-----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, L8QAg5rAiAhYRZWmj2lVkk5UcoeA2sUEtW/Mxnu44EpJzE3s6YvJv6ap9nvPB1vi Gr9UL9ZCXErttiX/+BHgAw== 0000950168-98-001611.txt : 19980515 0000950168-98-001611.hdr.sgml : 19980515 ACCESSION NUMBER: 0000950168-98-001611 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980514 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WACHOVIA CORP/ NC CENTRAL INDEX KEY: 0000774203 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 561473727 STATE OF INCORPORATION: NC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09021 FILM NUMBER: 98619896 BUSINESS ADDRESS: STREET 1: 100 N MAIN ST STREET 2: P O BOX 3099 CITY: WINSTON SALEM STATE: NC ZIP: 27150 BUSINESS PHONE: 9107705000 MAIL ADDRESS: STREET 1: 100 NORTH MAIN ST STREET 2: P O BOX 3099 CITY: WINSTON SALEM STATE: NC ZIP: 27150 FORMER COMPANY: FORMER CONFORMED NAME: FIRST WACHOVIA CORP DATE OF NAME CHANGE: 19910603 10-Q 1 WACHOVIA CORPORATION 10-Q - ---------------- 1998 Form 10-Q - -------------------------------------------------------------------------------- United States Securities and Exchange Commission Washington, DC 20549 Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended March 31, 1998 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, (336) 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 March 31, 1998, Wachovia Corporation had 206,131,388 shares of common stock outstanding. Wachovia Corporation (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Documents Incorporated by Reference - -------------------------------------------------------------------------------- Portions of the financial supplement for the quarter ended March 31, 1998 are incorporated by reference into Parts I and II as indicated in the table below. Except for parts of the Wachovia Corporation Financial Supplement expressly incorporated herein by reference, this Financial Supplement is not to be deemed filed with the Securities and Exchange Commission (SEC). Part I Financial Information Item 1 Financial Statements (unaudited) Page Selected Period-End Data 3 Common Stock Data -- Per Share 3 Consolidated Statements of Condition 26 Consolidated Statements of Income 27 Consolidated Statements of Shareholders' Equity 28 Consolidated Statements of Cash Flows 29 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 2,4-25 Item 3 Quantitative and Qualitative Disclosures about Market Risk 12-15
Part II Other Information Item 6 Exhibits and Reports on Form 8-K a) 2.1 Agreement and Plan of Merger, dated as of November 17, 1997, by and between Wachovia Corporation, The American Bank of Hollywood and Ameribank Bancshares, Inc. 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 September 30, 1997, File No. 1-9021*). 4.1 Article 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*). 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*). 4.11 Indenture between Wachovia Corporation, Wachovia Capital Trust II and First National Bank of Chicago, as Trustee, relating to Floating Rate Junior Subordinated Deferrable Interest Debentures (Junior Subordinated Debentures). (Exhibit 4 (c) of Amendment No. 1 to Form S-3 Registration Statement of Wachovia Corporation and Wachovia Capital Trust II dated January 22, 1997, File No. 333-19365.) 4.12 Amended and Restated Declaration of Trust of Wachovia Capital Trust II, relating to Preferred Securities (Exhibit 4(b) (iv) of Amendment No. 1 to Form S-3 Registration Statement of Wachovia Corporation and Wachovia Capital Trust II dated January 22, 1997, File No. 333-19365). 4.13 Preferred Securities Guarantee Agreement of Wachovia Corporation (Exhibit 4 (g) of Amendment No. 1 to Form S-3 Registration Statement of Wachovia Corporation and Wachovia Capital Trust II dated January 22, 1997, File No. 333-19365). 4.14 Indenture between Central Fidelity Banks, Inc. and Chemical Bank, as Trustee, relating to $150,000,000 principal amount of subordinated debt securities (Exhibit 4.1 to Form 8-K of Central Fidelity Banks, Inc., dated November 18, 1992, File No. 0-8829). 4.15 Indenture between Central Fidelity Banks, Inc., Central Fidelity Capital Trust I and The Bank of New York, as Trustee, relating to $100,000,000 Floating Rate Junior Subordinated Debentures (Exhibit 4.1 to Form S-3 Registration Statement of Central Fidelity Banks, Inc., dated April 23, 1997, File No. 333-28917). 4.16 Amended and Restated Declaration of Trust of Central Fidelity Capital Trust I (Exhibit 4.4 to Form S-3 Registration Statement of Central Fidelity Banks, Inc., dated April 23, 1997, File No. 333-28917). 4.17 Form of New Guarantee Agreement for the benefit of the holders of the Trust Securities (Exhibit 4.6 to Form S-3 Registration Statement of Central Fidelity Banks, Inc., dated as of April 23, 1997, File No. 333-28917). 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 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 Wachoiva 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 for 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. 1-921*). 10.6 1996 Declaration of Amendment to 1986 Senior Management Stock Option Plan as described in Exhibit 10.4 hereto (Exhibit 10.6 to Report on Form 10-K of Wachovia Corporation for the fiscal year ended December 31, 1996, File No. 1-9021*). 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 of 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 Form of Employment Agreement between Wachovia Corporation and L.M. Baker , Jr., Robert S. McCoy, Jr., G. Joseph Prendergast and Walter E. Leonard, Jr. (Exhibit 10 to Quarterly Report on Form 10-Q of Wachovia Corporation for the quarter ended March 31, 1997, File No. 1-9021*). 10.10 Form of Employment between Wachovia Corporation and Hugh M. Durden Exhibit 10.12 to Report on Form 10-K of Wachovia Corporation for the fiscal year ended December 31, 1996, File No. 1-9021*). 10.11 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*). 10.12 Amendment to Agreement between Wachovia Corporation and Mr. John G. Medlin, Jr. described in Exhibit 10.14 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*). 10.13 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*) 10.14 Amendment to Executive Retirement Agreement described in Exhibit 10.16 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*). 10.15 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*). 10.16 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*). 10.17 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*). 10.18 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*). 10.19 Amendment to Executive Retirement Agreements described in Exhibits 10.20 and 10.21 hereto (Exhibit 10.21 to Report on Form 10-K of Wachovia Corporation for the fiscal year ended December 31, 1996, File No. 1-9021*). 10.20 Senior Management and Director Stock Plan of Wachovia Corporation (Exhibit 10 to Quarterly Report on Form 10-Q of First Wachovia Corporation for the quarter ended March 31, 1989, File No. 1-9021*). 10.21 1990 Declaration of Amendment to Senior Management and Director Stock Plan as described in Exhibit 10.23 hereto (Exhibit 10.17 to Report on Form 10-K of First Wachovia Corporation for fiscal year ended December 31, 1989, File No. 1-9021*). 10-22 1996 Declaration of Amendment to Senior Management and Director Stock Plan as described in Exhibit 10.23 hereto (Exhibit 10.24 to Report on Form 10-K of Wachovia Corporation for fiscal year ended December 31, 1996, File No. 1-9021*). 10.23 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*). 10.24 Amendment to Deferred Compensation Plan described in Exhibit 10.26 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*). 10.25 Amendment to Deferred Compensation Plan described in Exhibit 10.26 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*). 10.26 Amendment to Deferred Compensation Plan described in Exhibit 10.26 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*). 10.27 Amended and Restated Wachovia Corporation Stock Plan (Exhibit 4.1 to S-8 Registration Statement No. 033-53325*). 10.28 Wachovia Corporation Director Deferred Stock Unit Plan (Exhibit 10.37 to Report on Form 10-K of Wachovia Corporation for the fiscal year ended December 31, 1996, File No. 1-9021*). 10.29 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*). 10.30 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*). 10.31 Executive Long Term Disability Income Plan. 11 Computation of Earnings per Share (Table 3 on page 6 of the first quarter 1998 financial supplement*). 12 Statement setting forth computation of ratio of earnings to fixed charges. 27 Financial Data Schedule (For SEC purposes only).
* Incorporated by reference. b) A Current Report on Form 8-K dated February 13, 1998 was filed with the Securities and Exchange Commission to publish financial results for the one-month period ended January 31, 1998. 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. WACHOVIA CORPORATION May 13, 1998 ROBERT S. McCOY, JR. May 13, 1998 DONALD K. TRUSLOW --------------------------------- ------------------ Robert S. McCoy, Jr. Donald K. Truslow Senior Executive Vice President Comptroller and Chief Financial Officer
(Wachovia Logo appears here) Financial Supplement And Form 10-Q First Quarter 1998 - --------------------------------------------------- Directors and Officers - -------------------------------------------------------------------------------- Directors of Wachovia Corporation and Wachovia Bank, N.A. L.M. Baker, Jr. Chairman, President and Chief Executive Officer James S. Balloun Chairman, President and Chief Executive Officer National Service Industries, Inc. James F. Betts Consultant and Former President USLIFE Corporation Peter C. Browning President and Chief Executive Officer Sonoco Products Company John T. Casteen III President University of Virginia John L. Clendenin Chairman Emeritus BellSouth Corporation Lawrence M. Gressette, Jr. Chairman of the Executive Committee SCANA Corporation Thomas K. Hearn, Jr. President Wake Forest University George W. Henderson III President and Chief Executive Officer Burlington Industries, Inc. W. Hayne Hipp President and Chief Executive Officer The Liberty Corporation Robert A. Ingram Chief Executive Officer Glaxo Wellcome plc Chairman, Chief Executive Officer and President Glaxo Wellcome Inc. George R. Lewis President and Chief Executive Officer Philip Morris Capital Corporation John G. Medlin, Jr. Chairman Emeritus Lloyd U. Noland, III Chairman, President and Chief Executive Officer Noland Company Sherwood H. Smith, Jr. Chairman of the Board Carolina Power & Light Company John C. Whitaker, Jr. Chairman and Chief Executive Officer Inmar Enterprises, Inc. Principal Corporate Officers of Wachovia Corporation L.M. Baker, Jr. Chairman, President and Chief Executive Officer Mickey W. Dry Senior Executive Vice President Chief Credit Officer Walter E. Leonard, Jr. Senior Executive Vice President Operations/Technology Kenneth W. McAllister Senior Executive Vice President General Counsel/Administrative Services Robert S. McCoy, Jr. Senior Executive Vice President Chief Financial Officer G. Joseph Prendergast Senior Executive Vice President General Banking - --------------------------------------------------------------- Forward-Looking Statements - -------------------------------------------------------------------------------- The Private Securities Litigation Reform Act 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. The corporation's Financial Supplement and Form 10-Q can contain forward-looking statements that involve risk and uncertainty. 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 anticipated results or other expectations expressed in any 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. 2 - -------------------------- Selected Period-End Data - --------------------------------------------------------------------------------
March 31 March 31 1998 1997 ------- ------- Banking offices: North Carolina ............................... 203 219 Virginia ..................................... 263 248 Georgia ...................................... 131 123 South Carolina ............................... 125 131 Florida ...................................... 34 -- ------- ------- Total ....................................... 756 721 ======= ======= Automated banking machines: North Carolina ............................... 437 374 Virginia ..................................... 302 228 Georgia ...................................... 288 232 South Carolina ............................... 276 224 Florida ...................................... 6 -- ------- ------- Total ....................................... 1,309 1,058 ======= ======= Employees (full-time equivalent) .............. 21,512 20,272 Common stock shareholders of record ........... 55,111 47,710 Common shares outstanding (thousands) ......... 206,131 198,476
- -------------------------------- Common Stock Data -- Per Share - -------------------------------------------------------------------------------- 1998 1997 ------ ---------------------------------------------------- First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter ------- --------- ------- ------- ------- Market value:* Period-end ........................ $ 84.81 $ 81.13 $ 72.00 $ 58.31 $ 54.50 High .............................. 85.75 83.94 72.38 66.88 64.63 Low ............................... 72.75 71.06 58.19 53.50 54.50 Book value at period-end** ......... 25.40 25.13 23.31 23.07 22.75 Dividend* .......................... .44 .44 .44 .40 .40 Price/earnings ratio*** ............ 28.9x 27.6x 17.7x 14.5x 13.9x
* Information before the fourth quarter 1997 represents that of Wachovia Corporation prior to merger with Central Fidelity Banks, Inc. ** Book value per share has been restated to reflect the merger with Central Fidelity Banks, Inc., as a pooling-of-interests. *** Based on the most recent twelve months of net income per diluted share and end of period stock price. Information for periods before the fourth quarter 1997 represents Wachovia prior to merger with Central Fidelity Banks, Inc. Excluding the after-tax impact of nonrecurring charges, the first quarter 1998 and fourth quarter 1997 price earnings ratios were 21.0x and 20.5x, respectively. - ----------------------- Financial Information - -------------------------------------------------------------------------------- Wachovia Shareholder Direct Shareholders and other interested individuals can access timely corporate information on Wachovia, such as earnings and dividend announcements, by calling 1-888-4WB-NEWS (1-888-492-6397). Internet Address The corporation's Internet address is: www.wachovia.com Investor Contact Robert S. McCoy, Jr. James C. Mabry Chief Financial Officer Senior Vice President (336) 732-5926 Investor Relations Winston-Salem, NC 27150 (336) 732-5788 Winston-Salem, NC 27150 3 Management's Discussion and Analysis of Financial Condition and Results of Operations - --------------------------- Financial Summary Table 1 - --------------------------------------------------------------------------------
Twelve Months 1998 1997 Ended --------- ---------- March 31 First Fourth 1998 Quarter Quarter ----------- --------- ---------- Summary of Operations (thousands, except per share data) Interest income .................................... $4,391,989 $ 1,147,829 $1,119,617 Interest expense ................................... 2,231,531 578,686 564,145 ----------- ----------- ----------- Net interest income ................................ 2,160,458 569,143 555,472 Provision for loan losses (1) ...................... 276,844 74,126 76,915 ----------- ----------- ----------- Net interest income after provision for loan losses ............................................ 1,883,614 495,017 478,557 Other operating revenue ............................ 1,062,622 283,723 263,258 Investment securities gains (losses) (2) ........... 3,053 3,157 (1,693) ----------- ----------- ----------- Total other income ................................. 1,065,675 286,880 261,565 Personnel expense .................................. 953,242 259,724 244,250 Nonrecurring charges (3) ........................... 323,100 35,568 287,532 Other expense ...................................... 796,027 198,957 200,636 ----------- ----------- ----------- Total other expense ................................ 2,072,369 494,249 732,418 Income before income taxes ......................... 876,920 287,648 7,704 Applicable income taxes ............................ 282,268 92,327 4,100 ----------- ----------- ----------- Net income (4) ..................................... $ 594,652 $ 195,321 $ 3,604 =========== =========== =========== Net income per common share: Basic ............................................. $ 2.99 $ .95 $ .02 Diluted (4) ....................................... $ 2.93 $ .93 $ .02 Cash dividends paid per common share (5) ........... $ 1.72 $ .44 $ .44 Cash dividends paid on common stock (6) ............ $ 339,587 $ 90,589 $ 87,045 Cash dividend payout ratio (7) ..................... 41.18% 41.52% 41.31% Average basic shares outstanding ................... 199,716 205,894 201,415 Average diluted shares outstanding ................. 203,591 210,158 205,934 Selected Average Balances (millions) Total assets ....................................... $ 59,284 $ 63,133 $ 59,835 Loans -- net of unearned income .................... 41,079 43,749 41,770 Investment securities .............................. 10,703 10,737 10,225 Other interest-earning assets ...................... 1,523 1,630 1,637 Total interest-earning assets ...................... 53,305 56,116 53,632 Interest-bearing deposits .......................... 30,470 32,455 30,706 Short-term borrowed funds .......................... 9,537 10,635 9,444 Long-term debt ..................................... 6,033 6,107 5,935 Total interest-bearing liabilities ................. 46,040 49,197 46,085 Noninterest-bearing deposits ....................... 7,090 7,240 7,484 Total deposits ..................................... 37,560 39,695 38,190 Shareholders' equity ............................... 4,689 5,109 4,884 Ratios (averages) Annualized net loan losses to loans ................ .67% .68% .73% Annualized net yield on interest-earning assets..... 4.16 4.21 4.21 Shareholders' equity to Total assets ...................................... 7.91 8.09 8.16 Net loans ......................................... 11.56 11.82 11.85 Annualized return on assets (8) .................... 1.00 1.24 .02 Annualized return on shareholders' equity (8) ........................................ 12.68 15.29 .30 1997 ------------------------------------------- Third Second First Quarter Quarter Quarter ------ ------ ------ Summary of Operations (thousands, except per share data) Interest income .................................... $ 1,072,921 $ 1,051,622 $ 1,018,225 Interest expense ................................... 549,277 539,423 515,973 ----------- ----------- ----------- Net interest income ................................ 523,644 512,199 502,252 Provision for loan losses (1) ...................... 62,756 63,047 62,231 ----------- ----------- ----------- Net interest income after provision for loan losses ............................................ 460,888 449,152 440,021 Other operating revenue ............................ 256,047 259,594 226,869 Investment securities gains (losses) (2) ........... 1,091 498 1,558 ----------- ----------- ----------- Total other income ................................. 257,138 260,092 228,427 Personnel expense .................................. 230,352 218,916 211,639 Nonrecurring charges (3) ........................... -- -- -- Other expense ...................................... 194,949 201,485 176,962 ----------- ----------- ----------- Total other expense ................................ 425,301 420,401 388,601 Income before income taxes ......................... 292,725 288,843 279,847 Applicable income taxes ............................ 93,803 92,038 86,372 ----------- ----------- ----------- Net income (4) ..................................... $ 198,922 $ 196,805 $ 193,475 =========== =========== =========== Net income per common share: Basic ............................................. $ 1.02 $ 1.00 $ .97 Diluted (4) ....................................... $ 1.00 $ .98 $ .95 Cash dividends paid per common share (5) ........... $ .44 $ .40 $ .40 Cash dividends paid on common stock (6) ............ $ 83,952 $ 78,001 $ 78,305 Cash dividend payout ratio (7) ..................... 42.20% 39.63% 40.47% Average basic shares outstanding ................... 194,981 196,676 200,110 Average diluted shares outstanding ................. 198,555 199,819 203,307 Selected Average Balances (millions) Total assets ....................................... $ 57,183 $ 57,044 $ 56,333 Loans -- net of unearned income .................... 39,731 39,100 38,223 Investment securities .............................. 10,724 11,129 11,370 Other interest-earning assets ...................... 1,457 1,370 1,316 Total interest-earning assets ...................... 51,912 51,599 50,909 Interest-bearing deposits .......................... 29,300 29,450 28,857 Short-term borrowed funds .......................... 9,172 8,917 8,403 Long-term debt ..................................... 6,031 6,063 6,465 Total interest-bearing liabilities ................. 44,503 44,430 43,725 Noninterest-bearing deposits ....................... 6,843 6,789 6,612 Total deposits ..................................... 36,143 36,239 35,469 Shareholders' equity ............................... 4,391 4,376 4,479 Ratios (averages) Annualized net loan losses to loans ................ .63% .64% .65% Annualized net yield on interest-earning assets..... 4.12 4.10 4.13 Shareholders' equity to Total assets ...................................... 7.68 7.67 7.95 Net loans ......................................... 11.20 11.34 11.88 Annualized return on assets (8) .................... 1.39 1.38 1.37 Annualized return on shareholders' equity (8) ........................................ 18.12 17.99 17.28
(1) Includes $10,845 in nonrecurring merger-related provision in the twelve months ended March 31, 1998 and in the 1997 fourth quarter. (2) Includes $4,639 of nonrecurring losses to restructure the available-for-sale portfolio in the twelve months ended March 31, 1998 and in 1997 fourth quarter. (3) Nonrecurring charges in the twelve months ended March 31, 1998 include merger-related items of $255,898 and personal computer charges of $67,202. Nonrecurring charges in the 1998 first quarter include merger-related items of $35,568. Nonrecurring charges in the 1997 fourth quarter include merger-related charges of $220,330 and personal computer impairment charge of $67,202. (4) Net income excluding nonrecurring items was $824,622 in the twelve months ended March 31, 1998, $218,168 in the 1998 first quarter and $210,727 in the 1997 fourth quarter. Net income per diluted share excluding nonrecurring items was $4.04 in the twelve months ended March 31, 1998, $1.04 in the 1998 first quarter and $1.02 in the 1997 fourth quarter. (5) Cash dividends per common share are those of Wachovia Corporation prior to the merger with Central Fidelity Banks, Inc. (6) Includes amounts of pooled companies. (7) Includes amounts of pooled companies and excludes the after-tax impact of nonrecurring charges. Cash dividend payout ratio including nonrecurring items was 57.11% in the twelve months ended March 31, 1998, 46.38% in the 1998 first quarter and 2415.23% in the 1997 fourth quarter. (8) Excluding the after-tax impact of nonrecurring charges of $229,970 in the twelve months ended March 31, 1998, annualized returns were 1.39% on assets and 17.59% on shareholders' equity. Excluding the after-tax impact of nonrecurring charges of $22,847 in the 1998 first quarter, annualized returns were 1.38% on assets and 17.08% on shareholders' equity. Excluding the after-tax impact of nonrecurring charges of $207,123 in the 1997 fourth quarter, annualized returns were 1.41% on assets and 17.26% on shareholders' equity. 4 -------------------------- Results of Operations ----------------------------------------------------------------- Overview Wachovia Corporation ("Wachovia") is a southeastern interstate bank holding company with dual head quarters in Atlanta, Georgia, and Winston-Salem, North Carolina. The corporation's principal banking subsidiaries are Wachovia Bank, N. A., which maintains operations in Georgia, North Carolina, South Carolina and Virginia; First National Bank of Atlanta, which provides credit card services; and 1st United Bank, which operates in Florida. On March 20, 1998, Central Fidelity National Bank and Jefferson National Bank were merged into Wachovia Bank, N. A. On April 1, 1998, Wachovia Corporation acquired Ameribank Bancshares, Inc., a $280 million asset Florida bank holding company and parent of American Bank of Hollywood, Florida. The acquisition was accounted for as a purchase transaction. Subsequent to the acquisition, American Bank was merged into 1st United Bank, which became a subsidiary of Wachovia Corporation on November 11, 1997. It is anticipated that 1st United Bank will be merged into Wachovia Bank, N. A., in late summer 1998. The corporation regularly evaluates acquisition opportunities and conducts due diligence activities in connection with possible acquisitions. As a result, acquisition discussions and, in some cases, negotiations may take place and future acquisitions involving cash, debt or equity securities may occur. Acquisitions typically involve the payment of a premium over book values, and, therefore, some dilution of the corporation's book value and net income per share may occur in connection with any future transactions. Economic growth in the U.S. continued at a moderately strong pace in the first quarter of 1998, with gross domestic product up an annualized 4.2 percent from the preceding three months based on advance estimates. Seasonally adjusted unemployment for the nation remained unchanged from the fourth quarter of 1997 at 4.7 percent. Within Wachovia's primary operating states, economic conditions for the period were good. Seasonally adjusted unemployment averaged 4.7 percent in Florida, 4.1 percent in Georgia, 3.7 percent in North Carolina, 3.2 percent in South Carolina and 3.3 percent in Virginia. Wachovia's net income for the first quarter of 1998 was $195.321 million or $.93 per diluted share compared with $193.475 million or $.95 per diluted share a year earlier. Results for the quarter included $35.568 million, pretax, in previously announced merger-related charges, taken primarily for systems conversions and signage changes in Virginia. The net impact of the charges was $22.847 million, after-tax, or $.11 per diluted share. On an operating basis, excluding the merger-related charges, net income for the first quarter of 1998 totaled $218.168 million or $1.04 per diluted share. Remaining integration charges of between $15 million to $20 million, pretax, are expected to be taken later in 1998, primarily in the second quarter of the year. Expanded discussion of operating results and the corporation's financial condition is presented in the following narrative with accompanying tables. Interest income is stated on a taxable equivalent basis, which is adjusted for the tax-favored status of earnings from certain loans and investments. References to changes in assets and liabilities represent daily average levels unless otherwise noted. Prior year financial results have been restated to reflect the corporation's pooling-of-interests merger with Central Fidelity Banks, Inc., effective December 15, 1997 but have not been restated for the corporation's purchase acquisitions of Jefferson Bankshares, Inc., and 1st United Bancorp in the fourth quarter of 1997. 5 - ------------------------------------------------- Components of Earnings Per Basic Share Table 2 - --------------------------------------------------------------------------------
1998 1997 First First Quarter Quarter Change ------- ------- ---- Interest income ............................................. $ 5.57 $ 5.09 $ .48 Interest expense ............................................ 2.81 2.58 .23 -------- -------- ------ Net interest income ......................................... 2.76 2.51 .25 Provision for loan losses ................................... .36 .31 .05 -------- -------- ------ Net interest income after provision for loan losses ......... 2.40 2.20 .20 Other operating revenue ..................................... 1.38 1.13 .25 Investment securities gains ................................. .02 .01 .01 -------- -------- ------ Total other income .......................................... 1.40 1.14 .26 Personnel expense ........................................... 1.26 1.06 .20 Merger-related charges ...................................... .17 -- .17 Other expense ............................................... .97 .88 .09 -------- -------- ------ Total other expense ......................................... 2.40 1.94 .46 Income before income taxes .................................. 1.40 1.40 -- Applicable income taxes ..................................... .45 .43 .02 -------- -------- ------ Net income .................................................. $ .95 $ .97 ($ .02) ======== ======== ======
- ---------------------------------------------------- Computation of Earnings Per Common Share Table 3 - -------------------------------------------------------------------------------- (thousands, except per share)
Three Months Three Months Ended Ended March 31 March 31 1998 1997 -------- -------- Basic Average common shares outstanding .............................. 205,894 200,110 ======== ======== Net income ..................................................... $195,321 $193,475 ======== ======== Per share amount ............................................... $ .95 $ .97 Diluted Average common shares outstanding .............................. 205,894 200,110 Dilutive common stock options at average market price .......... 3,987 3,019 Dilutive common stock awards at average market price ........... 272 169 Convertible long-term debt assumed converted ................... 5 9 -------- -------- Average diluted shares outstanding ............................. 210,158 203,307 ======== ======== Net income ..................................................... $195,321 $193,475 Add interest on convertible long-term debt, net of tax ......... 1 2 -------- -------- Adjusted net income ............................................ $195,322 $193,477 ======== ======== Per share amount ............................................... $ .93 $ .95
6 Net Interest Taxable equivalent net interest income for the first quarter of Income 1998 increased $62.876 million or 12.1 percent from the same period a year earlier. The gain reflected strong loan growth and a higher average earning yield, with the corporation benefiting also from continued balance sheet management efforts. Compared with the fourth quarter of 1997, taxable equivalent net interest income was up $12.271 million or 2.2 percent, due to continued good loan demand and a lower average rate paid on interest-bearing liabilities. The net yield on interest-earning assets (taxable equivalent net interest income as a percentage of average interest-earning assets) improved 8 basis points from a year earlier to 4.21 percent and was unchanged from the fourth quarter. Taxable equivalent interest income for the quarter rose $125.589 million or 12.1 percent year over year, the result of solid loan expansion and a higher average rate earned on interest-earning assets. Loans advanced $5.526 billion or 14.5 percent, paced primarily by the commercial sector, and represented 78.1 percent of total interest-earning assets compared with 75.2 percent in the same three months of 1997. The average rate earned on interest-earning assets rose 15 basis points to 8.40 percent, with the average loan yield increasing 11 basis points. Taxable equivalent interest income grew $26.812 million or 2.4 percent from the fourth quarter of 1997, due principally to a higher level of interest-earning assets. Loans increased $1.979 billion or 4.7 percent, driven largely by taxable commercial loans and commercial real estate. Commercial loans, including related real estate categories, grew $4.485 billion or 21.5 percent year over year. Gains were led by taxable commercial loans, which increased $3.037 billion or 28.7 percent; commercial mortgages, up $973 million or 16.8 percent; and construction loans, which expanded $540 million or 41.2 percent. Based on regulatory definitions, commercial real estate loans were $8.699 billion or 19.5 percent of total loans at March 31, 1998 compared with $7.207 billion or 18.3 percent one year earlier and with $8.570 billion or 19.4 percent at year-end 1997. 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. Good growth also occurred in foreign loans and in lease financing, which primarily consists of commercial leases and other structured corporate transactions. The corporation's foreign loan exposure at March 31, 1998 was $548 million, representing 1.2 percent of total loans outstanding. Tax-exempt loans declined for the period, reflecting paydowns in employee stock ownership plan loans and the reduced availability of tax-exempt borrowing and lending at attractive rates under current tax laws. Consumer loans, including residential mortgages, were higher by $1.041 billion or 6 percent, with gains occurring primarily in residential mortgages and credit cards. Residential mortgages increased $844 million or 11.8 percent, reflecting growth in home equity loans and in adjustable rate mortgages, while credit cards were up $170 million or 3.1 percent. At March 31, 1998, the corporation's managed credit card portfolio, which includes securitized loans, was $6.103 billion, representing 13.6 percent of total managed loans. This compared with $6.180 billion in managed credit card outstandings, representing 15.5 percent of total managed loans one year earlier and with $6.419 billion or 14.4 percent at year-end 1997. Managed credit card amounts included $500 million of securitized loans at March 31, 1998, $615 million one year earlier and $500 million at December 31, 1997. Additional information on the corporation's managed credit card portfolio is presented on page 17. 7 - --------------------------------------------------- Net Interest Income and Average Balances Table 4 - --------------------------------------------------------------------------------
Twelve Months 1998 Ended ------ March 31 First 1998 Quarter ----------- ---------- Net Interest Income -- Taxable Equivalent (thousands) Interest income: Loans ......................................... $3,622,311 $ 952,282 Investment securities ......................... 739,817 185,655 Interest-bearing bank balances ................ 7,782 3,228 Federal funds sold and securities purchased under resale agreements ............ 24,726 5,285 Trading account assets ........................ 51,231 13,130 ----------- ------------ Total ...................................... 4,445,867 1,159,580 Interest expense: Interest-bearing demand ....................... 65,979 16,751 Savings and money market savings .............. 422,416 111,133 Savings certificates .......................... 585,802 146,030 Large denomination certificates ............... 157,803 34,117 Time deposits in foreign offices .............. 106,161 36,210 Short-term borrowed funds ..................... 510,092 138,892 Long-term debt ................................ 383,277 95,553 ----------- ------------ Total ...................................... 2,231,530 578,686 ----------- ------------ Net interest income ............................ $2,214,337 $ 580,894 =========== ============ Annualized net yield on interest-earning assets ....................... 4.16% 4.21% Average Balances (millions) Assets: Loans -- net of unearned income ............... $ 41,079 $ 43,749 Investment securities ......................... 10,624 10,623 Interest-bearing bank balances ................ 123 189 Federal funds sold and securities purchased under resale agreements ............ 436 374 Trading account assets ........................ 964 1,067 ----------- ------------ Total interest-earning assets .............. 53,226 56,002 Cash and due from banks ....................... 3,035 3,340 Premises and equipment ........................ 810 819 Other assets .................................. 2,661 3,396 Unrealized gains on securities available-for-sale ........................... 79 114 Allowance for loan losses ..................... (527) (538) ----------- ------------ Total assets ............................... $ 59,284 $ 63,133 =========== ============ Liabilities and shareholders' equity: Interest-bearing demand ....................... $ 4,594 $ 5,984 Savings and money market savings .............. 10,637 10,334 Savings certificates .......................... 10,544 11,044 Large denomination certificates ............... 2,786 2,449 Time deposits in foreign offices .............. 1,909 2,644 Short-term borrowed funds ..................... 9,537 10,635 Long-term debt ................................ 6,033 6,107 ----------- ------------ Total interest-bearing liabilities ......... 46,040 49,197 Demand deposits in domestic offices ........... 7,077 7,234 Demand deposits in foreign offices ............ 1 1 Noninterest-bearing deposits in domestic offices ............................. 12 5 Other liabilities ............................. 1,465 1,587 Shareholders' equity .......................... 4,689 5,109 ----------- ------------ Total liabilities and shareholders' equity ...................... $ 59,284 $ 63,133 =========== ============ Total deposits ................................. $ 37,560 $ 39,695 1997 --------------------------------------------------------- Fourth Third Second First Quarter Quarter Quarter Quarter --------- ------ ------ ------ Net Interest Income -- Taxable Equivalent (thousands) Interest income: Loans ......................................... $ 930,055 $ 883,318 $ 856,656 $ 821,962 Investment securities ......................... 179,283 183,759 191,120 194,924 Interest-bearing bank balances ................ 1,920 1,816 818 675 Federal funds sold and securities purchased under resale agreements ............ 8,542 5,980 4,919 2,878 Trading account assets ........................ 12,968 12,063 13,070 13,552 ------------- ------------ ------------ ------------ Total ...................................... 1,132,768 1,086,936 1,066,583 1,033,991 Interest expense: Interest-bearing demand ....................... 17,333 16,009 15,886 15,021 Savings and money market savings .............. 108,682 102,930 99,671 94,161 Savings certificates .......................... 150,959 145,163 143,650 142,372 Large denomination certificates ............... 40,830 39,806 43,050 40,705 Time deposits in foreign offices .............. 23,778 23,825 22,348 17,370 Short-term borrowed funds ..................... 127,304 125,115 118,781 106,961 Long-term debt ................................ 95,259 96,428 96,037 99,383 ------------- ------------ ------------ ------------ Total ...................................... 564,145 549,276 539,423 515,973 ------------- ------------ ------------ ------------ Net interest income ............................ $ 568,623 $ 537,660 $ 527,160 $ 518,018 ============= ============ ============ ============ Annualized net yield on interest-earning assets ....................... 4.21% 4.12% 4.10% 4.13% Average Balances (millions) Assets: Loans -- net of unearned income ............... $ 41,770 $ 39,731 $ 39,100 $ 38,223 Investment securities ......................... 10,126 10,649 11,102 11,310 Interest-bearing bank balances ................ 116 126 62 50 Federal funds sold and securities purchased under resale agreements ............ 594 423 352 215 Trading account assets ........................ 927 908 956 1,051 ------------- ------------ ------------ ------------ Total interest-earning assets .............. 53,533 51,837 51,572 50,849 Cash and due from banks ....................... 3,165 2,797 2,844 2,808 Premises and equipment ........................ 844 790 788 791 Other assets .................................. 2,733 2,206 2,321 2,336 Unrealized gains on securities available-for-sale ........................... 99 76 28 61 Allowance for loan losses ..................... (539) (523) (509) (512) ------------- ------------ ------------ ------------ Total assets ............................... $ 59,835 $ 57,183 $ 57,044 $ 56,333 ============= ============ ============ ============ Liabilities and shareholders' equity: Interest-bearing demand ....................... $ 4,368 $ 4,000 $ 4,047 $ 4,017 Savings and money market savings .............. 11,189 10,603 10,413 10,163 Savings certificates .......................... 10,676 10,207 10,258 10,316 Large denomination certificates ............... 2,816 2,776 3,099 3,029 Time deposits in foreign offices .............. 1,657 1,714 1,633 1,332 Short-term borrowed funds ..................... 9,444 9,172 8,917 8,403 Long-term debt ................................ 5,935 6,031 6,063 6,465 ------------- ------------ ------------ ------------ Total interest-bearing liabilities ......... 46,085 44,503 44,430 43,725 Demand deposits in domestic offices ........... 7,469 6,829 6,776 6,601 Demand deposits in foreign offices ............ 1 -- -- -- Noninterest-bearing deposits in domestic offices ............................. 14 14 13 11 Other liabilities ............................. 1,382 1,446 1,449 1,517 Shareholders' equity .......................... 4,884 4,391 4,376 4,479 ------------- ------------ ------------ ------------ Total liabilities and shareholders' equity ...................... $ 59,835 $ 57,183 $ 57,044 $ 56,333 ============= ============ ============ ============ Total deposits ................................. $ 38,190 $ 36,143 $ 36,239 $ 35,469
8 Loans outstanding at March 31, 1998 and the preceding four quarters are presented in the following table.
March 31 Dec. 31 Sept. 30 June 30 March 31 $ in thousands 1998 1997 1997 1997 1997 ----------- ----------- ----------- ----------- ----------- Commercial ................. $14,519,889 $13,528,344 $12,133,710 $11,838,009 $11,620,696 Tax-exempt ................. 1,379,660 1,607,159 1,695,993 1,848,958 1,830,264 ----------- ----------- ----------- ----------- ----------- Total commercial ........... 15,899,549 15,135,503 13,829,703 13,686,967 13,450,960 Direct retail .............. 1,160,162 1,249,612 1,161,279 1,177,404 1,174,380 Indirect retail ............ 3,038,397 3,028,288 2,879,128 2,905,645 3,013,780 Credit card ................ 5,603,381 5,919,098 5,693,563 5,587,343 5,565,152 Other revolving credit ..... 485,093 459,563 422,389 418,214 419,095 ----------- ----------- ----------- ----------- ----------- Total retail ............... 10,287,033 10,656,561 10,156,359 10,088,606 10,172,407 Construction ............... 1,873,528 1,779,522 1,553,500 1,534,364 1,357,319 Commercial mortgages ....... 6,824,990 6,790,446 6,098,647 6,022,473 5,849,521 Residential mortgages ...... 7,959,185 8,098,794 7,563,967 7,357,546 7,186,219 ----------- ----------- ----------- ----------- ----------- Total real estate .......... 16,657,703 16,668,762 15,216,114 14,914,383 14,393,059 Lease financing ............ 1,105,555 1,094,169 1,049,269 1,013,115 849,408 Foreign .................... 548,441 639,387 496,164 497,905 516,891 ----------- ----------- ----------- ----------- ----------- Total loans ................ $44,498,281 $44,194,382 $40,747,609 $40,200,976 $39,382,725 =========== =========== =========== =========== ===========
Investment securities, the second largest category of interest-earning assets, decreased $687 million or 6.1 percent year over year but were up $497 million or 4.9 percent from the fourth quarter. The decline from a year earlier reflected runoff in the available-for-sale portfolio, and the company anticipates additional runoff of investment securities throughout 1998 as part of the corporation's balance sheet management efforts. At March 31, 1998, available-for-sale securities were $9.871 billion and held-to-maturity securities were $1.376 billion, as shown in the following table.
$ in thousands Securities available-for-sale at fair value: U.S. Government and agency ......................... $ 4,436,446 Mortgage-backed securities ......................... 4,685,716 Other .............................................. 749,087 ----------- Total securities available-for-sale ........ 9,871,249 Securities held-to-maturity: U.S. Government and agency ......................... 157,694 Mortgage-backed securities ......................... 904,090 State and municipal ................................ 199,663 Other .............................................. 114,512 ----------- Total securities held-to-maturity ............ 1,375,959 ----------- Total investment securities .................. $11,247,208 ===========
Securities held-to-maturity had a fair value of $1.440 billion at March 31, 1998, representing a $64 mil lion appreciation over book value. Marking the available-for-sale securities portfolio at March 31, 1998 to fair value resulted in an unrealized gain over amortized cost of $104.220 million, pretax, and $63.849 million, net of tax. Marking the average available-for-sale securities to fair value resulted in an unrealized gain over amortized cost of $113.970 million, pretax, and $70.913 million, net of tax, for the quarter. The unrealized gain is included, net of tax, in shareholders' equity. Interest expense for the period rose $62.713 million or 12.2 percent year over year. Interest-bearing liabilities were up $5.472 billion or 12.5 percent, accounting for the increase which was offset slightly by a decline of 2 basis points in the average rate paid. Compared with the fourth quarter of 1997, interest 9 expense was up $14.541 million or 2.6 percent, reflecting higher levels of interest-bearing liabilities, primarily deposits and short-term borrowings. Interest-bearing liabilities rose $3.112 billion or 6.8 percent from the fourth quarter, while the average rate paid decreased 9 basis points muting the growth in interest expense. As part of its funding strategy, the corporation is innovatively marketing traditional funding products while issuing a variety of debt instruments. Traditional funding sources are being broadened through marketing of the corporation's Premiere and Business Premiere accounts, both of which are high-yield money market deposit products; the introduction of PC Banking; and significant enhancements to the corporation's basic checking products. Wholesale funding sources include senior debt, trust capital securities and a global bank note program. Management believes continued flexibility and innovation will be required of financial institutions to attract future funding through deposit products and alternative sources. Interest-bearing deposits grew $3.598 billion or 12.5 percent year over year. Growth occurred primarily in demand deposits, which increased $1.967 billion or 49 percent, and in savings certificates, up $728 million or 7.1 percent. Reflecting their attractiveness relative to alternative wholesale funding sources, foreign deposits were increased sharply for the period, while large denomination certificates were reduced. Interest-bearing deposits were higher by $1.749 billion or 5.7 percent from the fourth quarter of 1997, driven by continued growth in demand deposits and savings certificates as well as by increases made in foreign deposits. Total gross deposits averaged $39.695 billion for the quarter, up $4.226 billion or 11.9 percent from $35.469 billion a year earlier. Collected deposits, net of float, averaged $37.423 billion for the first three months of 1998, an increase of $3.877 billion or 11.6 percent from $33.546 billion in the same period of 1997. Short-term borrowings rose $2.232 billion or 26.6 percent from the year-earlier quarter and were higher by $1.191 billion or 12.6 percent from the preceding three months. Growth from both periods was led by other short-term borrowings, which primarily consists of short-term bank notes, with all categories of short-term borrowings increasing both year over year and from the preceding quarter. Long-term debt, consisting of medium-term bank notes and other long-term debt, decreased $358 million or 5.5 percent year over year but was up $172 million or a modest 2.9 percent from the fourth quarter of 1997. Lower levels of medium-term bank notes accounted for the decline from the year-earlier period, which was partially offset by growth in other long-term debt, primarily in trust capital securities. Other long-term debt at March 31, 1998 included a total of $996 million of trust capital securities issued in December 1996, and in January, April and June 1997. The trust capital securities qualify as part of Tier I capital under risk-based capital guidelines and are rated Aa3 by Moody's and A+ by Standard & Poor's. 10 - ---------------------------------------------------------------------------- Taxable Equivalent Rate/Volume Variance Analysis -- First Quarter* Table 5 - -------------------------------------------------------------------------------- + (Millions) ++ (Thousands)
Average Volume+ Average Rate - ----------------------- ------------------- 1998 1997 1998 1997 - --------- ------- ------- ---- Interest Income Loans: $13,602 $10,565 7.22 7.24 Commercial ..................................... 1,455 1,857 8.57 9.03 Tax-exempt ..................................... - ----------- -------- 15,057 12,422 7.35 7.50 Total commercial ............................... 1,209 1,192 9.18 8.96 Direct retail .................................. 3,033 3,066 8.58 8.71 Indirect retail ................................ 5,743 5,573 13.43 12.61 Credit card .................................... 465 422 10.05 12.25 Other revolving credit ......................... - ----------- -------- 10,450 10,253 11.38 11.00 Total retail ................................... 1,851 1,311 9.16 9.53 Construction ................................... 6,771 5,798 8.83 8.18 Commercial mortgages ........................... 7,976 7,132 8.15 7.95 Residential mortgages .......................... - ----------- -------- 16,598 14,241 8.54 8.19 Total real estate .............................. 1,095 840 9.77 8.97 Lease financing ................................ 549 467 7.42 6.88 Foreign ........................................ - ----------- -------- 43,749 38,223 8.83 8.72 Total loans .................................... Investment securities: Held-to-maturity: 160 -- 6.33 -- U.S. Government and agency ..................... 917 1,105 8.32 8.08 Mortgage-backed securities ..................... 208 236 10.81 12.42 State and municipal ............................ 118 2 6.68 12.98 Other .......................................... - ----------- -------- 1,403 1,343 8.32 8.85 Total securities held-to-maturity .............. Available-for-sale:** 4,464 5,466 6.84 6.67 U.S. Government and agency ..................... 4,023 3,332 6.90 6.92 Mortgage-backed securities ..................... 733 1,169 7.29 6.54 Other .......................................... - ----------- -------- 9,220 9,967 6.90 6.74 Total securities available-for-sale ............ - ----------- -------- 10,623 11,310 7.09 6.99 Total investment securities .................... 189 50 6.92 5.46 Interest-bearing bank balances ................. Federal funds sold and securities purchased 374 215 5.74 5.43 under resale agreements ........................ 1,067 1,051 4.99 5.23 Trading account assets ......................... - ----------- -------- $56,002 $50,849 8.40 8.25 Total interest-earning assets .................. =========== ======== Interest Expense $ 5,984 $ 4,017 1.14 1.52 Interest-bearing demand ........................ 10,334 10,163 4.36 3.76 Savings and money market savings ............... 11,044 10,316 5.36 5.60 Savings certificates ........................... 2,449 3,029 5.65 5.45 Large denomination certificates ................ - ----------- -------- Total interest-bearing deposits in 29,811 27,525 4.19 4.31 domestic offices ............................... 2,644 1,332 5.55 5.29 Time deposits in foreign offices ............... - ----------- -------- 32,455 28,857 4.30 4.35 Total interest-bearing deposits ................ Federal funds purchased and securities sold 7,575 6,738 5.35 5.16 under repurchase agreements .................... 1,046 680 5.14 4.88 Commercial paper ............................... 2,014 985 5.17 5.39 Other short-term borrowed funds ................ - ----------- -------- 10,635 8,403 5.30 5.16 Total short-term borrowed funds................. 2,975 3,558 6.43 6.03 Bank notes ..................................... 3,132 2,907 6.27 6.48 Other long-term debt ........................... - ----------- -------- 6,107 6,465 6.35 6.23 Total long-term debt ........................... - ----------- -------- $49,197 $43,725 4.77 4.79 Total interest-bearing liabilities ............. =========== ======== -------- ----- 3.63 3.46 Interest rate spread ======== ===== Net yield on interest-earning assets and net 4.21 4.13 interest income ................................ ======== ===== Variance Interest Attributable to -------------------------- ------------------------------------ 1998 1997 Variance++ Rate Volume ------------ ------------ ---------- ---------- ---------- Interest Income Loans: Commercial ..................................... $ 242,308 $ 188,491 $ 53,817 $ (520) $ 54,337 Tax-exempt ..................................... 30,764 41,359 (10,595) (2,018) (8,577) ------------ ------------ ---------- Total commercial ............................... 273,072 229,850 43,222 (4,677) 47,899 Direct retail .................................. 27,361 26,325 1,036 663 373 Indirect retail ................................ 64,190 65,836 (1,646) (954) (692) Credit card .................................... 190,228 173,229 16,999 11,577 5,422 Other revolving credit ......................... 11,527 12,740 (1,213) (2,435) 1,222 ------------ ------------ ---------- Total retail ................................... 293,306 278,130 15,176 9,764 5,412 Construction ................................... 41,809 30,804 11,005 (1,237) 12,242 Commercial mortgages ........................... 147,402 116,910 30,492 9,798 20,694 Residential mortgages .......................... 160,275 139,763 20,512 3,595 16,917 ------------ ------------ ---------- Total real estate .............................. 349,486 287,477 62,009 12,728 49,281 Lease financing ................................ 26,370 18,567 7,803 1,771 6,032 Foreign ........................................ 10,048 7,938 2,110 653 1,457 ------------ ------------ ---------- Total loans .................................... 952,282 821,962 130,320 10,457 119,863 Investment securities: Held-to-maturity: U.S. Government and agency ..................... 2,489 -- 2,489 -- 2,489 Mortgage-backed securities ..................... 18,815 22,012 (3,197) 637 (3,834) State and municipal ............................ 5,557 7,231 (1,674) (881) (793) Other .......................................... 1,937 61 1,876 (44) 1,920 ------------ ------------ ---------- Total securities held-to-maturity .............. 28,798 29,304 (506) (1,791) 1,285 Available-for-sale:** U.S. Government and agency ..................... 75,264 89,944 (14,680) 2,233 (16,913) Mortgage-backed securities ..................... 68,414 56,810 11,604 (164) 11,768 Other .......................................... 13,179 18,866 (5,687) 1,970 (7,657) ------------ ------------ ---------- Total securities available-for-sale ............. 156,857 165,620 (8,763) 3,861 (12,624) ------------ ------------ ---------- Total investment securities ..................... 185,655 194,924 (9,269) 2,744 (12,013) Interest-bearing bank balances .................. 3,228 675 2,553 224 2,329 Federal funds sold and securities purchased under resale agreements ......................... 5,285 2,878 2,407 173 2,234 Trading account assets .......................... 13,130 13,552 (422) (619) 197 ------------ ------------ ---------- Total interest-earning assets ................... 1,159,580 1,033,991 125,589 19,111 106,478 Interest Expense Interest-bearing demand ........................ 16,751 15,021 1,730 (4,395) 6,125 Savings and money market savings ............... 111,133 94,161 16,972 15,356 1,616 Savings certificates ........................... 146,030 142,372 3,658 (6,209) 9,867 Large denomination certificates ................ 34,117 40,705 (6,588) 1,447 (8,035) ------------ ------------ ---------- Total interest-bearing deposits in domestic offices ............................... 308,031 292,259 15,772 (8,234) 24,006 Time deposits in foreign offices ............... 36,210 17,370 18,840 896 17,944 ------------ ------------ ---------- Total interest-bearing deposits ................ 344,241 309,629 34,612 (3,594) 38,206 Federal funds purchased and securities sold under repurchase agreements .................... 99,963 85,686 14,277 3,266 11,011 Commercial paper ............................... 13,274 8,184 5,090 458 4,632 Other short-term borrowed funds ................ 25,655 13,091 12,564 (556) 13,120 ------------ ------------ ---------- Total short-term borrowed funds................. 138,892 106,961 31,931 2,958 28,973 Bank notes ..................................... 47,142 52,905 (5,763) 3,335 (9,098) Other long-term debt ........................... 48,411 46,478 1,933 (1,549) 3,482 ------------ ------------ ---------- Total long-term debt ........................... 95,553 99,383 (3,830) 1,854 (5,684) ------------ ------------ ---------- Total interest-bearing liabilities ............. 578,686 515,973 62,713 (2,146) 64,859 ------------ ------------ ---------- Interest rate spread Net yield on interest-earning assets and net interest income ................................ $ 580,894 $ 518,018 $ 62,876 10,086 52,790 ============ ============ ========== * 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 $114 million in 1998 and $60 million in 1997.
11 Wachovia Bank has an ongoing $16 billion global bank note program consisting of issues with original maturities beginning at 7 days. 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. The bank note program will be replaced by a new $18 billion global bank note program authorized by the corporation's board of directors at its meeting on April 24, 1998. The new global bank note program is expected to become effective in the second quarter of 1998. At March 31, 1998, short-term bank notes were $1.122 billion with an average cost of 5.53 percent and an average maturity of 3 months. Medium-term bank notes totaled $3.010 billion and had an average cost of 6.03 percent and an average maturity of 2.6 years. Short-term issues under the global bank note program are rated P-1 by Moody's and A-1+ by Standard & Poor's, while medium-term issues are rated Aa2 by Moody's and AA+ by Standard & Poor's. Asset and The income stream of the corporation is subject to risk Liability resulting from interest rate fluctuations to the extent there is a Management, difference between the amount of the corporation's interest- Interest earning assets and the amount of interest-bearing liabilities that Rate are prepaid, withdrawn, mature or reprice in specified periods. Sensitivity The goal of asset and liability management is to maintain high and quality and consistent growth of net interest income with Liquidity acceptable levels of risk to changes in interest rates. The Management corporation seeks to meet this goal by influManagement encing 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 the 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 management 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. 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 model projections are based upon historical trends and management's expectations of balance sheet growth patterns, spreads to market rates, and prepayment behavior for assets and liabilities. The Management Finance Committee regularly reviews the assumptions used in the model. 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. The corporation policy limit for the maximum negative impact on net 12 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 March 31, 1998, the model indicated the impact of a 200 basis point gradual rise in rates over 12 months would approximate a .9 percent decrease in net interest income, while a 200 basis point decline in rates over the same period would approximate a .5 percent increase from an unchanged rate environment. Actual results will differ from simulated results due to timing, magnitude and frequency of interest rate changes and changes in market conditions and management strategies, among other factors. The corporation maintains trading accounts primarily to facilitate customer investment and risk management needs. The market risk inherent in these portfolios was immaterial at March 31, 1998. In addition to on-balance sheet instruments such as investment securities and purchased funds, the corporation uses off-balance sheet derivative instruments to manage interest rate risk, liquidity and net interest income. Off-balance sheet instruments include interest rate swaps, futures and options with indices that directly correlate to on-balance sheet instruments. The corporation has used off-balance sheet financial instruments, principally interest rate swaps, over a number of years and believes their use on a sound basis enhances the effectiveness of asset and liability and interest rate sensitivity management. Off-balance sheet asset and liability derivative transactions are based on referenced or notional amounts. At March 31, 1998, the corporation had $2.768 billion notional amount of derivatives outstanding for asset and liability management purposes. 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 $79 million at March 31, 1998. The fair value of all asset and liability derivative 13 positions for which counterparties were exposed to the corporation amounted to $12 million on the same date. Fair value details and additional asset and liability derivative information are included in the following tables. Estimated Fair Value of Asset and Liability Management Derivatives by Purpose -----------------------------------------------------------------
March 31, 1998 ---------------------------------------------------- Net Net Fair Fair Fair Fair Value Notional Value Value Gains $ in millions Value Gains (Losses) (Losses) ---------- ------ --------- ----------- Convert floating rate liabilities to fixed: Swaps -- pay fixed/receive floating .............................. $ 451 $ 1 $ (3) $ (2) Convert fixed rate assets to floating: Swaps -- pay fixed/receive floating .............................. 333 -- (9) (9) Forward starting swaps -- pay fixed/receive floating ............ -- -- -- -- Convert fixed rate liabilities to floating: Swaps -- receive fixed/pay floating .............................. 1,375 71 -- 71 Convert term liabilities with quarterly rate resets to monthly: Swaps -- receive floating/pay floating .............................. 300 -- -- -- Convert floating rate assets to fixed: Swaps -- receive fixed/pay floating .............................. 309 7 -- 7 Index amortizing swaps -- receive fixed/pay floating ............ -- -- -- -- --------- ----- ----------- ----------- Total derivatives ........... $ 2,768 $ 79 $ (12) $ 67 ========= ===== =========== =========== March 31, 1997 ------------------------------------------- Net Fair Fair Fair Value Notional Value Value Gains $ in millions Value Gains (Losses) (Losses) -------- ----- -------- -------- Convert floating rate liabilities to fixed: Swaps -- pay fixed/receive floating .............................. $ 214 $ 2 $ (2) $ -- Convert fixed rate assets to floating: Swaps -- pay fixed/receive floating .............................. 368 -- (4) (4) Forward starting swaps -- pay fixed/receive floating ............ 18 -- (1) (1) Convert fixed rate liabilities to floating: Swaps -- receive fixed/pay floating .............................. 1,100 2 (19) (17) Convert term liabilities with quarterly rate resets to monthly: Swaps -- receive floating/pay floating .............................. 300 -- -- -- Convert floating rate assets to fixed: Swaps -- receive fixed/pay floating .............................. 310 -- (1) (1) Index amortizing swaps -- receive fixed/pay floating ............ 250 3 -- 3 --------- ----- ----------- ----------- Total derivatives ........... $ 2,560 $ 7 $ (27) $ (20) ========= ===== =========== ===========
Maturity Schedule of Asset and Liability Management Derivatives ----------------------------------------------------------------- March 31, 1998
Within Over Average One Two Three Four Five Five Life $ in millions Year Years Years Years Years Years Total (Years) ------- ------- ------- ------- ------ ------ ------- -------- Interest rate swaps: Pay fixed/receive floating: Notional amount.................. $ 258 $ 224 $ 17 $ 102 $ 18 $ 165 $ 784 2.28 Weighted average rates received.. 5.04% 5.19% 5.80% 5.92% 5.69% 5.56% 5.34% Weighted average rates paid ..... 6.77 6.23 6.89 6.48 7.94 6.60 6.57 Receive fixed/pay floating: Notional amount ................. $ 151 $ 151 $ 103 $ 2 $ 350 $ 927 $1,684 10.64 Weighted average rates received.. 6.57% 6.63% 6.48% 10.11% 7.28% 7.48% 7.22% Weighted average rates paid ..... 5.69 5.66 5.76 8.50 5.70 5.91 5.82 Receive floating/pay floating: Notional amount ................. -- -- -- $ 300 -- -- $ 300 3.18 Weighted average rates received.. -- -- -- 5.75% -- -- 5.75% Weighted average rates paid ..... -- -- -- 5.66 -- -- 5.66 Total interest rate swaps: Notional amount ................. $ 409 $ 375 $ 120 $ 404 $ 368 $1,092 $2,768 7.46 Weighted average rates received.. 5.61% 5.77% 6.38% 5.81% 7.20% 7.19% 6.53% Weighted average rates paid ..... 6.37 6.00 5.93 5.88 5.81 6.01 6.01 Total Derivatives (notional amount) ............... $ 409 $ 375 $ 120 $ 404 $ 368 $1,092 $2,768 7.46
* Maturity is based upon expected average lives rather than contractual lives. 14 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. To ensure the corporation is positioned to meet immediate and future cash demands, management relies on liquidity analysis, knowledge of business trends over past economic cycles and forecasts of future conditions. Liquidity is maintained through a strong balance sheet and operating performance that assures market acceptance as well as through policy guidelines which limit the level, maturity and concentration of noncore funding sources. Through its balance sheet, the corporation generates liquidity on the asset side by maintaining significant amounts of available-for-sale investment securities, which may be sold at any time, and by loans which may be securitized or sold. Additionally, the corporation generates cash through deposit growth, the issuance of bank notes, the availability of unused lines of credit and through other forms of debt and equity instruments. Through policy guidelines, the corporation limits net purchased funds to 50 percent of long-term assets, which include net loans and leases, investment securities with remaining maturities over one year and net foreclosed real estate. Policy guidelines insure against concentrations by maturity of noncore funding sources by limiting the cumulative percentage of purchased funds that mature overnight, within 30 days and within 90 days. Guidelines also require the monitoring of significant concentrations of funds by single sources and by type of borrowing category. Non- Nonperforming assets at March 31, 1998 were $147.723 million or performing .33 percent of period-end loans and foreclosed property. The total Assets was up $18.512 million or 14.3 percent from one year earlier and was higher by $18.228 million or 14.1 percent from December 31, 1997. The rise in nonperforming assets both year over year and from the preceding quarter end reflected increased levels of cash-basis assets largely attributable to one credit. The largest category of nonperforming assets are real estate related. Real estate nonperforming assets at March 31, 1998 were $102.530 million or .61 percent of real estate loans and foreclosed real estate versus $111.271 million or .77 percent one year earlier and $106.318 million or .64 percent at the end of the fourth quarter of 1997. Included in real estate nonperforming assets were real estate nonperforming loans of $81.766 million at March 31, 1998, $80.569 million one year earlier and $84.872 million at December 31, 1997. Commercial real estate nonperforming assets totaled $47.125 million or .54 percent of related loans and foreclosed real estate compared with $72.972 million or 1.01 percent at first quarter close 1997 and with $50.930 million or .59 percent at year-end 1997. Commercial real estate nonperforming loans were $40.981 million at March 31, 1998, $52.495 million one year earlier and $45.335 million at December 31, 1997. 15 - ----------------------------------------------------------------------- NONPERFORMING ASSETS AND CONTRACTUALLY PAST DUE LOANS TABLE 6 - -------------------------------------------------------------------------------- (Thousands) Mar 31 Dec 31 Sept 30 June 30 Mar 31 1998 1997 1997 1997 1997 -------- ----------- -------- -------- --------- Nonperforming assets: Cash-basis assets ................................... $121,734 $101,156 $95,580 $97,813 $95,444 Restructured loans .................................. -- -- -- -- -- -------- ----------- -------- -------- --------- Total nonperforming loans ........................ 121,734 101,156 95,580 97,813 95,444 Foreclosed property: Foreclosed real estate ............................. 35,518 38,071 33,930 35,710 36,843 Less valuation allowance ........................... 14,754 16,625 10,983 11,038 10,782 Other foreclosed assets ............................ 5,225 6,893 5,534 6,103 7,706 -------- ----------- -------- -------- --------- Total foreclosed property ........................ 25,989 28,339 28,481 30,775 33,767 -------- ----------- -------- -------- --------- Total nonperforming assets ....................... $147,723 $129,495 $124,061 $128,588 $129,211 ======== =========== ======== ======== ========= Nonperforming loans to period-end loans ............. .27% .23% .23% .24% .24% Nonperforming assets to period-end loans and foreclosed property ................................ .33 .29 .30 .32 .33 Period-end allowance for loan losses times nonperforming loans ................................ 4.47x 5.38x 5.43x 5.31x 5.44x Period-end allowance for loan losses times nonperforming assets ............................... 3.69 4.21 4.19 4.04 4.02 Contractually past due loans -- accruing loans past due 90 days or more ..................................... $87,569 $114,343 $81,931 $86,084 $79,155 ======== =========== ======== ======== =========
Provision The provision for loan losses for the first quarter of 1998 was and $74.126 million, up $11.895 million or 19.1 percent from $62.231 Allowance million a year earlier. The provision was lower by $2.789 million for Loan or 3.6 percent from the fourth quarter of 1997, which included Losses $10.845 million in a special merger-related charge to align the practices of merged entities with those of the corporation. Excluding this special charge, the provision for loan losses in the first quarter of 1998 increased $8.056 million or 12.2 percent from the preceding three-month period. 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 credit deterioration or changes in risk profile. Factors considered in this assessment include the strength and consistency of the corporation's underwriting standards and charge-off policy, current and anticipated economic conditions, historical credit loss experience and the composition of the loan portfolio. Credit evaluations are made on a cash flow analysis basis with follow-up credit reviews consistently maintained. In addition, the corporation enforces an aggressive loan loss policy of early recognition and charge-off of troubled credits. Effective with the first quarter of 1998, management began implementing as part of its overall credit review process assessments of Year 2000 compliance among borrowers. 16 Net loan losses for the period totaled $74.108 million or .68 percent annualized of average loans, up $11.892 million or 19.1 percent from $62.216 million or .65 percent of loans a year earlier. Higher losses in credit cards accounted for the rise. Net loan losses were lower by $2.081 million or 2.7 percent from the fourth quarter of 1997, due primarily to reduced charge-offs in real estate loans and to a decline in net loan losses associated with commercial loans and other revolving credit. Excluding credit cards, net charge-offs for the quarter were $8.986 million or .09 percent annualized of average loans, down $4.186 million or 31.8 percent from the year-earlier period and lower by $4.658 million or 34.1 percent from the fourth quarter of 1997. Credit card net charge-offs totaled $65.122 million or 4.54 percent annualized of average credit card loans, up $16.078 million or 32.8 percent from $49.044 million or 3.52 percent of credit card loans in the first three months of 1997. The increase in credit card net charge-offs from a year earlier largely reflected accelerated recognition in the Virginia portfolio of credit card losses by approximately 30 days. The change for the Virginia portfolio was implemented effective with the fourth quarter of 1997 to align its practices with those of the corporation's. Net loan losses in commercial loans and in lease financing declined $1.523 million or 66.7 percent and $527 thousand or 40.3 percent, respectively. Net recoveries of real estate loans increased to $1.328 million or .03 percent of average real estate loans from $211 thousand or .01 percent of real estate loans a year earlier. Selected data on the corporation's managed credit card portfolio, which includes securitized loans, appears in the following table. Managed Credit Card Data -----------------------------------------------------------------
1998 1997 ------ ------------------------------------------------------------- First Fourth Third Second First $ in thousands Quarter Quarter Quarter Quarter Quarter --------- ---------- -------- ------- ------- Average credit card outstanding $ 6,246,315 $ 6,281,488 $ 6,221,174 $ 6,154,577 $ 6,197,630 Net loan losses ................. 69,409 67,735 59,595 58,762 54,296 Net loan losses to average loans 4.44% 4.31% 3.83% 3.82% 3.50% Delinquencies (30 days or more) to period-end loans .............. 2.68 2.75 2.77 2.44 2.45
At March 31, 1998, the allowance for loan losses was $544.741 million, representing 1.22 percent of loans and 447 percent of nonperforming loans. This compared with $519.312 million, representing 1.32 percent of loans and 544 percent of nonperforming loans one year earlier, and with $544.723 million, representing 1.23 percent of loans and 538 percent of nonperforming loans at year-end 1997. 17 - ----------------------------------------------- Quarterly Allowance for Loan Losses Table 7 - -------------------------------------------------------------------------------- (thousands)
1998 1997 ------ ------------------------------------------------- First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter ------- -------- ------ ------ ------ Summary of Transactions Balance at beginning of period ....................... $544,723 $ 519,356 $519,335 $519,312 $519,297 Additions from acquisitions .......................... -- 24,641 -- -- -- Provision for loan losses ............................ 74,126 76,915 62,756 63,047 62,231 Deduct net loan losses: Loans charged off: Commercial ......................................... 2,662 3,801 686 1,772 2,995 Credit card ........................................ 72,061 68,796 61,277 59,935 56,000 Other revolving credit ............................. 2,089 3,659 2,520 2,259 2,126 Other retail ....................................... 10,388 9,032 8,777 10,027 11,965 Real estate ........................................ 2,040 5,786 1,469 1,764 2,545 Lease financing .................................... 886 916 988 1,218 1,366 Foreign ............................................ -- -- -- -- -- -------- ----------- --------- -------- -------- Total ............................................ 90,126 91,990 75,717 76,975 76,997 Recoveries: Commercial ......................................... 1,900 1,184 988 1,289 710 Credit card ........................................ 6,939 6,251 6,894 6,573 6,956 Other revolving credit ............................. 690 588 575 591 607 Other retail ....................................... 3,015 2,577 2,638 2,929 3,693 Real estate ........................................ 3,368 5,125 1,787 2,465 2,756 Lease financing .................................... 106 76 100 104 59 Foreign ............................................ -- -- -- -- -- -------- ----------- --------- -------- -------- Total ............................................ 16,018 15,801 12,982 13,951 14,781 -------- ----------- --------- -------- -------- Net loan losses ..................................... 74,108 76,189 62,735 63,024 62,216 -------- ----------- --------- -------- -------- Balance at end of period ............................. $544,741 $ 544,723 $519,356 $519,335 $519,312 ======== =========== ========= ======== ======== Net Loan Losses (Recoveries) by Category Commercial ........................................... $ 762 $ 2,617 $ (302) $ 483 $ 2,285 Credit card .......................................... 65,122 62,545 54,383 53,362 49,044 Other revolving credit ............................... 1,399 3,071 1,945 1,668 1,519 Other retail ......................................... 7,373 6,455 6,139 7,098 8,272 Real estate .......................................... (1,328) 661 (318) (701) (211) Lease financing ...................................... 780 840 888 1,114 1,307 Foreign .............................................. -- -- -- -- -- -------- ----------- --------- -------- -------- Total ............................................ $ 74,108 $ 76,189 $62,735 $ 63,024 $ 62,216 ======== =========== ========= ======== ======== Net loan losses -- excluding credit cards ............ $ 8,986 $ 13,644 $ 8,352 $ 9,662 $ 13,172 Annualized Net Loan Losses (Recoveries) to Average Loans by Category Commercial ........................................... .02% .08% (.01%) .01% .07% Credit card .......................................... 4.54 4.36 3.85 3.85 3.52 Other revolving credit ............................... 1.20 2.81 1.87 1.59 1.44 Other retail ......................................... .70 .61 .61 .69 .78 Real estate .......................................... (.03) .02 (.01) (.02) (.01) Lease financing ...................................... .29 .32 .35 .50 .62 Foreign .............................................. -- -- -- -- -- Total loans .......................................... .68 .73 .63 .64 .65 Total loans -- excluding credit cards ................ .09 .15 .10 .12 .16 Period-end allowance to outstanding loans ............ 1.22% 1.23% 1.27% 1.29% 1.32%
18 Noninterest Total other operating revenue, which excludes investment Income securities sales, rose $56.854 million or 25.1 percent for the first quarter compared with a year earlier. Solid growth occurred in all major categories, including capital markets income, deposit account revenues, trust fees and investment fee income. Included in total other operating revenue for the first quarter of 1998 was a gain of $17.155 million from sales of branch offices divested as part of the corporation's Virginia merger agreement. Excluding the gain from branch sales, total other operating revenue increased $39.699 million or 17.5 percent year over year and was higher by $3.310 million or 1.3 percent from the fourth quarter of 1997. Capital markets income grew $8.798 million or 120.3 percent year over year, reflecting gains largely in foreign exchange income and in trading account profits. Capital markets income includes revenues from foreign exchange transactions; corporate financing activities such as loan syndications, private placements and variable rate demand bond usage; derivatives activities; trading account profits; and consulting services. Deposit account service charge revenues rose $6.780 million or 9.2 percent. Growth occurred primarily in commercial analysis fees, insufficient funds charges and overdraft charges. Income from trust service fees increased $5.203 million or 12.7 percent, representing gains largely in trust and investment management services, institutional trust and retirement services and asset management fees. On March 31, 1998, the corporation announced it had reached a definitive agreement to acquire Hunt, DuPree, Rhine and Associates, Inc., a benefits consulting firm, and its affiliate, Retirement Plan Securities, Inc., a registered investment advisor. Acquisition of the two affiliated firms will enable the corporation to offer expanded benefit consulting services to its middle market corporate customers. Investment fee income, consisting of fees received from annuity income, mutual fund income, portfolio management, fixed income securities and brokerage commissions, grew $2.735 million or 32.3 percent. Higher mutual fund income accounted for the majority of the growth, with increased brokerage commission income also contributing to the rise. Mortgage fee income was up $2.534 million or 49 percent. Growth reflected greater volume in mortgage servicing activity as well as increased gains on sales of mortgage loans to the secondary market. Credit card income expanded $1.688 million or 4.6 percent. Increased credit card sales transactions and higher overlimit charge activity primarily accounted for the rise. Electronic banking revenues, consisting of fees from debit cards and ATM usage, rose $1.629 million or 11 percent. Gains reflected increases in ATM foreign access fees and in debit card interchange income. 19 Remaining combined categories of total other operating revenue, excluding gains from branch sales, were up $10.332 million or 26.2 percent. Bankers' acceptance and letter of credit fees were higher by $1.658 million or 21 percent, and insurance premiums and commissions rose $668 thousand or 9.7 percent. Other service charges and fees were up modestly for the period, while other income expanded $7.856 million or 54.7 percent. Including investment securities sales, total noninterest income for the first quarter of 1998 was higher by $58.453 million or 25.6 percent. Investment securities sales resulted in net gains of $3.157 million for the period versus $1.558 million a year earlier. - ---------------------------- Noninterest Income Table 8 - -------------------------------------------------------------------------------- (thousands)
1998 1997 -------- --------------------------------------------------- First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter -------- -------- ------ ------ ------ Noninterest Income Service charges on deposit accounts ....................... $ 80,874 $ 80,977 $ 76,584 $ 74,576 $ 74,094 Fees for trust services ................................... 46,053 47,378 43,653 43,668 40,850 Credit card income -- net of interchange payments ......... 38,544 38,382 43,182 43,814 36,856 Electronic banking ........................................ 16,395 17,355 16,841 15,678 14,766 Capital markets income .................................... 16,110 16,040 14,994 11,176 7,312 Investment fee income ..................................... 11,191 9,541 9,721 8,533 8,456 Mortgage fee income ....................................... 7,704 7,509 5,711 5,154 5,170 Insurance premiums and commissions ........................ 7,568 7,169 7,966 8,170 6,900 Bankers' acceptance and letter of credit fees ............. 9,569 8,116 9,589 8,910 7,911 Other service charges and fees ............................ 10,350 9,257 9,671 9,622 10,200 Other income .............................................. 39,365 21,534 18,135 30,293 14,354 --------- --------- -------- -------- -------- Total other operating revenue ......................... 283,723 263,258 256,047 259,594 226,869 Investment securities gains (losses) ...................... 3,157 (1,693) 1,091 498 1,558 --------- --------- -------- -------- -------- Total ................................................. $286,880 $261,565 $257,138 $260,092 $228,427 ========= ========= ======== ======== ========
Noninterest Total noninterest expense for the first quarter was up $105.648 Expense million or 27.2 percent year over year and included $35.568 million in pretax merger-related charges associated primarily with systems conversions and signage changes in Virginia. On a core operating basis excluding nonrecurring charges, total noninterest expense increased $70.080 million or 18 percent from a year earlier and was higher by $13.795 million or 3.1 percent from the fourth quarter of 1997. The corporation's overhead ratio measuring noninterest expense as a percentage of total revenues (taxable equivalent net interest income plus total other operating revenue) was 53.1 percent on a core operating basis versus 52.2 percent in the same period a year earlier and 53.5 percent in the fourth quarter of 1997. Total personnel expense for the quarter rose $48.085 million or 22.7 percent year over year, accounting for the majority of the core growth in total noninterest expense. Salaries expense increased $40.932 million or 23.8 percent, primarily reflecting a higher employee base and greater incentive pay. Employee benefits expense was up $7.153 million or 18 percent, largely due to expanded payroll taxes and growth in retirement savings benefits expenses. Combined net occupancy and equipment expense increased $6.443 million or 10.4 percent. Higher net occupancy expenses, associated largely with premise leasing, building depreciation and building maintenance costs, accounted for most of the growth. 20 Remaining combined categories of noninterest expense, excluding merger-related charges, rose $15.552 million or 13.5 percent. Amortization expense increased $6.853 million, principally due to higher levels of goodwill and deposit base intangibles following the corporation's purchase acquisitions in the fourth quarter of 1997. Advertising expense was up $2.164 million or 13.9 percent, reflecting greater marketing costs, while professional services expense grew $2.026 million or 21.8 percent, largely due to Year 2000 project costs. The corporation has been working since late 1995 to identify and begin remediating data recognition problems that will be caused in computer systems and software by the change in date from the year 1999 to the year 2000. Management has identified all business and operational functions that will be impacted by the date change and is moving aggressively to convert its application systems for year 2000 date recognition. Conversion and testing of all in-house application systems is expected to be completed by mid-year 1998, with testing of remaining vendor application system packages expected to be finished by the end of 1998. While many companies will be doing their 21st century date testing beginning in 1999, Wachovia already has included 21st century date testing as part of its conversion process. In addition, the corporation is working to convert and test all of its application systems by year-end 1998 and not simply those considered critical to operations. Throughout 1999, the corporation will conduct testing with external entities, such as business partners and the Federal Reserve, as they become Year 2000 ready. The corporation also is working to assess Year 2000 readiness on the part of its current and future vendors, particularly those vendors considered critical to the ongoing operations and business of the corporation. Management estimates that total Year 2000 project costs will be approximately $55 million, of which $44 million has been spent through March 31, 1998. The corporation's Year 2000 project costs are not expected to have a material impact on its results of operations, liquidity or capital resources. The impact of Year 2000 noncompliance by all outside parties with whom the corporation may transact business cannot be gauged fully at this time. - ----------------------------- Noninterest Expense Table 9 - -------------------------------------------------------------------------------- (thousands)
1998 1997 ------ ---------------------------------------------------- First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter -------- -------- ----- ----- ------- Noninterest Expense Salaries .................................................. $ 212,758 $ 200,859 $ 190,434 $ 178,987 $171,826 Employee benefits ......................................... 46,966 43,391 39,918 39,929 39,813 --------- ----------- --------- --------- -------- Total personnel expense ............................... 259,724 244,250 230,352 218,916 211,639 Net occupancy expense ..................................... 33,783 30,687 29,816 27,657 28,494 Equipment expense ......................................... 34,687 36,619 36,283 35,792 33,533 Postage and delivery ...................................... 13,278 12,539 11,883 11,899 12,336 Outside data processing, programming and software ......... 12,737 22,952 21,980 26,988 14,577 Stationery and supplies ................................... 7,506 7,637 8,415 7,676 7,232 Advertising and sales promotion ........................... 17,738 15,768 20,355 20,349 15,574 Professional services ..................................... 11,304 16,348 14,102 14,385 9,278 Travel and business promotion ............................. 6,439 7,433 6,120 6,154 5,508 Regulatory agency fees and other bank services ............ 4,485 3,523 3,458 3,791 3,828 Amortization of intangible assets ......................... 9,117 6,433 2,347 2,264 2,264 Foreclosed property expense ............................... 130 492 487 951 (55) Personal computer impairment charge ....................... -- 67,202 -- -- -- Merger-related charges .................................... 35,568 220,330 -- -- -- Other expense ............................................. 47,753 40,205 39,703 43,579 44,393 --------- ----------- --------- --------- -------- Total ................................................. $ 494,249 $ 732,418 $ 425,301 $ 420,401 $388,601 ========= =========== ========= ========= ======== Overhead ratio* ........................................... 57.2% 88.0% 53.6% 53.4% 52.2%
* Overhead ratio excluding the impact of nonrecurring charges was 53.1% in the 1998 first quarter and 53.5% in the 1997 fourth quarter. 21 Income Applicable income taxes for the quarter were higher by $5.955 Taxes million or 6.9 percent from a year earlier. Income taxes computed at the statutory rate are reduced primarily by the interest income earned on state and municipal loans and debt securities. 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 certain state and municipal debt instruments is exempt from federal taxes. All Georgia and North Carolina state and municipal debt instruments are exempt from Georgia and North Carolina taxes but are taxable in other states. State and municipal obligations of other states are generally subject to state taxes. The tax-exempt nature of these assets provide both an attractive return for the corporation and substantial interest savings for local governments and their constituents. - ----------------------- Income Taxes Table 10 - -------------------------------------------------------------------------------- (thousands)
Three Months Three Months Ended Ended March 31 March 31 1998 1997 ------------ ------------ Income before income taxes ........................................ $287,648 $279,847 ======== ======== Federal income taxes at statutory rate ............................ $100,677 $97,946 State and local income taxes -- net of federal benefit ............ (1,021) 3,709 Effect of tax-exempt securities interest and other income ......... (12,382) (12,414) Other items ....................................................... 5,053 (2,869) -------- -------- Total tax expense .............................................. $92,327 $86,372 ======== ======== Current: Federal ......................................................... $68,763 $66,882 Foreign ......................................................... 115 59 State and local ................................................. 3,729 1,878 -------- -------- Total .......................................................... 72,607 68,819 Deferred: Federal ......................................................... 25,021 13,729 State and local ................................................. (5,301) 3,824 -------- -------- Total .......................................................... 19,720 17,553 -------- -------- Total tax expense .............................................. $92,327 $86,372 ======== ========
22 New In December 1996, the Financial Accounting Standards Board issued Accounting Statement of Financial Accounting Standards No. 127, "Deferral of Standards the Effective Date of Certain Provisions of FASB Statement No. 125, an amendment of FASB Statement No. 125" (FASB 127). FASB 127 delayed until 1998 certain provisions of FASB 125 that deal with repurchase agreements, securities lending and other similar transactions and pledged collateral. Adoption of FASB 127 was not material. In June 1997, Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (FASB 130), was issued and establishes standards for reporting and displaying comprehensive income and its components. FASB 130 requires comprehensive income and its components, as recognized under the accounting standards, to be displayed in a financial statement with the same prominence as other financial statements. The disclosure requirements of FASB 130 have been included in the corporation's consolidated statements of shareholders' equity. Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" (FASB 131), also issued in June 1997, establishes new standards for reporting information about operating segments in annual and interim financial statements. The standard also requires descriptive information about the way the operating segments are determined, the products and services provided by the segments and the nature of differences between reportable segment measurements and those used for the consolidated enterprise. This standard is effective for years beginning after December 15, 1997. Adoption in interim financial statements is not required until the year after initial adoption, however comparative prior period information is required. FASB 131 will be adopted, as required, beginning with year-end 1998; the disclosure requirements will have no impact on the corporation's financial position or results of operations. In March 1998, the Accounting Standards Executive Committee of the AICPA issued Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" (SOP 98-1), which provides guidance as to when it is or is not appropriate to capitalize the cost of software developed or obtained for internal use. SOP 98-1 is effective for financial statements for fiscal years beginning after December 15, 1998 with early adoption encouraged. Management is in the process of assessing the impact and period of adoption of this standard. 23 --------------------------------------------- Financial Condition and Capital Ratios ----------------------------------------------------------------- Assets at March 31, 1998 totaled $65.125 billion, with $57.464 billion of interest-earning assets and $44.498 billion of loans. Comparable amounts one year earlier were $58.060 billion of assets, $52.258 billion of interest-earning assets and $39.383 billion of loans. At December 31, 1997, total assets were $65.397 billion, interest-earning assets were $57.335 billion and loans were $44.194 billion. Deposits at the end of the first quarter of 1998 were $39.857 billion, including $31.331 billion of interest-bearing deposits, representing 78.6 percent of the total. Deposits one year earlier were $36.849 billion with interest-bearing deposits of $29.159 billion or 79.1 percent of the total, and at December 31, 1997, deposits were $42.654 billion, including $34.056 billion of interest-bearing deposits or 79.8 percent of the total. The decrease in deposits from year-end 1997 resulted from the corporation divesting selected branches in the first quarter of 1998 in connection with the Virginia merger. Shareholders' equity at March 31, 1998 was $5.237 billion, up $738.369 million or 16.4 percent from $4.498 billion one year earlier. Included in shareholders' equity at March 31, 1998 was $747.744 million from common stock issued in connection with the corporation's fourth quarter 1997 purchase acquisitions of Jefferson Bankshares and 1st United Bancorp. Shareholders' equity at March 31, 1998 also included $63.849 million, net of tax, in unrealized gains on securities available-for-sale marked to fair value compared with an unrealized loss of $4 thousand, net of tax, one year earlier. During the first quarter of 1998, the corporation repurchased a total of 850,000 shares of its common stock at an average cost of $78.261 per share for a total cost of $66.522 million. The shares were repurchased under a January 23, 1998 authorization by the corporation's board of directors to repurchase shares of stock in connection with Wachovia's purchase acquisition of Ameribank Bancshares. Total repurchases are authorized up to an amount that would preserve the accounting for Wachovia's merger in the fourth quarter of 1997 with Central Fidelity Banks, Inc., as a pooling-of-interests. At its meeting on April 24, 1998, the corporation's board of directors declared a second quarter dividend of $.44 per common share payable June 1 to shareholders of record on May 7. The dividend is higher by 10 percent from $.40 per share paid in the same three months of 1997. For the year to date, the dividend will total $.88 per share, an increase of 10 percent from $.80 per share paid in 1997. Intangible assets at March 31, 1998 totaled $619.334 million, consisting of $508.010 million of goodwill, $96.315 million of deposit base intangibles, $13.530 million of mortgage servicing rights, and $1.480 million of other intangibles, principally purchased credit card premiums. Intangible assets at first quarter close 1997 were $107.210 million, with $40.558 million of goodwill, $54.427 million of deposit base intangibles, $11.078 million of mortgage servicing rights, and $1.147 million of other intangibles. The increase in goodwill and deposit base intangibles from March 31, 1997 resulted from the corporation's purchase acquisitions in the fourth quarter of 1997. 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 24 of securities available-for-sale arising from marking the securities portfolio to market value. 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 March 31, 1998, the corporation's Tier I to risk-adjusted assets ratio was 8.87 percent and total capital to risk-adjusted assets was 11.64 percent. The Tier I leverage ratio was 8.91 percent. Included in the capital ratios at March 31, 1998 was $996.087 million of trust capital securities versus $596.578 million one year earlier. - ----------------------------------------- Capital Components and Ratios Table 11 - -------------------------------------------------------------------------------- (thousands)
1998 1997 ------- -------------------------------------------------------------- First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter --------- ------------ -------- -------- ------- Tier I capital: Common shareholders' equity ................. $ 5,236,700 $ 5,174,301 $ 4,517,021 $ 4,483,461 $ 4,498,331 Trust capital securities .................... 996,087 995,993 995,899 995,804 596,578 Less ineligible intangible assets ........... 604,325 634,052 93,101 94,767 89,890 Unrealized (gains) losses on securities available-for-sale, net of tax ............. (63,849) (71,098) (68,657) (44,329) 4 ----------- ------------- ----------- ----------- ------------ Total Tier I capital ..................... 5,564,613 5,465,144 5,351,162 5,340,169 5,005,023 Tier II capital: Allowable allowance for loan losses ......... 544,741 544,723 519,356 519,335 519,312 Allowable long-term debt .................... 1,193,533 1,193,451 1,283,165 1,283,093 1,288,138 ----------- ------------- ----------- ----------- ------------ Tier II capital additions ................ 1,738,274 1,738,174 1,802,521 1,802,428 1,807,450 ----------- ------------- ----------- ----------- ------------ Total capital ............................ $ 7,302,887 $ 7,203,318 $ 7,153,683 $ 7,142,597 $ 6,812,473 =========== ============= =========== =========== ============ Risk-adjusted assets ......................... $62,747,353 $59,543,254 $56,481,076 $52,408,490 $ 50,933,933 Quarterly average assets* .................... $62,457,463 $59,139,712 $57,042,701 $56,931,778 $ 56,205,483 Risk-based capital ratios: Tier I capital .............................. 8.87% 9.18% 9.47% 10.19% 9.83% Total capital ............................... 11.64 12.10 12.67 13.63 13.38 Tier I leverage ratio ........................ 8.91 9.24 9.38 9.38 8.90
* Excludes ineligible intangible assets and average unrealized gains (losses) on securities available-for-sale, net of tax. 25 Wachovia Corporation and Subsidiaries - --------------------------------------- Consolidated Statements of Condition - -------------------------------------------------------------------------------- $ in thousands
March 31 December 31 March 31 1998 1997 1997 Assets Cash and due from banks ..................................................... $3,661,602 $ 4,221,818 $ 3,266,242 Interest-bearing bank balances .............................................. 154,415 133,191 36,581 Federal funds sold and securities purchased under resale agreements ......... 365,987 1,589,234 386,205 Trading account assets ...................................................... 1,198,056 999,122 1,058,687 Securities available-for-sale ............................................... 9,871,249 8,909,537 10,068,609 Securities held-to-maturity (fair value of $1,440,438, $1,578,464 and $1,377,812 respectively).................................................... 1,375,959 1,509,339 1,325,556 Loans and leases, net of unearned income .................................... 44,498,281 44,194,382 39,382,725 Less allowance for loan losses .............................................. 544,741 544,723 519,312 ------------ ----------- --------------- Net loans and leases ...................................................... 43,953,540 43,649,659 38,863,413 Premises and equipment ...................................................... 840,350 810,155 795,524 Due from customers on acceptances ........................................... 692,444 628,398 637,117 Other assets ................................................................ 3,011,113 2,946,616 1,622,153 ------------ ----------- --------------- Total assets .............................................................. $ 65,124,715 $65,397,069 $58,060,087 ============ =========== =============== Liabilities Deposits in domestic offices: Demand ..................................................................... $ 8,521,550 $ 8,589,595 $ 7,676,554 Interest-bearing demand .................................................... 4,831,044 4,654,172 4,072,727 Savings and money market savings ........................................... 11,687,725 11,679,432 10,396,101 Savings certificates ....................................................... 10,093,897 10,934,720 10,275,042 Large denomination certificates ............................................ 2,854,234 2,284,068 3,254,373 Noninterest-bearing time ................................................... 4,698 8,460 13,531 ------------ ----------- --------------- Total deposits in domestic offices ........................................ 37,993,148 38,150,447 35,688,328 Time deposits in foreign offices ............................................ 1,863,739 4,503,396 1,160,977 ------------ ----------- --------------- Total deposits ............................................................ 39,856,887 42,653,843 36,849,305 Federal funds purchased and securities sold under repurchase agreements ..... 8,796,505 8,322,716 7,272,047 Commercial paper ............................................................ 1,217,459 1,034,024 663,525 Other short-term borrowed funds ............................................. 1,935,326 752,874 1,404,537 Long-term debt: Bank notes ................................................................. 3,010,426 2,939,952 3,065,344 Other long-term debt ....................................................... 3,445,940 2,994,181 2,999,917 ------------ ----------- --------------- Total long-term debt ...................................................... 6,456,366 5,934,133 6,065,261 Acceptances outstanding ..................................................... 692,444 628,398 637,117 Other liabilities ........................................................... 933,028 896,780 669,964 ------------ ----------- --------------- Total liabilities ......................................................... 59,888,015 60,222,768 53,561,756 Shareholders' Equity Preferred stock, par value $5 per share: Authorized 50,000,000 shares; none issued or outstanding ................... -- -- -- Common stock, par value $5 per share: Authorized 500,000,000 shares; issued and outstanding 206,131,388, 205,926,632 and 198,476,424 respectively .................................. 1,030,657 1,029,633 992,382 Capital surplus ............................................................. 941,071 974,803 562,420 Retained earnings ........................................................... 3,201,123 3,098,767 2,943,533 Accumulated other comprehensive income (loss) ............................... 63,849 71,098 (4) ------------ ----------- ---------------- Total shareholders' equity ................................................ 5,236,700 5,174,301 4,498,331 ------------ ----------- --------------- Total liabilities and shareholders' equity ................................ $ 65,124,715 $65,397,069 $58,060,087 ============ =========== ===============
26 Wachovia Corporation and Subsidiaries - ------------------------------------ Consolidated Statements of Income - ------------------------------------------------------------------------------- In thousands, except per share
Three Months Ended March 31 1998 1997 Interest Income Loans .................................................................... $ 945,437 $ 811,917 Securities available-for-sale: Other investments ....................................................... 153,938 162,888 Securities held-to-maturity: State and municipal ..................................................... 3,936 4,496 Other investments ....................................................... 23,241 22,170 Interest-bearing bank balances ........................................... 3,228 675 Federal funds sold and securities purchased under resale agreements ...... 5,285 2,878 Trading account assets ................................................... 12,764 13,201 ------------ ----------- Total interest income .................................................. 1,147,829 1,018,225 Interest Expense Deposits: Domestic offices ........................................................ 308,030 292,259 Foreign offices ......................................................... 36,210 17,370 ------------ ----------- Total interest on deposits ............................................. 344,240 309,629 Short-term borrowed funds ................................................ 138,893 106,961 Long-term debt ........................................................... 95,553 99,383 ------------ ----------- Total interest expense ................................................. 578,686 515,973 Net Interest Income ...................................................... 569,143 502,252 Provision for loan losses ................................................ 74,126 62,231 ------------ ----------- Net interest income after provision for loan losses ...................... 495,017 440,021 Other Income Service charges on deposit accounts ...................................... 80,874 74,094 Fees for trust services .................................................. 46,053 40,850 Credit card income ....................................................... 38,544 36,856 Electronic banking ....................................................... 16,395 14,766 Capital markets income ................................................... 16,110 7,312 Investment fee income .................................................... 11,191 8,456 Mortgage fee income ...................................................... 7,704 5,170 Other operating income ................................................... 66,852 39,365 ------------ ----------- Total other operating revenue .......................................... 283,723 226,869 Investment securities gains .............................................. 3,157 1,558 ------------ ----------- Total other income ..................................................... 286,880 228,427 Other Expense Salaries ................................................................. 212,758 171,826 Employee benefits ........................................................ 46,966 39,813 ------------ ----------- Total personnel expense ................................................ 259,724 211,639 Net occupancy expense .................................................... 33,783 28,494 Equipment expense ........................................................ 34,687 33,533 Merger-related charges ................................................... 35,568 -- Other operating expense .................................................. 130,487 114,935 ------------ ----------- Total other expense .................................................... 494,249 388,601 Income before income taxes ............................................... 287,648 279,847 Applicable income taxes .................................................. 92,327 86,372 ------------ ----------- Net Income ............................................................... $ 195,321 $ 193,475 ============ =========== Net income per common share: Basic ................................................................... $ .95 $ .97 Diluted ................................................................. $ .93 $ .95 Average shares outstanding: Basic ................................................................... 205,894 200,110 Diluted ................................................................. 210,158 203,307
27 Wachovia Corporation and Subsidiaries - -------------------------------------------------- Consolidated Statements of Shareholders' Equity - -------------------------------------------------------------------------------- $ in thousands, except per share
Common Stock Capital Shares Amount Surplus Period ended March 31, 1997 Balance at beginning of year ............... 201,252,539 $1,006,263 $ 706,649 Net income ................................. Change in unrealized gains on securities available-for-sale, net of tax and reclassification adjustment ............... Comprehensive income ................... Cash dividends declared by pooled companies: Wachovia Corporation -- $.40 a share....... Central Fidelity Banks, Inc. -- $.20 a share .................................... Common stock issued pursuant to: Stock option and employee benefit plans .................................... 519,385 2,596 27,309 Dividend reinvestment plan ................ 58,328 292 3,231 Common stock acquired ...................... (3,353,828) (16,769) (175,446) Miscellaneous .............................. 677 ------------- ----------- ----------- Balance at end of period ................... 198,476,424 $ 992,382 $ 562,420 ============= ========== =========== Period ended March 31, 1998 Balance at beginning of year ............... 205,926,632 $1,029,633 $ 974,803 Net income ................................. Change in unrealized gains on securities available-for-sale, net of tax and reclassification adjustment ............... Comprehensive income ................... Cash dividends declared on common stock -- $.44 a share...................... Common stock issued pursuant to: Stock option and employee benefit plans .................................... 1,084,512 5,423 31,249 Dividend reinvestment plan ................ 77,565 388 5,741 Common stock acquired ...................... (957,321) (4,787) (70,220) Miscellaneous .............................. (502) ----------- ----------- ----------- Balance at end of period ................... 206,131,388 $1,030,657 $ 941,071 ============= ========== =========== Accumulated Other Total Retained Comprehensive Shareholders' Earnings Income Equity Period ended March 31, 1997 Balance at beginning of year ............... $2,843,803 $ 51,686 $ 4,608,401 Net income ................................. 193,475 193,475 Change in unrealized gains on securities available-for-sale, net of tax and reclassification adjustment ............... (51,690) (51,690) ------------- Comprehensive income ................... 141,785 Cash dividends declared by pooled companies: Wachovia Corporation -- $.40 a share....... (65,408) (65,408) Central Fidelity Banks, Inc. -- $.20 a share .................................... (12,897) (12,897) Common stock issued pursuant to: Stock option and employee benefit plans .................................... 29,905 Dividend reinvestment plan ................ 3,523 Common stock acquired ...................... (192,215) Miscellaneous .............................. (15,440) (14,763) ---------- ------------- ------------- Balance at end of period ................... $2,943,533 $ (4) $ 4,498,331 ========== ============= ============= Period ended March 31, 1998 Balance at beginning of year ............... $3,098,767 $ 71,098 $ 5,174,301 Net income ................................. 195,321 195,321 Change in unrealized gains on securities available-for-sale, net of tax and reclassification adjustment ............... (7,249) (7,249) ------------- Comprehensive income ................... 188,072 Cash dividends declared on common stock -- $.44 a share...................... (90,589) (90,589) Common stock issued pursuant to: Stock option and employee benefit plans .................................... 36,672 Dividend reinvestment plan ................ 6,129 Common stock acquired ...................... (75,007) Miscellaneous .............................. (2,376) (2,878) ---------- -------------- ------------- Balance at end of period ................... $3,201,123 $ 63,849 $ 5,236,700 ========== ============= =============
28 Wachovia Corporation and Subsidiaries - ---------------------------------------- Consolidated Statements of Cash Flows - -------------------------------------------------------------------------------- $ in thousands
Three Months Ended March 31 1998 1997 Operating Activities Net income ............................................................... $ 195,321 $ 193,475 Adjustments to reconcile net income to net cash provided by operations: Provision for loan losses ............................................... 74,126 62,231 Depreciation and amortization ........................................... 34,125 27,783 Deferred income taxes ................................................... 19,720 16,483 Investment securities gains ............................................. (3,157) (1,558) Gain on sale of noninterest-earning assets .............................. (508) (609) Increase in accrued income taxes ........................................ 59,442 58,786 Increase in accrued interest receivable ................................. (14,746) (8,651) Increase in accrued interest payable .................................... 45,300 53,158 Net change in other accrued and deferred income and expense ............. (22,789) (55,824) Net trading account activities .......................................... (198,934) 131,023 Net loans held for resale ............................................... (158,512) (290,254) ------------- ------------- Net cash provided by operating activities .............................. 29,388 186,043 Investing Activities Net (increase) decrease in interest-bearing bank balances ................ (21,224) 41,290 Net decrease (increase) in federal funds sold and securities purchased under resale agreements ....................................... 1,223,247 (110,264) Purchases of securities available-for-sale ............................... (1,677,570) (1,001,781) Purchases of securities held-to-maturity ................................. ---- (35,152) Sales of securities available-for-sale ................................... 166 203,490 Calls, maturities and prepayments of securities available-for-sale ....... 711,186 464,125 Calls, maturities and prepayments of securities held-to-maturity ......... 134,927 62,719 Net increase in loans made to customers .................................. (222,157) (1,154,616) Capital expenditures ..................................................... (72,658) (32,259) Proceeds from sales of premises and equipment ............................ 16,535 870 Net (increase) decrease in other assets .................................. (96,137) 240,446 ------------- ------------- Net cash used by investing activities .................................. (3,685) (1,321,132) Financing Activities Net increase in demand, savings and money market accounts ................ 113,358 582,245 Net (decrease) increase in certificates of deposit ....................... (2,910,314) 945,328 Net increase in federal funds purchased and securities sold under repurchase agreements ............................................. 473,789 66,042 Net increase (decrease) in commercial paper .............................. 183,435 (48,517) Net increase in other short-term borrowings .............................. 1,182,452 370,981 Proceeds from issuance of bank notes ..................................... 100,000 ---- Maturities of bank notes ................................................. (29,867) (1,241,283) Proceeds from issuance of other long-term debt ........................... 455,764 316,633 Payments on other long-term debt ......................................... (4,288) (27,032) Common stock issued ...................................................... 29,733 12,846 Dividend payments ........................................................ (90,589) (78,467) Common stock repurchased ................................................. (69,066) (188,899) Net (decrease) increase in other liabilities ............................. (20,326) 17,262 ------------- ------------- Net cash (used) provided by financing activities ....................... (585,919) 727,139 Decrease in Cash and Cash Equivalents .................................... (560,216) (407,950) Cash and cash equivalents at beginning of year ........................... 4,221,818 3,674,192 ------------- ------------- Cash and cash equivalents at end of period ............................... $ 3,661,602 $ 3,266,242 ============= ============= Supplemental Disclosures Unrealized losses on securities available-for-sale: Decrease in securities available-for-sale ............................... $ (10,641) $ (85,218) Increase in deferred taxes .............................................. 3,396 31,854 Decrease in shareholders' equity ........................................ (7,249) (51,690)
29 [WACHOVIA LOGO APPEARS HERE] Wachovia Corporation BULK RATE P.O. Box 3099 U.S. POSTAGE PAID Winston-Salem, NC 27150 WACHOVIA CORPORATION EX-12 2 EXHIBIT 12 WACHOVIA CORPORATION RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12 Three Months Year Ended Ended March 31, December 31, (A) EXCLUDING INTEREST ON DEPOSITS 1998 1997 Earnings: --------- ---------- Income before income taxes $287,648 $869,119 Less capitalized interest (202) (167) Fixed charges 240,017 884,806 --------- ---------- Earnings as adjusted $527,463 $1,753,758 ========= ========== Fixed charges: Interest on purchased and other short term borrowed funds $138,893 $478,162 Interest on long-term debt 95,553 387,107 Portion of rents representative of the interest factor (1/3) of rental expense 5,571 19,537 --------- ---------- Fixed charges $240,017 $884,806 ========= ========== Ratio of earnings to fixed charges 2.20 X 1.98 X (B) INCLUDING INTEREST ON DEPOSITS: Adjusted earnings from (A) above $527,463 $1,753,758 Add interest on deposits 344,240 1,303,549 --------- ---------- Earnings as adjusted $871,703 $3,057,307 ========= ========== Fixed charges: Fixed charges from (A) above $240,017 $884,806 Interest on deposits 344,240 1,303,549 --------- ---------- Adjusted fixed charges $584,257 $2,188,355 ========= ========== Adjusted earnings to adjusted fixed 1.49 X 1.40 X charges EX-27 3 FDS -- WACHOVIA
9 1,000 U.S. Dollars 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 1 3,661,602 154,415 365,987 1,198,056 9,871,249 1,375,959 1,440,438 44,498,281 544,741 65,124,715 39,856,887 11,949,290 1,625,472 6,456,366 0 0 1,030,657 4,206,043 65,124,715 945,437 181,115 21,277 1,147,829 344,240 578,686 569,143 74,126 3,157 494,249 287,648 195,321 0 0 195,321 0.95 0.93 4.21 121,734 87,569 0 0 544,723 90,126 16,018 544,741 0 0 0 BASIC
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