabilities merged into Wachovia Corporation totaled $54,664 and $45,506, respectively. 63 WACHOVIA CORPORATION AND SUBSIDIARIES CONSOLIDATED AVERAGE BALANCES (thousands)
1996 1995 Amount % Amount % ASSETS Loans -- net of unearned income: Commercial.............................................................. $ 9,836,752 21.7 $ 9,153,970 22.1 Tax-exempt.............................................................. 2,041,954 4.5 1,967,749 4.7 Total commercial................................................... 11,878,706 26.2 11,121,719 26.8 Direct retail........................................................... 758,259 1.7 734,305 1.8 Indirect retail......................................................... 2,564,915 5.7 2,444,309 5.9 Credit card............................................................. 4,205,051 9.3 3,951,789 9.5 Other revolving credit.................................................. 354,287 .8 344,178 .8 Total retail....................................................... 7,882,512 17.5 7,474,581 18.0 Construction............................................................ 807,180 1.8 640,013 1.5 Commercial mortgages.................................................... 4,151,621 9.2 3,675,903 8.9 Residential mortgages................................................... 4,424,097 9.8 4,018,377 9.7 Total real estate.................................................. 9,382,898 20.8 8,334,293 20.1 Lease financing......................................................... 647,313 1.4 270,389 .7 Foreign................................................................. 457,500 1.0 304,277 .7 Total loans........................................................ 30,248,929 66.9 27,505,259 66.3 Investment securities: Held-to-maturity: State and municipal................................................... 273,530 .6 423,747 1.0 Other investments..................................................... 1,199,467 2.6 3,735,893 9.0 Total securities held-to-maturity.................................. 1,472,997 3.2 4,159,640 10.0 Available-for-sale: Other investments*.................................................... 7,232,184 16.0 4,214,082 10.2 Total investment securities........................................ 8,705,181 19.2 8,373,722 20.2 Interest-bearing bank balances............................................ 417,832 .9 114,962 .3 Federal funds sold and securities purchased under resale agreements....... 212,466 .5 121,924 .3 Trading account assets.................................................... 902,918 2.0 915,065 2.2 Total interest-earning assets...................................... 40,487,326 89.5 37,030,932 89.3 Cash and due from banks................................................... 2,535,978 5.6 2,519,900 6.1 Premises and equipment.................................................... 637,771 1.4 573,386 1.4 Other assets.............................................................. 1,971,730 4.4 1,755,773 4.2 Allowance for loan losses................................................. (403,366) (.9) (407,430) (1.0) Total assets....................................................... $45,229,439 100.0 $41,472,561 100.0 LIABILITIES AND SHAREHOLDERS' EQUITY Time deposits in domestic offices: Interest-bearing demand................................................. $ 3,298,142 7.3 $ 3,263,852 7.9 Savings and money market savings........................................ 7,649,897 16.9 6,539,852 15.8 Savings certificates.................................................... 6,499,484 14.4 6,491,879 15.7 Large denomination certificates......................................... 2,284,381 5.1 1,915,097 4.6 Total time deposits in domestic offices............................ 19,731,904 43.7 18,210,680 44.0 Time deposits in foreign offices.......................................... 1,040,585 2.3 749,511 1.8 Total interest-bearing deposits.................................... 20,772,489 46.0 18,960,191 45.8 Federal funds purchased and securities sold under repurchase agreements... 6,198,566 13.7 5,264,072 12.7 Commercial paper.......................................................... 595,729 1.3 504,668 1.2 Other short-term borrowed funds........................................... 1,215,008 2.7 2,029,095 4.9 Total short-term borrowed funds.................................... 8,009,303 17.7 7,797,835 18.8 Bank notes................................................................ 4,544,502 10.0 3,863,398 9.3 Other long-term debt...................................................... 1,525,886 3.4 1,038,210 2.5 Total long-term debt............................................... 6,070,388 13.4 4,901,608 11.8 Total interest-bearing liabilities................................. 34,852,180 77.1 31,659,634 76.4 Other deposits: Demand in domestic offices.............................................. 5,446,772 12.0 5,284,722 12.7 Demand in foreign offices............................................... 1,563 .0 6,823 .0 Noninterest-bearing time in domestic offices............................ 4,438 .0 10,119 .0 Other liabilities......................................................... 1,266,277 2.8 1,101,094 2.7 Shareholders' equity...................................................... 3,658,209 8.1 3,410,169 8.2 Total liabilities and shareholders' equity......................... $45,229,439 100.0 $41,472,561 100.0 TOTAL DEPOSITS............................................................ $26,225,262 $24,261,855
*Includes unrealized gain (loss) of $93,556 in 1996, $34,248 in 1995 and ($12,405) in 1994 64
Five-Year 1994 1993 1992 1991 Compound Amount % Amount % Amount % Amount % Growth Rate $ 7,366,981 19.9 $ 6,198,159 18.5 $ 5,867,310 18.4 $ 6,112,621 19.1 10.0% 1,965,555 5.3 1,890,337 5.6 1,997,998 6.3 2,070,612 6.4 (.3) 9,332,536 25.2 8,088,496 24.1 7,865,308 24.7 8,183,233 25.5 7.7 735,335 2.0 684,679 2.0 687,556 2.2 757,865 2.4 .0 2,450,181 6.6 2,245,115 6.7 2,006,442 6.3 1,991,185 6.2 5.2 3,528,617 9.5 2,591,207 7.7 1,774,342 5.6 1,558,929 4.9 22.0 333,853 .9 328,075 1.0 322,768 1.0 299,301 .9 3.4 7,047,986 19.0 5,849,076 17.4 4,791,108 15.1 4,607,280 14.4 11.3 496,401 1.3 470,465 1.4 519,971 1.7 1,020,690 3.2 (4.6) 3,355,898 9.1 3,147,293 9.4 3,063,395 9.6 2,912,517 9.1 7.3 3,698,864 10.0 3,779,444 11.2 3,602,157 11.3 3,653,410 11.4 3.9 7,551,163 20.4 7,397,202 22.0 7,185,523 22.6 7,586,617 23.7 4.3 173,185 .5 135,355 .4 118,209 .3 124,519 .4 39.1 108,028 .3 76,212 .2 72,347 .2 86,968 .2 39.4 24,212,898 65.4 21,546,341 64.1 20,032,495 62.9 20,588,617 64.2 8.0 599,206 1.6 688,799 2.1 780,426 2.5 877,991 2.7 (20.8) 3,371,132 9.1 6,350,557 18.9 5,420,655 17.0 4,904,993 15.3 (24.5) 3,970,338 10.7 7,039,356 21.0 6,201,081 19.5 5,782,984 18.0 (23.9) 3,700,477 10.0 -- -- -- -- -- -- 7,670,815 20.7 7,039,356 21.0 6,201,081 19.5 5,782,984 18.0 8.5 13,037 .0 78,297 .2 301,568 1.0 416,103 1.3 .1 196,651 .5 394,959 1.2 483,679 1.5 597,354 1.9 (18.7) 688,669 1.9 721,111 2.1 1,078,370 3.4 974,621 3.0 (1.5) 32,782,070 88.5 29,780,064 88.6 28,097,193 88.3 28,359,679 88.4 7.4 2,407,387 6.5 2,368,237 7.0 2,370,379 7.4 2,486,267 7.8 .4 518,030 1.4 468,218 1.4 444,957 1.4 432,908 1.4 8.1 1,728,399 4.7 1,411,152 4.2 1,294,825 4.1 1,061,906 3.3 13.2 (406,702) (1.1) (398,697) (1.2) (375,762) (1.2) (295,891) (.9) 6.4 $37,029,184 100.0 $33,628,974 100.0 $31,831,592 100.0 $32,044,869 100.0 7.1 $ 3,383,902 9.1 $ 3,219,413 9.6 $ 2,842,853 8.9 $ 2,354,780 7.3 7.0 6,122,283 16.5 5,997,750 17.8 5,826,317 18.3 5,314,432 16.6 7.6 5,335,541 14.4 5,595,225 16.6 6,197,779 19.5 6,862,392 21.4 (1.1) 1,572,948 4.3 1,739,831 5.2 2,593,675 8.2 3,102,496 9.7 (5.9) 16,414,674 44.3 16,552,219 49.2 17,460,624 54.9 17,634,100 55.0 2.3 516,157 1.4 466,571 1.4 423,069 1.3 289,722 .9 29.1 16,930,831 45.7 17,018,790 50.6 17,883,693 56.2 17,923,822 55.9 3.0 5,051,124 13.7 3,944,864 11.7 3,110,737 9.8 3,498,869 10.9 12.1 505,117 1.4 485,889 1.5 469,120 1.5 348,125 1.1 11.3 674,593 1.8 972,008 2.9 1,381,713 4.3 2,233,271 7.0 (11.5) 6,230,834 16.9 5,402,761 16.1 4,961,570 15.6 6,080,265 19.0 5.7 3,522,540 9.5 1,535,750 4.6 272,688 .9 -- -- 827,077 2.2 537,852 1.6 175,940 .5 177,623 .6 53.7 4,349,617 11.7 2,073,602 6.2 448,628 1.4 177,623 .6 102.6 27,511,282 74.3 24,495,153 72.9 23,293,891 73.2 24,181,710 75.5 7.6 5,312,255 14.3 5,277,509 15.7 4,853,925 15.2 4,519,407 14.1 3.8 5,380 .0 5,516 .0 5,759 .0 7,213 .0 (26.4) 66,458 .2 71,577 .2 87,358 .3 68,801 .2 (42.2) 1,037,556 2.8 907,111 2.7 994,263 3.1 806,206 2.5 9.5 3,096,253 8.4 2,872,108 8.5 2,596,396 8.2 2,461,532 7.7 8.2 $37,029,184 100.0 $33,628,974 100.0 $31,831,592 100.0 $32,044,869 100.0 7.1 $22,314,924 $22,373,392 $22,830,735 $22,519,243 3.1
65 WACHOVIA CORPORATION AND SUBSIDIARIES SUMMARY OF OPERATIONS (thousands)
1996 1995 Amount % Amount % INTEREST INCOME........................................................... $3,227,314 80.4 $3,019,730 80.4 INTEREST EXPENSE.......................................................... 1,672,602 41.7 1,579,107 42.0 NET INTEREST INCOME....................................................... 1,554,712 38.7 1,440,623 38.4 Provision for loan losses................................................. 149,911 3.7 103,791 2.8 Net interest income after provision for loan losses....................... 1,404,801 35.0 1,336,832 35.6 OTHER INCOME Service charges on deposit accounts....................................... 242,368 6.0 209,113 5.6 Fees for trust services................................................... 137,841 3.4 130,521 3.5 Credit card income........................................................ 139,138 3.5 124,282 3.3 Electronic banking........................................................ 48,106 1.2 34,479 .9 Investment fee income..................................................... 42,478 1.1 26,953 .7 Mortgage fee income....................................................... 16,984 .4 23,320 .6 Trading account profits (losses).......................................... 22,819 .6 25,698 .7 Student loan servicing.................................................... -- -- -- -- Other operating income.................................................... 134,180 3.3 105,735 2.8 Total other operating revenue........................................ 783,914 19.5 680,101 18.1 Gain on sale of mortgage servicing portfolio.............................. -- -- 79,025 2.1 Gain on sale of subsidiary................................................ -- -- -- -- Investment securities gains (losses)...................................... 3,736 .1 (23,494) (.6) Total other income................................................... 787,650 19.6 735,632 19.6 OTHER EXPENSE Salaries.................................................................. 543,227 13.5 498,730 13.3 Employee benefits......................................................... 111,298 2.8 101,596 2.7 Total personnel expense.............................................. 654,525 16.3 600,326 16.0 Net occupancy expense..................................................... 89,582 2.2 87,105 2.3 Equipment expense......................................................... 114,861 2.9 109,701 2.9 Other operating expense................................................... 398,581 9.9 406,464 10.9 Total other expense.................................................. 1,257,549 31.3 1,203,596 32.1 Income before income taxes................................................ 934,902 23.3 868,868 23.1 Applicable income taxes (2)............................................... 290,345 7.2 266,325 7.1 NET INCOME................................................................ $ 644,557 16.1 $ 602,543 16.0 Net income per common share: Primary................................................................. $ 3.81 $ 3.50 Fully diluted........................................................... $ 3.80 $ 3.49 Cash dividends paid per common share...................................... $ 1.52 $ 1.38 Average shares outstanding: Primary (3)............................................................. 169,094 172,089 Fully diluted (4)....................................................... 169,827 172,957
(1) Percentages reflected above are based on total income (interest plus other). (2) Income taxes applicable to securities transactions were as follows: 1996 -- $1,522; 1995 -- ($8,576); 1994 -- $1,328; 1993 -- $7,472; 1992 -- $470; and 1991 -- $3,997. (3) Average primary shares outstanding include common equivalent shares as follows: 1996 -- 1,839; 1995 -- 1,454; 1994 -- 1,229; 1993 -- 1,668; 1992 -- 1,878; and 1991 -- 1,640. (4) Average fully diluted shares outstanding include dilutive common stock options and awards and convertible debentures and notes as follows: 1996 -- 2,572; 1995 -- 2,322; 1994 -- 1,841; 1993 -- 2,925; 1992 -- 4,749; and 1991 -- 5,377. 66
Five-Year 1994 1993 1992 1991 Compound Amount % Amount % Amount % Amount % Growth Rate $2,362,294 79.5 $2,122,837 77.2 $2,222,078 80.0 $2,637,015 84.0 4.1% 1,038,388 34.9 839,012 30.5 967,028 34.8 1,467,849 46.8 2.6 1,323,906 44.6 1,283,825 46.7 1,255,050 45.2 1,169,166 37.2 5.9 71,763 2.4 92,652 3.4 119,420 4.3 293,000 9.3 (12.5) 1,252,143 42.2 1,191,173 43.3 1,135,630 40.9 876,166 27.9 9.9 196,149 6.7 202,885 7.4 189,537 6.8 170,827 5.4 7.2 128,100 4.3 120,030 4.4 109,504 3.9 102,665 3.3 6.1 111,925 3.8 101,780 3.7 78,068 2.8 62,814 2.0 17.2 24,683 .8 14,840 .5 12,936 .5 10,590 .3 35.4 14,092 .5 16,619 .6 13,013 .5 13,302 .4 26.1 33,224 1.1 39,101 1.4 40,078 1.5 28,608 .9 (9.9) 9,502 .3 22,445 .8 (2,916) (.1) 17,846 .6 5.0 -- -- 5,535 .2 33,250 1.2 31,470 1.0 (100.0) 86,757 2.9 76,944 2.8 61,772 2.2 52,056 1.7 20.8 604,432 20.4 600,179 21.8 535,242 19.3 490,178 15.6 9.8 -- -- -- -- -- -- -- -- -- -- 8,030 .3 19,486 .7 -- -- 3,320 .1 19,394 .7 1,497 .0 11,091 .4 (19.6) 607,752 20.5 627,603 22.8 556,225 20.0 501,269 16.0 9.5 464,790 15.7 455,621 16.6 451,193 16.2 443,273 14.1 4.2 98,717 3.3 113,059 4.1 88,630 3.2 81,216 2.6 6.5 563,507 19.0 568,680 20.7 539,823 19.4 524,489 16.7 4.5 80,911 2.7 82,070 3.0 80,673 2.9 75,729 2.4 3.4 106,508 3.6 102,246 3.7 100,916 3.6 99,569 3.2 2.9 347,487 11.7 378,240 13.7 374,240 13.5 396,730 12.7 .1 1,098,413 37.0 1,131,236 41.1 1,095,652 39.4 1,096,517 35.0 2.8 761,482 25.7 687,540 25.0 596,203 21.5 280,918 8.9 27.2 222,424 7.5 195,445 7.1 162,978 5.9 51,378 1.6 41.4 $ 539,058 18.2 $ 492,095 17.9 $ 433,225 15.6 $ 229,540 7.3 22.9 $ 3.13 $ 2.83 $ 2.51 $ 1.34 23.2 $ 3.12 $ 2.81 $ 2.48 $ 1.32 23.5 $ 1.23 $ 1.11 $ 1.00 $ .92 10.6 172,339 173,941 172,641 171,481 (.3) 172,951 175,198 175,512 175,218 (.6)
67 WACHOVIA CORPORATION AND SUBSIDIARIES NET INTEREST INCOME -- TAXABLE EQUIVALENT (thousands)
1996 1995 Amount % Amount % INTEREST INCOME Loans: Commercial............................................................... $ 693,947 21.0 $ 681,206 21.8 Tax-exempt............................................................... 181,279 5.5 193,080 6.2 Total commercial.................................................... 875,226 26.5 874,286 28.0 Direct retail............................................................ 71,369 2.2 67,803 2.2 Indirect retail.......................................................... 212,611 6.4 200,818 6.4 Credit card.............................................................. 504,224 15.3 488,158 15.7 Other revolving credit................................................... 43,235 1.3 43,390 1.4 Total retail........................................................ 831,439 25.2 800,169 25.7 Construction............................................................. 72,015 2.2 62,823 2.0 Commercial mortgages..................................................... 344,460 10.4 316,956 10.2 Residential mortgages.................................................... 371,311 11.3 335,907 10.8 Total real estate................................................... 787,786 23.9 715,686 23.0 Lease financing.......................................................... 61,110 1.9 23,598 .8 Foreign.................................................................. 32,098 1.0 22,610 .7 Total loans......................................................... 2,587,659 78.5 2,436,349 78.2 Investment securities: Held-to-maturity: State and municipal.................................................... 30,501 .9 50,192 1.6 Other investments...................................................... 96,509 2.9 271,292 8.7 Total securities held-to-maturity................................... 127,010 3.8 321,484 10.3 Available-for-sale: Other investments...................................................... 487,521 14.8 283,989 9.1 Total investment securities......................................... 614,531 18.6 605,473 19.4 Interest-bearing bank balances............................................. 33,106 1.0 9,121 .3 Federal funds sold and securities purchased under resale agreements........ 11,573 .4 7,234 .2 Trading account assets..................................................... 50,362 1.5 60,326 1.9 Total interest income............................................... 3,297,231 100.0 3,118,503 100.0 INTEREST EXPENSE Interest-bearing demand.................................................... 47,166 1.4 59,016 1.9 Savings and money market savings........................................... 273,832 8.3 240,328 7.7 Savings certificates....................................................... 369,885 11.2 370,290 11.9 Large denomination certificates............................................ 135,737 4.1 111,944 3.6 Total time deposits in domestic offices............................. 826,620 25.0 781,578 25.1 Time deposits in foreign offices........................................... 54,942 1.7 41,876 1.3 Total time deposits................................................. 881,562 26.7 823,454 26.4 Federal funds purchased and securities sold under repurchase agreements.... 335,290 10.2 316,759 10.2 Commercial paper........................................................... 29,051 .9 27,807 .9 Other short-term borrowed funds............................................ 66,753 2.0 122,441 3.9 Total short-term borrowed funds..................................... 431,094 13.1 467,007 15.0 Bank notes................................................................. 261,174 7.9 219,035 7.0 Other long-term debt....................................................... 98,772 3.0 69,611 2.2 Total long-term debt................................................ 359,946 10.9 288,646 9.2 Total interest expense.............................................. 1,672,602 50.7 1,579,107 50.6 NET INTEREST INCOME........................................................ $1,624,629 49.3 $1,539,396 49.4 Percentage of interest-earning assets: Interest income.......................................................... 8.16% 8.43% Interest expense......................................................... 4.14 4.27 Net interest income................................................. 4.02% 4.16% Taxable equivalent adjustment included in interest income: Loans.................................................................... $ 43,001 $ 51,430 Investment securities.................................................... 24,875 43,126 Trading account assets................................................... 2,041 4,217 Total (2)........................................................... $ 69,917 $ 98,773
(1) Percentages reflected above are based on total interest income. (2) The taxable equivalent adjustment for 1996, 1995, 1994 and 1993 reflects the federal income tax rate of 35% and state tax rates, as applicable, reduced by the nondeductible portion of interest expense; the taxable equivalent adjustment for prior years reflects the federal income tax rate of 34%. 68
Five-Year 1994 1993 1992 1991 Compound Amount % Amount % Amount % Amount % Growth Rate $ 444,395 18.0 $ 327,729 14.8 $ 349,868 15.2 $ 502,100 18.4 6.7% 176,701 7.2 171,163 7.7 173,158 7.5 206,099 7.5 (2.5) 621,096 25.2 498,892 22.5 523,026 22.7 708,199 25.9 4.3 61,054 2.5 59,455 2.7 77,850 3.4 97,655 3.6 (6.1) 190,444 7.7 189,143 8.5 191,594 8.3 209,985 7.7 .2 389,763 15.8 304,502 13.7 257,885 11.2 259,773 9.5 14.2 38,556 1.6 36,580 1.6 37,538 1.6 38,106 1.4 2.6 679,817 27.6 589,680 26.5 564,867 24.5 605,519 22.2 6.5 45,988 1.9 35,034 1.6 40,441 1.8 95,503 3.5 (5.5) 259,077 10.5 232,688 10.5 243,861 10.6 273,371 10.0 4.7 287,922 11.7 305,965 13.8 320,363 13.9 370,733 13.6 .0 592,987 24.1 573,687 25.9 604,665 26.3 739,607 27.1 1.3 13,563 .6 12,051 .5 11,830 .5 12,990 .5 36.3 6,162 .2 3,318 .1 3,760 .2 6,775 .2 36.5 1,913,625 77.7 1,677,628 75.5 1,708,148 74.2 2,073,090 75.9 4.5 75,069 3.1 85,854 3.8 96,649 4.2 109,607 4.0 (22.6) 234,557 9.5 414,485 18.7 406,274 17.7 416,668 15.3 (25.4) 309,626 12.6 500,339 22.5 502,923 21.9 526,275 19.3 (24.7) 194,576 7.9 -- -- -- -- -- -- 504,202 20.5 500,339 22.5 502,923 21.9 526,275 19.3 3.1 597 .0 2,905 .1 12,772 .6 26,974 1.0 4.2 7,682 .3 12,433 .6 17,038 .7 35,537 1.3 (20.1) 36,348 1.5 28,433 1.3 60,444 2.6 70,049 2.5 (6.4) 2,462,454 100.0 2,221,738 100.0 2,301,325 100.0 2,731,925 100.0 3.8 55,088 2.2 60,433 2.7 72,548 3.1 95,809 3.5 (13.2) 164,461 6.7 151,748 6.8 189,699 8.2 275,951 10.1 (.2) 227,060 9.2 240,795 10.8 324,063 14.1 475,012 17.4 (4.9) 70,305 2.9 90,101 4.1 148,931 6.5 221,992 8.1 (9.4) 516,914 21.0 543,077 24.4 735,241 31.9 1,068,764 39.1 (5.0) 22,318 .9 14,503 .7 15,646 .7 16,834 .6 26.7 539,232 21.9 557,580 25.1 750,887 32.6 1,085,598 39.7 (4.1) 224,089 9.1 127,580 5.8 115,939 5.1 202,299 7.4 10.6 19,880 .8 14,693 .7 16,629 .7 19,985 .7 7.8 28,603 1.2 31,574 1.4 58,420 2.5 146,918 5.4 (14.6) 272,572 11.1 173,847 7.9 190,988 8.3 369,202 13.5 3.1 171,968 7.0 69,785 3.1 13,183 .6 -- -- 54,616 2.2 37,800 1.7 11,970 .5 13,049 .5 49.9 226,584 9.2 107,585 4.8 25,153 1.1 13,049 .5 94.1 1,038,388 42.2 839,012 37.8 967,028 42.0 1,467,849 53.7 2.6 $1,424,066 57.8 $1,382,726 62.2 $1,334,297 58.0 $1,264,076 46.3 5.1 7.51% 7.46% 8.19% 9.63% 3.17 2.82 3.44 5.17 4.34% 4.64% 4.75% 4.46% $ 49,543 $ 50,178 $ 44,760 $ 54,882 47,949 46,613 33,787 39,245 2,668 2,110 700 783 $ 100,160 $ 98,901 $ 79,247 $ 94,910
69 WACHOVIA CORPORATION AND SUBSIDIARIES STATISTICAL SUMMARY
1996 1995 1994 1993 1992 1991 AVERAGE YIELDS EARNED (taxable equivalent) Loans: Commercial..................................................... 7.05% 7.44% 6.03% 5.29% 5.96% 8.21% Tax-exempt..................................................... 8.88 9.81 8.99 9.05 8.67 9.95 Total commercial............................................ 7.37 7.86 6.66 6.17 6.65 8.65 Direct retail.................................................. 9.41 9.23 8.30 8.68 11.32 12.89 Indirect retail................................................ 8.29 8.22 7.77 8.42 9.55 10.55 Credit card.................................................... 11.99 12.35 11.05 11.75 14.53 16.66 Other revolving credit......................................... 12.20 12.61 11.55 11.15 11.63 12.73 Total retail................................................ 10.55 10.71 9.65 10.08 11.79 13.14 Construction................................................... 8.92 9.82 9.26 7.45 7.78 9.36 Commercial mortgages........................................... 8.30 8.62 7.72 7.39 7.96 9.39 Residential mortgages.......................................... 8.39 8.36 7.78 8.10 8.89 10.15 Total real estate........................................... 8.40 8.59 7.85 7.76 8.42 9.75 Lease financing................................................ 9.44 8.73 7.83 8.90 10.01 10.43 Foreign........................................................ 7.02 7.43 5.70 4.35 5.20 7.79 Total loans................................................. 8.55 8.86 7.90 7.79 8.53 10.07 Held-to-maturity securities: State and municipal securities................................. 11.15 11.84 12.53 12.46 12.38 12.48 Other investments.............................................. 8.05 7.26 6.96 6.53 7.50 8.49 Available-for-sale securities: Other investments.............................................. 6.83 6.79 5.24 -- -- -- Total investment securities................................. 7.14 7.26 6.56 7.11 8.11 9.10 Interest-bearing bank balances................................... 7.92 7.93 4.58 3.71 4.24 6.48 Federal funds sold and securities purchased under resale agreements........................................ 5.45 5.93 3.91 3.15 3.52 5.95 Trading account assets........................................... 5.58 6.59 5.28 3.94 5.61 7.19 Total interest-earning assets............................... 8.16 8.43 7.51 7.46 8.19 9.63 AVERAGE RATES PAID Interest-bearing demand.......................................... 1.43% 1.81% 1.63% 1.88% 2.55% 4.07% Savings and money market savings................................. 3.58 3.67 2.69 2.53 3.26 5.19 Savings certificates............................................. 5.69 5.70 4.26 4.30 5.23 6.92 Large denomination certificates.................................. 5.94 5.85 4.47 5.18 5.74 7.16 Total time deposits in domestic offices..................... 4.19 4.29 3.15 3.28 4.21 6.06 Time deposits in foreign offices................................. 5.28 5.59 4.32 3.11 3.70 5.81 Total time deposits......................................... 4.24 4.34 3.18 3.28 4.20 6.06 Federal funds purchased and securities sold under repurchase agreements.................................... 5.41 6.02 4.44 3.23 3.73 5.78 Commercial paper................................................. 4.88 5.51 3.94 3.02 3.54 5.74 Other short-term borrowed funds.................................. 5.49 6.03 4.24 3.25 4.23 6.58 Total short-term borrowed funds............................. 5.38 5.99 4.37 3.22 3.85 6.07 Bank notes....................................................... 5.75 5.67 4.88 4.54 4.83 -- Other long-term debt............................................. 6.47 6.70 6.60 7.03 6.80 7.35 Total long-term debt........................................ 5.93 5.89 5.21 5.19 5.61 7.35 Total interest-bearing liabilities.......................... 4.80 4.99 3.77 3.43 4.15 6.07 Interest rate spread............................................. 3.36% 3.44% 3.74% 4.03% 4.04% 3.56% Net yield on interest-earning assets............................. 4.02% 4.16% 4.34% 4.64% 4.75% 4.46% RATIOS (averages) Shareholders' equity to: Total assets................................................... 8.09% 8.22% 8.36% 8.54% 8.16% 7.68% Net loans...................................................... 12.26 12.58 13.01 13.58 13.21 12.13 Deposits....................................................... 13.95 14.06 13.88 12.84 11.37 10.93 Equity and long-term debt...................................... 37.60 41.03 41.58 58.07 85.27 93.27 Return on assets................................................. 1.43 1.45 1.46 1.46 1.36 .72 Return on shareholders' equity................................... 17.62 17.67 17.41 17.13 16.69 9.33 Return on deposits............................................... 2.46 2.48 2.42 2.20 1.90 1.02 Dividends paid as a percentage of net income..................... 39.48 39.08 39.05 38.91 39.42 63.78
70 WACHOVIA CORPORATION AND SUBSIDIARIES YEAR-END INFORMATION
1996 1995 1994 1993 1992 1991 CONDENSED BALANCE SHEET (millions) Cash and due from banks.................................... $ 3,368 $ 2,692 $ 2,670 $ 2,529 $ 2,628 $ 2,475 Interest-bearing bank balances............................. 28 451 7 13 189 408 Federal funds sold and securities purchased under resale agreements........................ 179 144 202 691 479 546 Trading account assets..................................... 1,186 1,115 890 789 896 1,445 Investment securities: Available-for-sale....................................... 6,761 7,410 3,538 -- -- -- Held-to-maturity......................................... 1,352 1,620 4,185 7,879 6,486 6,265 Loans and net leases....................................... 31,291 29,270 25,899 22,986 21,097 20,643 Less unearned income on loans.............................. 8 9 8 9 11 26 Total loans............................................ 31,283 29,261 25,891 22,977 21,086 20,617 Less allowance for loan losses............................. 409 409 406 405 380 360 Net loans.............................................. 30,874 28,852 25,485 22,572 20,706 20,257 Premises and equipment..................................... 644 628 543 503 444 435 Other assets............................................... 2,513 2,069 1,668 1,550 1,539 1,327 Total assets........................................... $46,905 $44,981 $39,188 $36,526 $33,367 $33,158 Deposits in domestic offices............................... $26,065 $25,608 $22,153 $22,545 $22,856 $22,602 Deposits in foreign offices................................ 1,185 761 916 807 519 404 Total deposits......................................... 27,250 26,369 23,069 23,352 23,375 23,006 Federal funds purchased and securities sold under repurchase agreements......................... 6,298 5,850 5,898 4,741 3,714 4,002 Commercial paper........................................... 706 502 407 589 387 398 Other short-term borrowed funds............................ 967 1,721 1,007 1,091 849 2,201 Bank notes................................................. 4,308 4,088 3,953 2,370 758 -- Other long-term debt....................................... 2,159 1,335 838 591 439 171 Other liabilities.......................................... 1,455 1,342 729 774 1,070 896 Shareholders' equity....................................... 3,762 3,774 3,287 3,018 2,775 2,484 Total liabilities and shareholders' equity............. $46,905 $44,981 $39,188 $36,526 $33,367 $33,158 LOAN PORTFOLIO (millions) Domestic borrowers: Commercial............................................... $ 9,662 $ 9,753 $ 8,378 $ 6,727 $ 6,365 $ 6,396 Tax exempt............................................... 1,937 2,238 1,810 1,959 1,952 1,993 Direct retail............................................ 782 755 750 716 673 723 Indirect retail.......................................... 2,491 2,544 2,340 2,429 2,109 1,983 Credit card.............................................. 4,819 3,918 3,969 3,123 2,216 1,671 Other revolving credit................................... 359 354 343 333 327 302 Construction............................................. 980 746 553 494 464 637 Commercial mortgages..................................... 4,349 3,855 3,484 3,199 3,119 3,066 Residential mortgages.................................... 4,645 4,214 3,821 3,767 3,663 3,660 Lease financing, net..................................... 823 494 189 157 125 116 Total.................................................. 30,847 28,871 25,637 22,904 21,013 20,547 Foreign borrowers: Commercial and industrial................................ 436 390 254 73 73 56 Banks and other financial institutions................... -- -- -- -- -- 7 Governments and official institutions.................... -- -- -- -- -- 7 Total.................................................. 436 390 254 73 73 70 Total loans............................................ $31,283 $29,261 $25,891 $22,977 $21,086 $20,617 LOAN PORTFOLIO (percentages) Commercial................................................. 37.1 41.0 39.4 37.8 39.4 40.7 Credit card................................................ 15.4 13.4 15.3 13.6 10.5 8.1 Other revolving credit..................................... 1.1 1.2 1.3 1.4 1.6 1.5 Other retail............................................... 10.5 11.3 11.9 13.7 13.2 13.1 Real estate................................................ 31.9 30.1 30.4 32.5 34.4 35.7 Lease financing............................................ 2.6 1.7 .7 .7 .6 .6 Foreign.................................................... 1.4 1.3 1.0 .3 .3 .3 Total.................................................. 100.0 100.0 100.0 100.0 100.0 100.0
71 STOCK DATA The following charts present high and low trading ranges for the corporation's common stock, price to earnings ratios and data on cash dividends per share and cash dividend payouts for the most recent six years. Stock price trading ranges and price to earnings ratios for the most recent eight quarters also are provided. The Five-Year Total Return chart compares Wachovia, the S&P 500 Index and the Keefe, Bruyette & Woods (KBW) 50 Total Return Index in stock price appreciation and dividends, assuming quarterly reinvestment, from the base period December 31, 1991 through year-end 1996. The KBW 50 Index is a market capitalization weighted measure of total return for 50 of the largest U.S. banking Common Stock Price Range* NYSE Symbol: WB 91 92 93 94 95 96 30 34 3/4 40 1/2 35 3/8 48 1/4 60 1/4 20 1/4 28 1/4 31 7/8 30 1/8 32 39 5/8 *Prices represent those of Wachovia Corporation prior to merger. Cash Dividends Per Share* Five-year compound growth rate = 10.6% 91 92 93 94 95 96 .92 1.00 1.11 1.23 1.38 1.52 *Dividends per share represent those paid by Wachovia Corporation prior to merger. Common Stock Price/Earnings Ratio* 91 92 93 94 95 96 22.4 13.8 14.3 11.3 13.8 15.8 15.1 11.3 11.3 9.6 9.1 10.4 *Figures based on high and low common stock prices for each year and annual net income per primary share. Cash Dividend Payout* (millions) 91 92 93 94 95 96 63.8% 39.4% 38.9% 39.1% 39.1% 39.5% % Payout ratio (total dividends as a percentage of net income) * Dividends include amounts paid by pooled companies. COMMON STOCK DATA -- PER SHARE TABLE 19
1996 1995 1994 1993 1992 1991 Market value: End of year................................. $56 1/2 $45 3/4 $32 1/4 $33 1/2 $34 1/8 $ 29 High........................................ 60 1/4 48 1/4 35 3/8 40 1/2 34 3/4 30 Low......................................... 39 5/8 32 30 1/8 31 7/8 28 1/4 20 1/4 Book value.................................... 22.96 22.15 19.23 17.61 16.18 14.56 Dividend...................................... 1.52 1.38 1.23 1.11 1.00 .92 Price/earnings ratio*......................... 14.8X 13.1x 10.3x 11.8x 13.6x 21.7x
*Based on end-of-year stock price and net income per primary share 72 companies including all money-center and most regional banks. Wachovia's common stock is listed on the New York Stock Exchange under the trading symbol of WB. The corporation is a member of the Standard & Poor's 500 Index of stocks and the S&P 500 Major Regional Banks Industry Group. Quarterly Common Stock Price Range 1995 1st Q 2nd Q 3rd Q 4th Q 36 1/2 37 7/8 45 48 1/4 32 34 1/4 35 3/8 43 1/8 1996 1st Q 2nd Q 3rd Q 4th Q 48 3/8 46 1/4 49 7/8 60 1/4 41 1/4 40 7/8 39 5/8 48 3/4 Quarterly Common Stock Price/Earnings Ratios* 1995 1st Q 2nd Q 3rd Q 4th Q 11.3 11.1 12.9 13.8 9.9 10.1 10.2 12.3 1996 1st Q 2nd Q 3rd Q 4th Q 13.7 13.1 13.7 15.8 11.7 11.5 10.9 12.8 *Figures based on high and low common stock prices for cash period and net income per primary share for the 12 months ended on the last day of each period. Five Year Total Return* 91 92 93 94 95 96 Wachovia S&P 500 (Customer to fill in plot points) KBW 50 Index *Base period 12/31/91 = 100. Dividends reinvested. Data for the KBW 50 Index is weighted by market capitalization. 73 Historical Comparative Data Six-year historical comparative data for Wachovia Corporation and the median of the 25 largest U.S. bank holding companies based on assets as of each year-end is presented in the following charts. The median is representative of the typical bank holding company within the comparison group. All data is as originally reported, not restated for pooling-of-interest mergers or acquisitions. Return on Assets (average) 91 92 93 94 95 96 Wachovia .72 1.36 1.46 1.46 1.45 1.43 25 Largest U.S. Banks (median) .72 .90 1.20 1.21 1.21 1.29 Return on Common Equity (average) 91 92 93 94 95 96 Wachovia 9.33 16.69 17.13 17.41 17.67 17.62 25 Largest U.S. Banks (median) 10.49 14.18 16.94 16.10 16.77 17.02 Common Equity to Assets (average) 91 92 93 94 95 96 Wachovia 7.68 8.16 8.54 8.36 8.22 8.09 25 Largest U.S. Banks (median) 5.13 6.16 6.57 6.86 7.00 7.47 Net Interest Income* as a Percentage of Average Earnings Assets 91 92 93 94 95 96 Wachovia 4.46 4.75 4.64 4.34 4.16 4.02 25 Largest U.S. Banks (median) 3.93 4.44 4.48 4.34 4.45 4.36 *Taxable equivalent Noninterest Expense as a Percentage of Total Adjusted Revenues* 91 92 93 94 95 96 Wachovia 62.51 58.61 57.05 54.15 54.23 52.21 25 Largest U.S. Banks (median) 67.40 64.85 62.54 61.88 61.72 60.91 *Excluding mortgage servicing portfolio sale, subsidiary sale and securities transactions Net Loan Losses to Average Loans 91 92 93 94 95 96 Wachovia .99 .48 .31 .29 .37 .49 25 Largest U.S. Banks (median) 1.55 1.25 .75 .39 .44 .53 Nonperforming Assets to Year-End Loans and Foreclosed Property 91 92 93 94 95 96 Wachovia 1.50 1.25 .67 .39 .24 .25 25 Largest U.S. Banks (median) 4.78 3.09 1.90 1.03 .80 .76 74 MEMBER COMPANY DIRECTORS WACHOVIA BANK OF GEORGIA, N.A. D. GARY THOMPSON President and Chief Executive Officer G. JOSEPH PRENDERGAST Chairman of the Board F. DUANE ACKERMAN Vice Chairman and Chief Operating Officer BellSouth Corporation L. M. BAKER, JR. President and Chief Executive Officer Wachovia Corporation CARL BOLCH, JR. Chairman of the Board and Chief Executive Officer Racetrac Petroleum, Inc. JAMES E. BOSTIC, JR. Senior Vice President Environmental, Government Affairs and Communications Georgia-Pacific Corporation MICHAEL C. CARLOS Chairman of the Board and Chief Executive Officer National Distributing Co., Inc. DAN T. CATHY President Chick-fil-A International G. STEPHEN FELKER Chairman of the Board and Chief Executive Officer Avondale Mills, Inc. BRYAN D. LANGTON (Advisory Director) Chairman of the Board and Chief Executive Officer Holiday Inn Worldwide BERNARD MARCUS Chairman of the Board and Chief Executive Officer The Home Depot, Inc. JAMES F. MCDONALD President and Chief Executive Officer Scientific-Atlanta, Inc. DANIEL W. MCGLAUGHLIN President and Chief Executive Officer Equifax Inc. D. Raymond Riddle Retired Chairman of the Board National Service Industries, Inc. S. Stephen Selig III Chairman of the Board and President Selig Enterprises, Inc. Alana S. Shepherd Secretary of the Board Shepherd Center, Inc. Wachovia Bank of North Carolina, N.A. J. Walter McDowell President and Chief Executive Officer L. M. Baker, Jr. Chairman of the Board Thomas M. Belk, Jr. Senior Vice President Belk Stores Services, Inc. H. C. Bissell Chairman of the Board and Chief Executive Officer The Bissell Companies, Inc. Felton J. Capel Chairman of the Board and President Century Associates of North Carolina William Cavanaugh, III President and Chief Executive Officer Carolina Power & Light Company Bert Collins President and Chief Executive Officer North Carolina Mutual Life Insurance Company John D. Correnti President and Chief Executive Officer Nucor Corporation Richard L. Daugherty Retired IBM Vice President Executive Director NCSU Research Corporation George W. Henderson President and Chief Executive Officer Burlington Industries, Inc. Estell C. Lee Chairman of the Board and President The Lee Company John O. McNairy Chief Executive Officer Harvey Enterprises and Affiliates G. Joseph Prendergast Executive Vice President Wachovia Corporation Andrew J. Schindler President and Chief Executive Officer R.J. Reynolds Tobacco Company Robert L. Tillman President and Chief Executive Officer Lowe's Companies, Inc. John F. Ward Retired Senior Vice President Sara Lee Corporation President J.F. Ward Group, Inc. Anderson D. Warlick President and Chief Operating Officer Parkdale Mills, Inc. David J. Whichard, II Chairman The Daily Reflector Wachovia Bank of South Carolina, N.A. Will B. Spence, Jr. President and Chief Executive Officer G. Joseph Prendergast Chairman of the Board L. M. Baker, Jr. President and Chief Executive Officer Wachovia Corporation Charles J. Bradshaw President Bradshaw Investments, Inc. Frank W. Brumley President The Brumley Company W. T. Cassels, Jr. Chairman of the Board Southeastern Freight Lines, Inc. Frederick B. Dent, Jr. President Mayfair Mills, Inc. James G. Lindley Chairman Emeritus Joe A. Padgett Retired Executive Vice President Wachovia Bank of South Carolina, N.A. W. M. Self President and Chief Executive Officer Greenwood Mills, Inc. Robert S. Small, Jr. President AVTEX Properties, Inc. William G. Taylor President The Springs Company Beatrice R. Thompson, Ph.D. Coordinator of Psychological Services Anderson School District Five William B. Timmerman President SCANA Corporation 75 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 JOHN L. CLENDENIN Chairman of the Board 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 President and Chief Executive Officer Stonemarker Enterprises, Inc. WYNDHAM ROBERTSON Writer and Retired Vice President, Communications University of North Carolina HERMAN J. RUSSELL Chairman of the Board H.J. Russell & Company SHERWOOD H. SMITH, JR. Chairman of the Board Carolina Power & Light Company CHARLES MCKENZIE TAYLOR Chairman of the Board Taylor & Mathis, Inc. 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 76 SHAREHOLDER INFORMATION CORPORATE HEADQUARTERS Wachovia Corporation 100 North Main Street 191 Peachtree Street, NE Winston-Salem, NC 27150 Atlanta, GA 30303 CORPORATE MAILING ADDRESSES AND TELEPHONE NUMBERS Wachovia Corporation P. O. Box 3099 P.O. Box 4148 Winston-Salem, NC 27150 Atlanta, GA 30302 910-770-5000 404-332-5000 NOTICE OF ANNUAL MEETING The Annual Meeting of Shareholders of Wachovia Corporation will be held Friday, April 25, 1997 at 10:30 a.m., in the Wachovia Center, 100 North Main Street, Winston-Salem, NC. All shareholders are invited to attend. COMMON STOCK The common stock of the Corporation is traded on the New York Stock Exchange with a ticker symbol of WB. TRANSFER AGENT
Wachovia Bank of North Carolina, N.A. Correspondence should be sent to the following: Winston-Salem, NC 27102 Wachovia Shareholder Services 1-800-633-4236 P.O. Box 8218 Boston, MA 02266-8218
SHAREHOLDER ACCOUNT ASSISTANCE Shareholders who wish to change the name, address or ownership of stock, report lost certificates, eliminate duplicate mailings of financial material or for other account reregistration procedures and assistance should contact the Transfer Agent at the address or phone number above. Use of your shareholder account number and a daytime phone number in all correspondence will be appreciated. DIVIDEND SERVICES DIVIDEND REINVESTMENT AND COMMON STOCK PURCHASE PLAN -- The plan provides common stockholders of record a regular way of investing cash dividends in additional shares at an average market price and/or investing optional cash payments without payment of brokerage commissions or service charges. DIRECT DEPOSIT OF CASH DIVIDENDS -- Direct deposit is a safe, fast and timesaving method of receiving cash dividends through automatic deposit on the date of payment to a checking, savings or money market account at any financial institution which participates in an Automated Clearing House. Information regarding these services can be obtained by contacting the Transfer Agent or Wachovia Shareholder Services at the address or phone number below. WACHOVIA SHAREHOLDER SERVICES CONTACT H. Jo Barlow Wachovia Corporation Shareholder Services P.O. Box 3099 910-732-5787 Winston-Salem, NC 27150 FINANCIAL INFORMATION Analysts, investors and others seeking financial information should contact the following either by phone or in writing to the corporate mailing address in Winston-Salem. Robert S. McCoy, Jr. James C. Mabry Chief Financial Officer Investor Relations 910-732-5926 910-732-5788 INDEPENDENT AUDITORS Ernst & Young LLP, Winston-Salem, NC 77 EX-23 13 EXHIBIT 23 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Form S-8: Nos. 33-34386, 33-15706, 33-44191, 333-02239, 33-54094, 33-53325; Form S-3: Nos. 333-06319, 33-2232, 333-19365 of Wachovia Corporation and in the related prospectuses of our report dated January 15, 1997, with respect to the consolidated financial statements of Wachovia Corporation incorporated by reference in this Annual Report (Form 10-K) for the year ended December 31, 1996. Ernst & Young LLP Winston-Salem, North Carolina March 25, 1997 EX-24 14 EXHIBIT 24 Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: We, the undersigned directors of Wachovia Corporation, and each of us, do hereby make, constitute and appoint Kenneth W. McAllister and Alice Washington Grogan, and each of them (either of whom may act without the consent or joinder of the other), our attorneys-in-fact and agents with full power of substitution for us and in our name, place and stead, in any and all capacities, to execute for us and in our behalf the Annual Report on Form 10-K of Wachovia Corporation for the year ended December 31, 1996 and any and all amendments to the foregoing Report and any other documents and instruments incidental thereto, and to file the same, with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as we might or could do in person, hereby ratifying and confirming all that said attorneys-in- fact and agents and/or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, we the undersigned have executed this Power of Attorney this 24th day of January, 1997. /s/ L. M. Baker, Jr. /s/ Rufus C. Barkley, Jr. - ----------------------------- ---------------------------- L. M. Baker, Jr. Rufus C. Barkley, Jr. /s/ John L. Clendenin /s/ Lawrence M. Gressette, Jr. - ----------------------------- ------------------------------ John L. Clendenin Lawrence M. Gressette, Jr. /s/ Thomas K. Hearn, Jr. /s/ W. Hayne Hipp - ----------------------------- ------------------------------ Thomas K. Hearn, Jr. W. Hayne Hipp /s/ Robert M. Holder, Jr. /s/ Donald R. Hughes - ----------------------------- ------------------------------ Robert M. Holder, Jr. Donald R. Hughes /s/ James W. Johnston /s/ John G. Medlin, Jr. - ----------------------------- ------------------------------ James W. Johnston John G. Medlin, Jr. /s/ Wyndham Robertson /s/ Herman J. Russell - ----------------------------- ------------------------------ Wyndham Robertson Herman J. Russell /s/ Sherwood H. Smith, Jr. /s/ Charles McKenzie Taylor - ----------------------------- ------------------------------ Sherwood H. Smith, Jr. Charles McKenzie Taylor /s/ John C. Whitaker, Jr. - ----------------------------- John C. Whitaker, Jr. EX-27 15 FINANCIAL DATA SCHEDULE
9 1,000 U.S. Dollars YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 1 3,367,673 27,871 179,426 1,185,688 6,760,486 1,352,091 1,423,555 31,283,192 409,297 46,904,515 27,250,122 7,971,453 1,454,207 6,466,901 0 0 819,221 2,942,611 46,904,515 2,544,658 589,656 93,000 3,227,314 881,562 1,672,602 1,554,712 149,911 3,736 1,257,549 934,902 644,557 0 0 644,557 3.81 3.80 4.02 60,066 58,842 0 0 408,808 189,411 39,789 409,297 353,620 3,702 51,975
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