-----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, H0Urg5RclILUz1BHfN35t4nyw4Dxs+WhOwAo4AH//vrQHymFbbLe/WqtrB6qFsTC iH8P/wEXLxiYmV9KGgWERw== 0000950168-00-000755.txt : 20000329 0000950168-00-000755.hdr.sgml : 20000329 ACCESSION NUMBER: 0000950168-00-000755 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 20 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000328 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-K SEC ACT: SEC FILE NUMBER: 001-09021 FILM NUMBER: 580994 BUSINESS ADDRESS: STREET 1: 100 N MAIN ST STREET 2: P O BOX 3099 CITY: WINSTON SALEM STATE: NC ZIP: 27150 BUSINESS PHONE: 3367705000 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-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K (Mark One) [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Fiscal Year Ended December 31, 1999 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File Number 1-9021 WACHOVIA CORPORATION
Incorporated in the State of North Carolina IRS Employer Identification Number 56-1473727 100 North Main Street 191 Peachtree Street NE Winston-Salem, North Carolina 27101 Atlanta, Georgia 30303 Telephone: (336) 770-5000 Telephone: (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. Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or Section 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of February 22, 2000, the aggregate market value of Wachovia Corporation common stock held by nonaffiliates was approximately $11.493 billion and the number of shares held by nonaffiliates was 202,517,645. As of February 22, 2000, Wachovia Corporation had issued and outstanding 202,881,638 shares of the 1,000,000,000 authorized shares of its $5.00 par value common stock. DOCUMENTS INCORPORATED BY REFERENCE The portions of the Annual Report to Shareholders for the year ended December 31, 1999 referred to in Parts I, II and IV of this Form 10-K are incorporated by reference therein. The portions of the Proxy Statement for Wachovia Corporation's Annual Meeting of Shareholders to be held on April 28, 2000 referred to in Part III of this Form 10-K are incorporated by reference therein. Except for parts of the Wachovia Corporation 1999 Annual Report to Shareholders expressly incorporated herein by reference, the Annual Report is not to be deemed filed with the Securities and Exchange Commission. -1- PART I ITEM 1 - BUSINESS: Incorporated herein by reference is the information appearing under the headings "Wachovia Corporation" and "Forward-Looking Statements" on page 3 of the Corporation's 1999 Annual Report to Shareholders and the section entitled "Business Segments" on pages 31 through 37. SUPERVISION AND REGULATION GENERAL The Corporation and its bank subsidiaries are subject to an extensive system of banking laws and regulations that are intended primarily for the protection of customers and depositors. These laws and regulations govern such areas as permissible activities, reserves, loans and investments, and rates of interest that can be charged on loans. Similarly, the Corporation's subsidiaries engaged in investment advisory and other securities related activities are subject to various U.S. federal and state laws and regulations that are intended to benefit clients of investment advisors and shareholders in mutual funds. In addition, the Corporation and its subsidiaries are subject to general U.S. federal laws and regulations and to the laws and regulations of the states or countries in which they conduct their businesses. Described below are the material elements of selected laws and regulations applicable to the Corporation and its subsidiaries. The descriptions are not intended to be complete and are qualified in their entirety by reference to the full text of the statutes and regulations described. FINANCIAL MODERNIZATION LEGISLATION: THE GRAMM-LEACH BLILEY ACT On November 12, 1999, the President signed the Gramm-Leach-Bliley Act (GLB Act) into law. Effective as of March 11, 2000, the GLB Act: o allows bank holding companies meeting management, capital and Community Reinvestment Act (CRA) standards to engage in a substantially broader range of nonbanking activities than was previously permissible, including insurance underwriting and making merchant banking investments in commercial and financial companies; o allows insurers and other financial services companies to acquire banks; o removes various restrictions that previously applied to bank holding company ownership of securities firms and mutual fund advisory companies; and o establishes the overall regulatory structure applicable to bank holding companies that also engage in insurance and securities operations. For a bank holding company to engage in the broader range of activities that are permitted by the GLB Act, (1) all of its depository institutions must be well capitalized and well managed and (2) it must file a declaration with the Board of Governors of the Federal Reserve System (Federal Reserve Board or FRB) that it elects to be a "financial holding company." In addition, to commence any new activity permitted by the GLB Act and to acquire any company engaged in any new activities permitted by the GLB Act, each insured depository institution of the financial holding company must have received at least a "satisfactory" rating in its most recent examination under the CRA. Effective March 13, 2000, the Corporation became a financial holding company. The GLB Act also modified laws related to financial privacy and community reinvestment. The new financial privacy provisions generally prohibit financial institutions, including the Corporation, from disclosing nonpublic personal financial information to third parties unless customers have the opportunity to "opt out" of the disclosure. -2- REGULATED ENTITIES OF THE CORPORATION FINANCIAL HOLDING COMPANY. As a financial holding company, the Corporation is regulated under the Bank Holding Company Act of 1956, as amended by the GLB Act (BHC Act), and is subject to the supervision of the Federal Reserve Board. The Corporation also is a savings and loan holding company registered under the Home Owners' Loan Act of 1933, as amended by the Financial Institutions Reform, Recovery and Enforcement Act of 1989, and is subject to the supervision of the Office of Thrift Supervision (OTS). In general, the BHC Act limits the business of bank holding companies that are financial holding companies to banking, managing or controlling banks, performing certain servicing activities for subsidiaries, and as a result of the GLB Act amendments, engaging in any activity, or acquiring and retaining the shares of any company engaged in any activity, that is either (1) financial in nature or incidental to such financial activity [as determined by the Federal Reserve Board in consultation with the Office of the Comptroller of the Currency (OCC)] or (2) complementary to a financial activity and does not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally (as solely determined by the Federal Reserve Board). Activities that are financial in nature include activities that the Federal Reserve Board had determined, by order or regulation in effect prior to the enactment of the GLB Act, to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. BANK SUBSIDIARIES. As federally insured national banks, Wachovia Bank, National Association (WBNA) and The First National Bank of Atlanta (FNBA) are subject to supervision and examination by the OCC and the Federal Deposit Insurance Corporation (FDIC). Atlantic Savings Bank F.S.B. (Atlantic) is a federally insured savings bank and is subject to supervision and examination by the FDIC and the OTS. OFFITBANK is a trust company chartered under New York Banking Law and is subject to supervision and examination by the New York State Banking Department. NONBANK SUBSIDIARIES. The Corporation's nonbank subsidiaries engaged in securities-related activities are regulated by the Securities and Exchange Commission (SEC). Wachovia Securities, Inc. and CapTrust Financial Advisors, LLC. conduct brokerage operations and engage in securities activities. Both subsidiaries act as broker-dealers for the sale of shares of mutual funds, including the Wachovia Funds family of mutual funds. Mecklenburg Securities, Inc. acts as a limited broker-dealer in variable life insurance and variable annuity products. Wachovia Securities, Inc., CapTrust Financial Advisors, LLC and Mecklenburg Securities, Inc. are registered broker-dealers and members of the National Association of Securities Dealers, Inc., a securities industry self-regulatory organization. During 1999, Wachovia Investments, Inc. also acted as a broker-dealer by engaging in brokerage operations and in securities activities. On February 11, 2000, Wachovia Investments, Inc. was merged into Wachovia Securities, Inc. INVESTMENT ADVISORS AND INVESTMENT COMPANIES. Certain of the Corporation's subsidiaries are registered investment advisors under the Investment Advisors Act of 1940 and, as such, are supervised by the SEC. They also are subject to various U.S. federal and state laws and regulations and to the laws of any other countries in which they conduct business. These laws and regulations generally grant supervisory agencies broad administrative powers, including the power to limit or restrict the conduct of business due to failure to comply with such laws and regulations. The possible sanctions that may be imposed for violations of these laws and regulations include the suspension of individual employees, limitations on engaging in business for specific periods, the revocation of the registration as an investment advisor, censures and fines. Each investment company (as defined in the Investment Company Act of 1940) which is advised by a subsidiary of the Corporation, including the Wachovia Funds and OFFITBANK families of mutual funds, is registered with the SEC. MSRB AND CFTC. Certain of the Corporation's public finance activities are regulated by the Municipal Securities Rulemaking Board. Wachovia Securities, Inc. and certain of the Corporation's other subsidiaries are registered with the Commodity Futures Trading Commission (CFTC) and are subject to CFTC regulation. PAYMENT OF DIVIDENDS AND OTHER RESTRICTIONS The Corporation is a legal entity separate and distinct from its subsidiaries. There are various legal and regulatory limitations on the extent to which the Corporation's subsidiaries, including its bank and savings and loan subsidiaries, can finance or otherwise supply funds to the Corporation. The principal source of the Corporation's cash revenues is dividends from its subsidiaries, and there are certain legal restrictions under federal and state law on the payment of dividends by such subsidiaries. The amount of dividends that may be paid by WBNA and FNBA without regulatory approval is limited to the lesser of (i) its net profits for the current year combined with its -3- retained net profits for the preceding two calendar years or (ii) its cumulative undivided profits. The relevant regulatory agencies also have authority to prohibit a bank holding company, which would include the Corporation, or a national banking association from engaging in what, in the opinion of such regulatory body, constitutes an unsafe or unsound practice in conducting its business. The payment of dividends could, depending upon the financial condition of the subsidiary, be deemed to constitute an unsafe or unsound practice. Under applicable law, as a savings bank, Atlantic must give the OTS 30 days prior notice of any proposed payment of dividends. WBNA and FNBA and their respective subsidiaries are subject to limitations under Section 23A of the Federal Reserve Act with respect to extensions of credit to, investments in, and certain other transactions with, the corporation and its other subsidiaries. Furthermore, loans and extensions of credit also are subject to various collateral requirements. CAPITAL ADEQUACY The federal bank regulatory agencies have adopted minimum risk-based and leverage capital guidelines for U.S. banking organizations. The minimum required risk-based capital ratio of qualifying total capital to risk-weighted assets (including certain off-balance sheet items, such as standby letters of credit) is 8%, of which 4% must consist of Tier I capital. The minimum required leverage capital ratio (Tier I capital to average total assets) is 3% for banking organizations that meet certain specified criteria, including that they have the highest regulatory rating. Failure to meet capital guidelines can subject a banking organization to a variety of enforcement remedies, including additional substantial restrictions on its operations and activities, termination of deposit insurance by the FDIC, and under certain conditions the appointment of a receiver or conservator. Federal banking statutes establish five capital categories for depository institutions ("well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized" and "critically undercapitalized") and impose significant restrictions on the operations of an institution that is not at least adequately capitalized. Under certain circumstances, an institution may be downgraded to a category lower than that warranted by its capital levels and subjected to the supervisory restrictions applicable to institutions in the lower capital category. A depository institution is generally prohibited from making capital distributions (including paying dividends) or paying management fees to a holding company if the institution would thereafter be under capitalized. Adequately capitalized institutions may accept brokered deposits only with a waiver from the FDIC, while undercapitalized institutions may not accept, renew or rollover brokered deposits. An undercapitalized depository institution also is subject to restrictions in a number of areas, including asset growth, acquisitions, branching, new lines of business and borrowing from the Federal Reserve System. In addition, an undercapitalized depository institution is required to submit a capital restoration plan. A depository institution's holding company must guarantee the capital plan up to an amount equal to the lesser of 5% of the depository institution's assets at the time it becomes undercapitalized or the amount needed to restore the capital of the institution to the levels required for the institution to be classified as adequately capitalized at the time the institution fails to comply with the plan and any such guarantee would be entitled to a priority of payment in bankruptcy. A depository institution is treated as if it is significantly undercapitalized if it fails to submit a capital plan that (i) is based on realistic assumptions and (ii) is likely to succeed in restoring the depository institution's capital. Significantly undercapitalized depository institutions may be subject to a number of additional significant requirements and restrictions, including requirements to sell sufficient voting stock to become adequately capitalized, to replace or improve management, to reduce total assets, to cease acceptance of correspondent bank deposits, to restrict senior executive compensation and to limit transactions with affiliates. Critically undercapitalized depository institutions are further subject to restrictions on paying principal or interest on subordinated debt, making investments, expanding, acquiring or selling assets, extending credit for highly leveraged transactions, paying excessive compensation, amending their charters or bylaws and making any material changes in accounting methods. In general, a receiver or conservator must be appointed for a depository institution within 90 days after the institution is deemed to be critically undercapitalized. SUPPORT OF SUBSIDIARY BANKS Under Federal Reserve Board policy, the Corporation is expected to act as a source of financial strength to, and to commit resources to support its banking subsidiaries. This support may be required at times when, absent such FRB policy, the Corporation may not be inclined to provide it. In the event of a bank holding company's bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to a priority in payment. -4- A depository institution insured by the FDIC can be held liable for any loss incurred by, or reasonably expected to be incurred by, the FDIC in connection with the default of a commonly controlled FDIC insured depository institution or any assistance provided by the FDIC to any commonly controlled FDIC insured depository institution "in danger of default." Default is defined generally as the appointment of a conservator or receiver and "in danger of default" is defined generally as the existence of certain conditions indicating that a default is likely to occur in the absence of regulatory assistance. Liability for the losses of commonly controlled depository institutions can lead to the failure of some or all depository institutions in a holding company structure, if the remaining institutions are unable to pay the liability assessed by the FDIC. Any obligation or liability owed by a subsidiary bank to its parent company is subordinate to the subsidiary bank's cross-guarantee liability for losses of commonly controlled depository institutions. FDIC INSURANCE ASSESSMENTS All of the deposits of the Corporation's bank and thrift subsidiaries are subject to FDIC deposit insurance assessments. The FDIC has authority to raise or lower assessment rates on insured deposits in order to achieve certain designated reserve ratios in the Bank Insurance Fund (BIF) and the Savings Association Insurance Fund (SAIF) and to impose special additional assessments. The FDIC applies a risk-based assessment system that places each financial institution into one of nine risk categories, based on capital levels and supervisory criteria and an evaluation of the bank's risk to the BIF or SAIF, as applicable. The current FDIC premium schedule for the SAIF and the BIF ranges from 0% to 0.27%. COMMUNITY REINVESTMENT ACT The Community Reinvestment Act requires banks to help serve the credit needs in their communities, including credit to low and moderate income individuals and geographies. Should the Corporation or its bank subsidiaries fail to adequately serve the community, there are penalties which might be imposed, including denials to expand branches, relocate, add subsidiaries and affiliates, expand into new financial activities and merge with or purchase other financial institutions. LEGISLATIVE INITIATIVES Various legislative initiatives are from time to time introduced in Congress. The Corporation cannot determine the ultimate effect that any such potential legislation, if enacted, would have upon its financial condition or operations. ITEM 2 - PROPERTIES The principal offices of the Corporation and its subsidiaries are located at 100 North Main Street, Winston-Salem, North Carolina, where the Corporation owns and occupies approximately 545,000 square feet of office space. Offices are also maintained at 191 Peachtree Street, N.E., Atlanta, Georgia, under a 382,000 square foot office space lease expiring in 2008. Incorporated herein by reference is the table captioned "Selected Year-End Data" on page 3 of the Corporation's 1999 Annual Report to Shareholders which lists the number of banking offices. The Corporation's banking subsidiaries own in fee 453 offices, while the others are leased or are located on leased land. The approximate lease terms range from one to fifty years on these properties. In addition, the Corporation's banking subsidiaries own in fee or lease a number of multistory office buildings which house supporting services. Other subsidiaries of the Corporation maintain leased office space in cities in which they conduct their respective operations. ITEM 3 - LEGAL PROCEEDINGS There are no legal proceedings against the Corporation or any of its subsidiaries that would have a material adverse effect upon the Corporation or its consolidated financial condition. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None -5- PART II ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Incorporated herein by reference is the information on pages 100 and 101 of the Corporation's 1999 Annual Report to Shareholders under the heading "Stock Data." ITEM 6 - SELECTED FINANCIAL DATA Incorporated herein by reference is the information in the table captioned "Financial Summary" on page 29 of the Corporation's 1999 Annual Report to Shareholders. ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Incorporated herein by reference is the information appearing under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 29 through 71 of the Corporation's 1999 Annual Report to Shareholders, except for the information in the table captioned "Financial Summary" on page 29 of the Corporation's 1999 Annual Report to Shareholders. ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Incorporated herein by reference is the information appearing under the sections captioned "Market Risk and Asset/Liability Management," "Trading Market Risk" and "Nontrading Market Risk" on pages 46 through 49 of the Corporation's 1999 Annual Report to Shareholders. ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Incorporated herein by reference is the information appearing under the headings "Report of Independent Auditors," "Consolidated Statements of Condition," "Consolidated Statements of Income," "Consolidated Statements of Shareholders' Equity," "Consolidated Statements of Cash Flows" and "Notes to Consolidated Financial Statements" on pages 72 through 93 of the Corporation's 1999 Annual Report to Shareholders. Incorporated by reference is the information in the table captioned "Financial Summary" on page 62 of the Corporation's 1999 Annual Report to Shareholders. ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10- DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information concerning the Corporation's directors is incorporated by reference in the sections entitled "Election of Directors" on pages 2 through 7 of the Corporation's definitive Proxy Statement for the 2000 Annual Meeting of Shareholders. -6- The names, ages and positions of the executive officers of the Corporation as of January 31, 2000 are shown below along with their business experience during the past five years and the year of their employment with the Corporation and subsidiaries. Officers are elected annually by the Board of Directors and hold office for one year or until their successors are chosen and qualified. There are no family relationships between any of them, nor is there any arrangement or understanding between any officer and any other person pursuant to which the officer was selected.
NAME, AGE BUSINESS EXPERIENCE DURING PAST AND POSITION FIVE YEARS AND YEAR EMPLOYED - ------------ ---------------------------- L. M. Baker, Jr., 57 Chairman of the Board of Wachovia Bank, N.A. since April 1998; Chief Executive Officer of Chairman of the Board Wachovia Bank, N.A. since June 1997; President of Wachovia Corporation, February 1993 - April since April 1998; Director 1999; President of Wachovia Bank, N.A., June 1997 - April 1999; Chief Operating Officer of since 1993 and Chief Wachovia Corporation, February-December 1993; Executive Vice President of Wachovia Corporation Executive Officer since until January 1993; President and Chief Executive Officer of Wachovia Corporation of North January 1994 Carolina, January 1990 - March 1993. President and Chief Executive Officer of Wachovia Bank of North Carolina, N.A., January 1990 - May 1993. Employed in 1969. Jean E. Davis, 45 President of Wachovia Operational Services Corporation since December 1999; Senior Executive Senior Executive Vice Vice President of Wachovia Bank, N.A. since April 1999; Executive Vice President of Wachovia President since April 1999 Corporation, January 1998 - April 1999; Executive Vice President of Wachovia Bank, N.A., April 1998 - April 1999; Regional Vice President of Wachovia Bank, N.A., 1996 - 1998. Employed in 1985. Mickey W. Dry, 60 Executive Vice President of Wachovia Corporation, November 1989 - October 1997; Senior Senior Executive Vice Executive Vice President of Wachovia Bank, N.A. since July 1997; Executive Vice President of President since October 1997 Wachovia Bank of North Carolina, N.A., October 1989 - July 1997. Employed in 1961. and Chief Credit Officer since November 1989 Stanhope A. Kelly, 42 Senior Executive Vice President of Wachovia Bank, N.A. since April 1999; Executive Vice Senior Executive Vice President of Wachovia Corporation, October 1997 - April 1999; Executive Vice President of President since April 1999 Wachovia Bank, N.A., October 1997 - April 1999; Senior Vice President of Wachovia Corporation, 1996 - 1997; Regional Vice President of Wachovia Bank of North Carolina, N.A., 1994 - 1996. Employed in 1980. Robert S. Kniejski, 44 Executive in charge of Wachovia Corporation's Asset and Wealth Management Division since 1999; Executive Vice President Division Executive of Personal Financial Services 1995 - 1999; Senior Vice President of since October 1997 Wachovia Corporation, 1996 - 1997; Senior Vice President/Group Executive of Wachovia Investments, Inc., 1993 - 1995; Executive Vice President of Wachovia Bank, N.A. since October 1997; Senior Vice President/Group Executive of Wachovia Bank, N.A., 1991 - 1997. Employed in 1987. Walter E. Leonard, Jr., 54 Senior Executive Vice President of Wachovia Corporation, October 1997 - April 1999; Executive Vice Chairman since April Vice President of Wachovia Corporation, October 1988 - October 1997; Senior Executive Vice 1999, Retired effective President of Wachovia Bank, N.A. July 1997 - April 1999; Executive Vice President of Wachovia February 1, 2000 Bank of Georgia, N.A. until June 1997; President of Wachovia Operational Services Corporation 1988 - December 1999. Employed in 1965. Kenneth W. McAllister, 51 Executive Vice President of Wachovia Corporation, January 1994 - October 1997. Employed in Senior Executive Vice 1988. President since October 1997 and General Counsel since 1988
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NAME, AGE BUSINESS EXPERIENCE DURING PAST AND POSITION FIVE YEARS AND YEAR EMPLOYED - ------------ ---------------------------- Robert S. McCoy, Jr., 61 Vice Chairman of Wachovia Bank, N.A. since April 1999; Senior Executive Vice President of Vice Chairman since April Wachovia Corporation, October 1997 - April 1999; Senior Executive Vice President of Wachovia 1999 and Chief Financial Bank, N.A. July 1997 - April 1999; Executive Vice President of Wachovia Corporation, January Officer since September 1992 1992 - October 1997; Executive Vice President of Wachovia Bank of North Carolina, N.A., 1992 - 1997; Chief Financial Officer of Wachovia Bank of North Carolina, N.A. since 1992. Employed in 1984. John C. McLean, Jr., 51 Senior Executive Vice President of Wachovia Bank, N.A. since April 1999; Executive in charge of Senior Executive Vice Wachovia Corporation's Corporate Financial Services Division since January 1999; Executive Vice President since April 1999 President of Wachovia Corporation, October 1997 - April 1999; Executive Vice President of Wachovia Bank, N.A., October 1997 - April 1999; Senior Vice President of Wachovia Corporation, 1993 - 1997; Division Executive for Consumer Credit and Emerging Businesses, 1996-1997; Comptroller of Wachovia Corporation, 1993 - 1996. Employed in 1975. G. Joseph Prendergast, 54 President and Chief Operating Officer of Wachovia Bank, N.A. since April 1999; Senior Executive President and Chief Vice President of Wachovia Corporation, October 1997 - April 1999; Executive Vice President of Operating Officer since April Wachovia Corporation, October 1988 - October 1997; Senior Executive Vice President of Wachovia 1999 Bank, N.A. July 1997 - April 1999; Chairman of Wachovia Bank of Georgia, N.A., January 1994 - June 1997; Chairman of Wachovia Bank of South Carolina, N.A., July 1995 - June 1997; President and Chief Executive Officer of Wachovia Bank of Georgia, N.A., January 1993 - January 1995; President and Chief Executive Officer of Wachovia Corporate Services, Inc. until July 1994. Employed in 1973. Donald K. Truslow, 41 Senior Executive Vice President of Wachovia Bank, N.A. since April 1999; Executive Vice Senior Executive Vice President of Wachovia Corporation, October 1997 - April 1999; Senior Vice President of Wachovia President since April 1999, Corporation, April 1996 - October 1997; Executive Vice President, Wachovia Corporate Services, Treasurer since January 1998 September 1995 - April 1996; Executive Vice President and Chief Credit Officer, Wachovia Bank and Comptroller since June of South Carolina, N.A., January 1992 - September 1995. Employed in 1980. 1996 Beverly B. Wells, 49 Executive in charge of Retail Financial Services Division since April 1999; Executive Vice Executive Vice President President of Wachovia Bank, N.A. since October 1997; Senior Vice President of Wachovia since October 1997 Corporation January 1995 - October 1997; President of Wachovia Bank Card Services, 1994 - 1997; Manager of Wachovia Treasury Services, 1993 - 1994; Employed in 1976.
During the past five years, there have been no events under any bankruptcy act, no criminal proceedings and no judgments or injunctions material to an evaluation of the ability or integrity of any of Wachovia's executive officers, directors, or any persons nominated to become directors. ITEM 11 - EXECUTIVE COMPENSATION The information required by this item is incorporated by reference to the sections entitled "Compensation," "Stock Options and Stock Appreciation Rights" and "Other Executive Compensation Plans and Arrangements" on pages 14 through 19 of the Corporation's definitive Proxy Statement for the 2000 Annual Meeting of Shareholders. Information regarding compensation arrangements for the Corporation's Directors is incorporated by reference to the section entitled "Additional Information Concerning the Board of Directors" on pages 8 and 9 of the Corporation's definitive Proxy Statement for the 2000 Annual Meeting of Shareholders. -8- ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated by reference to the sections entitled "Stock Ownership of Directors and Executive Officers" and "Section 16(a) Beneficial Ownership Reporting Compliance" on pages 10 and 11 of the Corporation's definitive Proxy Statement for the 2000 Annual Meeting of Shareholders. ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated by reference to the section entitled "Certain Transactions Involving Directors and Executive Officers" on pages 19 and 20 of the Corporation's definitive Proxy Statement for the Annual Meeting of Shareholders. PART IV ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report: 1. Financial Statements. The following Consolidated Financial Statements of Wachovia Corporation and subsidiaries and the Independent Auditors' Report are incorporated by reference on pages 72 through 93 of the Corporation's 1999 Annual Report to Shareholders: Report of Independent Auditors. Consolidated Statements of Condition at December 31, 1999 and December 31, 1998. Consolidated Statements of Income for the years ended December 31, 1999, December 31, 1998 and December 31, 1997. Consolidated Statements Shareholders' Equity for the years ended December 31, 1999, December 31, 1998 and December 31, 1997. Consolidated Statements of Cash Flows for the years ended December 31, 1999, December 31, 1998 and December 31, 1997. Notes to Consolidated Financial Statements. 2. Exhibits. The exhibits listed on the accompanying Index to Exhibits immediately following the signature page are filed as part of, or incorporated by reference into, this report. (b) Reports on Form 8-K None -9- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WACHOVIA CORPORATION Date: March 28, 2000 By: /s/ L.M. BAKER, JR. ---------------------- L.M. Baker, Jr. Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated.
Signature Title Date --------- ----- ---- /s/ L.M. BAKER, JR. Chairman of the Board, Chief Executive Officer March 28, 2000 - -------------------------------------------- and Director (Principal Executive Officer) L.M. Baker, Jr. /s/ ROBERT S. MCCOY, JR. Vice Chairman and Chief Financial Officer March 28, 2000 - -------------------------------------------- (Principal Financial Officer) Robert S. McCoy, Jr. /s/ DONALD K. TRUSLOW Senior Executive Vice President, Comptroller and March 28, 2000 - -------------------------------------------- Treasurer (Principal Accounting Officer) Donald K. Truslow */s/ JAMES S. BALLOUN Director March 28, 2000 - -------------------------------------------- James S. Balloun */s/ PETER C. BROWNING Director March 28, 2000 - -------------------------------------------- Peter C. Browning */s/ JOHN T. CASTEEN, III Director March 28, 2000 - -------------------------------------------- John T. Casteen, III */s/ JOHN L. CLENDENIN Director March 28, 2000 - -------------------------------------------- John L. Clendenin */s/ THOMAS K. HEARN, JR. Director March 28, 2000 - -------------------------------------------- Thomas K. Hearn, Jr. */s/ GEORGE W. HENDERSON, III Director March 28, 2000 - ------------------------------------ George W. Henderson, III */s/ W. HAYNE HIPP Director March 28, 2000 - -------------------------------------------- W. Hayne Hipp */s/ ROBERT A. INGRAM Director March 28, 2000 - -------------------------------------------- Robert A. Ingram */s/ GEORGE R. LEWIS Director March 28, 2000 - -------------------------------------------- George R. Lewis */s/ ELIZABETH VALK LONG Director March 28, 2000 - -------------------------------------------- Elizabeth Valk Long
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Signature Title Date --------- ----- ---- */s/ JOHN G. MEDLIN, JR. Director March 28, 2000 - -------------------------------------------- John G. Medlin, Jr. */s/ LLOYD U. NOLAND, III Director March 28, 2000 - -------------------------------------------- Lloyd U. Noland, III */s/ MORRIS W. OFFIT Director March 28, 2000 - -------------------------------------------- Morris W. Offit */s/ G. JOSEPH PRENDERGAST Director March 28, 2000 - ------------------------------------ G. Joseph Prendergast */s/ SHERWOOD H. SMITH, JR. Director March 28, 2000 - ------------------------------------ Sherwood H. Smith, Jr. */s/ JOHN C. WHITAKER, JR. Director March 28, 2000 - -------------------------------------------- John C. Whitaker, Jr. *By: /s/ WILLIAM M. WATSON, JR. March 28, 2000 - ------------------------------------ William M. Watson, Jr., Attorney-in-Fact
-11- EXHIBIT INDEX Exhibit Number Description - ------ ----------- 3.1 Amended and Restated Articles of Incorporation of the registrant. (incorporated by reference to Exhibit 3.1 of Report on Form 10-Q of Wachovia Corporation for the quarter ended June 30, 1998, File No. 1-9021.) 3.2 Bylaws of the registrant as amended (incorporated by reference to Exhibit 3.2 of Form S-4 Registration Statement of Wachovia Corporation dated December 14, 1998, File No. 333-68823.) 4 Instruments defining the rights of security holders, including indentures - Wachovia Corporation hereby agrees to furnish to the Commission, upon request, a copy of any instruments defining the rights of security holders that are not required to be filed. 4.1 Articles IV, VII, IX, X and XI of the registrant's Amended and Restated Articles of Incorporation (included in Exhibit 3.1 hereto.) 4.2 Article 1, Section 1.8, and Article 6 of the registrant's Bylaws (included in Exhibit 3.2 hereto.) 4.3 Indenture dated as of May 15, 1986 between South Carolina National Corporation and Morgan Guaranty Trust Company of New York, as Trustee, relating to $35,000,000 principal amount of 6 1/2% Convertible Subordinated Debentures due in 2001 (incorporated by reference to Exhibit 28 of 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, Trustee, amending the Indenture described in Exhibit 4.3 hereto (incorporated by reference to Exhibit 4.10 of Report on Form 10-K of Wachovia Corporation for the 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 (incorporated by reference to Exhibit 4(a) of Form 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 (incorporated by reference to Exhibit 4.12 of Report on Form 10-K of Wachovia Corporation for the year ended December 31, 1991, File No. 1-9021.) 4.7 Indenture dated as of July 15, 1998 between Wachovia Corporation and The Chase Manhattan Bank, as Trustee, relating to subordinated debt securities (incorporated by reference to Exhibit 4 (b) of Form S-3 Registration Statement of Wachovia Corporation, File No. 333-59165.) 4.8 Indenture dated as of August 15, 1996 between Wachovia Corporation and The Chase Manhattan Bank, as Trustee, relating to senior debt securities (incorporated by reference to Exhibit 4(a) of Post-Effective Amendment No. 1 of Form S-3 Registration Statement of Wachovia Corporation, File No. 33-6280.) 4.9 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). (incorporated by reference to Exhibit 4(c) of Amendment No. 1 of Form S-3 Registration Statement of Wachovia Corporation and Wachovia Capital Trust II dated January 22, 1997, File No. 333-19365.) 4.10 Amended and Restated Declaration of Trust of Wachovia Capital Trust II, relating to Preferred Securities (incorporated by reference to Exhibit 4(b)(iv) of Amendment No. 1 of Form S-3 Registration Statement of Wachovia Corporation and Wachovia Capital Trust II dated January 22, 1997, File No. 333-19365.) -12- EXHIBIT INDEX (continued) Exhibit Number Description - ------ ----------- 4.11 Preferred Securities Guarantee Agreement of Wachovia Corporation (incorporated by reference to Exhibit 4 (g) of Amendment No. 1 of Form S-3 Registration Statement of Wachovia Corporation and Wachovia Capital Trust II dated January 22, 1997, File No. 333-19365.) 4.12 Indenture between Central Fidelity Banks, Inc. and Chemical Bank, as Trustee, relating to $150,000,000 principal amount of subordinated debt securities (incorporated by reference to Exhibit 4.1 of Form 8-K of Central Fidelity Banks, Inc., dated November 18, 1992, File No. 0-8829.) 4.13 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 (incorporated by reference to Exhibit 4.1 of Form S-3 Registration Statement of Central Fidelity Banks, Inc., dated April 23, 1997, File No. 333-28917.) 4.14 Amended and Restated Declaration of Trust of Central Fidelity Capital Trust I (incorporated by reference to Exhibit 4.4 of Form S-3 Registration Statement of Central Fidelity Banks, Inc., dated April 23, 1997, File No. 333-28917.) 4.15 Form of New Guarantee Agreement for the benefit of the holders of the Trust Securities (incorporated by reference to Exhibit 4.6 of Form S-3 Registration Statement of Central Fidelity Banks, Inc., dated as of April 23, 1997, File No. 333-28917.) 10.1 Senior Management Incentive Plan of Wachovia Corporation as amended through January 1, 1999 (incorporated by reference to Exhibit 10.4 of Report on Form 10-Q of Wachovia Corporation for the quarter ended June 30, 1999, File No. 1-9021.) 10.2 Retirement Savings and Profit-Sharing Benefit Equalization Plan of Wachovia Corporation (incorporated by reference to Exhibit 10.3 of Quarterly Report on Form 10-Q of Wachovia Corporation for the quarter ended June 30, 1995, File No. 1-9021.) 10.3 Employment Agreement between Wachovia Corporation and L. M. Baker, Jr. dated as of November 29, 1999. 10.4 Employment Agreement between Wachovia Corporation and Robert S. McCoy, Jr. dated as of October 22, 1999. 10.5 Employment Agreement between Wachovia Corporation and G. Joseph Prendergast dated as of October 22, 1999. 10.6 Employment Agreement between Wachovia Corporation and Mickey W. Dry dated as of October 22, 1999. 10.7 Employment Agreement between Wachovia Corporation and Walter E. Leonard, Jr. dated as of October 22, 1999. 10.8 Form of Employment Agreement between Wachovia Corporation and Executive Officers (other than Messrs. Baker, McCoy, Prendergast, Dry and Leonard.) 10.9 Employment Agreement between Wachovia Corporation and Morris W. Offit dated as of May 13, 1999 (incorporated by reference to Exhibit 10.1 of Form S-4 Registration Statement of Wachovia Corporation dated June 25, 1999, File No. 1-9021.) 10.10 Senior Executive Retirement Agreement between Wachovia Corporation and L. M. Baker, Jr. dated as of November 29, 1999. -13- EXHIBIT INDEX (continued) Exhibit Number Description - ------ ----------- 10.11 Senior Executive Retirement Agreement between Wachovia Corporation and Robert S. McCoy, Jr. dated as of October 22, 1999. 10.12 Senior Executive Retirement Agreement between Wachovia Corporation and G. Joseph Prendergast dated as of October 22, 1999. 10.13 Senior Executive Retirement Agreement between Wachovia Corporation and Mickey W. Dry dated as of October 22, 1999. 10.14 Senior Executive Retirement Agreement between Wachovia Corporation and Walter E. Leonard, Jr. dated as of October 22, 1999. 10.15 Form of Senior Executive Retirement Agreement between Wachovia Corporation and Executive Officers (other than Messrs. Baker, McCoy, Prendergast, Dry and Leonard.) 10.16 Senior Management and Director Stock Plan of Wachovia Corporation (incorporated by reference to Exhibit 10 of Quarterly Report on Form 10-Q of First Wachovia Corporation for the quarter ended March 31, 1989, File No. 1-9021.) 10.17 1990 Declaration of Amendment to Senior Management and Director Stock Plan as described in Exhibit 10.16 hereto (incorporated by reference to Exhibit 10.17 of Report on Form 10-K of First Wachovia Corporation for the year ended December 31, 1989, File No. 1-9021.) 10.18 1996 Declaration of Amendment to Senior Management and Director Stock Plan as described in Exhibit 10.16 hereto (incorporated by reference to Exhibit 10.24 of Report on Form 10-K of Wachovia Corporation for the year ended December 31, 1996, File No. 1-9021.) 10.19 Deferred Compensation Plan dated as of January 19, 1987, as amended (Incorporated by reference to Exhibit 10(c) to Report on Form 10-K of South Carolina National Corporation for the year ended December 31, 1986, File No. 0-7042). 10.20 Amendment to Deferred Compensation Plan described in Exhibit 10.19 hereto (incorporated by reference to Exhibit 19(b) of Quarterly Report on Form 10-Q of South Carolina National Corporation for the quarter ended September 30, 1987, File No. 0-7042.) 10.21 Amendment to Deferred Compensation Plan described in Exhibit 10.19 hereto (incorporated by reference to Exhibit 10(d) of Report on Form 10-K of South Carolina National Corporation for the year ended December 31, 1988, File No. 0-7042.) 10.22 Amendment to Deferred Compensation Plan described in Exhibit 10.19 hereto (incorporated by reference to Exhibit 10.35 of Report on Form 10-K of Wachovia Corporation for the year ended December 31, 1993, File No. 1-9021.) 10.23 Amended and Restated Wachovia Corporation Stock Plan (incorporated by reference to Exhibit 4.1 of Form S-8 Registration Statement File No. 033-53325.) 10.24 Wachovia Corporation Director Deferred Stock Unit Plan (incorporated by reference to Exhibit 10.37 of Report on Form 10-K of Wachovia Corporation for the year ended December 31, 1996, File No. 1-9021.) -14- EXHIBIT INDEX (continued) Exhibit Number Description - ------ ----------- 10.25 Wachovia Corporation Executive Insurance Plan (incorporated by reference to Exhibit 10.36 of Report on Form 10-K of Wachovia Corporation for the year ended December 31, 1995, File No. 1-9021.) 10.26 Executive Long-Term Disability Income Plan (incorporated by reference to Exhibit 10.34 of Report on Form 10-K of Wachovia Corporation for the year ended December 31, 1997, File No. 1-9021.) 10.27 Deferred Compensation Plan of Wachovia Bank of North Carolina, N.A. (incorporated by reference to Exhibit 10.1 of Report on Form 10-K of Wachovia Corporation for the year ended December 31,1992, File No. 1-9021.) 10.28 1983 Amendment to Deferred Compensation Plan described in Exhibit 10.27 hereto (incorporated by reference to Exhibit 10.2 of Report on Form 10-K of Wachovia Corporation for the year ended December 31, 1992, File No. 1-9021.) 10.29 1986 Amendment to Deferred Compensation Plan described in Exhibit 10.27 hereto (incorporated by reference to Exhibit 10.9 of Report on Form 10-K of First Wachovia Corporation for the year ended December 31, 1986, File No. 1-9021.) 10.30 Agreement between Wachovia Corporation and John G. Medlin, Jr. (incorporated by reference to Exhibit 10.13 of Report on Form 10-Q of Wachovia Corporation for the quarter ended June 30, 1998, File No. 1-9021.) 10.31 Executive Retirement Agreement between Wachovia Corporation and John G. Medlin, Jr. (incorporated by reference to Exhibit 10.18 of Report on Form 10-K of First Wachovia Corporation for the year ended December 31, 1987, File No. 1-9021.) 10.32 Amendment to Executive Retirement Agreement described in Exhibit 10.31 hereto (incorporated by reference to Exhibit 10.17 of Report on Form 10-K of Wachovia Corporation for the year ended December 31, 1991, File No. 1-9021.) 10.33 Amendment to Executive Retirement Agreement described in Exhibit 10.31 hereto (incorporated by reference to Exhibit 10.3 of Quarterly Report on Form 10-Q of Wachovia Corporation for the quarter ended September 30, 1993, File No. 1-9021.) 10.34 Amendment to Executive Retirement Agreement described in Exhibit 10.31 hereto (incorporated by reference to Exhibit 10.4 of Quarterly Report on Form 10-Q of Wachovia Corporation for the quarter ended September 30, 1993, File No. 1-9021.) 10.35 Wachovia Corporation Incentive Plan Deferral Arrangement (incorporated by reference to Exhibit 10.35 of Report on Form 10-K of Wachovia Corporation for the year ended December 31, 1995, File No. 1-9021.) 10.36 Form 11-K of the Retirement Savings and Profit-Sharing Plan of Wachovia Corporation to be filed as an amendment to Form 10-K for the year ended December 31, 1999. 11 "Computation of Earnings Per Common Share" (incorporated by reference to Note P on page 91 of the Corporation's 1999 Annual Report to Shareholders.) 12 Statement setting forth computation of ratio of earnings to fixed charges. 13 Wachovia Corporation's 1999 Annual Report to Shareholders (except for those portions expressly incorporated by reference herein, this report is not "filed" as part of this Report on Form 10-K.) -15- EXHIBIT INDEX (concluded) Exhibit Number Description - ------ ----------- 21 Subsidiaries of Wachovia Corporation. 23 Consent of Ernst & Young LLP. 24 Power of Attorney. 27 Financial Data Schedule (for SEC purposes only.) Exhibits 10.3 through 10.35 are management contracts or compensatory plans or arrangements of the Corporation. -16- EX-10.3 2 EMPLOYMENT AGREEMENT-BAKER EXHIBIT 10.3 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT, made as of the 29th day of November, 1999, by and between WACHOVIA CORPORATION (the "Corporation") and L. M. Baker, Jr. (the "Executive"); R E C I T A L S: The Corporation desires to secure the services of the Executive in its behalf or in behalf of one or more of its subsidiaries for which the Executive shall render services hereunder from time to time, in accordance with the terms and conditions set forth herein. In addition, the Corporation desires to provide the Executive with an incentive to remain in the service of the Corporation or one or more of its subsidiaries by granting to the Executive "Continuation Benefits" as set forth below should his employment be terminated under circumstances described herein for which Continuation Benefits are provided. NOW, THEREFORE, the Corporation and the Executive hereby mutually agree as follows: 1. a. Employment. The Executive shall devote his working time exclusively to the performance of such senior management duties for the Corporation or one or more of its subsidiaries as may be assigned to him by the Corporation from time to time, and shall perform such duties faithfully and to the best of his ability. Such duties shall be of a type for which the Executive is suited by background, experience and training, in the Corporation's sole discretion. References herein to duties performed for the Corporation and compensation and benefits payable or provided by the Corporation shall include duties performed for and compensation and benefits payable or provided by any subsidiary of the Corporation. The Executive may participate in other business activities, such as service on corporate, civic or charitable boards or committees, with the permission of the Corporation, and such activities shall be subject to the obligations in Section 7 below. The Executive agrees to use his best reasonable efforts to avoid unnecessary conflict between the Executive's duties to the Corporation and his pursuit of other business or civic or charitable interests. b. Base Salary. During the employment of the Executive, the Executive shall receive an annual base salary ("Base Salary") at least equal to the annual base salary in effect for the Executive on the date of this Agreement. Base Salary shall be paid in accordance with the Corporation's normal payroll practices (but not less frequently than monthly). The Executive's Base Salary will be reviewed in accordance with the Corporation's standard procedures and may be increased from time to time consistent with such procedures. Effective as of the date of any such increase, the Base Salary as so increased shall be considered the new Base Salary for purposes of this Agreement, and may not thereafter be reduced except with the express written consent of the Executive. c. Expenses. During the employment of the Executive, the Executive shall be entitled to receive prompt reimbursement for all reasonable employment expenses incurred by the Executive in accordance with the policies, practices and procedures of the Corporation at the time the expense is incurred. 2. Term of Agreement. The term of this Agreement shall commence on the date hereof and shall continue in effect until November 29, 2002; provided, however, that commencing on the first anniversary of this Agreement, and each anniversary thereafter, the term of this Agreement shall be automatically extended for one additional year unless at least 90 days before any such anniversary date either party shall notify the other in writing that it will not extend the term of this Agreement beyond the then applicable expiration date. Notice by the Corporation of its intention not to extend the term of this Agreement and its expiration at the end of the term shall not constitute termination of employment and the Executive shall not be entitled to Continuation Benefits (as defined in Section 4 below). In no event, however, may the term of this Agreement extend beyond the Executive's sixty-second birthday. References herein to the "term" -17- of this Agreement shall mean the original term plus any continuation as provided in this Section 2. The "term" shall not be deemed to refer to the Compensation Period described in Section 4. 3. Termination of Employment by the Corporation. The Corporation may terminate the employment of the Executive at any time for any reason; provided that except as set forth in Sections 6 and 7, the Corporation shall provide the Executive with Continuation Benefits as set forth in Section 4 if the Executive's employment is involuntarily terminated during the term of the Agreement. The Executive's employment shall be deemed to be involuntarily terminated if he is terminated by the Corporation for any reason other than for "cause" as defined in Section 6, or if he voluntarily terminates employment because: (a) his Base Salary is reduced without the Executive's consent, or (b) the Corporation amends the Senior Executive Retirement Agreement between the Corporation and the Executive (the "Retirement Agreement") without the Executive's consent, and such amendment materially reduces the benefits to which the Executive would have been entitled had such amendment not been made, or (c) the duties and responsibilities assigned to the Executive as of the date of this Agreement are materially reduced and the Executive does not consent to such material reduction of duties. In order for voluntary termination pursuant to (a), (b) and (c) of this Section to be effective: (1) the Executive must give written notice to the Corporation within sixty (60) days of an event specified in clauses (a), (b) or (c) above indicating that the Executive intends to terminate employment under this Section and which describes the reasons for such termination, (2) the Executive's voluntary termination under this Section must occur within ninety (90) days after an event described in clause (a), (b) or (c) of this Section, or within ninety (90) days after the last in a series of such events, and (3) the Corporation must have failed to remedy the event described in clause (a), (b) or (c) of this Section, as the case may be, within thirty (30) days after receiving the Executive's written notice. If the Corporation so remedies the event described in clause (a), (b) or (c) of this Section, the Executive may not terminate employment under this Section on account of the event specified in the Executive's notice. 4. Continuation Benefits. If the Executive's employment hereunder is involuntarily terminated as described in Section 3, he will be entitled to receive the cash compensation and benefits described in (a), (b) and (c) below (herein, "Continuation Benefits") for the period beginning with the date of such involuntary termination and ending with the third anniversary of the date of such termination (such period, is referred to herein as the "Compensation Period"). The duration of the Compensation Period shall not be affected by the fact that the term of this Agreement otherwise would end before such Period expires. The Continuation Benefits are as follows: (a) Cash Compensation. The amount of cash compensation to be received monthly during the Compensation Period shall equal one-twelfth of the sum of (i) the Executive's highest annual Base Salary from the Corporation in effect during the 12-month period before his involuntary termination, plus (ii) an amount equal to the average of the annual incentive compensation paid to the Executive by the Corporation, if any, for the three (3) full calendar years within the final five full calendar years of his employment which will produce the highest average (or shorter period if the executive has been employed less than five years) (and annualized for any partial calendar year); provided, that the incentive compensation to be recognized for this purpose shall be approved by the Management Resources and Compensation Committee in good faith and in its sole discretion, plus (iii) the average of any annual contributions by the Corporation (excluding participant contributions) in -18- behalf of the Executive under the Retirement Savings and Profit-Sharing Plan of Wachovia Corporation and the Wachovia Corporation Executive Deferred Compensation Plan (or any successor or replacement plans) for the three (3) full calendar years within the final five full calendar years of his employment which will produce the highest average (or shorter period if the executive has been employed less than five years) (and annualized for any partial calendar year). Notwithstanding the foregoing, if the Executive's termination of employment occurs after his sixtieth birthday, the amounts described in clauses (ii) and (iii) above shall not be less than the amounts that would have been payable to the Executive had his employment terminated on his sixtieth birthday. Each monthly payment of such cash compensation shall have deducted therefrom all payroll taxes and withholdings required by law. Cash compensation shall not include any benefits or compensation provided to the Executive under the Wachovia Corporation Stock Plan, any similar plan or any successor or replacement plan. (b) Employee Benefits. During the Compensation Period the Executive shall be deemed to be continuing in the employment of the Corporation for the purpose of applying and administering employee benefit plans of the Corporation (other than any tax-qualified retirement plans) and individual contracts, if any, between the Corporation and the Executive providing supplemental or equalization payments or benefits with respect to the Executive. The Executive shall participate in any changes during the Compensation Period in benefit plans or programs applicable generally to employees of the Corporation, or to a class of employees which includes senior executives of the Corporation, but shall not have any right or option to participate in any such plan or program in which he was not a participant immediately prior to his involuntary termination of employment. Any individual contract between the Corporation and the Executive in effect at the time of his involuntary termination of employment may be terminated or amended by the Corporation to the extent permitted by the terms of such contract; provided, that during the Compensation Period the Corporation shall not, without the written consent of the Executive or except to the extent required by law, make any amendment to or terminate any one or more of the following individual contracts or plans if applicable to the Executive: (i) the Retirement Agreement; and (ii) the Wachovia Corporation Executive Deferred Compensation Plan. The Corporation shall have no obligation to the Executive to make any change or improvement in the Retirement Agreement or the Deferred Compensation Plan during the Compensation Period even if the Corporation shall make changes or improvements during such period in similar contracts or plans, if any, with or for the benefit of other senior executives of the Corporation. Notwithstanding the foregoing, if the Corporation reasonably determines that providing continued coverage under one or more of its welfare benefit plans could adversely affect the tax treatment of other participants covered under the plans, or would otherwise have adverse legal ramifications, the Corporation may, in its discretion, either (1) provide other coverage at least as valuable as the continued coverage through insurance or otherwise, or (2) pay the Executive a lump sum cash amount that reasonably approximates the after-tax value to the Executive of the premiums for continued coverage, in lieu of providing such continued coverage. (c) Stock Options, Restricted Awards, etc. The Management Resources and Compensation Committee has determined, in the exercise of its administrative discretion under the Wachovia Corporation Stock Plan (and any successor or replacement plan thereto), that the termination of the Executive's employment under this Agreement shall not constitute either a "retirement" or a "displacement" of the Executive (as those terms are defined in the Wachovia -19- Corporation Stock Plan), and that the Executive shall be deemed to continue in the employment of the Corporation during the Compensation Period for purposes of all outstanding stock options, restricted awards and other awards granted to the Executive under the Wachovia Corporation Stock Plan. At the end of the Compensation Period, and provided that the Corporation has not terminated the Executive's Compensation Period pursuant to Section 7 of this Agreement, the Executive will be deemed to have retired from employment with the Corporation for the purpose of establishing his rights under the Wachovia Corporation Stock Plan (and any successor or replacement plan thereto) and any applicable award agreement. In the event that the Executive shall engage in full-time employment permitted hereunder for another employer or on a self-employed basis during the Compensation Period, his employment with the Corporation shall be deemed to have terminated for purposes of Section 4(b) as of the date he begins such full-time employment, but the payments in Section 4(a) shall continue for the remainder of the Compensation Period and the rights under Section 4(c) shall be applicable, in each case subject to the provisions of Section 7. 5. Voluntary Termination of Employment by the Executive. The Executive reserves the right to terminate his employment voluntarily at any time for any reason following at least ninety (90) days notice to the Corporation. If such notice shall be given, this Agreement shall terminate as of the effective date of termination as set forth in such notice (or the date ninety (90) days from the date of receipt by the Corporation of such notice, if no effective date shall be set forth therein), unless sooner terminated as provided in Section 3, 6 or 8. The Executive shall not be entitled to any form of Continuation Benefits as a result of such voluntary termination, except in the event of voluntary termination pursuant to Section 3 or Section 10 of this Agreement. 6. Termination for Cause. This Agreement shall immediately terminate and neither party shall have any further obligation hereunder (including but not limited to any obligation of the Corporation to provide Continuation Benefits) if the Executive's employment is terminated for "cause." Termination for cause shall occur when termination results from the Executive's (a) criminal dishonesty, (b) refusal to perform his duties hereunder on an exclusive and substantially full-time basis, (c) refusal to act in accordance with any specific substantive instructions of the Chief Executive Officer or the Board of Directors of the Corporation, or (d) engaging in conduct which could be materially damaging to the Corporation without a reasonable good faith belief that such conduct was in the best interests of the Corporation. The determination whether a termination is for cause shall be made by the Management Resources and Compensation Committee of the Board of Directors of the Corporation (the "Committee"), and such determination shall be final and conclusive on the Executive and all other persons affected thereby. 7. Executive's Obligations; Early Termination of Compensation Period. (a) During the Compensation Period, the Executive shall provide consulting services to the Corporation at such time or times as the Corporation shall reasonably request, subject to appropriate notice and to reimbursement by the Corporation of all reasonable travel and other expenses incurred and paid by the Executive in accordance with the Corporation's current policy for expense reimbursement. In the event the Executive shall engage in full-time employment permitted hereunder during the Compensation Period for another employer or on a self-employed basis, his obligation to provide the consulting services hereunder shall be adjusted in accordance with the requirements of such employment. (b) The Executive shall not disclose to any other person the Corporation's or any of its subsidiaries' confidential information or trade secrets at any time during or after the term of this Agreement or the Compensation -20- Period. The Executive shall regard all material non-public information as confidential. The Executive will at all times refrain from taking any action or making any statements, written or oral, which are intended to or which disparage the business, goodwill or reputation of the Corporation or any of its subsidiaries, or their respective directors, officers, executives or other employees, or which could adversely affect the morale of employees of the Corporation or any subsidiaries. (c) The Executive shall not, without the Corporation's written consent, engage in competitive employment at any time during the Compensation Period. The Executive shall be deemed to engage in competitive employment if he shall render services as an owner, employee, officer, director, consultant or otherwise, for himself or any employer which conducts a business or enterprise in any area where the Corporation or affiliate of the Corporation conducts business that competes directly or indirectly with the Corporation or affiliate of the Corporation. (d) The Executive shall not, during the Compensation Period, directly or indirectly, for himself or on behalf of any other person, partnership, company or corporation, induce or attempt to induce any employee of the Corporation to leave the employ of the Corporation, or in any way interfere with the relationship between the Corporation and an employee of the Corporation except in the proper exercise of the Executive's authority. (e) In the event that the Executive shall refuse to provide consulting services in accordance with paragraph (a) of this Section, or shall materially violate the terms and conditions of paragraph (b) or (c) of this Section, the Corporation may, at its election, terminate the Compensation Period and Continuation Benefits to the Executive. The Corporation may also initiate any form of legal action it may deem appropriate seeking damages or injunctive relief with respect to any material violations of paragraph (a), (b) or (c) of this Section. (f) The Committee shall be responsible for determining whether the Executive shall have violated this Section 7, and all such determinations shall be final and conclusive. Upon the request of the Executive, the Committee will provide an advance opinion as to whether a proposed activity would violate the provisions of paragraph (c) of this Section. 8. Death and Disability. In the event that, during the term of this Agreement or during the Compensation Period, the Executive shall die or shall become entitled to benefits under the Corporation's Long-Term Disability Plan, this Agreement shall thereupon terminate and neither the Executive nor any other person shall have any further rights or benefits hereunder (including any rights to Continuation Benefits). All rights pertaining to stock options and restricted stock awards held by the Executive as of the date of his death or disability shall be governed by the terms of such stock options and restricted stock awards (and applicable plans). 9. Other Severance Benefits. Except as provided in Section 4 of this Agreement, the Executive shall not be entitled to any other form of severance benefits, including benefits otherwise payable under any of the Corporation's regular severance plans or policies, irrespective of the circumstances of his termination of employment. The Executive agrees that the payments and benefits provided hereunder, subject to the terms and conditions hereof, shall be in full satisfaction of any rights which he might otherwise have or claim by operation of law, by implied contract or otherwise, except for rights which he may have under employee benefit plans of the Corporation or other individual written contracts with the Corporation. -21- 10. Change of Control. ----------------- (a) Notwithstanding any other provision of this Agreement, if the Executive voluntarily terminates his employment for any reason, or he is involuntarily terminated, except pursuant to Section 6 (Termination for Cause), during the period beginning on the date of a Change of Control (as defined in Section 10(b) herein) and ending on the third anniversary of such date, then in either event the Executive shall be entitled to receive the Continuation Benefits described in Section 4 for a period of three years beginning with the date of such termination (without regard to the Executive's Normal Retirement Date or the last date this Agreement could terminate) and all restrictions on the restricted award made pursuant to Section 11(b) shall lapse and the Restricted Shares (as defined in Section 11(b)) shall be fully vested, nonforfeitable and freely transferable on the date of such termination. (b) For the purposes herein, a "Change of Control" shall be deemed to have occurred on the earliest of the following dates: (i) The date any entity or person shall have become the beneficial owner of, or shall have obtained voting control over, thirty (30%) percent or more of the outstanding common stock of the Corporation; (ii) The date the shareholders of the Corporation approve a definitive agreement (A) to merge or consolidate the Corporation with or into another corporation, in which the Corporation is not the continuing or surviving corporation or pursuant to which any shares of common stock of the Corporation would be converted into cash, securities or other property of another corporation, other than a merger of the Corporation in which holders of common stock immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger as immediately before, or (B) to sell or otherwise dispose of substantially all the assets of the Corporation; or (iii) The date there shall have been a change in a majority of the Board of Directors of the Corporation within a twelve month period unless the nomination for election by the Corporation's shareholders of each new director was approved by the vote of two-thirds of the directors then still in office who were in office at the beginning of the twelve month period. For the purposes herein, the term "person" shall mean any individual, corporation, partnership, group, association or other person, as such term is defined in Section13(d)(3) or Section 14(d)(2) of the Exchange Act, other than the Corporation, a subsidiary of the Corporation or any employee benefit plan(s) sponsored or maintained by the Corporation or any subsidiary thereof, and the term "beneficial owner" shall have the meaning given the term in Rule 13d-3 under the Exchange Act. (c) (i) In the event it shall be determined that any payment, benefit or distribution (or combination thereof) by the Corporation or one or more trusts established by the Corporation for the benefit of its employees, to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement, or otherwise) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1996, as amended (the "Code"), or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, hereinafter collectively referred to as the "Excise Tax"), the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and the Excise Tax imposed upon the Gross-Up Payment, the Executive retains -22- an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (ii) Subject to the provisions of Section 10(c)(iii), all determinations required to be made under this Section 10, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by a nationally recognized certified public accounting firm designated by the Executive (the "Accounting Firm") which shall provide detailed supporting calculations both to the Corporation and the Executive within fifteen business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Corporation. In the event that the Accounting Firm is serving as accountant or auditor for an individual, entity or group effecting the change in ownership or effective control (within the meaning of Section 280G of the Code), the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Corporation. Any Gross-Up Payment, as determined pursuant to this Section 10, shall be paid by the Corporation to the Executive within five days after the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall so indicate to the Executive in writing. Any determination by the Accounting Firm shall be binding upon the Corporation and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Corporation should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Corporation exhausts its remedies pursuant to Section 10(c)(iii) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Corporation to or for the benefit of the Executive. (iii) The Executive shall notify the Corporation in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Corporation of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Corporation of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Corporation (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Corporation notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (A) give the Corporation any information reasonably requested by the Corporation relating to such claim; (B) take such action in connection with contesting such claim as the Corporation shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Corporation; (C) cooperate with the Corporation in good faith in order to effectively contest such claim; and (D) permit the Corporation to participate in any proceedings relating to such claim; provided, -23- however, that the Corporation shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 10(c)(iii), the Corporation shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Corporation shall determine; provided, however, that if the Corporation directs the Executive to pay such claim and sue for a refund, the Corporation shall advance the amount of such payment to the Executive, on an interest-free basis, and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and provided, further, that if the Executive is required to extend the statute of limitations to enable the Corporation to contest such claim, the Executive may limit this extension solely to such contested amount. The Corporation's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (iv) If, after the receipt by the Executive of an amount advanced by the Corporation pursuant to Section 10(c)(iii), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Corporation's complying with the requirements of Section 10(c)(iii)) promptly pay to the Corporation the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by Company pursuant to Section 10(c)(iii), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Corporation does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 11. Retention Benefits. ------------------ (a) The Management Resources and Compensation Committee has determined, in the exercise of its administrative discretion under the Wachovia Corporation Stock Plan (and any successor or replacement plan thereto), that upon the Executive attaining age sixty, and without regard to the Executive's Normal Retirement Date: (i) All outstanding stock options shall become immediately vested and fully exercisable, and shall remain exercisable in accordance with the -24- terms of such grants or for at least one (1) year after the date the Executive actually retires; (ii) All outstanding restricted awards shall become immediately vested, nonforfeitable and freely transferable; and (iii) All other amounts shall become immediately vested and, to the extent applicable, fully vested and nonforfeitable. (b) In further consideration of the Executive's agreement to perform his duties hereunder until age sixty-two, the Corporation agrees to take all action necessary to grant to the Executive pursuant to the Wachovia Corporation Stock Plan upon his attaining age sixty, a restricted award covering 60,000 shares of common stock of the Corporation (the "Restricted Shares"). One-half (1/2) of the Restricted Shares shall become vested, nonforfeitable and freely transferable on the Executive's sixty-first and sixty-second birthdays, respectively, unless the Executive voluntarily resigns pursuant to Section 5 prior to such dates, in which case the Restricted Shares that have not yet vested shall be forfeited by the Executive. If the Executive's employment with the Corporation terminates due to his death or disability during the period from his sixtieth to his sixty-second birthday (the "Restriction Period"), the Executive (or his spouse or beneficiaries, as applicable) shall become immediately vested in that percentage of the Restricted Shares equal to the number of full months of continuous employment then completed by the Executive during the Restriction Period, divided by twenty-four. All other terms of the award shall be consistent with the Corporation's regular restricted awards. (c) If a Change of Control occurs prior to the Executive's sixtieth birthday, the Corporation shall transfer to the Executive immediately prior to the date on which the Change of Control will occur 60,000 shares of common stock of the Corporation. Such shares shall be fully vested, nonforfeitable and freely transferable by the Executive on the date they are transferred. The Corporation shall not be required to grant the restricted award described in Section 11(b) above if the 60,000 shares of common stock are transferred to the Executive pursuant to this Section 11(c). (d) With respect to any restricted award that vests and becomes nonforfeitable pursuant to this Section 11, the Executive may elect to defer the receipt of some or all of the restricted award by completing a deferral election. The deferral election must be in writing and be delivered to the Corporation (i) during the calendar year before the Executive attains age sixty; and (ii) at least six months before his sixtieth birthday. The deferral election shall be irrevocable, shall specify the applicable number of shares of stock or the amount of cash, as applicable, that the Executive wishes to defer, and shall elect a date for payment of the stock or cash that is not later than the Executive's termination of employment with the Corporation. 12. Release and Waiver of Claims. In consideration of any Continuation Benefits the Corporation provides to the Executive under this Agreement, the Executive upon termination of employment with the Corporation shall execute a separate release and waiver of claims in a form acceptable to the Corporation. The Executive shall not be eligible for any Continuation Benefits until he has executed such release and waiver of claims. 13. Notices. All notices hereunder shall be in writing and deemed properly given if delivered by hand and receipted or if mailed by registered mail, return receipt requested. Notices to the Corporation shall be directed to the Secretary of the Corporation with a copy directed to the Corporation's General Counsel. Notices to the Executive shall be directed to his last known address. Notice may not be provided by e-mail. -25- 14. Miscellaneous. ------------- (a) The waiver, whether express or implied, by either party of a violation of any of the provisions of this Agreement shall not operate or be construed as a waiver of any subsequent violation of any such provision. (b) No right, benefit or interest hereunder shall be subject to assignment, encumbrance, charge, pledge, hypothecation or set off in respect of any claim, debt or obligation, or similar process. (c) This Agreement may not be amended, modified or canceled except by written agreement of the parties. (d) Words used in this Agreement in the singular shall include the plural, and the plural shall include the singular and words in the feminine or masculine shall include the masculine and feminine, respectively, and the neuter. (e) In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions of this Agreement shall remain in full force and effect to the fullest extent permitted by law. (f) This Agreement shall be binding upon and inure to the benefit of the Executive and the Corporation, and their respective heirs, successors and assigns. (g) No benefit or promise hereunder shall be secured by any specific assets of the Corporation. The Executive shall have only the rights of an unsecured general creditor of the Corporation in seeking satisfaction of such benefits or promises. (h) This Agreement shall be governed by the construed in accordance with the laws of the State of North Carolina. (i) This Agreement sets forth the entire agreement and understanding of the parties hereto with respect to the matters covered hereby, and replaces any predecessor employment agreement between the parties hereto, and any such predecessor agreement shall be deemed terminated and neither party thereto shall have any rights or obligations thereunder. IN WITNESS WHEREOF, this Agreement has been executed by or in behalf of the parties hereto as of the date first above written. WACHOVIA CORPORATION By: _______________________________________ Chairman-Management Resources and Compensation Committee Attest: - ------------------------------------- -26- Secretary [Corporate Seal] _________________________________ (Seal) L. M. Baker, Jr. -27- EX-10.4 3 EMPLOYMENT AGREEMENT-MCCOY EXHIBIT 10.4 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT, made as of the 22nd day of October, 1999, by and between WACHOVIA CORPORATION (the "Corporation") and ROBERT S. McCOY, JR. (the "Executive"); R E C I T A L S: The Corporation desires to secure the services of the Executive in its behalf or in behalf of one or more of its subsidiaries for which the Executive shall render services hereunder from time to time, in accordance with the terms and conditions set forth herein. In addition, the Corporation desires to provide the Executive with an incentive to remain in the service of the Corporation or one or more of its subsidiaries by granting to the Executive "Continuation Benefits" as set forth below should his employment be terminated under circumstances described herein for which Continuation Benefits are provided. NOW, THEREFORE, the Corporation and the Executive hereby mutually agree as follows: 1. a. Employment. The Executive shall devote his working time exclusively to the performance of such senior management duties for the Corporation or one or more of its subsidiaries as may be assigned to him by the Corporation from time to time, and shall perform such duties faithfully and to the best of his ability. Such duties shall be of a type for which the Executive is suited by background, experience and training, in the Corporation's sole discretion. References herein to duties performed for the Corporation and compensation and benefits payable or provided by the Corporation shall include duties performed for and compensation and benefits payable or provided by any subsidiary of the Corporation. The Executive may participate in other business activities, such as service on corporate, civic or charitable boards or committees, with the permission of the Corporation, and such activities shall be subject to the obligations in Section 7 below. The Executive agrees to use his best reasonable efforts to avoid unnecessary conflict between the Executive's duties to the Corporation and his pursuit of other business or civic or charitable interests. c. Base Salary. During the employment of the Executive, the Executive shall receive an annual base salary ("Base Salary") at least equal to the annual base salary in effect for the Executive on the date of this Agreement. Base Salary shall be paid in accordance with the Corporation's normal payroll practices (but not less frequently than monthly). The Executive's Base Salary will be reviewed in accordance with the Corporation's standard procedures and may be increased from time to time consistent with such procedures. Effective as of the date of any such increase, the Base Salary as so increased shall be considered the new Base Salary for purposes of this Agreement, and may not thereafter be reduced except with the express written consent of the Executive. c. Expenses. During the employment of the Executive, the Executive shall be entitled to receive prompt reimbursement for all reasonable employment expenses incurred by the Executive in accordance with the policies, practices and procedures of the Corporation at the time the expense is incurred. 2. Term of Agreement. The term of this Agreement shall commence on the date hereof and shall continue in effect until December 31, 2001; provided, however, that commencing on the first anniversary of this Agreement, and each anniversary thereafter, the term of this Agreement shall be automatically extended for one additional year unless at least 90 days before any such anniversary date either party shall notify the other in writing that it will not extend the term of this Agreement beyond the then applicable expiration date. Notice by the Corporation of its intention not to extend the term of this Agreement and its expiration at the end of the term shall not constitute termination of employment and the Executive shall not be entitled to Continuation Benefits (as defined in Section 4 below). In no event, however, may the term of this Agreement extend beyond the Executive's sixty-second birthday. References herein to the "term" -28- of this Agreement shall mean the original term plus any continuation as provided in this Section 2. The "term" shall not be deemed to refer to the Compensation Period described in Section 4. 3. Termination of Employment by the Corporation. The Corporation may terminate the employment of the Executive at any time for any reason; provided that except as set forth in Sections 6 and 7, the Corporation shall provide the Executive with Continuation Benefits as set forth in Section 4 if the Executive's employment is involuntarily terminated during the term of the Agreement. The Executive's employment shall be deemed to be involuntarily terminated if he is terminated by the Corporation for any reason other than for "cause" as defined in Section 6, or if he voluntarily terminates employment because: (a) his Base Salary is reduced without the Executive's consent, or (b) the Corporation amends the Senior Executive Retirement Agreement between the Corporation and the Executive (the "Retirement Agreement") without the Executive's consent, and such amendment materially reduces the benefits to which the Executive would have been entitled had such amendment not been made, or (c) the duties and responsibilities assigned to the Executive as of the date of this Agreement are materially reduced and the Executive does not consent to such material reduction of duties. In order for voluntary termination pursuant to (a), (b) and (c) of this Section to be effective: (1) the Executive must give written notice to the Corporation within sixty (60) days of an event specified in clauses (a), (b) or (c) above indicating that the Executive intends to terminate employment under this Section and which describes the reasons for such termination, (2) the Executive's voluntary termination under this Section must occur within ninety (90) days after an event described in clause (a), (b) or (c) of this Section, or within ninety (90) days after the last in a series of such events, and (3) the Corporation must have failed to remedy the event described in clause (a), (b) or (c) of this Section, as the case may be, within thirty (30) days after receiving the Executive's written notice. If the Corporation so remedies the event described in clause (a), (b) or (c) of this Section, the Executive may not terminate employment under this Section on account of the event specified in the Executive's notice. 4. Continuation Benefits. If the Executive's employment hereunder is involuntarily terminated as described in Section 3, he will be entitled to receive the cash compensation and benefits described in (a), (b) and (c) below (herein, "Continuation Benefits") for the period beginning with the date of such involuntary termination and ending with the earlier of (i) the third anniversary of the date of such termination, or (ii) the Normal Retirement Date of the Executive as defined in the Retirement Agreement (such period, is referred to herein as the "Compensation Period"). The duration of the Compensation Period shall not be affected by the fact that the term of this Agreement otherwise would end before such Period expires. The Continuation Benefits are as follows: (a) Cash Compensation. The amount of cash compensation to be received monthly during the Compensation Period shall equal one-twelfth of the sum of (i) the Executive's highest annual Base Salary from the Corporation in effect during the 12-month period before his involuntary termination, plus (ii) an amount equal to the average of the annual incentive compensation paid to the Executive by the Corporation, if any, for the three (3) full calendar years within the final five full calendar years of his employment which will produce the highest average (or shorter period if the executive has been employed less than five years) (and annualized for any partial calendar year); provided, that the incentive compensation to be recognized for this purpose shall be approved by the Management Resources and Compensation Committee in good faith and in its sole discretion, plus (iii) the average of any -29- annual contributions by the Corporation (excluding participant contributions) in behalf of the Executive under the Retirement Savings and Profit-Sharing Plan of Wachovia Corporation and the Wachovia Corporation Executive Deferred Compensation Plan (or any successor or replacement plans) for the three (3) full calendar years within the final five full calendar years of his employment which will produce the highest average (or shorter period if the executive has been employed less than five years) (and annualized for any partial calendar year). Each monthly payment of such cash compensation shall have deducted therefrom all payroll taxes and withholdings required by law. Cash compensation shall not include any benefits or compensation provided to the Executive under the Wachovia Corporation Stock Plan, any similar plan or any successor or replacement plan. (b) Employee Benefits. During the Compensation Period the Executive shall be deemed to be continuing in the employment of the Corporation for the purpose of applying and administering employee benefit plans of the Corporation (other than any tax-qualified retirement plans) and individual contracts, if any, between the Corporation and the Executive providing supplemental or equalization payments or benefits with respect to the Executive. The Executive shall participate in any changes during the Compensation Period in benefit plans or programs applicable generally to employees of the Corporation, or to a class of employees which includes senior executives of the Corporation, but shall not have any right or option to participate in any such plan or program in which he was not a participant immediately prior to his involuntary termination of employment. Any individual contract between the Corporation and the Executive in effect at the time of his involuntary termination of employment may be terminated or amended by the Corporation to the extent permitted by the terms of such contract; provided, that during the Compensation Period the Corporation shall not, without the written consent of the Executive or except to the extent required by law, make any amendment to or terminate any one or more of the following individual contracts or plans if applicable to the Executive: (i) the Retirement Agreement; and (ii) the Wachovia Corporation Executive Deferred Compensation Plan. The Corporation shall have no obligation to the Executive to make any change or improvement in the Retirement Agreement or the Deferred Compensation Plan during the Compensation Period even if the Corporation shall make changes or improvements during such period in similar contracts or plans, if any, with or for the benefit of other senior executives of the Corporation. Notwithstanding the foregoing, if the Corporation reasonably determines that providing continued coverage under one or more of its welfare benefit plans could adversely affect the tax treatment of other participants covered under the plans, or would otherwise have adverse legal ramifications, the Corporation may, in its discretion, either (1) provide other coverage at least as valuable as the continued coverage through insurance or otherwise, or (2) pay the Executive a lump sum cash amount that reasonably approximates the after-tax value to the Executive of the premiums for continued coverage, in lieu of providing such continued coverage. (c) Stock Options, Restricted Awards, etc. The Management Resources and Compensation Committee has determined, in the exercise of its administrative discretion under the Wachovia Corporation Stock Plan (and any successor or replacement plan thereto), that the termination of the Executive's employment under this Agreement shall not constitute either a "retirement" or a "displacement" of the Executive (as those terms are defined in the Wachovia Corporation Stock Plan), and that the Executive shall be deemed to continue in the employment of the Corporation during the Compensation Period for purposes of all outstanding stock options, restricted awards and other awards -30- granted to the Executive under the Wachovia Corporation Stock Plan. At the end of the Compensation Period, and provided that the Corporation has not terminated the Executive's Compensation Period pursuant to Section 7 of this Agreement, the Executive will be deemed to have retired from employment with the Corporation for the purpose of establishing his rights under the Wachovia Corporation Stock Plan (and any successor or replacement plan thereto) and any applicable award agreement. In the event that the Executive shall engage in full-time employment permitted hereunder for another employer or on a self-employed basis during the Compensation Period, his employment with the Corporation shall be deemed to have terminated for purposes of Section 4(b) as of the date he begins such full-time employment, but the payments in Section 4(a) shall continue for the remainder of the Compensation Period and the rights under Section 4(c) shall be applicable, in each case subject to the provisions of Section 7. 5. Voluntary Termination of Employment by the Executive. The Executive reserves the right to terminate his employment voluntarily at any time for any reason following at least ninety (90) days notice to the Corporation. If such notice shall be given, this Agreement shall terminate as of the effective date of termination as set forth in such notice (or the date ninety (90) days from the date of receipt by the Corporation of such notice, if no effective date shall be set forth therein), unless sooner terminated as provided in Section 3, 6 or 8. The Executive shall not be entitled to any form of Continuation Benefits as a result of such voluntary termination, except in the event of voluntary termination pursuant to Section 3 or Section 10 of this Agreement. 6. Termination for Cause. This Agreement shall immediately terminate and neither party shall have any further obligation hereunder (including but not limited to any obligation of the Corporation to provide Continuation Benefits) if the Executive's employment is terminated for "cause." Termination for cause shall occur when termination results from the Executive's (a) criminal dishonesty, (b) refusal to perform his duties hereunder on an exclusive and substantially full-time basis, (c) refusal to act in accordance with any specific substantive instructions of the Chief Executive Officer or the Board of Directors of the Corporation, or (d) engaging in conduct which could be materially damaging to the Corporation without a reasonable good faith belief that such conduct was in the best interests of the Corporation. The determination whether a termination is for cause shall be made by the Management Resources and Compensation Committee of the Board of Directors of the Corporation (the "Committee"), and such determination shall be final and conclusive on the Executive and all other persons affected thereby. 7. Executive's Obligations; Early Termination of Compensation Period. (a) During the Compensation Period, the Executive shall provide consulting services to the Corporation at such time or times as the Corporation shall reasonably request, subject to appropriate notice and to reimbursement by the Corporation of all reasonable travel and other expenses incurred and paid by the Executive in accordance with the Corporation's current policy for expense reimbursement. In the event the Executive shall engage in full-time employment permitted hereunder during the Compensation Period for another employer or on a self-employed basis, his obligation to provide the consulting services hereunder shall be adjusted in accordance with the requirements of such employment. (b) The Executive shall not disclose to any other person the Corporation's or any of its subsidiaries' confidential information or trade secrets at any time during or after the term of this Agreement or the Compensation Period. The Executive shall regard all material non-public information as confidential. The Executive will at all times refrain from taking any action or making any statements, written or oral, which are intended to or which disparage -31- the business, goodwill or reputation of the Corporation or any of its subsidiaries, or their respective directors, officers, executives or other employees, or which could adversely affect the morale of employees of the Corporation or any subsidiaries. (c) The Executive shall not, without the Corporation's written consent, engage in competitive employment at any time during the Compensation Period. The Executive shall be deemed to engage in competitive employment if he shall render services as an owner, employee, officer, director, consultant or otherwise, for himself or any employer which conducts a business or enterprise in any area where the Corporation or affiliate of the Corporation conducts business that competes directly or indirectly with the Corporation or affiliate of the Corporation. (d) The Executive shall not, during the Compensation Period, directly or indirectly, for himself or on behalf of any other person, partnership, company or corporation, induce or attempt to induce any employee of the Corporation to leave the employ of the Corporation, or in any way interfere with the relationship between the Corporation and an employee of the Corporation except in the proper exercise of the Executive's authority. (e) In the event that the Executive shall refuse to provide consulting services in accordance with paragraph (a) of this Section, or shall materially violate the terms and conditions of paragraph (b) or (c) of this Section, the Corporation may, at its election, terminate the Compensation Period and Continuation Benefits to the Executive. The Corporation may also initiate any form of legal action it may deem appropriate seeking damages or injunctive relief with respect to any material violations of paragraph (a), (b) or (c) of this Section. (f) The Committee shall be responsible for determining whether the Executive shall have violated this Section 7, and all such determinations shall be final and conclusive. Upon the request of the Executive, the Committee will provide an advance opinion as to whether a proposed activity would violate the provisions of paragraph (c) of this Section. 8. Death and Disability. In the event that, during the term of this Agreement or during the Compensation Period, the Executive shall die or shall become entitled to benefits under the Corporation's Long-Term Disability Plan, this Agreement shall thereupon terminate and neither the Executive nor any other person shall have any further rights or benefits hereunder (including any rights to Continuation Benefits). All rights pertaining to stock options and restricted stock awards held by the Executive as of the date of his death or disability shall be governed by the terms of such stock options and restricted stock awards (and applicable plans). 9. Other Severance Benefits. Except as provided in Section 4 of this Agreement, the Executive shall not be entitled to any other form of severance benefits, including benefits otherwise payable under any of the Corporation's regular severance plans or policies, irrespective of the circumstances of his termination of employment. The Executive agrees that the payments and benefits provided hereunder, subject to the terms and conditions hereof, shall be in full satisfaction of any rights which he might otherwise have or claim by operation of law, by implied contract or otherwise, except for rights which he may have under employee benefit plans of the Corporation or other individual written contracts with the Corporation. 10. Change of Control. ----------------- (a) Notwithstanding any other provision of this Agreement, if the Executive voluntarily terminates his employment for any reason, or he is involuntarily -32- terminated, except pursuant to Section 6 (Termination for Cause), during the period beginning on the date of a Change of Control (as defined in Section 10(b) herein) and ending on the third anniversary of such date, then in either event the Executive shall be entitled to receive the Continuation Benefits described in Section 4 for a period of three years beginning with the date of such termination (without regard to the Executive's Normal Retirement Date or the last date this Agreement could terminate). (b) For the purposes herein, a "Change of Control" shall be deemed to have occurred on the earliest of the following dates: (i) The date any entity or person shall have become the beneficial owner of, or shall have obtained voting control over, thirty (30%) percent or more of the outstanding Common Stock of the Corporation; (ii) The date the shareholders of the Corporation approve a definitive agreement (A) to merge or consolidate the Corporation with or into another corporation, in which the Corporation is not the continuing or surviving corporation or pursuant to which any shares of Common Stock of the Corporation would be converted into cash, securities or other property of another corporation, other than a merger of the Corporation in which holders of Common Stock immediately prior to the merger have the same proportionate ownership of Common Stock of the surviving corporation immediately after the merger as immediately before, or (B) to sell or otherwise dispose of substantially all the assets of the Corporation; or (iii) The date there shall have been a change in a majority of the Board of Directors of the Corporation within a twelve month period unless the nomination for election by the Corporation's shareholders of each new director was approved by the vote of two-thirds of the directors then still in office who were in office at the beginning of the twelve month period. For the purposes herein, the term "person" shall mean any individual, corporation, partnership, group, association or other person, as such term is defined in Section13(d)(3) or Section 14(d)(2) of the Exchange Act, other than the Corporation, a subsidiary of the Corporation or any employee benefit plan(s) sponsored or maintained by the Corporation or any subsidiary thereof, and the term "beneficial owner" shall have the meaning given the term in Rule 13d-3 under the Exchange Act. (c) (i) In the event it shall be determined that any payment, benefit or distribution (or combination thereof) by the Corporation or one or more trusts established by the Corporation for the benefit of its employees, to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement, or otherwise) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1996, as amended (the "Code"), or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, hereinafter collectively referred to as the "Excise Tax"), the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and the Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (ii) Subject to the provisions of Section 10(c)(iii), all determinations required to be made under this Section 10, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by a nationally recognized certified public accounting firm designated by the Executive (the "Accounting -33- Firm") which shall provide detailed supporting calculations both to the Corporation and the Executive within fifteen business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Corporation. In the event that the Accounting Firm is serving as accountant or auditor for an individual, entity or group effecting the change in ownership or effective control (within the meaning of Section 280G of the Code), the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Corporation. Any Gross-Up Payment, as determined pursuant to this Section 10, shall be paid by the Corporation to the Executive within five days after the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall so indicate to the Executive in writing. Any determination by the Accounting Firm shall be binding upon the Corporation and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Corporation should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Corporation exhausts its remedies pursuant to Section 10(c)(iii) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Corporation to or for the benefit of the Executive. (iii) The Executive shall notify the Corporation in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Corporation of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Corporation of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Corporation (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Corporation notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (A) give the Corporation any information reasonably requested by the Corporation relating to such claim; (B) take such action in connection with contesting such claim as the Corporation shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Corporation; (C) cooperate with the Corporation in good faith in order to effectively contest such claim; and (D) permit the Corporation to participate in any proceedings relating to such claim; provided, however, that the Corporation shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 10(c)(iii), the Corporation shall control all proceedings taken in -34- connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Corporation shall determine; provided, however, that if the Corporation directs the Executive to pay such claim and sue for a refund, the Corporation shall advance the amount of such payment to the Executive, on an interest-free basis, and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and provided, further, that if the Executive is required to extend the statute of limitations to enable the Corporation to contest such claim, the Executive may limit this extension solely to such contested amount. The Corporation's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (iv) If, after the receipt by the Executive of an amount advanced by the Corporation pursuant to Section 10(c)(iii), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Corporation's complying with the requirements of Section 10(c)(iii)) promptly pay to the Corporation the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by Company pursuant to Section 10(c)(iii), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Corporation does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 11. Release and Waiver of Claims. In consideration of any Continuation Benefits the Corporation provides to the Executive under this Agreement, the Executive upon termination of employment with the Corporation shall execute a separate release and waiver of claims in a form acceptable to the Corporation. The Executive shall not be eligible for any Continuation Benefits until he has executed such release and waiver of claims. -35- 12. Notices. All notices hereunder shall be in writing and deemed properly given if delivered by hand and receipted or if mailed by registered mail, return receipt requested. Notices to the Corporation shall be directed to the Secretary of the Corporation with a copy directed to the Corporation's General Counsel. Notices to the Executive shall be directed to his last known address. Notice may not be provided by e-mail. 13. Miscellaneous. (a) The waiver, whether express or implied, by either party of a violation of any of the provisions of this Agreement shall not operate or be construed as a waiver of any subsequent violation of any such provision. (b) No right, benefit or interest hereunder shall be subject to assignment, encumbrance, charge, pledge, hypothecation or set off in respect of any claim, debt or obligation, or similar process. (c) This Agreement may not be amended, modified or canceled except by written agreement of the parties. (d) Words used in this Agreement in the singular shall include the plural, and the plural shall include the singular and words in the feminine or masculine shall include the masculine and feminine, respectively, and the neuter. (e) In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions of this Agreement shall remain in full force and effect to the fullest extent permitted by law. (f) This Agreement shall be binding upon and inure to the benefit of the Executive and the Corporation, and their respective heirs, successors and assigns. (g) No benefit or promise hereunder shall be secured by any specific assets of the Corporation. The Executive shall have only the rights of an unsecured general creditor of the Corporation in seeking satisfaction of such benefits or promises. (h) This Agreement shall be governed by the construed in accordance with the laws of the State of North Carolina. -36- (i) This Agreement sets forth the entire agreement and understanding of the parties hereto with respect to the matters covered hereby, and replaces any predecessor employment agreement between the parties hereto, and any such predecessor agreement shall be deemed terminated and neither party thereto shall have any rights or obligations thereunder. IN WITNESS WHEREOF, this Agreement has been executed by or in behalf of the parties hereto as of the date first above written. WACHOVIA CORPORATION By: _________________________________ Chief Executive Officer Attest: - ------------------------------------- Secretary [Corporate Seal] _______________________________ (Seal) EXECUTIVE -37- EX-10.5 4 EMPLOYMENT AGREEMENT-PRENDERGAST EXHIBIT 10.5 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT, made as of the 22nd day of October, 1999, by and between WACHOVIA CORPORATION (the "Corporation") and G. JOSEPH PRENDERGAST (the "Executive"); R E C I T A L S: The Corporation desires to secure the services of the Executive in its behalf or in behalf of one or more of its subsidiaries for which the Executive shall render services hereunder from time to time, in accordance with the terms and conditions set forth herein. In addition, the Corporation desires to provide the Executive with an incentive to remain in the service of the Corporation or one or more of its subsidiaries by granting to the Executive "Continuation Benefits" as set forth below should his employment be terminated under circumstances described herein for which Continuation Benefits are provided. NOW, THEREFORE, the Corporation and the Executive hereby mutually agree as follows: 1. a. Employment. The Executive shall devote his working time exclusively to the performance of such senior management duties for the Corporation or one or more of its subsidiaries as may be assigned to him by the Corporation from time to time, and shall perform such duties faithfully and to the best of his ability. Such duties shall be of a type for which the Executive is suited by background, experience and training, in the Corporation's sole discretion. References herein to duties performed for the Corporation and compensation and benefits payable or provided by the Corporation shall include duties performed for and compensation and benefits payable or provided by any subsidiary of the Corporation. The Executive may participate in other business activities, such as service on corporate, civic or charitable boards or committees, with the permission of the Corporation, and such activities shall be subject to the obligations in Section 7 below. The Executive agrees to use his best reasonable efforts to avoid unnecessary conflict between the Executive's duties to the Corporation and his pursuit of other business or civic or charitable interests. d. Base Salary. During the employment of the Executive, the Executive shall receive an annual base salary ("Base Salary") at least equal to the annual base salary in effect for the Executive on the date of this Agreement. Base Salary shall be paid in accordance with the Corporation's normal payroll practices (but not less frequently than monthly). The Executive's Base Salary will be reviewed in accordance with the Corporation's standard procedures and may be increased from time to time consistent with such procedures. Effective as of the date of any such increase, the Base Salary as so increased shall be considered the new Base Salary for purposes of this Agreement, and may not thereafter be reduced except with the express written consent of the Executive. c. Expenses. During the employment of the Executive, the Executive shall be entitled to receive prompt reimbursement for all reasonable employment expenses incurred by the Executive in accordance with the policies, practices and procedures of the Corporation at the time the expense is incurred. 2. Term of Agreement. The term of this Agreement shall commence on the date hereof and shall continue in effect until October 22, 2002; provided, however, that commencing on the first anniversary of this Agreement, and each anniversary thereafter, the term of this Agreement shall be automatically extended for one additional year unless at least 90 days before any such anniversary date either party shall notify the other in writing that it will not extend the term of this Agreement beyond the then applicable expiration date. Notice by the Corporation of its intention not to extend the term of this Agreement and its expiration at the end of the term shall not constitute termination of employment and the Executive shall not be entitled to Continuation Benefits (as defined in Section 4 below). In no event, however, may the term of this Agreement extend beyond the Executive's sixtieth birthday. References herein to the "term" of -38- this Agreement shall mean the original term plus any continuation as provided in this Section 2. The "term" shall not be deemed to refer to the Compensation Period described in Section 4. 3. Termination of Employment by the Corporation. The Corporation may terminate the employment of the Executive at any time for any reason; provided that except as set forth in Sections 6 and 7, the Corporation shall provide the Executive with Continuation Benefits as set forth in Section 4 if the Executive's employment is involuntarily terminated during the term of the Agreement. The Executive's employment shall be deemed to be involuntarily terminated if he is terminated by the Corporation for any reason other than for "cause" as defined in Section 6, or if he voluntarily terminates employment because: (a) his Base Salary is reduced without the Executive's consent, or (b) the Corporation amends the Senior Executive Retirement Agreement between the Corporation and the Executive (the "Retirement Agreement") without the Executive's consent, and such amendment materially reduces the benefits to which the Executive would have been entitled had such amendment not been made, or (c) the duties and responsibilities assigned to the Executive as of the date of this Agreement are materially reduced and the Executive does not consent to such material reduction of duties. In order for voluntary termination pursuant to (a), (b) and (c) of this Section to be effective: (1) the Executive must give written notice to the Corporation within sixty (60) days of an event specified in clauses (a), (b) or (c) above indicating that the Executive intends to terminate employment under this Section and which describes the reasons for such termination, (2) the Executive's voluntary termination under this Section must occur within ninety (90) days after an event described in clause (a), (b) or (c) of this Section, or within ninety (90) days after the last in a series of such events, and (3) the Corporation must have failed to remedy the event described in clause (a), (b) or (c) of this Section, as the case may be, within thirty (30) days after receiving the Executive's written notice. If the Corporation so remedies the event described in clause (a), (b) or (c) of this Section, the Executive may not terminate employment under this Section on account of the event specified in the Executive's notice. 4. Continuation Benefits. If the Executive's employment hereunder is involuntarily terminated as described in Section 3, he will be entitled to receive the cash compensation and benefits described in (a), (b) and (c) below (herein, "Continuation Benefits") for the period beginning with the date of such involuntary termination and ending with the earlier of (i) the third anniversary of the date of such termination, or (ii) the Normal Retirement Date of the Executive as defined in the Retirement Agreement (such period, is referred to herein as the "Compensation Period"). The duration of the Compensation Period shall not be affected by the fact that the term of this Agreement otherwise would end before such Period expires. The Continuation Benefits are as follows: (a) Cash Compensation. The amount of cash compensation to be received monthly during the Compensation Period shall equal one-twelfth of the sum of (i) the Executive's highest annual Base Salary from the Corporation in effect during the 12-month period before his involuntary termination, plus (ii) an amount equal to the average of the annual incentive compensation paid to the Executive by the Corporation, if any, for the three (3) full calendar years within the final five full calendar years of his employment which will produce the highest average (or shorter period if the executive has been employed less than five years) (and annualized for any partial calendar year); provided, that the incentive compensation to be recognized for this purpose shall be approved by the Management Resources and Compensation Committee in good faith and in its sole discretion, plus (iii) the average of any -39- annual contributions by the Corporation (excluding participant contributions) in behalf of the Executive under the Retirement Savings and Profit-Sharing Plan of Wachovia Corporation and the Wachovia Corporation Executive Deferred Compensation Plan (or any successor or replacement plans) for the three (3) full calendar years within the final five full calendar years of his employment which will produce the highest average (or shorter period if the executive has been employed less than five years) (and annualized for any partial calendar year). Each monthly payment of such cash compensation shall have deducted therefrom all payroll taxes and withholdings required by law. Cash compensation shall not include any benefits or compensation provided to the Executive under the Wachovia Corporation Stock Plan, any similar plan or any successor or replacement plan. (b) Employee Benefits. During the Compensation Period the Executive shall be deemed to be continuing in the employment of the Corporation for the purpose of applying and administering employee benefit plans of the Corporation (other than any tax-qualified retirement plans) and individual contracts, if any, between the Corporation and the Executive providing supplemental or equalization payments or benefits with respect to the Executive. The Executive shall participate in any changes during the Compensation Period in benefit plans or programs applicable generally to employees of the Corporation, or to a class of employees which includes senior executives of the Corporation, but shall not have any right or option to participate in any such plan or program in which he was not a participant immediately prior to his involuntary termination of employment. Any individual contract between the Corporation and the Executive in effect at the time of his involuntary termination of employment may be terminated or amended by the Corporation to the extent permitted by the terms of such contract; provided, that during the Compensation Period the Corporation shall not, without the written consent of the Executive or except to the extent required by law, make any amendment to or terminate any one or more of the following individual contracts or plans if applicable to the Executive: (i) the Retirement Agreement; and (ii) the Wachovia Corporation Executive Deferred Compensation Plan. The Corporation shall have no obligation to the Executive to make any change or improvement in the Retirement Agreement or the Deferred Compensation Plan during the Compensation Period even if the Corporation shall make changes or improvements during such period in similar contracts or plans, if any, with or for the benefit of other senior executives of the Corporation. Notwithstanding the foregoing, if the Corporation reasonably determines that providing continued coverage under one or more of its welfare benefit plans could adversely affect the tax treatment of other participants covered under the plans, or would otherwise have adverse legal ramifications, the Corporation may, in its discretion, either (1) provide other coverage at least as valuable as the continued coverage through insurance or otherwise, or (2) pay the Executive a lump sum cash amount that reasonably approximates the after-tax value to the Executive of the premiums for continued coverage, in lieu of providing such continued coverage. (c) Stock Options, Restricted Awards, etc. The Management Resources and Compensation Committee has determined, in the exercise of its administrative discretion under the Wachovia Corporation Stock Plan (and any successor or replacement plan thereto), that the termination of the Executive's employment under this Agreement shall not constitute either a "retirement" or a "displacement" of the Executive (as those terms are defined in the Wachovia Corporation Stock Plan), and that the Executive shall be deemed to continue in the employment of the Corporation during the Compensation Period for purposes of all outstanding stock options, restricted awards and other awards -40- granted to the Executive under the Wachovia Corporation Stock Plan. At the end of the Compensation Period, and provided that the Corporation has not terminated the Executive's Compensation Period pursuant to Section 7 of this Agreement, the Executive will be deemed to have retired from employment with the Corporation for the purpose of establishing his rights under the Wachovia Corporation Stock Plan (and any successor or replacement plan thereto) and any applicable award agreement. In the event that the Executive shall engage in full-time employment permitted hereunder for another employer or on a self-employed basis during the Compensation Period, his employment with the Corporation shall be deemed to have terminated for purposes of Section 4(b) as of the date he begins such full-time employment, but the payments in Section 4(a) shall continue for the remainder of the Compensation Period and the rights under Section 4(c) shall be applicable, in each case subject to the provisions of Section 7. 5. Voluntary Termination of Employment by the Executive. The Executive reserves the right to terminate his employment voluntarily at any time for any reason following at least ninety (90) days notice to the Corporation. If such notice shall be given, this Agreement shall terminate as of the effective date of termination as set forth in such notice (or the date ninety (90) days from the date of receipt by the Corporation of such notice, if no effective date shall be set forth therein), unless sooner terminated as provided in Section 3, 6 or 8. The Executive shall not be entitled to any form of Continuation Benefits as a result of such voluntary termination, except in the event of voluntary termination pursuant to Section 3 or Section 10 of this Agreement. 6. Termination for Cause. This Agreement shall immediately terminate and neither party shall have any further obligation hereunder (including but not limited to any obligation of the Corporation to provide Continuation Benefits) if the Executive's employment is terminated for "cause." Termination for cause shall occur when termination results from the Executive's (a) criminal dishonesty, (b) refusal to perform his duties hereunder on an exclusive and substantially full-time basis, (c) refusal to act in accordance with any specific substantive instructions of the Chief Executive Officer or the Board of Directors of the Corporation, or (d) engaging in conduct which could be materially damaging to the Corporation without a reasonable good faith belief that such conduct was in the best interests of the Corporation. The determination whether a termination is for cause shall be made by the Management Resources and Compensation Committee of the Board of Directors of the Corporation (the "Committee"), and such determination shall be final and conclusive on the Executive and all other persons affected thereby. 7. Executive's Obligations; Early Termination of Compensation Period. (a) During the Compensation Period, the Executive shall provide consulting services to the Corporation at such time or times as the Corporation shall reasonably request, subject to appropriate notice and to reimbursement by the Corporation of all reasonable travel and other expenses incurred and paid by the Executive in accordance with the Corporation's current policy for expense reimbursement. In the event the Executive shall engage in full-time employment permitted hereunder during the Compensation Period for another employer or on a self-employed basis, his obligation to provide the consulting services hereunder shall be adjusted in accordance with the requirements of such employment. (b) The Executive shall not disclose to any other person the Corporation's or any of its subsidiaries' confidential information or trade secrets at any time during or after the term of this Agreement or the Compensation Period. The Executive shall regard all material non-public information as confidential. The Executive will at all times refrain from taking any action or making any statements, written or oral, which are intended to or which disparage -41- the business, goodwill or reputation of the Corporation or any of its subsidiaries, or their respective directors, officers, executives or other employees, or which could adversely affect the morale of employees of the Corporation or any subsidiaries. (c) The Executive shall not, without the Corporation's written consent, engage in competitive employment at any time during the Compensation Period. The Executive shall be deemed to engage in competitive employment if he shall render services as an owner, employee, officer, director, consultant or otherwise, for himself or any employer which conducts a business or enterprise in any area where the Corporation or affiliate of the Corporation conducts business that competes directly or indirectly with the Corporation or affiliate of the Corporation. (d) The Executive shall not, during the Compensation Period, directly or indirectly, for himself or on behalf of any other person, partnership, company or corporation, induce or attempt to induce any employee of the Corporation to leave the employ of the Corporation, or in any way interfere with the relationship between the Corporation and an employee of the Corporation except in the proper exercise of the Executive's authority. (e) In the event that the Executive shall refuse to provide consulting services in accordance with paragraph (a) of this Section, or shall materially violate the terms and conditions of paragraph (b) or (c) of this Section, the Corporation may, at its election, terminate the Compensation Period and Continuation Benefits to the Executive. The Corporation may also initiate any form of legal action it may deem appropriate seeking damages or injunctive relief with respect to any material violations of paragraph (a), (b) or (c) of this Section. (f) The Committee shall be responsible for determining whether the Executive shall have violated this Section 7, and all such determinations shall be final and conclusive. Upon the request of the Executive, the Committee will provide an advance opinion as to whether a proposed activity would violate the provisions of paragraph (c) of this Section. 8. Death and Disability. In the event that, during the term of this Agreement or during the Compensation Period, the Executive shall die or shall become entitled to benefits under the Corporation's Long-Term Disability Plan, this Agreement shall thereupon terminate and neither the Executive nor any other person shall have any further rights or benefits hereunder (including any rights to Continuation Benefits). All rights pertaining to stock options and restricted stock awards held by the Executive as of the date of his death or disability shall be governed by the terms of such stock options and restricted stock awards (and applicable plans). 9. Other Severance Benefits. Except as provided in Section 4 of this Agreement, the Executive shall not be entitled to any other form of severance benefits, including benefits otherwise payable under any of the Corporation's regular severance plans or policies, irrespective of the circumstances of his termination of employment. The Executive agrees that the payments and benefits provided hereunder, subject to the terms and conditions hereof, shall be in full satisfaction of any rights which he might otherwise have or claim by operation of law, by implied contract or otherwise, except for rights which he may have under employee benefit plans of the Corporation or other individual written contracts with the Corporation. 10. Change of Control. (a) Notwithstanding any other provision of this Agreement, if the Executive voluntarily terminates his employment for any reason, or he is involuntarily -42- terminated, except pursuant to Section 6 (Termination for Cause), during the period beginning on the date of a Change of Control (as defined in Section 10(b) herein) and ending on the third anniversary of such date, then in either event the Executive shall be entitled to receive the Continuation Benefits described in Section 4 for a period of three years beginning with the date of such termination (without regard to the Executive's Normal Retirement Date or the last date this Agreement could terminate). (b) For the purposes herein, a "Change of Control" shall be deemed to have occurred on the earliest of the following dates: (i) The date any entity or person shall have become the beneficial owner of, or shall have obtained voting control over, thirty (30%) percent or more of the outstanding Common Stock of the Corporation; (ii) The date the shareholders of the Corporation approve a definitive agreement (A) to merge or consolidate the Corporation with or into another corporation, in which the Corporation is not the continuing or surviving corporation or pursuant to which any shares of Common Stock of the Corporation would be converted into cash, securities or other property of another corporation, other than a merger of the Corporation in which holders of Common Stock immediately prior to the merger have the same proportionate ownership of Common Stock of the surviving corporation immediately after the merger as immediately before, or (B) to sell or otherwise dispose of substantially all the assets of the Corporation; or (iii) The date there shall have been a change in a majority of the Board of Directors of the Corporation within a twelve month period unless the nomination for election by the Corporation's shareholders of each new director was approved by the vote of two-thirds of the directors then still in office who were in office at the beginning of the twelve month period. For the purposes herein, the term "person" shall mean any individual, corporation, partnership, group, association or other person, as such term is defined in Section13(d)(3) or Section 14(d)(2) of the Exchange Act, other than the Corporation, a subsidiary of the Corporation or any employee benefit plan(s) sponsored or maintained by the Corporation or any subsidiary thereof, and the term "beneficial owner" shall have the meaning given the term in Rule 13d-3 under the Exchange Act. (c) (i) In the event it shall be determined that any payment, benefit or distribution (or combination thereof) by the Corporation or one or more trusts established by the Corporation for the benefit of its employees, to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement, or otherwise) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1996, as amended (the "Code"), or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, hereinafter collectively referred to as the "Excise Tax"), the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and the Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (ii) Subject to the provisions of Section 10(c)(iii), all determinations required to be made under this Section 10, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by a nationally recognized certified public accounting firm designated by the Executive (the "Accounting -43- Firm") which shall provide detailed supporting calculations both to the Corporation and the Executive within fifteen business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Corporation. In the event that the Accounting Firm is serving as accountant or auditor for an individual, entity or group effecting the change in ownership or effective control (within the meaning of Section 280G of the Code), the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Corporation. Any Gross-Up Payment, as determined pursuant to this Section 10, shall be paid by the Corporation to the Executive within five days after the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall so indicate to the Executive in writing. Any determination by the Accounting Firm shall be binding upon the Corporation and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Corporation should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Corporation exhausts its remedies pursuant to Section 10(c)(iii) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Corporation to or for the benefit of the Executive. (iii) The Executive shall notify the Corporation in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Corporation of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Corporation of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Corporation (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Corporation notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (A) give the Corporation any information reasonably requested by the Corporation relating to such claim; (B) take such action in connection with contesting such claim as the Corporation shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Corporation; (C) cooperate with the Corporation in good faith in order to effectively contest such claim; and (D) permit the Corporation to participate in any proceedings relating to such claim; provided, however, that the Corporation shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 10(c)(iii), the Corporation shall control all proceedings taken in -44- connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Corporation shall determine; provided, however, that if the Corporation directs the Executive to pay such claim and sue for a refund, the Corporation shall advance the amount of such payment to the Executive, on an interest-free basis, and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and provided, further, that if the Executive is required to extend the statute of limitations to enable the Corporation to contest such claim, the Executive may limit this extension solely to such contested amount. The Corporation's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (iv) If, after the receipt by the Executive of an amount advanced by the Corporation pursuant to Section 10(c)(iii), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Corporation's complying with the requirements of Section 10(c)(iii)) promptly pay to the Corporation the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by Company pursuant to Section 10(c)(iii), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Corporation does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 11. Release and Waiver of Claims. In consideration of any Continuation Benefits the Corporation provides to the Executive under this Agreement, the Executive upon termination of employment with the Corporation shall execute a separate release and waiver of claims in a form acceptable to the Corporation. The Executive shall not be eligible for any Continuation Benefits until he has executed such release and waiver of claims. -45- 12. Notices. All notices hereunder shall be in writing and deemed properly given if delivered by hand and receipted or if mailed by registered mail, return receipt requested. Notices to the Corporation shall be directed to the Secretary of the Corporation with a copy directed to the Corporation's General Counsel. Notices to the Executive shall be directed to his last known address. Notice may not be provided by e-mail. 13. Miscellaneous. (a) The waiver, whether express or implied, by either party of a violation of any of the provisions of this Agreement shall not operate or be construed as a waiver of any subsequent violation of any such provision. (b) No right, benefit or interest hereunder shall be subject to assignment, encumbrance, charge, pledge, hypothecation or set off in respect of any claim, debt or obligation, or similar process. (c) This Agreement may not be amended, modified or canceled except by written agreement of the parties. (d) Words used in this Agreement in the singular shall include the plural, and the plural shall include the singular and words in the feminine or masculine shall include the masculine and feminine, respectively, and the neuter. (e) In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions of this Agreement shall remain in full force and effect to the fullest extent permitted by law. (f) This Agreement shall be binding upon and inure to the benefit of the Executive and the Corporation, and their respective heirs, successors and assigns. (g) No benefit or promise hereunder shall be secured by any specific assets of the Corporation. The Executive shall have only the rights of an unsecured general creditor of the Corporation in seeking satisfaction of such benefits or promises. (h) This Agreement shall be governed by the construed in accordance with the laws of the State of North Carolina. -46- (i) This Agreement sets forth the entire agreement and understanding of the parties hereto with respect to the matters covered hereby, and replaces any predecessor employment agreement between the parties hereto, and any such predecessor agreement shall be deemed terminated and neither party thereto shall have any rights or obligations thereunder. IN WITNESS WHEREOF, this Agreement has been executed by or in behalf of the parties hereto as of the date first above written. WACHOVIA CORPORATION By: ______________________________________ Chief Executive Officer Attest: - ------------------------------------- Secretary [Corporate Seal] ____________________________________ (Seal) EXECUTIVE -47- EX-10.6 5 EMPLOYMENT AGREEMENT-DRY EXHIBIT 10.6 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT, made as of the 22nd day of October, 1999, by and between WACHOVIA CORPORATION (the "Corporation") and MICKEY W. DRY (the "Executive"); R E C I T A L S: The Corporation desires to secure the services of the Executive in its behalf or in behalf of one or more of its subsidiaries for which the Executive shall render services hereunder from time to time, in accordance with the terms and conditions set forth herein. In addition, the Corporation desires to provide the Executive with an incentive to remain in the service of the Corporation or one or more of its subsidiaries by granting to the Executive "Continuation Benefits" as set forth below should his employment be terminated under circumstances described herein for which Continuation Benefits are provided. NOW, THEREFORE, the Corporation and the Executive hereby mutually agree as follows: 1. a. Employment. The Executive shall devote his working time exclusively to the performance of such senior management duties for the Corporation or one or more of its subsidiaries as may be assigned to him by the Corporation from time to time, and shall perform such duties faithfully and to the best of his ability. Such duties shall be of a type for which the Executive is suited by background, experience and training, in the Corporation's sole discretion. References herein to duties performed for the Corporation and compensation and benefits payable or provided by the Corporation shall include duties performed for and compensation and benefits payable or provided by any subsidiary of the Corporation. The Executive may participate in other business activities, such as service on corporate, civic or charitable boards or committees, with the permission of the Corporation, and such activities shall be subject to the obligations in Section 7 below. The Executive agrees to use his best reasonable efforts to avoid unnecessary conflict between the Executive's duties to the Corporation and his pursuit of other business or civic or charitable interests. e. Base Salary. During the employment of the Executive, the Executive shall receive an annual base salary ("Base Salary") at least equal to the annual base salary in effect for the Executive on the date of this Agreement. Base Salary shall be paid in accordance with the Corporation's normal payroll practices (but not less frequently than monthly). The Executive's Base Salary will be reviewed in accordance with the Corporation's standard procedures and may be increased from time to time consistent with such procedures. Effective as of the date of any such increase, the Base Salary as so increased shall be considered the new Base Salary for purposes of this Agreement, and may not thereafter be reduced except with the express written consent of the Executive. c. Expenses. During the employment of the Executive, the Executive shall be entitled to receive prompt reimbursement for all reasonable employment expenses incurred by the Executive in accordance with the policies, practices and procedures of the Corporation at the time the expense is incurred. 2. Term of Agreement. The term of this Agreement shall commence on the date hereof and shall continue in effect until January 31, 2001. References herein to the "term" of this Agreement shall mean the term described in the preceding sentence. The "term" shall not be deemed to refer to the Compensation Period described in Section 4. 3. Termination of Employment by the Corporation. The Corporation may terminate the employment of the Executive at any time for any reason; provided that except as set forth in Sections 6 and 7, the Corporation shall provide the Executive with Continuation Benefits as set forth in Section 4 if the Executive's employment is involuntarily terminated during the term of the Agreement. The Executive's employment shall be deemed to be involuntarily terminated if he is -48- terminated by the Corporation for any reason other than for "cause" as defined in Section 6, or if he voluntarily terminates employment because: (a) his Base Salary is reduced without the Executive's consent, or (b) the Corporation amends the Senior Executive Retirement Agreement between the Corporation and the Executive (the "Retirement Agreement") without the Executive's consent, and such amendment materially reduces the benefits to which the Executive would have been entitled had such amendment not been made, or (c) the duties and responsibilities assigned to the Executive as of the date of this Agreement are materially reduced and the Executive does not consent to such material reduction of duties. In order for voluntary termination pursuant to (a), (b) and (c) of this Section to be effective: (1) the Executive must give written notice to the Corporation within sixty (60) days of an event specified in clauses (a), (b) or (c) above indicating that the Executive intends to terminate employment under this Section and which describes the reasons for such termination, (2) the Executive's voluntary termination under this Section must occur within ninety (90) days after an event described in clause (a), (b) or (c) of this Section, or within ninety (90) days after the last in a series of such events, and (3) the Corporation must have failed to remedy the event described in clause (a), (b) or (c) of this Section, as the case may be, within thirty (30) days after receiving the Executive's written notice. If the Corporation so remedies the event described in clause (a), (b) or (c) of this Section, the Executive may not terminate employment under this Section on account of the event specified in the Executive's notice. 4. Continuation Benefits. If the Executive's employment hereunder is involuntarily terminated as described in Section 3, he will be entitled to receive the cash compensation and benefits described in (a), (b) and (c) below (herein, "Continuation Benefits") for the period beginning with the date of such involuntary termination and ending with the earlier of (i) the third anniversary of the date of such termination, or (ii) the Normal Retirement Date of the Executive as defined in the Retirement Agreement (such period, is referred to herein as the "Compensation Period"). The duration of the Compensation Period shall not be affected by the fact that the term of this Agreement otherwise would end before such Period expires. The Continuation Benefits are as follows: (a) Cash Compensation. The amount of cash compensation to be received monthly during the Compensation Period shall equal one-twelfth of the sum of (i) the Executive's highest annual Base Salary from the Corporation in effect during the 12-month period before his involuntary termination, plus (ii) an amount equal to the average of the annual incentive compensation paid to the Executive by the Corporation, if any, for the three (3) full calendar years within the final five full calendar years of his employment which will produce the highest average (or shorter period if the executive has been employed less than five years) (and annualized for any partial calendar year); provided, that the incentive compensation to be recognized for this purpose shall be approved by the Management Resources and Compensation Committee in good faith and in its sole discretion, plus (iii) the average of any annual contributions by the Corporation (excluding participant contributions) in behalf of the Executive under the Retirement Savings and Profit-Sharing Plan of Wachovia Corporation and the Wachovia Corporation Executive Deferred Compensation Plan (or any successor or replacement plans) for the three (3) full calendar years within the final five full calendar years of his employment which will produce the highest average (or shorter period if the executive has been employed less than five years) (and annualized for any partial calendar year). Each monthly payment of such cash compensation shall have deducted -49- therefrom all payroll taxes and withholdings required by law. Cash compensation shall not include any benefits or compensation provided to the Executive under the Wachovia Corporation Stock Plan, any similar plan or any successor or replacement plan. (b) Employee Benefits. During the Compensation Period the Executive shall be deemed to be continuing in the employment of the Corporation for the purpose of applying and administering employee benefit plans of the Corporation (other than any tax-qualified retirement plans) and individual contracts, if any, between the Corporation and the Executive providing supplemental or equalization payments or benefits with respect to the Executive. The Executive shall participate in any changes during the Compensation Period in benefit plans or programs applicable generally to employees of the Corporation, or to a class of employees which includes senior executives of the Corporation, but shall not have any right or option to participate in any such plan or program in which he was not a participant immediately prior to his involuntary termination of employment. Any individual contract between the Corporation and the Executive in effect at the time of his involuntary termination of employment may be terminated or amended by the Corporation to the extent permitted by the terms of such contract; provided, that during the Compensation Period the Corporation shall not, without the written consent of the Executive or except to the extent required by law, make any amendment to or terminate any one or more of the following individual contracts or plans if applicable to the Executive: (i) the Retirement Agreement; and (ii) the Wachovia Corporation Executive Deferred Compensation Plan. The Corporation shall have no obligation to the Executive to make any change or improvement in the Retirement Agreement or the Deferred Compensation Plan during the Compensation Period even if the Corporation shall make changes or improvements during such period in similar contracts or plans, if any, with or for the benefit of other senior executives of the Corporation. Notwithstanding the foregoing, if the Corporation reasonably determines that providing continued coverage under one or more of its welfare benefit plans could adversely affect the tax treatment of other participants covered under the plans, or would otherwise have adverse legal ramifications, the Corporation may, in its discretion, either (1) provide other coverage at least as valuable as the continued coverage through insurance or otherwise, or (2) pay the Executive a lump sum cash amount that reasonably approximates the after-tax value to the Executive of the premiums for continued coverage, in lieu of providing such continued coverage. (c) Stock Options, Restricted Awards, etc. The Management Resources and Compensation Committee has determined, in the exercise of its administrative discretion under the Wachovia Corporation Stock Plan (and any successor or replacement plan thereto), that the termination of the Executive's employment under this Agreement shall not constitute either a "retirement" or a "displacement" of the Executive (as those terms are defined in the Wachovia Corporation Stock Plan), and that the Executive shall be deemed to continue in the employment of the Corporation during the Compensation Period for purposes of all outstanding stock options, restricted awards and other awards granted to the Executive under the Wachovia Corporation Stock Plan. At the end of the Compensation Period, and provided that the Corporation has not terminated the Executive's Compensation Period pursuant to Section 7 of this Agreement, the Executive will be deemed to have retired from employment with the Corporation for the purpose of establishing his rights under the Wachovia Corporation Stock Plan (and any successor or replacement plan thereto) and any applicable award agreement. -50- In the event that the Executive shall engage in full-time employment permitted hereunder for another employer or on a self-employed basis during the Compensation Period, his employment with the Corporation shall be deemed to have terminated for purposes of Section 4(b) as of the date he begins such full-time employment, but the payments in Section 4(a) shall continue for the remainder of the Compensation Period and the rights under Section 4(c) shall be applicable, in each case subject to the provisions of Section 7. 5. Voluntary Termination of Employment by the Executive. The Executive reserves the right to terminate his employment voluntarily at any time for any reason following at least ninety (90) days notice to the Corporation. If such notice shall be given, this Agreement shall terminate as of the effective date of termination as set forth in such notice (or the date ninety (90) days from the date of receipt by the Corporation of such notice, if no effective date shall be set forth therein), unless sooner terminated as provided in Section 3, 6 or 8. The Executive shall not be entitled to any form of Continuation Benefits as a result of such voluntary termination, except in the event of voluntary termination pursuant to Section 3 or Section 10 of this Agreement. 6. Termination for Cause. This Agreement shall immediately terminate and neither party shall have any further obligation hereunder (including but not limited to any obligation of the Corporation to provide Continuation Benefits) if the Executive's employment is terminated for "cause." Termination for cause shall occur when termination results from the Executive's (a) criminal dishonesty, (b) refusal to perform his duties hereunder on an exclusive and substantially full-time basis, (c) refusal to act in accordance with any specific substantive instructions of the Chief Executive Officer or the Board of Directors of the Corporation, or (d) engaging in conduct which could be materially damaging to the Corporation without a reasonable good faith belief that such conduct was in the best interests of the Corporation. The determination whether a termination is for cause shall be made by the Management Resources and Compensation Committee of the Board of Directors of the Corporation (the "Committee"), and such determination shall be final and conclusive on the Executive and all other persons affected thereby. 7. Executive's Obligations; Early Termination of Compensation Period. (a) During the Compensation Period, the Executive shall provide consulting services to the Corporation at such time or times as the Corporation shall reasonably request, subject to appropriate notice and to reimbursement by the Corporation of all reasonable travel and other expenses incurred and paid by the Executive in accordance with the Corporation's current policy for expense reimbursement. In the event the Executive shall engage in full-time employment permitted hereunder during the Compensation Period for another employer or on a self-employed basis, his obligation to provide the consulting services hereunder shall be adjusted in accordance with the requirements of such employment. (b) The Executive shall not disclose to any other person the Corporation's or any of its subsidiaries' confidential information or trade secrets at any time during or after the term of this Agreement or the Compensation Period. The Executive shall regard all material non-public information as confidential. The Executive will at all times refrain from taking any action or making any statements, written or oral, which are intended to or which disparage the business, goodwill or reputation of the Corporation or any of its subsidiaries, or their respective directors, officers, executives or other employees, or which could adversely affect the morale of employees of the Corporation or any subsidiaries. (c) The Executive shall not, without the Corporation's written consent, engage in competitive employment at any time during the Compensation Period. The Executive shall be deemed to engage in competitive -51- employment if he shall render services as an owner, employee, officer, director, consultant or otherwise, for himself or any employer which conducts a business or enterprise in any area where the Corporation or affiliate of the Corporation conducts business that competes directly or indirectly with the Corporation or affiliate of the Corporation. (d) The Executive shall not, during the Compensation Period, directly or indirectly, for himself or on behalf of any other person, partnership, company or corporation, induce or attempt to induce any employee of the Corporation to leave the employ of the Corporation, or in any way interfere with the relationship between the Corporation and an employee of the Corporation except in the proper exercise of the Executive's authority. (e) In the event that the Executive shall refuse to provide consulting services in accordance with paragraph (a) of this Section, or shall materially violate the terms and conditions of paragraph (b) or (c) of this Section, the Corporation may, at its election, terminate the Compensation Period and Continuation Benefits to the Executive. The Corporation may also initiate any form of legal action it may deem appropriate seeking damages or injunctive relief with respect to any material violations of paragraph (a), (b) or (c) of this Section. (f) The Committee shall be responsible for determining whether the Executive shall have violated this Section 7, and all such determinations shall be final and conclusive. Upon the request of the Executive, the Committee will provide an advance opinion as to whether a proposed activity would violate the provisions of paragraph (c) of this Section. 8. Death and Disability. In the event that, during the term of this Agreement or during the Compensation Period, the Executive shall die or shall become entitled to benefits under the Corporation's Long-Term Disability Plan, this Agreement shall thereupon terminate and neither the Executive nor any other person shall have any further rights or benefits hereunder (including any rights to Continuation Benefits). All rights pertaining to stock options and restricted stock awards held by the Executive as of the date of his death or disability shall be governed by the terms of such stock options and restricted stock awards (and applicable plans). 9. Other Severance Benefits. Except as provided in Section 4 of this Agreement, the Executive shall not be entitled to any other form of severance benefits, including benefits otherwise payable under any of the Corporation's regular severance plans or policies, irrespective of the circumstances of his termination of employment. The Executive agrees that the payments and benefits provided hereunder, subject to the terms and conditions hereof, shall be in full satisfaction of any rights which he might otherwise have or claim by operation of law, by implied contract or otherwise, except for rights which he may have under employee benefit plans of the Corporation or other individual written contracts with the Corporation. 10. Change of Control. (a) Notwithstanding any other provision of this Agreement, if the Executive voluntarily terminates his employment for any reason, or he is involuntarily terminated, except pursuant to Section 6 (Termination for Cause), during the period beginning on the date of a Change of Control (as defined in Section 10(b) herein) and ending on the third anniversary of such date, then in either event the Executive shall be entitled to receive the Continuation Benefits described in Section 4 for a period of three years beginning with the date of such termination (without regard to the Executive's Normal Retirement Date or the last date this Agreement could terminate). -52- (b) For the purposes herein, a "Change of Control" shall be deemed to have occurred on the earliest of the following dates: (i) The date any entity or person shall have become the beneficial owner of, or shall have obtained voting control over, thirty (30%) percent or more of the outstanding Common Stock of the Corporation; (ii) The date the shareholders of the Corporation approve a definitive agreement (A) to merge or consolidate the Corporation with or into another corporation, in which the Corporation is not the continuing or surviving corporation or pursuant to which any shares of Common Stock of the Corporation would be converted into cash, securities or other property of another corporation, other than a merger of the Corporation in which holders of Common Stock immediately prior to the merger have the same proportionate ownership of Common Stock of the surviving corporation immediately after the merger as immediately before, or (B) to sell or otherwise dispose of substantially all the assets of the Corporation; or (iii) The date there shall have been a change in a majority of the Board of Directors of the Corporation within a twelve month period unless the nomination for election by the Corporation's shareholders of each new director was approved by the vote of two-thirds of the directors then still in office who were in office at the beginning of the twelve month period. For the purposes herein, the term "person" shall mean any individual, corporation, partnership, group, association or other person, as such term is defined in Section13(d)(3) or Section 14(d)(2) of the Exchange Act, other than the Corporation, a subsidiary of the Corporation or any employee benefit plan(s) sponsored or maintained by the Corporation or any subsidiary thereof, and the term "beneficial owner" shall have the meaning given the term in Rule 13d-3 under the Exchange Act. (c) (i) In the event it shall be determined that any payment, benefit or distribution (or combination thereof) by the Corporation or one or more trusts established by the Corporation for the benefit of its employees, to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement, or otherwise) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1996, as amended (the "Code"), or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, hereinafter collectively referred to as the "Excise Tax"), the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and the Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (ii) Subject to the provisions of Section 10(c)(iii), all determinations required to be made under this Section 10, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by a nationally recognized certified public accounting firm designated by the Executive (the "Accounting Firm") which shall provide detailed supporting calculations both to the Corporation and the Executive within fifteen business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Corporation. In the event that the Accounting Firm is serving as accountant or auditor for an individual, entity or group effecting the change in ownership or effective control (within the meaning of Section 280G of the Code), the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm -53- shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Corporation. Any Gross-Up Payment, as determined pursuant to this Section 10, shall be paid by the Corporation to the Executive within five days after the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall so indicate to the Executive in writing. Any determination by the Accounting Firm shall be binding upon the Corporation and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Corporation should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Corporation exhausts its remedies pursuant to Section 10(c)(iii) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Corporation to or for the benefit of the Executive. (iii) The Executive shall notify the Corporation in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Corporation of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Corporation of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Corporation (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Corporation notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (A) give the Corporation any information reasonably requested by the Corporation relating to such claim; (B) take such action in connection with contesting such claim as the Corporation shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Corporation; (C) cooperate with the Corporation in good faith in order to effectively contest such claim; and (D) permit the Corporation to participate in any proceedings relating to such claim; provided, however, that the Corporation shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 10(c)(iii), the Corporation shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one -54- or more appellate courts, as the Corporation shall determine; provided, however, that if the Corporation directs the Executive to pay such claim and sue for a refund, the Corporation shall advance the amount of such payment to the Executive, on an interest-free basis, and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and provided, further, that if the Executive is required to extend the statute of limitations to enable the Corporation to contest such claim, the Executive may limit this extension solely to such contested amount. The Corporation's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (iv) If, after the receipt by the Executive of an amount advanced by the Corporation pursuant to Section 10(c)(iii), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Corporation's complying with the requirements of Section 10(c)(iii)) promptly pay to the Corporation the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by Company pursuant to Section 10(c)(iii), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Corporation does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 11. Release and Waiver of Claims. In consideration of any Continuation Benefits the Corporation provides to the Executive under this Agreement, the Executive upon termination of employment with the Corporation shall execute a separate release and waiver of claims in a form acceptable to the Corporation. The Executive shall not be eligible for any Continuation Benefits until he has executed such release and waiver of claims. 12. Notices. All notices hereunder shall be in writing and deemed properly given if delivered by hand and receipted or if mailed by registered mail, return receipt requested. Notices to the Corporation shall be directed to the Secretary of the Corporation with a copy directed to the Corporation's General Counsel. Notices to the Executive shall be directed to his last known address. Notice may not be provided by e-mail. 13. Miscellaneous. (a) The waiver, whether express or implied, by either party of a violation of any of the provisions of this Agreement shall not operate or be construed as a waiver of any subsequent violation of any such provision. (b) No right, benefit or interest hereunder shall be subject to assignment, encumbrance, charge, pledge, hypothecation or set off in respect of any claim, debt or obligation, or similar process. (c) This Agreement may not be amended, modified or canceled except by written agreement of the parties. (d) Words used in this Agreement in the singular shall include the plural, and the plural shall include the singular and words in the feminine or -55- masculine shall include the masculine and feminine, respectively, and the neuter. (e) In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions of this Agreement shall remain in full force and effect to the fullest extent permitted by law. (f) This Agreement shall be binding upon and inure to the benefit of the Executive and the Corporation, and their respective heirs, successors and assigns. (g) No benefit or promise hereunder shall be secured by any specific assets of the Corporation. The Executive shall have only the rights of an unsecured general creditor of the Corporation in seeking satisfaction of such benefits or promises. (h) This Agreement shall be governed by the construed in accordance with the laws of the State of North Carolina. (i) This Agreement sets forth the entire agreement and understanding of the parties hereto with respect to the matters covered hereby, and replaces any predecessor employment agreement between the parties hereto, and any such predecessor agreement shall be deemed terminated and neither party thereto shall have any rights or obligations thereunder. IN WITNESS WHEREOF, this Agreement has been executed by or in behalf of the parties hereto as of the date first above written. WACHOVIA CORPORATION By: __________________________________ Chief Executive Officer Attest: - ------------------------------------- Secretary [Corporate Seal] _____________________________ (Seal) EXECUTIVE -56- EX-10.7 6 EMPLOYMENT AGREEMENT-LEONARD EXHIBIT 10.7 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT, made as of the 22nd day of October, 1999, by and between WACHOVIA CORPORATION (the "Corporation") and WALTER E. LEONARD, JR. (the "Executive"); R E C I T A L S: The Corporation desires to secure the services of the Executive in its behalf or in behalf of one or more of its subsidiaries for which the Executive shall render services hereunder from time to time, in accordance with the terms and conditions set forth herein. In addition, the Corporation desires to provide the Executive with an incentive to remain in the service of the Corporation or one or more of its subsidiaries by granting to the Executive "Continuation Benefits" as set forth below should his employment be terminated under circumstances described herein for which Continuation Benefits are provided. NOW, THEREFORE, the Corporation and the Executive hereby mutually agree as follows: 1. a. Employment. The Executive shall devote his working time exclusively to the performance of such senior management duties for the Corporation or one or more of its subsidiaries as may be assigned to him by the Corporation from time to time, and shall perform such duties faithfully and to the best of his ability. Such duties shall be of a type for which the Executive is suited by background, experience and training, in the Corporation's sole discretion. References herein to duties performed for the Corporation and compensation and benefits payable or provided by the Corporation shall include duties performed for and compensation and benefits payable or provided by any subsidiary of the Corporation. The Executive may participate in other business activities, such as service on corporate, civic or charitable boards or committees, with the permission of the Corporation, and such activities shall be subject to the obligations in Section 7 below. The Executive agrees to use his best reasonable efforts to avoid unnecessary conflict between the Executive's duties to the Corporation and his pursuit of other business or civic or charitable interests. f. Base Salary. During the employment of the Executive, the Executive shall receive an annual base salary ("Base Salary") at least equal to the annual base salary in effect for the Executive on the date of this Agreement. Base Salary shall be paid in accordance with the Corporation's normal payroll practices (but not less frequently than monthly). The Executive's Base Salary will be reviewed in accordance with the Corporation's standard procedures and may be increased from time to time consistent with such procedures. Effective as of the date of any such increase, the Base Salary as so increased shall be considered the new Base Salary for purposes of this Agreement, and may not thereafter be reduced except with the express written consent of the Executive. c. Expenses. During the employment of the Executive, the Executive shall be entitled to receive prompt reimbursement for all reasonable employment expenses incurred by the Executive in accordance with the policies, practices and procedures of the Corporation at the time the expense is incurred. 2. Term of Agreement. The term of this Agreement shall commence on the date hereof and shall continue in effect until October 22, 2002; provided, however, that commencing on the first anniversary of this Agreement, and each anniversary thereafter, the term of this Agreement shall be automatically extended for one additional year unless at least 90 days before any such anniversary date either party shall notify the other in writing that it will not extend the term of this Agreement beyond the then applicable expiration date. Notice by the Corporation of its intention not to extend the term of this Agreement and its expiration at the end of the term shall not constitute termination of employment and the Executive shall not be entitled to Continuation Benefits (as defined in Section 4 below). In no event, however, may the term of this Agreement extend beyond the Executive's sixtieth birthday. References herein to the "term" of -57- this Agreement shall mean the original term plus any continuation as provided in this Section 2. The "term" shall not be deemed to refer to the Compensation Period described in Section 4. 3. Termination of Employment by the Corporation. The Corporation may terminate the employment of the Executive at any time for any reason; provided that except as set forth in Sections 6 and 7, the Corporation shall provide the Executive with Continuation Benefits as set forth in Section 4 if the Executive's employment is involuntarily terminated during the term of the Agreement. The Executive's employment shall be deemed to be involuntarily terminated if he is terminated by the Corporation for any reason other than for "cause" as defined in Section 6, or if he voluntarily terminates employment because: (a) his Base Salary is reduced without the Executive's consent, or (b) the Corporation amends the Senior Executive Retirement Agreement between the Corporation and the Executive (the "Retirement Agreement") without the Executive's consent, and such amendment materially reduces the benefits to which the Executive would have been entitled had such amendment not been made, or (c) the duties and responsibilities assigned to the Executive as of the date of this Agreement are materially reduced and the Executive does not consent to such material reduction of duties. In order for voluntary termination pursuant to (a), (b) and (c) of this Section to be effective: (1) the Executive must give written notice to the Corporation within sixty (60) days of an event specified in clauses (a), (b) or (c) above indicating that the Executive intends to terminate employment under this Section and which describes the reasons for such termination, (2) the Executive's voluntary termination under this Section must occur within ninety (90) days after an event described in clause (a), (b) or (c) of this Section, or within ninety (90) days after the last in a series of such events, and (3) the Corporation must have failed to remedy the event described in clause (a), (b) or (c) of this Section, as the case may be, within thirty (30) days after receiving the Executive's written notice. If the Corporation so remedies the event described in clause (a), (b) or (c) of this Section, the Executive may not terminate employment under this Section on account of the event specified in the Executive's notice. 4. Continuation Benefits. If the Executive's employment hereunder is involuntarily terminated as described in Section 3, he will be entitled to receive the cash compensation and benefits described in (a), (b) and (c) below (herein, "Continuation Benefits") for the period beginning with the date of such involuntary termination and ending with the earlier of (i) the third anniversary of the date of such termination, or (ii) the Normal Retirement Date of the Executive as defined in the Retirement Agreement (such period, is referred to herein as the "Compensation Period"). The duration of the Compensation Period shall not be affected by the fact that the term of this Agreement otherwise would end before such Period expires. The Continuation Benefits are as follows: (a) Cash Compensation. The amount of cash compensation to be received monthly during the Compensation Period shall equal one-twelfth of the sum of (i) the Executive's highest annual Base Salary from the Corporation in effect during the 12-month period before his involuntary termination, plus (ii) an amount equal to the average of the annual incentive compensation paid to the Executive by the Corporation, if any, for the three (3) full calendar years within the final five full calendar years of his employment which will produce the highest average (or shorter period if the executive has been employed less than five years) (and annualized for any partial calendar year); provided, that the incentive compensation to be recognized for this purpose shall be approved by the Management Resources and Compensation Committee in good faith and in its sole discretion, plus (iii) the average of any -58- annual contributions by the Corporation (excluding participant contributions) in behalf of the Executive under the Retirement Savings and Profit-Sharing Plan of Wachovia Corporation and the Wachovia Corporation Executive Deferred Compensation Plan (or any successor or replacement plans) for the three (3) full calendar years within the final five full calendar years of his employment which will produce the highest average (or shorter period if the executive has been employed less than five years) (and annualized for any partial calendar year). Each monthly payment of such cash compensation shall have deducted therefrom all payroll taxes and withholdings required by law. Cash compensation shall not include any benefits or compensation provided to the Executive under the Wachovia Corporation Stock Plan, any similar plan or any successor or replacement plan. (b) Employee Benefits. During the Compensation Period the Executive shall be deemed to be continuing in the employment of the Corporation for the purpose of applying and administering employee benefit plans of the Corporation (other than any tax-qualified retirement plans) and individual contracts, if any, between the Corporation and the Executive providing supplemental or equalization payments or benefits with respect to the Executive. The Executive shall participate in any changes during the Compensation Period in benefit plans or programs applicable generally to employees of the Corporation, or to a class of employees which includes senior executives of the Corporation, but shall not have any right or option to participate in any such plan or program in which he was not a participant immediately prior to his involuntary termination of employment. Any individual contract between the Corporation and the Executive in effect at the time of his involuntary termination of employment may be terminated or amended by the Corporation to the extent permitted by the terms of such contract; provided, that during the Compensation Period the Corporation shall not, without the written consent of the Executive or except to the extent required by law, make any amendment to or terminate any one or more of the following individual contracts or plans if applicable to the Executive: (i) the Retirement Agreement; and (ii) the Wachovia Corporation Executive Deferred Compensation Plan. The Corporation shall have no obligation to the Executive to make any change or improvement in the Retirement Agreement or the Deferred Compensation Plan during the Compensation Period even if the Corporation shall make changes or improvements during such period in similar contracts or plans, if any, with or for the benefit of other senior executives of the Corporation. Notwithstanding the foregoing, if the Corporation reasonably determines that providing continued coverage under one or more of its welfare benefit plans could adversely affect the tax treatment of other participants covered under the plans, or would otherwise have adverse legal ramifications, the Corporation may, in its discretion, either (1) provide other coverage at least as valuable as the continued coverage through insurance or otherwise, or (2) pay the Executive a lump sum cash amount that reasonably approximates the after-tax value to the Executive of the premiums for continued coverage, in lieu of providing such continued coverage. (c) Stock Options, Restricted Awards, etc. The Management Resources and Compensation Committee has determined, in the exercise of its administrative discretion under the Wachovia Corporation Stock Plan (and any successor or replacement plan thereto), that the termination of the Executive's employment under this Agreement shall not constitute either a "retirement" or a "displacement" of the Executive (as those terms are defined in the Wachovia Corporation Stock Plan), and that the Executive shall be deemed to continue in the employment of the Corporation during the Compensation Period for purposes of all outstanding stock options, restricted awards and other awards -59- granted to the Executive under the Wachovia Corporation Stock Plan. At the end of the Compensation Period, and provided that the Corporation has not terminated the Executive's Compensation Period pursuant to Section 7 of this Agreement, the Executive will be deemed to have retired from employment with the Corporation for the purpose of establishing his rights under the Wachovia Corporation Stock Plan (and any successor or replacement plan thereto) and any applicable award agreement. In the event that the Executive shall engage in full-time employment permitted hereunder for another employer or on a self-employed basis during the Compensation Period, his employment with the Corporation shall be deemed to have terminated for purposes of Section 4(b) as of the date he begins such full-time employment, but the payments in Section 4(a) shall continue for the remainder of the Compensation Period and the rights under Section 4(c) shall be applicable, in each case subject to the provisions of Section 7. 5. Voluntary Termination of Employment by the Executive. The Executive reserves the right to terminate his employment voluntarily at any time for any reason following at least ninety (90) days notice to the Corporation. If such notice shall be given, this Agreement shall terminate as of the effective date of termination as set forth in such notice (or the date ninety (90) days from the date of receipt by the Corporation of such notice, if no effective date shall be set forth therein), unless sooner terminated as provided in Section 3, 6 or 8. The Executive shall not be entitled to any form of Continuation Benefits as a result of such voluntary termination, except in the event of voluntary termination pursuant to Section 3 or Section 10 of this Agreement. 6. Termination for Cause. This Agreement shall immediately terminate and neither party shall have any further obligation hereunder (including but not limited to any obligation of the Corporation to provide Continuation Benefits) if the Executive's employment is terminated for "cause." Termination for cause shall occur when termination results from the Executive's (a) criminal dishonesty, (b) refusal to perform his duties hereunder on an exclusive and substantially full-time basis, (c) refusal to act in accordance with any specific substantive instructions of the Chief Executive Officer or the Board of Directors of the Corporation, or (d) engaging in conduct which could be materially damaging to the Corporation without a reasonable good faith belief that such conduct was in the best interests of the Corporation. The determination whether a termination is for cause shall be made by the Management Resources and Compensation Committee of the Board of Directors of the Corporation (the "Committee"), and such determination shall be final and conclusive on the Executive and all other persons affected thereby. 7. Executive's Obligations; Early Termination of Compensation Period. (a) During the Compensation Period, the Executive shall provide consulting services to the Corporation at such time or times as the Corporation shall reasonably request, subject to appropriate notice and to reimbursement by the Corporation of all reasonable travel and other expenses incurred and paid by the Executive in accordance with the Corporation's current policy for expense reimbursement. In the event the Executive shall engage in full-time employment permitted hereunder during the Compensation Period for another employer or on a self-employed basis, his obligation to provide the consulting services hereunder shall be adjusted in accordance with the requirements of such employment. (b) The Executive shall not disclose to any other person the Corporation's or any of its subsidiaries' confidential information or trade secrets at any time during or after the term of this Agreement or the Compensation Period. The Executive shall regard all material non-public information as confidential. The Executive will at all times refrain from taking any action or making any statements, written or oral, which are intended to or which disparage -60- the business, goodwill or reputation of the Corporation or any of its subsidiaries, or their respective directors, officers, executives or other employees, or which could adversely affect the morale of employees of the Corporation or any subsidiaries. (c) The Executive shall not, without the Corporation's written consent, engage in competitive employment at any time during the Compensation Period. The Executive shall be deemed to engage in competitive employment if he shall render services as an owner, employee, officer, director, consultant or otherwise, for himself or any employer which conducts a business or enterprise in any area where the Corporation or affiliate of the Corporation conducts business that competes directly or indirectly with the Corporation or affiliate of the Corporation. (d) The Executive shall not, during the Compensation Period, directly or indirectly, for himself or on behalf of any other person, partnership, company or corporation, induce or attempt to induce any employee of the Corporation to leave the employ of the Corporation, or in any way interfere with the relationship between the Corporation and an employee of the Corporation except in the proper exercise of the Executive's authority. (e) In the event that the Executive shall refuse to provide consulting services in accordance with paragraph (a) of this Section, or shall materially violate the terms and conditions of paragraph (b) or (c) of this Section, the Corporation may, at its election, terminate the Compensation Period and Continuation Benefits to the Executive. The Corporation may also initiate any form of legal action it may deem appropriate seeking damages or injunctive relief with respect to any material violations of paragraph (a), (b) or (c) of this Section. (f) The Committee shall be responsible for determining whether the Executive shall have violated this Section 7, and all such determinations shall be final and conclusive. Upon the request of the Executive, the Committee will provide an advance opinion as to whether a proposed activity would violate the provisions of paragraph (c) of this Section. 8. Death and Disability. In the event that, during the term of this Agreement or during the Compensation Period, the Executive shall die or shall become entitled to benefits under the Corporation's Long-Term Disability Plan, this Agreement shall thereupon terminate and neither the Executive nor any other person shall have any further rights or benefits hereunder (including any rights to Continuation Benefits). All rights pertaining to stock options and restricted stock awards held by the Executive as of the date of his death or disability shall be governed by the terms of such stock options and restricted stock awards (and applicable plans). 9. Other Severance Benefits. Except as provided in Section 4 of this Agreement, the Executive shall not be entitled to any other form of severance benefits, including benefits otherwise payable under any of the Corporation's regular severance plans or policies, irrespective of the circumstances of his termination of employment. The Executive agrees that the payments and benefits provided hereunder, subject to the terms and conditions hereof, shall be in full satisfaction of any rights which he might otherwise have or claim by operation of law, by implied contract or otherwise, except for rights which he may have under employee benefit plans of the Corporation or other individual written contracts with the Corporation. 10. Change of Control. (a) Notwithstanding any other provision of this Agreement, if the Executive voluntarily terminates his employment for any reason, or he is involuntarily -61- terminated, except pursuant to Section 6 (Termination for Cause), during the period beginning on the date of a Change of Control (as defined in Section 10(b) herein) and ending on the third anniversary of such date, then in either event the Executive shall be entitled to receive the Continuation Benefits described in Section 4 for a period of three years beginning with the date of such termination (without regard to the Executive's Normal Retirement Date or the last date this Agreement could terminate). (b) For the purposes herein, a "Change of Control" shall be deemed to have occurred on the earliest of the following dates: (i) The date any entity or person shall have become the beneficial owner of, or shall have obtained voting control over, thirty (30%) percent or more of the outstanding Common Stock of the Corporation; (ii) The date the shareholders of the Corporation approve a definitive agreement (A) to merge or consolidate the Corporation with or into another corporation, in which the Corporation is not the continuing or surviving corporation or pursuant to which any shares of Common Stock of the Corporation would be converted into cash, securities or other property of another corporation, other than a merger of the Corporation in which holders of Common Stock immediately prior to the merger have the same proportionate ownership of Common Stock of the surviving corporation immediately after the merger as immediately before, or (B) to sell or otherwise dispose of substantially all the assets of the Corporation; or (iii) The date there shall have been a change in a majority of the Board of Directors of the Corporation within a twelve month period unless the nomination for election by the Corporation's shareholders of each new director was approved by the vote of two-thirds of the directors then still in office who were in office at the beginning of the twelve month period. For the purposes herein, the term "person" shall mean any individual, corporation, partnership, group, association or other person, as such term is defined in Section13(d)(3) or Section 14(d)(2) of the Exchange Act, other than the Corporation, a subsidiary of the Corporation or any employee benefit plan(s) sponsored or maintained by the Corporation or any subsidiary thereof, and the term "beneficial owner" shall have the meaning given the term in Rule 13d-3 under the Exchange Act. (c) (i) In the event it shall be determined that any payment, benefit or distribution (or combination thereof) by the Corporation or one or more trusts established by the Corporation for the benefit of its employees, to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement, or otherwise) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1996, as amended (the "Code"), or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, hereinafter collectively referred to as the "Excise Tax"), the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and the Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (ii) Subject to the provisions of Section 10(c)(iii), all determinations required to be made under this Section 10, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by a nationally recognized certified public accounting firm designated by the Executive (the "Accounting -62- Firm") which shall provide detailed supporting calculations both to the Corporation and the Executive within fifteen business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Corporation. In the event that the Accounting Firm is serving as accountant or auditor for an individual, entity or group effecting the change in ownership or effective control (within the meaning of Section 280G of the Code), the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Corporation. Any Gross-Up Payment, as determined pursuant to this Section 10, shall be paid by the Corporation to the Executive within five days after the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall so indicate to the Executive in writing. Any determination by the Accounting Firm shall be binding upon the Corporation and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Corporation should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Corporation exhausts its remedies pursuant to Section 10(c)(iii) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Corporation to or for the benefit of the Executive. (iii) The Executive shall notify the Corporation in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Corporation of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Corporation of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Corporation (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Corporation notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (A) give the Corporation any information reasonably requested by the Corporation relating to such claim; (B) take such action in connection with contesting such claim as the Corporation shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Corporation; (C) cooperate with the Corporation in good faith in order to effectively contest such claim; and (D) permit the Corporation to participate in any proceedings relating to such claim; provided, however, that the Corporation shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 10(c)(iii), the Corporation shall control all proceedings taken in -63- connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Corporation shall determine; provided, however, that if the Corporation directs the Executive to pay such claim and sue for a refund, the Corporation shall advance the amount of such payment to the Executive, on an interest-free basis, and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and provided, further, that if the Executive is required to extend the statute of limitations to enable the Corporation to contest such claim, the Executive may limit this extension solely to such contested amount. The Corporation's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (iv) If, after the receipt by the Executive of an amount advanced by the Corporation pursuant to Section 10(c)(iii), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Corporation's complying with the requirements of Section 10(c)(iii)) promptly pay to the Corporation the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by Company pursuant to Section 10(c)(iii), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Corporation does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 11. Release and Waiver of Claims. In consideration of any Continuation Benefits the Corporation provides to the Executive under this Agreement, the Executive upon termination of employment with the Corporation shall execute a separate release and waiver of claims in a form acceptable to the Corporation. The Executive shall not be eligible for any Continuation Benefits until he has executed such release and waiver of claims. -64- 12. Notices. All notices hereunder shall be in writing and deemed properly given if delivered by hand and receipted or if mailed by registered mail, return receipt requested. Notices to the Corporation shall be directed to the Secretary of the Corporation with a copy directed to the Corporation's General Counsel. Notices to the Executive shall be directed to his last known address. Notice may not be provided by e-mail. 13. Miscellaneous. (a) The waiver, whether express or implied, by either party of a violation of any of the provisions of this Agreement shall not operate or be construed as a waiver of any subsequent violation of any such provision. (b) No right, benefit or interest hereunder shall be subject to assignment, encumbrance, charge, pledge, hypothecation or set off in respect of any claim, debt or obligation, or similar process. (c) This Agreement may not be amended, modified or canceled except by written agreement of the parties. (d) Words used in this Agreement in the singular shall include the plural, and the plural shall include the singular and words in the feminine or masculine shall include the masculine and feminine, respectively, and the neuter. (e) In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions of this Agreement shall remain in full force and effect to the fullest extent permitted by law. (f) This Agreement shall be binding upon and inure to the benefit of the Executive and the Corporation, and their respective heirs, successors and assigns. (g) No benefit or promise hereunder shall be secured by any specific assets of the Corporation. The Executive shall have only the rights of an unsecured general creditor of the Corporation in seeking satisfaction of such benefits or promises. (h) This Agreement shall be governed by the construed in accordance with the laws of the State of North Carolina. -65- (i) This Agreement sets forth the entire agreement and understanding of the parties hereto with respect to the matters covered hereby, and replaces any predecessor employment agreement between the parties hereto, and any such predecessor agreement shall be deemed terminated and neither party thereto shall have any rights or obligations thereunder. IN WITNESS WHEREOF, this Agreement has been executed by or in behalf of the parties hereto as of the date first above written. WACHOVIA CORPORATION By: __________________________________ Chief Executive Officer Attest: - ------------------------------------- Secretary [Corporate Seal] ________________________________ (Seal) EXECUTIVE -66- EX-10.8 7 EMPLOYMENT AGREEMENT-EXECUTIVE OFFICERS EXHIBIT 10.8 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT, made as of the _____ day of ___________, _______, by and between WACHOVIA CORPORATION (the "Corporation") and ____________ (the "Executive"); R E C I T A L S: The Corporation desires to secure the services of the Executive in its behalf or in behalf of one or more of its subsidiaries for which the Executive shall render services hereunder from time to time, in accordance with the terms and conditions set forth herein. In addition, the Corporation desires to provide the Executive with an incentive to remain in the service of the Corporation or one or more of its subsidiaries by granting to the Executive "Continuation Benefits" as set forth below should his employment be terminated under circumstances described herein for which Continuation Benefits are provided. NOW, THEREFORE, the Corporation and the Executive hereby mutually agree as follows: 1. a. Employment. The Executive shall devote his working time exclusively to the performance of such senior management duties for the Corporation or one or more of its subsidiaries as may be assigned to him by the Corporation from time to time, and shall perform such duties faithfully and to the best of his ability. Such duties shall be of a type for which the Executive is suited by background, experience and training, in the Corporation's sole discretion. References herein to duties performed for the Corporation and compensation and benefits payable or provided by the Corporation shall include duties performed for and compensation and benefits payable or provided by any subsidiary of the Corporation. The Executive may participate in other business activities, such as service on corporate, civic or charitable boards or committees, with the permission of the Corporation, and such activities shall be subject to the obligations in Section 7 below. The Executive agrees to use his best reasonable efforts to avoid unnecessary conflict between the Executive's duties to the Corporation and his pursuit of other business or civic or charitable interests. g. Base Salary. During the employment of the Executive, the Executive shall receive an annual base salary ("Base Salary") at least equal to the annual base salary in effect for the Executive on the date of this Agreement. Base Salary shall be paid in accordance with the Corporation's normal payroll practices (but not less frequently than monthly). The Executive's Base Salary will be reviewed in accordance with the Corporation's standard procedures and may be increased from time to time consistent with such procedures. Effective as of the date of any such increase, the Base Salary as so increased shall be considered the new Base Salary for purposes of this Agreement, and may not thereafter be reduced except with the express written consent of the Executive. c. Expenses. During the employment of the Executive, the Executive shall be entitled to receive prompt reimbursement for all reasonable employment expenses incurred by the Executive in accordance with the policies, practices and procedures of the Corporation at the time the expense is incurred. 2. Term of Agreement. The term of this Agreement shall commence on the date hereof and shall continue in effect until__________________; provided, however, that commencing on the first anniversary of this Agreement, and each anniversary thereafter, the term of this Agreement shall be automatically extended for one additional year unless at least 90 days before any such anniversary date either party shall notify the other in writing that it will not extend the term of this Agreement beyond the then applicable expiration date. Notice by the Corporation of its intention not to extend the term of this Agreement and its expiration at the end of the term shall not constitute termination of employment and the Executive shall not be entitled to Continuation Benefits (as defined in Section 4 below). In no event, however, may the term of this Agreement extend beyond the Executive's sixtieth birthday. References herein to the "term" of -67- this Agreement shall mean the original term plus any continuation as provided in this Section 2. The "term" shall not be deemed to refer to the Compensation Period described in Section 4. 3. Termination of Employment by the Corporation. The Corporation may terminate the employment of the Executive at any time for any reason; provided that except as set forth in Sections 6 and 7, the Corporation shall provide the Executive with Continuation Benefits as set forth in Section 4 if the Executive's employment is involuntarily terminated during the term of the Agreement. The Executive's employment shall be deemed to be involuntarily terminated if he is terminated by the Corporation for any reason other than for "cause" as defined in Section 6, or if he voluntarily terminates employment because: (a) his Base Salary is reduced without the Executive's consent, or (b) the Corporation amends the Senior Executive Retirement Agreement between the Corporation and the Executive (the "Retirement Agreement") without the Executive's consent, and such amendment materially reduces the benefits to which the Executive would have been entitled had such amendment not been made, or (c) the duties and responsibilities assigned to the Executive as of the date of this Agreement are materially reduced and the Executive does not consent to such material reduction of duties. In order for voluntary termination pursuant to (a), (b) and (c) of this Section to be effective: (1) the Executive must give written notice to the Corporation within sixty (60) days of an event specified in clauses (a), (b) or (c) above indicating that the Executive intends to terminate employment under this Section and which describes the reasons for such termination, (2) the Executive's voluntary termination under this Section must occur within ninety (90) days after an event described in clause (a), (b) or (c) of this Section, or within ninety (90) days after the last in a series of such events, and (3) the Corporation must have failed to remedy the event described in clause (a), (b) or (c) of this Section, as the case may be, within thirty (30) days after receiving the Executive's written notice. If the Corporation so remedies the event described in clause (a), (b) or (c) of this Section, the Executive may not terminate employment under this Section on account of the event specified in the Executive's notice. 4. Continuation Benefits. If the Executive's employment hereunder is involuntarily terminated as described in Section 3, he will be entitled to receive the cash compensation and benefits described in (a), (b) and (c) below (herein, "Continuation Benefits") for the period beginning with the date of such involuntary termination and ending with the earlier of (i) the third anniversary of the date of such termination, or (ii) the Normal Retirement Date of the Executive as defined in the Retirement Agreement (such period, is referred to herein as the "Compensation Period"). The duration of the Compensation Period shall not be affected by the fact that the term of this Agreement otherwise would end before such Period expires. The Continuation Benefits are as follows: (a) Cash Compensation. The amount of cash compensation to be received monthly during the Compensation Period shall equal one-twelfth of the sum of (i) the Executive's highest annual Base Salary from the Corporation in effect during the 12-month period before his involuntary termination, plus (ii) an amount equal to the average of the annual incentive compensation paid to the Executive by the Corporation, if any, for the three (3) full calendar years within the final five full calendar years of his employment which will produce the highest average (or shorter period if the executive has been employed less than five years) (and annualized for any partial calendar year); provided, that the incentive compensation to be recognized for this purpose shall be approved by the Management Resources and Compensation Committee in good faith and in its sole discretion, plus (iii) the average of any -68- annual contributions by the Corporation (excluding participant contributions) in behalf of the Executive under the Retirement Savings and Profit-Sharing Plan of Wachovia Corporation and the Wachovia Corporation Executive Deferred Compensation Plan (or any successor or replacement plans) for the three (3) full calendar years within the final five full calendar years of his employment which will produce the highest average (or shorter period if the executive has been employed less than five years) (and annualized for any partial calendar year). Each monthly payment of such cash compensation shall have deducted therefrom all payroll taxes and withholdings required by law. Cash compensation shall not include any benefits or compensation provided to the Executive under the Wachovia Corporation Stock Plan, any similar plan or any successor or replacement plan. (b) Employee Benefits. During the Compensation Period the Executive shall be deemed to be continuing in the employment of the Corporation for the purpose of applying and administering employee benefit plans of the Corporation (other than any tax-qualified retirement plans) and individual contracts, if any, between the Corporation and the Executive providing supplemental or equalization payments or benefits with respect to the Executive. The Executive shall participate in any changes during the Compensation Period in benefit plans or programs applicable generally to employees of the Corporation, or to a class of employees which includes senior executives of the Corporation, but shall not have any right or option to participate in any such plan or program in which he was not a participant immediately prior to his involuntary termination of employment. Any individual contract between the Corporation and the Executive in effect at the time of his involuntary termination of employment may be terminated or amended by the Corporation to the extent permitted by the terms of such contract; provided, that during the Compensation Period the Corporation shall not, without the written consent of the Executive or except to the extent required by law, make any amendment to or terminate any one or more of the following individual contracts or plans if applicable to the Executive: (i) the Retirement Agreement; and (ii) the Wachovia Corporation Executive Deferred Compensation Plan. The Corporation shall have no obligation to the Executive to make any change or improvement in the Retirement Agreement or the Deferred Compensation Plan during the Compensation Period even if the Corporation shall make changes or improvements during such period in similar contracts or plans, if any, with or for the benefit of other senior executives of the Corporation. Notwithstanding the foregoing, if the Corporation reasonably determines that providing continued coverage under one or more of its welfare benefit plans could adversely affect the tax treatment of other participants covered under the plans, or would otherwise have adverse legal ramifications, the Corporation may, in its discretion, either (1) provide other coverage at least as valuable as the continued coverage through insurance or otherwise, or (2) pay the Executive a lump sum cash amount that reasonably approximates the after-tax value to the Executive of the premiums for continued coverage, in lieu of providing such continued coverage. (c) Stock Options, Restricted Awards, etc. The Management Resources and Compensation Committee has determined, in the exercise of its administrative discretion under the Wachovia Corporation Stock Plan (and any successor or replacement plan thereto), that the termination of the Executive's employment under this Agreement shall not constitute either a "retirement" or a "displacement" of the Executive (as those terms are defined in the Wachovia Corporation Stock Plan), and that the Executive shall be deemed to continue in the employment of the Corporation during the Compensation Period for purposes of all outstanding stock options, restricted awards and other awards -69- granted to the Executive under the Wachovia Corporation Stock Plan. At the end of the Compensation Period, and provided that the Corporation has not terminated the Executive's Compensation Period pursuant to Section 7 of this Agreement, the Executive will be deemed to have retired from employment with the Corporation for the purpose of establishing his rights under the Wachovia Corporation Stock Plan (and any successor or replacement plan thereto) and any applicable award agreement. In the event that the Executive shall engage in full-time employment permitted hereunder for another employer or on a self-employed basis during the Compensation Period, his employment with the Corporation shall be deemed to have terminated for purposes of Section 4(b) as of the date he begins such full-time employment, but the payments in Section 4(a) shall continue for the remainder of the Compensation Period and the rights under Section 4(c) shall be applicable, in each case subject to the provisions of Section 7. 5. Voluntary Termination of Employment by the Executive. The Executive reserves the right to terminate his employment voluntarily at any time for any reason following at least ninety (90) days notice to the Corporation. If such notice shall be given, this Agreement shall terminate as of the effective date of termination as set forth in such notice (or the date ninety (90) days from the date of receipt by the Corporation of such notice, if no effective date shall be set forth therein), unless sooner terminated as provided in Section 3, 6 or 8. The Executive shall not be entitled to any form of Continuation Benefits as a result of such voluntary termination, except in the event of voluntary termination pursuant to Section 3 or Section 10 of this Agreement. 6. Termination for Cause. This Agreement shall immediately terminate and neither party shall have any further obligation hereunder (including but not limited to any obligation of the Corporation to provide Continuation Benefits) if the Executive's employment is terminated for "cause." Termination for cause shall occur when termination results from the Executive's (a) criminal dishonesty, (b) refusal to perform his duties hereunder on an exclusive and substantially full-time basis, (c) refusal to act in accordance with any specific substantive instructions of the Chief Executive Officer or the Board of Directors of the Corporation, or (d) engaging in conduct which could be materially damaging to the Corporation without a reasonable good faith belief that such conduct was in the best interests of the Corporation. The determination whether a termination is for cause shall be made by the Management Resources and Compensation Committee of the Board of Directors of the Corporation (the "Committee"), and such determination shall be final and conclusive on the Executive and all other persons affected thereby. 7. Executive's Obligations; Early Termination of Compensation Period. (a) During the Compensation Period, the Executive shall provide consulting services to the Corporation at such time or times as the Corporation shall reasonably request, subject to appropriate notice and to reimbursement by the Corporation of all reasonable travel and other expenses incurred and paid by the Executive in accordance with the Corporation's current policy for expense reimbursement. In the event the Executive shall engage in full-time employment permitted hereunder during the Compensation Period for another employer or on a self-employed basis, his obligation to provide the consulting services hereunder shall be adjusted in accordance with the requirements of such employment. (b) The Executive shall not disclose to any other person the Corporation's or any of its subsidiaries' confidential information or trade secrets at any time during or after the term of this Agreement or the Compensation Period. The Executive shall regard all material non-public information as confidential. The Executive will at all times refrain from taking any action or making any statements, written or oral, which are intended to or which disparage -70- the business, goodwill or reputation of the Corporation or any of its subsidiaries, or their respective directors, officers, executives or other employees, or which could adversely affect the morale of employees of the Corporation or any subsidiaries. (c) The Executive shall not, without the Corporation's written consent, engage in competitive employment at any time during the Compensation Period. The Executive shall be deemed to engage in competitive employment if he shall render services as an owner, employee, officer, director, consultant or otherwise, for himself or any employer which conducts a business or enterprise in any area where the Corporation or affiliate of the Corporation conducts business that competes directly or indirectly with the Corporation or affiliate of the Corporation. (d) The Executive shall not, during the Compensation Period, directly or indirectly, for himself or on behalf of any other person, partnership, company or corporation, induce or attempt to induce any employee of the Corporation to leave the employ of the Corporation, or in any way interfere with the relationship between the Corporation and an employee of the Corporation except in the proper exercise of the Executive's authority. (e) In the event that the Executive shall refuse to provide consulting services in accordance with paragraph (a) of this Section, or shall materially violate the terms and conditions of paragraph (b) or (c) of this Section, the Corporation may, at its election, terminate the Compensation Period and Continuation Benefits to the Executive. The Corporation may also initiate any form of legal action it may deem appropriate seeking damages or injunctive relief with respect to any material violations of paragraph (a), (b) or (c) of this Section. (f) The Committee shall be responsible for determining whether the Executive shall have violated this Section 7, and all such determinations shall be final and conclusive. Upon the request of the Executive, the Committee will provide an advance opinion as to whether a proposed activity would violate the provisions of paragraph (c) of this Section. 8. Death and Disability. In the event that, during the term of this Agreement or during the Compensation Period, the Executive shall die or shall become entitled to benefits under the Corporation's Long-Term Disability Plan, this Agreement shall thereupon terminate and neither the Executive nor any other person shall have any further rights or benefits hereunder (including any rights to Continuation Benefits). All rights pertaining to stock options and restricted stock awards held by the Executive as of the date of his death or disability shall be governed by the terms of such stock options and restricted stock awards (and applicable plans). 9. Other Severance Benefits. Except as provided in Section 4 of this Agreement, the Executive shall not be entitled to any other form of severance benefits, including benefits otherwise payable under any of the Corporation's regular severance plans or policies, irrespective of the circumstances of his termination of employment. The Executive agrees that the payments and benefits provided hereunder, subject to the terms and conditions hereof, shall be in full satisfaction of any rights which he might otherwise have or claim by operation of law, by implied contract or otherwise, except for rights which he may have under employee benefit plans of the Corporation or other individual written contracts with the Corporation. 10. Change of Control. (a) Notwithstanding any other provision of this Agreement, if the Executive voluntarily terminates his employment for any reason, or he is involuntarily -71- terminated, except pursuant to Section 6 (Termination for Cause), during the period beginning on the date of a Change of Control (as defined in Section 10(b) herein) and ending on the third anniversary of such date, then in either event the Executive shall be entitled to receive the Continuation Benefits described in Section 4 for a period of three years beginning with the date of such termination (without regard to the Executive's Normal Retirement Date or the last date this Agreement could terminate). (b) For the purposes herein, a "Change of Control" shall be deemed to have occurred on the earliest of the following dates: (i) The date any entity or person shall have become the beneficial owner of, or shall have obtained voting control over, thirty (30%) percent or more of the outstanding Common Stock of the Corporation; (ii) The date the shareholders of the Corporation approve a definitive agreement (A) to merge or consolidate the Corporation with or into another corporation, in which the Corporation is not the continuing or surviving corporation or pursuant to which any shares of Common Stock of the Corporation would be converted into cash, securities or other property of another corporation, other than a merger of the Corporation in which holders of Common Stock immediately prior to the merger have the same proportionate ownership of Common Stock of the surviving corporation immediately after the merger as immediately before, or (B) to sell or otherwise dispose of substantially all the assets of the Corporation; or (iii) The date there shall have been a change in a majority of the Board of Directors of the Corporation within a twelve month period unless the nomination for election by the Corporation's shareholders of each new director was approved by the vote of two-thirds of the directors then still in office who were in office at the beginning of the twelve month period. For the purposes herein, the term "person" shall mean any individual, corporation, partnership, group, association or other person, as such term is defined in Section13(d)(3) or Section 14(d)(2) of the Exchange Act, other than the Corporation, a subsidiary of the Corporation or any employee benefit plan(s) sponsored or maintained by the Corporation or any subsidiary thereof, and the term "beneficial owner" shall have the meaning given the term in Rule 13d-3 under the Exchange Act. (c) (i) In the event it shall be determined that any payment, benefit or distribution (or combination thereof) by the Corporation or one or more trusts established by the Corporation for the benefit of its employees, to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement, or otherwise) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1996, as amended (the "Code"), or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, hereinafter collectively referred to as the "Excise Tax"), the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and the Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (ii) Subject to the provisions of Section 10(c)(iii), all determinations required to be made under this Section 10, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by a nationally recognized certified public accounting firm designated by the Executive (the "Accounting -72- Firm") which shall provide detailed supporting calculations both to the Corporation and the Executive within fifteen business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Corporation. In the event that the Accounting Firm is serving as accountant or auditor for an individual, entity or group effecting the change in ownership or effective control (within the meaning of Section 280G of the Code), the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Corporation. Any Gross-Up Payment, as determined pursuant to this Section 10, shall be paid by the Corporation to the Executive within five days after the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall so indicate to the Executive in writing. Any determination by the Accounting Firm shall be binding upon the Corporation and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Corporation should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Corporation exhausts its remedies pursuant to Section 10(c)(iii) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Corporation to or for the benefit of the Executive. (iii) The Executive shall notify the Corporation in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Corporation of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Corporation of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Corporation (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Corporation notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (A) give the Corporation any information reasonably requested by the Corporation relating to such claim; (B) take such action in connection with contesting such claim as the Corporation shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Corporation; (C) cooperate with the Corporation in good faith in order to effectively contest such claim; and (D) permit the Corporation to participate in any proceedings relating to such claim; provided, however, that the Corporation shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 10(c)(iii), the Corporation shall control all proceedings taken in -73- connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Corporation shall determine; provided, however, that if the Corporation directs the Executive to pay such claim and sue for a refund, the Corporation shall advance the amount of such payment to the Executive, on an interest-free basis, and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and provided, further, that if the Executive is required to extend the statute of limitations to enable the Corporation to contest such claim, the Executive may limit this extension solely to such contested amount. The Corporation's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (iv) If, after the receipt by the Executive of an amount advanced by the Corporation pursuant to Section 10(c)(iii), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Corporation's complying with the requirements of Section 10(c)(iii)) promptly pay to the Corporation the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by Company pursuant to Section 10(c)(iii), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Corporation does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 11. Release and Waiver of Claims. In consideration of any Continuation Benefits the Corporation provides to the Executive under this Agreement, the Executive upon termination of employment with the Corporation shall execute a separate release and waiver of claims in a form acceptable to the Corporation. The Executive shall not be eligible for any Continuation Benefits until he has executed such release and waiver of claims. -74- 12. Notices. All notices hereunder shall be in writing and deemed properly given if delivered by hand and receipted or if mailed by registered mail, return receipt requested. Notices to the Corporation shall be directed to the Secretary of the Corporation with a copy directed to the Corporation's General Counsel. Notices to the Executive shall be directed to his last known address. Notice may not be provided by e-mail. 13. Miscellaneous. (a) The waiver, whether express or implied, by either party of a violation of any of the provisions of this Agreement shall not operate or be construed as a waiver of any subsequent violation of any such provision. (b) No right, benefit or interest hereunder shall be subject to assignment, encumbrance, charge, pledge, hypothecation or set off in respect of any claim, debt or obligation, or similar process. (c) This Agreement may not be amended, modified or canceled except by written agreement of the parties. (d) Words used in this Agreement in the singular shall include the plural, and the plural shall include the singular and words in the feminine or masculine shall include the masculine and feminine, respectively, and the neuter. (e) In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions of this Agreement shall remain in full force and effect to the fullest extent permitted by law. (f) This Agreement shall be binding upon and inure to the benefit of the Executive and the Corporation, and their respective heirs, successors and assigns. (g) No benefit or promise hereunder shall be secured by any specific assets of the Corporation. The Executive shall have only the rights of an unsecured general creditor of the Corporation in seeking satisfaction of such benefits or promises. (h) This Agreement shall be governed by the construed in accordance with the laws of the State of North Carolina. -75- (i) This Agreement sets forth the entire agreement and understanding of the parties hereto with respect to the matters covered hereby, and replaces any predecessor employment agreement between the parties hereto, and any such predecessor agreement shall be deemed terminated and neither party thereto shall have any rights or obligations thereunder. IN WITNESS WHEREOF, this Agreement has been executed by or in behalf of the parties hereto as of the date first above written. WACHOVIA CORPORATION By: ____________________________________ Chief Executive Officer Attest: - ------------------------------------- Secretary [Corporate Seal] _________________________________ (Seal) EXECUTIVE -76- EX-10.10 8 RETIREMENT AGREEMENT-BAKER EXHIBIT 10.10 SENIOR EXECUTIVE RETIREMENT AGREEMENT THIS SENIOR EXECUTIVE RETIREMENT AGREEMENT (the "Agreement"), made and entered into as of the 29th day of November, 1999, by and between WACHOVIA CORPORATION (the "Corporation"), a North Carolina corporation, and L. M. Baker, Jr. (the "Executive"), a senior management employee of the Corporation; RECITALS The Executive is a senior management employee of the Corporation, and as such has rendered and is expected to continue to render valuable services in behalf of the Corporation. The Management Resources and Compensation Committee (the "Committee") of the Corporation desires for the Corporation to provide the Executive with supplemental retirement benefits partially in recognition of such services. In addition, the Committee has determined that providing such benefits will make the Corporation's benefits package more competitive with packages offered by many other employers and will facilitate management succession planning for the Corporation. NOW, THEREFORE, the Corporation and the Executive hereby mutually agree as follows: Section 1. Definitions. When used herein, the words and phrases below shall have the meanings set forth, unless a different meaning is clearly required by the context. Terms used but not defined herein, and which are defined in the Retirement Plan, shall have the meaning assigned to them in the Retirement Plan. Masculine pronouns include feminine pronouns wherever used and vice versa. 1.1 "Board of Directors" means the Board of Directors of the Corporation. 1.2 "Code" means the Internal Revenue Code of 1986, as it may be amended from time to time. 1.3 "Effective Date" means November 29, 1999. 1.4 "Final Average Compensation" means the average of the annual compensation of the Executive for the three full calendar years within the final five full calendar years of his employment which will produce the highest average. For this purpose, the annual compensation of the Executive shall mean his total cash remuneration from the Corporation, including an amount equal to the average of the annual incentive compensation paid to the Executive by the Corporation, if any, provided that the incentive compensation to be recognized for this purpose shall be approved by the Management Resources and Compensation Committee in good faith and in its sole discretion, plus the sum of: (a) any salary reduction amounts which the Executive elects to have contributed with respect to him to a qualified cash or deferred arrangement under Section 401(k) of the Code, to a benefit enhancement plan in lieu of contributions to such a qualified cash or deferred arrangement, to a cafeteria plan under Section 125 of the Code, or to any similar plan or arrangement, and (b) any amounts deferred under any deferred compensation plan or contract. Amounts described in (a) and (b) shall be deemed received at the time the Executive would have received them but for the programs described in (a) and (b). Notwithstanding the foregoing, the Executive's total cash remuneration shall not include any benefits or compensation provided to the Executive under the Wachovia Corporation Stock Plan, any similar plan, or any successor or replacement plan. 1.5 "Normal Retirement Date" means the first day of the month coincident with or next following the date the Executive attains age sixty-two. 1.6 "Other Pension Plan" means any defined benefit pension plan, other than the Retirement Plan, in which the Executive is a participant and which is qualified under Section 401(a) of the Code and is maintained by the Corporation or a subsidiary of the Corporation. 1.7 "Retirement Date" means the date the Executive retires under this Agreement on account of early or normal retirement. 1.8 "Retirement Plan" means the Retirement Income Plan of Wachovia Corporation and any successor thereto. -77- 1.9 "Supplemental Benefit" means the monthly benefit payable to the Executive under this Agreement. Section 2. Normal Retirement. (a) At his Normal Retirement Date, the Executive will retire and will be entitled to receive the Supplemental Benefit, computed in the form of a single life annuity for his life. Payment of the Supplemental Benefit will commence on the Executive's Normal Retirement Date. In addition, the Executive shall be entitled to retire from employment with the Corporation at any time during the period between his sixtieth birthday and his Normal Retirement Date and shall receive the Supplement Benefit described in this Section 2, commencing on the first day of the calendar month immediately following his retirement. The monthly amount of the Supplemental Benefit shall equal one-twelfth of the product of two and one-half percent (2.5%) of the Executive's Final Average Compensation times the number of years of his creditable service determined under the provisions of the Retirement Plan (subject to a maximum of 62.5%), reduced by the monthly amount payable under the Retirement Plan and any Other Pension Plan. The offset shall equal the monthly amounts actually payable under the Retirement Plan and any Other Pension Plan, based on the payment option elected by the Executive. The Executive shall not forfeit any right to the Supplemental Benefit as a result of retirement after his sixtieth birthday, and the amount of the Supplemental Benefit shall in no event be less than the amount of the Supplemental Benefit that would have been payable to the Executive had he retired on his sixtieth birthday. For purposes of this subsection, the amount of the Executive's Supplemental Benefit shall be determined on an actuarially equivalent basis using the actuarial factors set forth in the Retirement Plan. (b) Notwithstanding the foregoing, if the Executive and the Corporation agree to extend the Executive's employment beyond the Executive's Normal Retirement Date, the Executive shall not be required to terminate employment at his Normal Retirement Date, and shall not forfeit any right to the Supplemental Benefit as a result of retirement after his Normal Retirement Date. Furthermore, the amount of the Supplemental Benefit shall in no event be less than the amount of the Supplemental Benefit that would have been payable to the Executive had he retired at his Normal Retirement Date. For purposes of this subsection, the amount of the Executive's Supplemental Benefit shall be determined on an actuarially equivalent basis using the actuarial factors set forth in the Retirement Plan. Section 3. Early Retirement. If the Executive has attained his fifty-fifth birthday but has not attained his sixtieth birthday, and has ten or more years of service, he may elect early retirement as of the first day of any calendar month following written notice of at least ninety days to the Corporation and the Committee. The Supplemental Benefit of the Executive who elects early retirement shall equal the benefit determined under Section 2 as of such date, reduced by five percent for each year (with proportionate allowance for complete months) by which the starting date of the benefit precedes attainment of his sixtieth birthday. With the consent of the Committee, the Supplemental Benefit shall be payable to the Executive pursuant to Section 2 commencing as of the first day of any calendar month on or after his early retirement and before his Normal Retirement Date. The request for benefit payment must be filed by the Executive in writing with the Committee at least thirty days prior to the date payments are requested to commence. Section 4. Spouse's Supplemental Benefit. If the Executive shall be married on his Retirement Date, and shall die thereafter survived by such spouse, or if the Executive shall die prior to his Retirement Date and shall be married on the date of his death, such spouse shall be entitled to a monthly supplemental benefit (herein the "Spouse's Supplemental Benefit") payable for life and equal to 60% of the monthly amount of the Supplemental Benefit payable to the Executive (assuming, for an Executive who shall die prior to his Retirement Date, that the Executive had retired on the date immediately preceding the date of his death and that the years of his creditable service included the years and fractions thereof from the date of death to his Normal Retirement Date), before applying the reduction for the monthly amount payable to the Executive under the Retirement Plan and any Other Pension Plan, but reduced by the monthly amount, if any, payable to the spouse under the Retirement Plan and any Other Pension Plan in the calendar month next following the death of the Executive. The monthly amount of the Spouse's Supplemental Benefit shall be payable on the first day of each calendar month following the death of the Executive and preceding the death of such spouse. -78- Section 5. Optional Forms of Payment. Notwithstanding the provisions of Sections 2 through 4, the present value of the sum of the Supplemental Benefit and the Spouse's Supplemental Benefit (if any) may, at the request of the Executive and with the consent of the Executive's spouse (if any) and the Committee, be payable in cash in a lump sum within thirty days following the Retirement Date of the Executive. Such present value shall be the actuarial equivalent (as defined in the Retirement Plan) of the Supplemental Benefit and Spouse's Supplemental Benefit (if any). The request for a lump sum distribution, and the consent of the Executive's spouse, must be filed by the Executive with the Committee at least sixty days prior to the Retirement Date. Such consent shall be in writing on a form provided by the Committee. Section 6. Disability; Death. (a) In the event the Executive suffers a disability (as defined in the Retirement Plan) prior to the Retirement Date, the Executive shall continue to accrue a Supplemental Benefit under this Agreement based upon the Final Average Compensation of the Executive as of the last date the Executive was paid by the Corporation (including sick pay) and taking into account the period from the disability of the Executive to the Normal Retirement Date as creditable service for purposes of this Agreement. The Supplemental Benefit of the Executive who is disabled shall be determined and payable as of the Normal Retirement Date of the Executive. (b) In the event that both the Executive and his spouse (if any) die before the date on which the Executive would have attained age 83, their designated beneficiary (or the estate of the last to die if no beneficiary has been designated) shall receive a lump sum death benefit (the "Death Benefit"). The Death Benefit shall be equal to the product of (i) 60% of the annual amount of the Supplemental Benefit payable to the Executive (subject to the assumptions described in Section 4 if the Executive dies before his Retirement Date), and (ii) the difference between 83 and the age that the Executive attained (or would have attained) as of the later of the date on which he died or the date on which his spouse died. Section 7. Miscellaneous. (a) The Executive shall forfeit any right to the Supplemental Benefit or any other rights hereunder (including the Spouse's Supplemental Benefit) if he (i) declines to retire at his Normal Retirement Date, (ii) terminates employment with the Corporation prior to his Retirement Date without written consent of the Committee, or (iii) is terminated for "cause." Termination for cause shall arise if the Executive's employment by the Corporation is terminated because of or arising out of: (A) criminal dishonesty, (B) refusal to perform his employment duties for the Corporation on substantially a full-time basis, (C) refusal to act in accordance with any specific substantive instructions of the Corporation's Chief Executive Officer or Board of Directors, or (D) engaging in conduct which could be materially damaging to the Corporation without a reasonable good faith belief by the Executive that such conduct was in the best interest of the Corporation. Notwithstanding the foregoing provisions of this Section 7(a), in the event of a Change of Control of the Corporation, the Executive shall be vested in the right to receive payment of the Supplemental Benefit under this Agreement, which right shall not be forfeited upon the termination of the Executive for any reason other than for cause as defined in this Section 7(a). In the event the employment of the Executive is voluntarily or involuntarily terminated during the period beginning on the date of the Change of Control and ending on the third anniversary of such date, and as a result of such termination the Executive is entitled to receive Continuation Benefits pursuant to an employment agreement between the Corporation and the Executive, then notwithstanding any other provision of this Agreement to the contrary, the Executive shall continue to be credited with creditable service during the Compensation Period, and the annual cash compensation paid to the Executive during the Compensation Period shall be taken into account in determining his Final Average Compensation under this Agreement. The Executive's Supplemental Benefit shall be paid commencing as of the later of the end of the Compensation Period or the date the Executive actually attains (or would have attained but for death) the age of fifty-five. If payment of the Executive's Supplemental Benefit commences at a date prior to the Executive's Normal Retirement Date, the Executive shall be deemed to have satisfied all of the conditions and requirements described in Section 3 for purposes of computing the amount of his Supplemental Benefit. For purposes herein, the terms "Change of Control," Continuation Benefits," and "Compensation Period" shall have the meaning given such terms in the employment agreement between the Corporation and the Executive. (b) The Supplemental Benefit shall cease to be paid to the Executive (and rights to the Spouse's Supplemental Benefit shall terminate) if he shall disclose material confidential information or trade secrets concerning the Corporation or any of its subsidiaries without the Corporation's consent, or shall engage in any -79- activity that is materially damaging to the Corporation including, but not limited to, engaging in competitive employment at any time. The Executive shall be deemed to engage in competitive employment if he shall render services as an owner, employee, officer, director, consultant or otherwise, for himself or any employer which conducts a business or enterprise in any area where the Corporation or affiliate of the Corporation conducts business that competes directly or indirectly with the Corporation or affiliate of the Corporation. The Committee shall have authority to cease payments under this paragraph (b), and the determination of the Committee shall be final and conclusive. Upon the request of the Executive, the Committee may grant an advance opinion as to whether a proposed activity would violate the provisions of this paragraph (b). (c) In consideration of any benefit payable to the Executive under this Agreement, the Executive upon termination of employment with the Corporation shall execute a separate release and waiver of claims in a form acceptable to the Corporation. The Executive shall not be eligible for any benefit under this Agreement until he has executed such release and waiver of claims. (d) In the event the employment of the Executive terminates prior to a Change of Control, and as a result of such termination the Executive is entitled to receive Continuation Benefits pursuant to an employment agreement between the Corporation and the Executive, then notwithstanding any other provision of this Agreement to the contrary, the Executive shall continue to be credited with creditable service during the Compensation Period, and the annual cash compensation paid to the Executive during the Compensation Period shall be taken into account in determining his Final Average Compensation under this Agreement. The Executive shall be deemed to retire from the Corporation on the last day of the Compensation Period and to have given the Corporation written notice of such retirement at least ninety days before such date. The Executive's Supplemental Benefit shall be paid commencing as of the end of the Compensation Period. The terms "Change of Control," "Continuation Benefits" and "Compensation Period" shall have the meaning given to such terms in the employment agreement between the Corporation and the Executive. (e) Nothing in this Agreement shall be construed as giving the Executive the right to be retained in the employ of the Corporation or any subsidiary of the Corporation at all or for any specified period in any particular position, or any right to any payment whatsoever except to the extent provided for by this Agreement. (f) Notwithstanding any other provisions hereof, if any person entitled to receive payments hereunder (the "recipient") shall be physically or mentally or legally incapable of receiving or acknowledging receipt of such payment, the Corporation, upon the receipt of satisfactory evidence that another person or institution is maintaining the recipient and that no guardian or committee has been appointed for the recipient, may cause such payment to be made to such person or institution so maintaining the recipient. (g) Nothing in this Agreement and no action taken pursuant to the provisions of this Agreement shall create or shall be construed as creating a trust of any kind, or a fiduciary relationship between the Corporation and the Executive or any other person. Any amounts which are or may be set aside hereunder shall continue for all purposes to be a part of the general funds of the Corporation, and no person other than the Corporation shall, by virtue of the provisions of this Agreement, have any interest in such funds. To the extent that any person acquires a right to receive payments from the Corporation hereunder, such right shall be no greater than the right of any unsecured general creditor of the Corporation. (h) The benefits payable under this Agreement may not be assigned by the Executive or any other person nor anticipated in any way. (i) The Committee may, in its sole discretion, terminate, suspend or amend this Agreement at any time or from time to time, in whole or in part; provided, that except as otherwise specifically provided herein no such termination, suspension or amendment made following the date that payments commence hereunder will affect the right of any person to receive benefits earned hereunder. Upon a change of control of the Corporation as defined in the Wachovia Corporation Stock Plan as it may be amended from time to time, this Agreement may not be amended or terminated without the express written consent of the Executive. (j) This Agreement shall be governed by and construed in accordance with the laws of the State of North Carolina, to the extent not preempted by applicable federal law. -80- (k) This Agreement replaces and supersedes any other individual retirement agreement between the Executive and the Corporation. (l) All notices hereunder shall be in writing and deemed properly given if delivered by hand and receipted or if mailed by registered mail, return receipt requested. Notices to the Corporation shall be directed to the Secretary of the Corporation with a copy directed to the Corporation's General Counsel. Notices to the Executive shall be directed to his last known address. Notice may not be provided by e-mail. Section 8. Administration. (a) This Agreement shall be administered by the Corporation. The Corporation shall interpret this Agreement, establish regulations to further the purposes of this Agreement and take any other action necessary to the proper operation of this Agreement. Prior to paying any benefit under this Agreement, the Corporation may require the Executive or his spouse to provide such information or material as the Corporation, in its sole discretion, shall deem necessary for it to make any determination it may be required to make under this Agreement. The Corporation may withhold payment of any benefit under this Agreement until it receives all such information and material and is reasonably satisfied of its correctness and genuineness. (b) If for any reason a benefit payable under this Agreement is not paid when due, the Executive or his spouse may file a written claim with the Corporation. If the claim is denied or no response is received within forty-five (45) days after the date on which the claim was filed with the Corporation (in which case the claim will be deemed to have been denied), the Executive or his spouse may appeal the denial to the Committee within sixty (60) days of receipt of written notification of the denial or the end of the forty-five day period, whichever occurs first. In pursuing an appeal, the Executive or his spouse may request that the Committee review the denial, may review pertinent documents, and may submit issues and documents in writing to the Committee. A decision on appeal will be made within thirty (30) days after the appeal is made, unless special circumstances require the Committee to extend the period for another thirty (30) days. (c) The Corporation may appoint one or more persons to act as administrator and delegate its administrative responsibilities to such administrator. IN WITNESS WHEREOF, this Agreement has been executed in behalf of the Corporation by its duly authorized officers and by the Executive as of the day and year first above stated. WACHOVIA CORPORATION By:_____________________________________ Chairman-Management Resources and Compensation Committee Attest: - ------------------------------ Secretary [Corporate Seal] __________________________________(SEAL) L. M. Baker, Jr. -81- EX-10.11 9 RETIREMENT AGREEMENT-MCCOY EXHIBIT 10.11 SENIOR EXECUTIVE RETIREMENT AGREEMENT THIS SENIOR EXECUTIVE RETIREMENT AGREEMENT (the "Agreement"), made and entered into as of the 22nd day of October, 1999, by and between WACHOVIA CORPORATION (the "Corporation"), a North Carolina corporation, and ROBERT S. McCOY, JR. (the "Executive"), a senior management employee of the Corporation; RECITALS The Executive is a senior management employee of the Corporation, and as such has rendered and is expected to continue to render valuable services in behalf of the Corporation. The Management Resources and Compensation Committee (the "Committee") of the Corporation desires for the Corporation to provide the Executive with supplemental retirement benefits partially in recognition of such services. In addition, the Committee has determined that providing such benefits will make the Corporation's benefits package more competitive with packages offered by many other employers and will facilitate management succession planning for the Corporation. NOW, THEREFORE, the Corporation and the Executive hereby mutually agree as follows: Section 1. Definitions. When used herein, the words and phrases below shall have the meanings set forth, unless a different meaning is clearly required by the context. Terms used but not defined herein, and which are defined in the Retirement Plan, shall have the meaning assigned to them in the Retirement Plan. Masculine pronouns include feminine pronouns wherever used and vice versa. 1.2 "Board of Directors" means the Board of Directors of the Corporation. 1.2 "Code" means the Internal Revenue Code of 1986, as it may be amended from time to time. 1.3 "Effective Date" means October 22, 1999. 1.4 "Final Average Compensation" means the average of the annual compensation of the Executive for the three full calendar years within the final five full calendar years of his employment which will produce the highest average. For this purpose, the annual compensation of the Executive shall mean his total cash remuneration from the Corporation, including an amount equal to the average of the annual incentive compensation paid to the Executive by the Corporation, if any, provided that the incentive compensation to be recognized for this purpose shall be approved by the Management Resources and Compensation Committee in good faith and in its sole discretion, plus the sum of: (a) any salary reduction amounts which the Executive elects to have contributed with respect to him to a qualified cash or deferred arrangement under Section 401(k) of the Code, to a benefit enhancement plan in lieu of contributions to such a qualified cash or deferred arrangement, to a cafeteria plan under Section 125 of the Code, or to any similar plan or arrangement, and (b) any amounts deferred under any deferred compensation plan or contract. Amounts described in (a) and (b) shall be deemed received at the time the Executive would have received them but for the programs described in (a) and (b). Notwithstanding the foregoing, the Executive's total cash remuneration shall not include any benefits or compensation provided to the Executive under the Wachovia Corporation Stock Plan, any similar plan, or any successor or replacement plan. 1.5 "Normal Retirement Date" means the first day of the month coincident with or next following the date the Executive attains age sixty-two. 1.6 "Other Pension Plan" means any defined benefit pension plan, other than the Retirement Plan, in which the Executive is a participant and which is qualified under Section 401(a) of the Code and is maintained by the Corporation or a subsidiary of the Corporation. 1.7 "Retirement Date" means the date the Executive retires under this Agreement on account of early or normal retirement. -82- 1.8 "Retirement Plan" means the Retirement Income Plan of Wachovia Corporation and any successor thereto. 1.9 "Supplemental Benefit" means the monthly benefit payable to the Executive under this Agreement. Section 2. Normal Retirement. At his Normal Retirement Date, the Executive will retire and will be entitled to receive the Supplemental Benefit, computed in the form of a single life annuity for his life. The monthly amount of the Supplemental Benefit shall equal one-twelfth of the product of fifty-five percent (55%), increased by one percentage point for each year of creditable service (as determined under the Retirement Plan) in excess of ten years, provided that the maximum percentage as increased does not exceed sixty percent (60%), multiplied by the Executive's Final Average Compensation, reduced by the monthly amount payable under the Retirement Plan and any Other Pension Plan. The offset shall equal the monthly amounts actually payable under the Retirement Plan and any Other Pension Plan, based on the payment option elected by the Executive. Section 3. Early Retirement. If the Executive has attained his fifty-fifth birthday but has not attained his Normal Retirement Date, and has ten or more years of service, he may elect early retirement as of the first day of any calendar month following written notice of at least ninety days to the Corporation and the Committee. The Supplemental Benefit of the Executive who elects early retirement shall equal the benefit determined under Section 2 as of such date, reduced by five percent for each year (with proportionate allowance for complete months) by which the starting date of the benefit precedes attainment of his sixty-second birthday. With the consent of the Committee, the Supplemental Benefit shall be payable to the Executive pursuant to Section 2 commencing as of the first day of any calendar month on or after his early retirement and before his Normal Retirement Date. The request for benefit payment must be filed by the Executive in writing with the Committee at least thirty days prior to the date payments are requested to commence. Section 4. Spouse's Supplemental Benefit. If the Executive shall be married on his Retirement Date, and shall die thereafter survived by such spouse, or if the Executive shall die prior to his Retirement Date and shall be married on the date of his death, such spouse shall be entitled to a monthly supplemental benefit (herein the "Spouse's Supplemental Benefit") payable for life and equal to 60% of the monthly amount of the Supplemental Benefit payable to the Executive (assuming, for an Executive who shall die prior to his Retirement Date, that the Executive had retired on the date immediately preceding the date of his death and that the years of his creditable service included the years and fractions thereof from the date of death to his Normal Retirement Date), before applying the reduction for the monthly amount payable to the Executive under the Retirement Plan and any Other Pension Plan, but reduced by the monthly amount, if any, payable to the spouse under the Retirement Plan and any Other Pension Plan in the calendar month next following the death of the Executive. The monthly amount of the Spouse's Supplemental Benefit shall be payable on the first day of each calendar month following the death of the Executive and preceding the death of such spouse. Section 5. Optional Forms of Payment. Notwithstanding the provisions of Sections 2 through 4, the present value of the sum of the Supplemental Benefit and the Spouse's Supplemental Benefit (if any) may, at the request of the Executive and with the consent of the Executive's spouse (if any) and the Committee, be payable in cash in a lump sum within thirty days following the Retirement Date of the Executive. Such present value shall be the actuarial equivalent (as defined in the Retirement Plan) of the Supplemental Benefit and Spouse's Supplemental Benefit (if any). The request for a lump sum distribution, and the consent of the Executive's spouse, must be filed by the Executive with the Committee at least sixty days prior to the Retirement Date. Such consent shall be in writing on a form provided by the Committee. Section 6. Disability; Death. (a) In the event the Executive suffers a disability (as defined in the Retirement Plan) prior to the Retirement Date, the Executive shall continue to accrue a Supplemental Benefit under this Agreement based upon the Final Average Compensation of the Executive as of the last date the Executive was paid by the Corporation (including sick pay) and taking into account the period from the disability of the Executive to the Normal Retirement Date as creditable service for purposes of this Agreement. The Supplemental Benefit of the Executive who is disabled shall be determined and payable as of the Normal Retirement Date of the Executive. -83- (b) In the event that both the Executive and his spouse (if any) die before the date on which the Executive would have attained age 83, their designated beneficiary (or the estate of the last to die if no beneficiary has been designated) shall receive a lump sum death benefit (the "Death Benefit"). The Death Benefit shall be equal to the product of (i) 60% of the annual amount of the Supplemental Benefit payable to the Executive (subject to the assumptions described in Section 4 if the Executive dies before his Retirement Date), and (ii) the difference between 83 and the age that the Executive attained (or would have attained) as of the later of the date on which he died or the date on which his spouse died. Section 7. Miscellaneous. (a) The Executive shall forfeit any right to the Supplemental Benefit or any other rights hereunder (including the Spouse's Supplemental Benefit) if he (i) declines to retire at his Normal Retirement Date, (ii) terminates employment with the Corporation prior to his Retirement Date without written consent of the Committee, or (iii) is terminated for "cause." Termination for cause shall arise if the Executive's employment by the Corporation is terminated because of or arising out of: (A) criminal dishonesty, (B) refusal to perform his employment duties for the Corporation on substantially a full-time basis, (C) refusal to act in accordance with any specific substantive instructions of the Corporation's Chief Executive Officer or Board of Directors, or (D) engaging in conduct which could be materially damaging to the Corporation without a reasonable good faith belief by the Executive that such conduct was in the best interest of the Corporation. Notwithstanding the foregoing provisions of this Section 7(a), in the event of a Change of Control of the Corporation, the Executive shall be vested in the right to receive payment of the Supplemental Benefit under this Agreement, which right shall not be forfeited upon the termination of the Executive for any reason other than for cause as defined in this Section 7(a). In the event the employment of the Executive is voluntarily or involuntarily terminated during the period beginning on the date of the Change of Control and ending on the third anniversary of such date, and as a result of such termination the Executive is entitled to receive Continuation Benefits pursuant to an employment agreement between the Corporation and the Executive, then notwithstanding any other provision of this Agreement to the contrary, the Executive shall continue to be credited with creditable service during the Compensation Period, and the annual cash compensation paid to the Executive during the Compensation Period shall be taken into account in determining his Final Average Compensation under this Agreement. The Executive's Supplemental Benefit shall be paid commencing as of the later of the end of the Compensation Period or the date the Executive actually attains (or would have attained but for death) the age of fifty-five. If payment of the Executive's Supplemental Benefit commences at a date prior to the Executive's Normal Retirement Date, the Executive shall be deemed to have satisfied all of the conditions and requirements described in Section 3 for purposes of computing the amount of his Supplemental Benefit. For purposes herein, the terms "Change of Control," Continuation Benefits," and "Compensation Period" shall have the meaning given such terms in the employment agreement between the Corporation and the Executive. (b) The Supplemental Benefit shall cease to be paid to the Executive (and rights to the Spouse's Supplemental Benefit shall terminate) if he shall disclose material confidential information or trade secrets concerning the Corporation or any of its subsidiaries without the Corporation's consent, or shall engage in any activity that is materially damaging to the Corporation including, but not limited to, engaging in competitive employment at any time. The Executive shall be deemed to engage in competitive employment if he shall render services as an owner, employee, officer, director, consultant or otherwise, for himself or any employer which conducts a business or enterprise in any area where the Corporation or affiliate of the Corporation conducts business that competes directly or indirectly with the Corporation or affiliate of the Corporation. The Committee shall have authority to cease payments under this paragraph (b), and the determination of the Committee shall be final and conclusive. Upon the request of the Executive, the Committee may grant an advance opinion as to whether a proposed activity would violate the provisions of this paragraph (b). (c) In consideration of any benefit payable to the Executive under this Agreement, the Executive upon termination of employment with the Corporation shall execute a separate release and waiver of claims in a form acceptable to the Corporation. The Executive shall not be eligible for any benefit under this Agreement until he has executed such release and waiver of claims. (d) In the event the employment of the Executive terminates prior to a Change of Control, and as a result of such termination the Executive is entitled to receive Continuation Benefits pursuant to an employment agreement between the Corporation and the Executive, then notwithstanding any other provision of this Agreement to the contrary, the Executive shall continue to be credited with creditable service during the Compensation Period, -84- and the annual cash compensation paid to the Executive during the Compensation Period shall be taken into account in determining his Final Average Compensation under this Agreement. The Executive shall be deemed to retire from the Corporation on the last day of the Compensation Period and to have given the Corporation written notice of such retirement at least ninety days before such date. The Executive's Supplemental Benefit shall be paid commencing as of the end of the Compensation Period. The terms "Change of Control," "Continuation Benefits" and "Compensation Period" shall have the meaning given to such terms in the employment agreement between the Corporation and the Executive. (e) Nothing in this Agreement shall be construed as giving the Executive the right to be retained in the employ of the Corporation or any subsidiary of the Corporation at all or for any specified period in any particular position, or any right to any payment whatsoever except to the extent provided for by this Agreement. (f) Notwithstanding any other provisions hereof, if any person entitled to receive payments hereunder (the "recipient") shall be physically or mentally or legally incapable of receiving or acknowledging receipt of such payment, the Corporation, upon the receipt of satisfactory evidence that another person or institution is maintaining the recipient and that no guardian or committee has been appointed for the recipient, may cause such payment to be made to such person or institution so maintaining the recipient. (g) Nothing in this Agreement and no action taken pursuant to the provisions of this Agreement shall create or shall be construed as creating a trust of any kind, or a fiduciary relationship between the Corporation and the Executive or any other person. Any amounts which are or may be set aside hereunder shall continue for all purposes to be a part of the general funds of the Corporation, and no person other than the Corporation shall, by virtue of the provisions of this Agreement, have any interest in such funds. To the extent that any person acquires a right to receive payments from the Corporation hereunder, such right shall be no greater than the right of any unsecured general creditor of the Corporation. (h) The benefits payable under this Agreement may not be assigned by the Executive or any other person nor anticipated in any way. (i) The Committee may, in its sole discretion, terminate, suspend or amend this Agreement at any time or from time to time, in whole or in part; provided, that except as otherwise specifically provided herein no such termination, suspension or amendment made following the date that payments commence hereunder will affect the right of any person to receive benefits earned hereunder. Upon a change of control of the Corporation as defined in the Wachovia Corporation Stock Plan as it may be amended from time to time, this Agreement may not be amended or terminated without the express written consent of the Executive. (j) This Agreement shall be governed by and construed in accordance with the laws of the State of North Carolina, to the extent not preempted by applicable federal law. (k) This Agreement replaces and supersedes any other individual retirement agreement between the Executive and the Corporation. (l) All notices hereunder shall be in writing and deemed properly given if delivered by hand and receipted or if mailed by registered mail, return receipt requested. Notices to the Corporation shall be directed to the Secretary of the Corporation with a copy directed to the Corporation's General Counsel. Notices to the Executive shall be directed to his last known address. Notice may not be provided by e-mail. Section 8. Administration. (d) This Agreement shall be administered by the Corporation. The Corporation shall interpret this Agreement, establish regulations to further the purposes of this Agreement and take any other action necessary to the proper operation of this Agreement. Prior to paying any benefit under this Agreement, the Corporation may require the Executive or his spouse to provide such information or material as the Corporation, in its sole discretion, shall deem necessary for it to make any determination it may be required to make under this Agreement. The Corporation may withhold payment of any benefit under this Agreement until it receives all such information and material and is reasonably satisfied of its correctness and genuineness. -85- (e) If for any reason a benefit payable under this Agreement is not paid when due, the Executive or his spouse may file a written claim with the Corporation. If the claim is denied or no response is received within forty-five (45) days after the date on which the claim was filed with the Corporation (in which case the claim will be deemed to have been denied), the Executive or his spouse may appeal the denial to the Committee within sixty (60) days of receipt of written notification of the denial or the end of the forty-five day period, whichever occurs first. In pursuing an appeal, the Executive or his spouse may request that the Committee review the denial, may review pertinent documents, and may submit issues and documents in writing to the Committee. A decision on appeal will be made within thirty (30) days after the appeal is made, unless special circumstances require the Committee to extend the period for another thirty (30) days. (f) The Corporation may appoint one or more persons to act as administrator and delegate its administrative responsibilities to such administrator. IN WITNESS WHEREOF, this Agreement has been executed in behalf of the Corporation by its duly authorized officers and by the Executive as of the day and year first above stated. WACHOVIA CORPORATION By:_____________________________________ Chief Executive Officer Attest: - ------------------------------ Secretary [Corporate Seal] __________________________________(SEAL) Executive -86- EX-10.12 10 RETIREMENT AGREEMENT-PRENDERGAST EXHIBIT 10.12 SENIOR EXECUTIVE RETIREMENT AGREEMENT THIS SENIOR EXECUTIVE RETIREMENT AGREEMENT (the "Agreement"), made and entered into as of the 22nd day of October, 1999, by and between WACHOVIA CORPORATION (the "Corporation"), a North Carolina corporation, and G. JOSEPH PRENDERGAST (the "Executive"), a senior management employee of the Corporation; RECITALS The Executive is a senior management employee of the Corporation, and as such has rendered and is expected to continue to render valuable services in behalf of the Corporation. The Management Resources and Compensation Committee (the "Committee") of the Corporation desires for the Corporation to provide the Executive with supplemental retirement benefits partially in recognition of such services. In addition, the Committee has determined that providing such benefits will make the Corporation's benefits package more competitive with packages offered by many other employers and will facilitate management succession planning for the Corporation. NOW, THEREFORE, the Corporation and the Executive hereby mutually agree as follows: Section 1. Definitions. When used herein, the words and phrases below shall have the meanings set forth, unless a different meaning is clearly required by the context. Terms used but not defined herein, and which are defined in the Retirement Plan, shall have the meaning assigned to them in the Retirement Plan. Masculine pronouns include feminine pronouns wherever used and vice versa. 1.3 "Board of Directors" means the Board of Directors of the Corporation. 1.2 "Code" means the Internal Revenue Code of 1986, as it may be amended from time to time. 1.3 "Effective Date" means October 22, 1999. 1.4 "Final Average Compensation" means the average of the annual compensation of the Executive for the three full calendar years within the final five full calendar years of his employment which will produce the highest average. For this purpose, the annual compensation of the Executive shall mean his total cash remuneration from the Corporation, including an amount equal to the average of the annual incentive compensation paid to the Executive by the Corporation, if any, provided that the incentive compensation to be recognized for this purpose shall be approved by the Management Resources and Compensation Committee in good faith and in its sole discretion, plus the sum of: (a) any salary reduction amounts which the Executive elects to have contributed with respect to him to a qualified cash or deferred arrangement under Section 401(k) of the Code, to a benefit enhancement plan in lieu of contributions to such a qualified cash or deferred arrangement, to a cafeteria plan under Section 125 of the Code, or to any similar plan or arrangement, and (b) any amounts deferred under any deferred compensation plan or contract. Amounts described in (a) and (b) shall be deemed received at the time the Executive would have received them but for the programs described in (a) and (b). Notwithstanding the foregoing, the Executive's total cash remuneration shall not include any benefits or compensation provided to the Executive under the Wachovia Corporation Stock Plan, any similar plan, or any successor or replacement plan. 1.5 "Normal Retirement Date" means the first day of the month coincident with or next following the date the Executive attains age sixty. 1.6 "Other Pension Plan" means any defined benefit pension plan, other than the Retirement Plan, in which the Executive is a participant and which is qualified under Section 401(a) of the Code and is maintained by the Corporation or a subsidiary of the Corporation. 1.7 "Retirement Date" means the date the Executive retires under this Agreement on account of early or normal retirement. -87- 1.8 "Retirement Plan" means the Retirement Income Plan of Wachovia Corporation and any successor thereto. 1.9 "Supplemental Benefit" means the monthly benefit payable to the Executive under this Agreement. Section 2. Normal Retirement. (a) At his Normal Retirement Date, the Executive will retire and will be entitled to receive the Supplemental Benefit, computed in the form of a single life annuity for his life. Payment of the Supplemental Benefit will commence on the Executive's Normal Retirement Date. The monthly amount of the Supplemental Benefit shall equal one-twelfth of the product of two and one-half percent (2.5%) of the Executive's Final Average Compensation times the number of years of his creditable service determined under the provisions of the Retirement Plan (subject to a maximum of 62.5%), reduced by the monthly amount payable under the Retirement Plan and any Other Pension Plan. The offset shall equal the monthly amounts actually payable under the Retirement Plan and any Other Pension Plan, based on the payment option elected by the Executive. (b) Notwithstanding the foregoing, if the Executive and the Corporation agree to extend the Executive's employment beyond the Executive's Normal Retirement Date, the Executive shall not be required to terminate employment at his Normal Retirement Date, and shall not forfeit any right to the Supplemental Benefit as a result of retirement after his Normal Retirement Date. Furthermore, the amount of the Supplemental Benefit shall in no event be less than the amount of the Supplemental Benefit that would have been payable to the Executive had he retired at his Normal Retirement Date. For purposes of this subsection, the amount of the Executive's Supplemental Benefit shall be determined on an actuarially equivalent basis using the actuarial factors set forth in the Retirement Plan. Section 3. Early Retirement. If the Executive has attained his fifty-fifth birthday but has not attained his Normal Retirement Date, and has ten or more years of service, he may elect early retirement as of the first day of any calendar month following written notice of at least ninety days to the Corporation and the Committee. The Supplemental Benefit of the Executive who elects early retirement shall equal the benefit determined under Section 2 as of such date, reduced by five percent for each year (with proportionate allowance for complete months) by which the starting date of the benefit precedes attainment of his sixtieth birthday. With the consent of the Committee, the Supplemental Benefit shall be payable to the Executive pursuant to Section 2 commencing as of the first day of any calendar month on or after his early retirement and before his Normal Retirement Date. The request for benefit payment must be filed by the Executive in writing with the Committee at least thirty days prior to the date payments are requested to commence. Section 4. Spouse's Supplemental Benefit. If the Executive shall be married on his Retirement Date, and shall die thereafter survived by such spouse, or if the Executive shall die prior to his Retirement Date and shall be married on the date of his death, such spouse shall be entitled to a monthly supplemental benefit (herein the "Spouse's Supplemental Benefit") payable for life and equal to 60% of the monthly amount of the Supplemental Benefit payable to the Executive (assuming, for an Executive who shall die prior to his Retirement Date, that the Executive had retired on the date immediately preceding the date of his death and that the years of his creditable service included the years and fractions thereof from the date of death to his Normal Retirement Date), before applying the reduction for the monthly amount payable to the Executive under the Retirement Plan and any Other Pension Plan, but reduced by the monthly amount, if any, payable to the spouse under the Retirement Plan and any Other Pension Plan in the calendar month next following the death of the Executive. The monthly amount of the Spouse's Supplemental Benefit shall be payable on the first day of each calendar month following the death of the Executive and preceding the death of such spouse. Section 5. Optional Forms of Payment. Notwithstanding the provisions of Sections 2 through 4, the present value of the sum of the Supplemental Benefit and the Spouse's Supplemental Benefit (if any) may, at the request of the Executive and with the consent of the Executive's spouse (if any) and the Committee, be payable in cash in a lump sum within thirty days following the Retirement Date of the Executive. Such present value shall be the actuarial equivalent (as defined in the Retirement Plan) of the Supplemental Benefit and Spouse's Supplemental Benefit (if any). The request for a lump sum distribution, and the consent of the Executive's spouse, must be filed -88- by the Executive with the Committee at least sixty days prior to the Retirement Date. Such consent shall be in writing on a form provided by the Committee. Section 6. Disability; Death. (a) In the event the Executive suffers a disability (as defined in the Retirement Plan) prior to the Retirement Date, the Executive shall continue to accrue a Supplemental Benefit under this Agreement based upon the Final Average Compensation of the Executive as of the last date the Executive was paid by the Corporation (including sick pay) and taking into account the period from the disability of the Executive to the Normal Retirement Date as creditable service for purposes of this Agreement. The Supplemental Benefit of the Executive who is disabled shall be determined and payable as of the Normal Retirement Date of the Executive. (b) In the event that both the Executive and his spouse (if any) die before the date on which the Executive would have attained age 83, their designated beneficiary (or the estate of the last to die if no beneficiary has been designated) shall receive a lump sum death benefit (the "Death Benefit"). The Death Benefit shall be equal to the product of (i) 60% of the annual amount of the Supplemental Benefit payable to the Executive (subject to the assumptions described in Section 4 if the Executive dies before his Retirement Date), and (ii) the difference between 83 and the age that the Executive attained (or would have attained) as of the later of the date on which he died or the date on which his spouse died. Section 7. Miscellaneous. (a) The Executive shall forfeit any right to the Supplemental Benefit or any other rights hereunder (including the Spouse's Supplemental Benefit) if he (i) declines to retire at his Normal Retirement Date, (ii) terminates employment with the Corporation prior to his Retirement Date without written consent of the Committee, or (iii) is terminated for "cause." Termination for cause shall arise if the Executive's employment by the Corporation is terminated because of or arising out of: (A) criminal dishonesty, (B) refusal to perform his employment duties for the Corporation on substantially a full-time basis, (C) refusal to act in accordance with any specific substantive instructions of the Corporation's Chief Executive Officer or Board of Directors, or (D) engaging in conduct which could be materially damaging to the Corporation without a reasonable good faith belief by the Executive that such conduct was in the best interest of the Corporation. Notwithstanding the foregoing provisions of this Section 7(a), in the event of a Change of Control of the Corporation, the Executive shall be vested in the right to receive payment of the Supplemental Benefit under this Agreement, which right shall not be forfeited upon the termination of the Executive for any reason other than for cause as defined in this Section 7(a). In the event the employment of the Executive is voluntarily or involuntarily terminated during the period beginning on the date of the Change of Control and ending on the third anniversary of such date, and as a result of such termination the Executive is entitled to receive Continuation Benefits pursuant to an employment agreement between the Corporation and the Executive, then notwithstanding any other provision of this Agreement to the contrary, the Executive shall continue to be credited with creditable service during the Compensation Period, and the annual cash compensation paid to the Executive during the Compensation Period shall be taken into account in determining his Final Average Compensation under this Agreement. The Executive's Supplemental Benefit shall be paid commencing as of the later of the end of the Compensation Period or the date the Executive actually attains (or would have attained but for death) the age of fifty-five. If payment of the Executive's Supplemental Benefit commences at a date prior to the Executive's Normal Retirement Date, the Executive shall be deemed to have satisfied all of the conditions and requirements described in Section 3 for purposes of computing the amount of his Supplemental Benefit. For purposes herein, the terms "Change of Control," Continuation Benefits," and "Compensation Period" shall have the meaning given such terms in the employment agreement between the Corporation and the Executive. (b) The Supplemental Benefit shall cease to be paid to the Executive (and rights to the Spouse's Supplemental Benefit shall terminate) if he shall disclose material confidential information or trade secrets concerning the Corporation or any of its subsidiaries without the Corporation's consent, or shall engage in any activity that is materially damaging to the Corporation including, but not limited to, engaging in competitive employment at any time. The Executive shall be deemed to engage in competitive employment if he shall render services as an owner, employee, officer, director, consultant or otherwise, for himself or any employer which conducts a business or enterprise in any area where the Corporation or affiliate of the Corporation conducts business that competes directly or indirectly with the Corporation or affiliate of the Corporation. The Committee shall have -89- authority to cease payments under this paragraph (b), and the determination of the Committee shall be final and conclusive. Upon the request of the Executive, the Committee may grant an advance opinion as to whether a proposed activity would violate the provisions of this paragraph (b). (c) In consideration of any benefit payable to the Executive under this Agreement, the Executive upon termination of employment with the Corporation shall execute a separate release and waiver of claims in a form acceptable to the Corporation. The Executive shall not be eligible for any benefit under this Agreement until he has executed such release and waiver of claims. (d) In the event the employment of the Executive terminates prior to a Change of Control, and as a result of such termination the Executive is entitled to receive Continuation Benefits pursuant to an employment agreement between the Corporation and the Executive, then notwithstanding any other provision of this Agreement to the contrary, the Executive shall continue to be credited with creditable service during the Compensation Period, and the annual cash compensation paid to the Executive during the Compensation Period shall be taken into account in determining his Final Average Compensation under this Agreement. The Executive shall be deemed to retire from the Corporation on the last day of the Compensation Period and to have given the Corporation written notice of such retirement at least ninety days before such date. The Executive's Supplemental Benefit shall be paid commencing as of the end of the Compensation Period. The terms "Change of Control," "Continuation Benefits" and "Compensation Period" shall have the meaning given to such terms in the employment agreement between the Corporation and the Executive. (e) Nothing in this Agreement shall be construed as giving the Executive the right to be retained in the employ of the Corporation or any subsidiary of the Corporation at all or for any specified period in any particular position, or any right to any payment whatsoever except to the extent provided for by this Agreement. (f) Notwithstanding any other provisions hereof, if any person entitled to receive payments hereunder (the "recipient") shall be physically or mentally or legally incapable of receiving or acknowledging receipt of such payment, the Corporation, upon the receipt of satisfactory evidence that another person or institution is maintaining the recipient and that no guardian or committee has been appointed for the recipient, may cause such payment to be made to such person or institution so maintaining the recipient. (g) Nothing in this Agreement and no action taken pursuant to the provisions of this Agreement shall create or shall be construed as creating a trust of any kind, or a fiduciary relationship between the Corporation and the Executive or any other person. Any amounts which are or may be set aside hereunder shall continue for all purposes to be a part of the general funds of the Corporation, and no person other than the Corporation shall, by virtue of the provisions of this Agreement, have any interest in such funds. To the extent that any person acquires a right to receive payments from the Corporation hereunder, such right shall be no greater than the right of any unsecured general creditor of the Corporation. (h) The benefits payable under this Agreement may not be assigned by the Executive or any other person nor anticipated in any way. (i) The Committee may, in its sole discretion, terminate, suspend or amend this Agreement at any time or from time to time, in whole or in part; provided, that except as otherwise specifically provided herein no such termination, suspension or amendment made following the date that payments commence hereunder will affect the right of any person to receive benefits earned hereunder. Upon a change of control of the Corporation as defined in the Wachovia Corporation Stock Plan as it may be amended from time to time, this Agreement may not be amended or terminated without the express written consent of the Executive. (j) This Agreement shall be governed by and construed in accordance with the laws of the State of North Carolina, to the extent not preempted by applicable federal law. (k) This Agreement replaces and supersedes any other individual retirement agreement between the Executive and the Corporation. (l) [OPTIONAL] If the Executive [was a participant in the South Carolina National Corporation Supplemental Executive Retirement Plan] OR [was a party to a Supplemental Retirement Agreement between the -90- Executive and First Atlanta Corporation] (referred to herein as the "Predecessor SERP"), in no event shall the Supplemental Benefit or Spouse's Supplemental Benefit payable under this Agreement be less than the benefit determined pursuant to the Predecessor SERP had such Predecessor SERP remained in effect until the Retirement Date of the Executive. The execution of this Agreement by the Executive constitutes a release by the Executive of all rights and benefits under the Predecessor SERP. (m) All notices hereunder shall be in writing and deemed properly given if delivered by hand and receipted or if mailed by registered mail, return receipt requested. Notices to the Corporation shall be directed to the Secretary of the Corporation with a copy directed to the Corporation's General Counsel. Notices to the Executive shall be directed to his last known address. Notice may not be provided by e-mail. Section 8. Administration. (g) This Agreement shall be administered by the Corporation. The Corporation shall interpret this Agreement, establish regulations to further the purposes of this Agreement and take any other action necessary to the proper operation of this Agreement. Prior to paying any benefit under this Agreement, the Corporation may require the Executive or his spouse to provide such information or material as the Corporation, in its sole discretion, shall deem necessary for it to make any determination it may be required to make under this Agreement. The Corporation may withhold payment of any benefit under this Agreement until it receives all such information and material and is reasonably satisfied of its correctness and genuineness. (h) If for any reason a benefit payable under this Agreement is not paid when due, the Executive or his spouse may file a written claim with the Corporation. If the claim is denied or no response is received within forty-five (45) days after the date on which the claim was filed with the Corporation (in which case the claim will be deemed to have been denied), the Executive or his spouse may appeal the denial to the Committee within sixty (60) days of receipt of written notification of the denial or the end of the forty-five day period, whichever occurs first. In pursuing an appeal, the Executive or his spouse may request that the Committee review the denial, may review pertinent documents, and may submit issues and documents in writing to the Committee. A decision on appeal will be made within thirty (30) days after the appeal is made, unless special circumstances require the Committee to extend the period for another thirty (30) days. (i) The Corporation may appoint one or more persons to act as administrator and delegate its administrative responsibilities to such administrator. IN WITNESS WHEREOF, this Agreement has been executed in behalf of the Corporation by its duly authorized officers and by the Executive as of the day and year first above stated. WACHOVIA CORPORATION By:_____________________________________ Chief Executive Officer Attest: - ------------------------------ Secretary [Corporate Seal] __________________________________(SEAL) Executive -91- EX-10.13 11 EMPLOYMENT AGREEMENT--DRY EXHIBIT 10.13 SENIOR EXECUTIVE RETIREMENT AGREEMENT THIS SENIOR EXECUTIVE RETIREMENT AGREEMENT (the "Agreement"), made and entered into as of the 22nd day of October, 1999, by and between WACHOVIA CORPORATION (the "Corporation"), a North Carolina corporation, and MICKEY W. DRY (the "Executive"), a senior management employee of the Corporation; RECITALS The Executive is a senior management employee of the Corporation, and as such has rendered and is expected to continue to render valuable services in behalf of the Corporation. The Management Resources and Compensation Committee (the "Committee") of the Corporation desires for the Corporation to provide the Executive with supplemental retirement benefits partially in recognition of such services. In addition, the Committee has determined that providing such benefits will make the Corporation's benefits package more competitive with packages offered by many other employers and will facilitate management succession planning for the Corporation. NOW, THEREFORE, the Corporation and the Executive hereby mutually agree as follows: Section 1. Definitions. When used herein, the words and phrases below shall have the meanings set forth, unless a different meaning is clearly required by the context. Terms used but not defined herein, and which are defined in the Retirement Plan, shall have the meaning assigned to them in the Retirement Plan. Masculine pronouns include feminine pronouns wherever used and vice versa. 1.4 "Board of Directors" means the Board of Directors of the Corporation. 1.2 "Code" means the Internal Revenue Code of 1986, as it may be amended from time to time. 1.3 "Effective Date" means October 22, 1999. 1.4 "Final Average Compensation" means the average of the annual compensation of the Executive for the three full calendar years within the final five full calendar years of his employment which will produce the highest average. For this purpose, the annual compensation of the Executive shall mean his total cash remuneration from the Corporation, including an amount equal to the average of the annual incentive compensation paid to the Executive by the Corporation, if any, provided that the incentive compensation to be recognized for this purpose shall be approved by the Management Resources and Compensation Committee in good faith and in its sole discretion, plus the sum of: (a) any salary reduction amounts which the Executive elects to have contributed with respect to him to a qualified cash or deferred arrangement under Section 401(k) of the Code, to a benefit enhancement plan in lieu of contributions to such a qualified cash or deferred arrangement, to a cafeteria plan under Section 125 of the Code, or to any similar plan or arrangement, and (b) any amounts deferred under any deferred compensation plan or contract. Amounts described in (a) and (b) shall be deemed received at the time the Executive would have received them but for the programs described in (a) and (b). Notwithstanding the foregoing, the Executive's total cash remuneration shall not include any benefits or compensation provided to the Executive under the Wachovia Corporation Stock Plan, any similar plan, or any successor or replacement plan. 1.5 "Normal Retirement Date" means February 1, 2001. 1.6 "Other Pension Plan" means any defined benefit pension plan, other than the Retirement Plan, in which the Executive is a participant and which is qualified under Section 401(a) of the Code and is maintained by the Corporation or a subsidiary of the Corporation. 1.7 "Retirement Date" means the date the Executive retires under this Agreement on account of early or normal retirement. 1.8 "Retirement Plan" means the Retirement Income Plan of Wachovia Corporation and any successor thereto. -92- 1.9 "Supplemental Benefit" means the monthly benefit payable to the Executive under this Agreement. Section 2. Normal Retirement. (a) At his Normal Retirement Date, the Executive will retire and will be entitled to receive the Supplemental Benefit, computed in the form of a single life annuity for his life. Payment of the Supplemental Benefit will commence on the Executive's Normal Retirement Date. The monthly amount of the Supplemental Benefit shall equal one-twelfth of the product of two and one-half percent (2.5%) of the Executive's Final Average Compensation times the number of years of his creditable service determined under the provisions of the Retirement Plan (subject to a maximum of 62.5%), reduced by the monthly amount payable under the Retirement Plan and any Other Pension Plan. The offset shall equal the monthly amounts actually payable under the Retirement Plan and any Other Pension Plan, based on the payment option elected by the Executive. (b) Notwithstanding the foregoing, if the Executive and the Corporation agree to extend the Executive's employment beyond the Executive's Normal Retirement Date, the Executive shall not be required to terminate employment at his Normal Retirement Date, and shall not forfeit any right to the Supplemental Benefit as a result of retirement after his Normal Retirement Date. Furthermore, the amount of the Supplemental Benefit shall in no event be less than the amount of the Supplemental Benefit that would have been payable to the Executive had he retired at his Normal Retirement Date. For purposes of this subsection, the amount of the Executive's Supplemental Benefit shall be determined on an actuarially equivalent basis using the actuarial factors set forth in the Retirement Plan. Section 3. Early Retirement. If the Executive has attained his fifty-fifth birthday but has not attained his Normal Retirement Date, and has ten or more years of service, he may elect early retirement as of the first day of any calendar month following written notice of at least ninety days to the Corporation and the Committee. The Supplemental Benefit of the Executive who elects early retirement shall equal the benefit determined under Section 2 as of such date, reduced by five percent for each year (with proportionate allowance for complete months) by which the starting date of the benefit precedes attainment of his sixtieth birthday. With the consent of the Committee, the Supplemental Benefit shall be payable to the Executive pursuant to Section 2 commencing as of the first day of any calendar month on or after his early retirement and before his Normal Retirement Date. The request for benefit payment must be filed by the Executive in writing with the Committee at least thirty days prior to the date payments are requested to commence. Section 4. Spouse's Supplemental Benefit. If the Executive shall be married on his Retirement Date, and shall die thereafter survived by such spouse, or if the Executive shall die prior to his Retirement Date and shall be married on the date of his death, such spouse shall be entitled to a monthly supplemental benefit (herein the "Spouse's Supplemental Benefit") payable for life and equal to 60% of the monthly amount of the Supplemental Benefit payable to the Executive (assuming, for an Executive who shall die prior to his Retirement Date, that the Executive had retired on the date immediately preceding the date of his death and that the years of his creditable service included the years and fractions thereof from the date of death to his Normal Retirement Date), before applying the reduction for the monthly amount payable to the Executive under the Retirement Plan and any Other Pension Plan, but reduced by the monthly amount, if any, payable to the spouse under the Retirement Plan and any Other Pension Plan in the calendar month next following the death of the Executive. The monthly amount of the Spouse's Supplemental Benefit shall be payable on the first day of each calendar month following the death of the Executive and preceding the death of such spouse. Section 5. Optional Forms of Payment. Notwithstanding the provisions of Sections 2 through 4, the present value of the sum of the Supplemental Benefit and the Spouse's Supplemental Benefit (if any) may, at the request of the Executive and with the consent of the Executive's spouse (if any) and the Committee, be payable in cash in a lump sum within thirty days following the Retirement Date of the Executive. Such present value shall be the actuarial equivalent (as defined in the Retirement Plan) of the Supplemental Benefit and Spouse's Supplemental Benefit (if any). The request for a lump sum distribution, and the consent of the Executive's spouse, must be filed by the Executive with the Committee at least sixty days prior to the Retirement Date. Such consent shall be in writing on a form provided by the Committee. Section 6. Disability; Death. -93- (a) In the event the Executive suffers a disability (as defined in the Retirement Plan) prior to the Retirement Date, the Executive shall continue to accrue a Supplemental Benefit under this Agreement based upon the Final Average Compensation of the Executive as of the last date the Executive was paid by the Corporation (including sick pay) and taking into account the period from the disability of the Executive to the Normal Retirement Date as creditable service for purposes of this Agreement. The Supplemental Benefit of the Executive who is disabled shall be determined and payable as of the Normal Retirement Date of the Executive. (b) In the event that both the Executive and his spouse (if any) die before the date on which the Executive would have attained age 83, their designated beneficiary (or the estate of the last to die if no beneficiary has been designated) shall receive a lump sum death benefit (the "Death Benefit"). The Death Benefit shall be equal to the product of (i) 60% of the annual amount of the Supplemental Benefit payable to the Executive (subject to the assumptions described in Section 4 if the Executive dies before his Retirement Date), and (ii) the difference between 83 and the age that the Executive attained (or would have attained) as of the later of the date on which he died or the date on which his spouse died. Section 7. Miscellaneous. (a) The Executive shall forfeit any right to the Supplemental Benefit or any other rights hereunder (including the Spouse's Supplemental Benefit) if he (i) declines to retire at his Normal Retirement Date, (ii) terminates employment with the Corporation prior to his Retirement Date without written consent of the Committee, or (iii) is terminated for "cause." Termination for cause shall arise if the Executive's employment by the Corporation is terminated because of or arising out of: (A) criminal dishonesty, (B) refusal to perform his employment duties for the Corporation on substantially a full-time basis, (C) refusal to act in accordance with any specific substantive instructions of the Corporation's Chief Executive Officer or Board of Directors, or (D) engaging in conduct which could be materially damaging to the Corporation without a reasonable good faith belief by the Executive that such conduct was in the best interest of the Corporation. Notwithstanding the foregoing provisions of this Section 7(a), in the event of a Change of Control of the Corporation, the Executive shall be vested in the right to receive payment of the Supplemental Benefit under this Agreement, which right shall not be forfeited upon the termination of the Executive for any reason other than for cause as defined in this Section 7(a). In the event the employment of the Executive is voluntarily or involuntarily terminated during the period beginning on the date of the Change of Control and ending on the third anniversary of such date, and as a result of such termination the Executive is entitled to receive Continuation Benefits pursuant to an employment agreement between the Corporation and the Executive, then notwithstanding any other provision of this Agreement to the contrary, the Executive shall continue to be credited with creditable service during the Compensation Period, and the annual cash compensation paid to the Executive during the Compensation Period shall be taken into account in determining his Final Average Compensation under this Agreement. The Executive's Supplemental Benefit shall be paid commencing as of the later of the end of the Compensation Period or the date the Executive actually attains (or would have attained but for death) the age of fifty-five. If payment of the Executive's Supplemental Benefit commences at a date prior to the Executive's Normal Retirement Date, the Executive shall be deemed to have satisfied all of the conditions and requirements described in Section 3 for purposes of computing the amount of his Supplemental Benefit. For purposes herein, the terms "Change of Control," Continuation Benefits," and "Compensation Period" shall have the meaning given such terms in the employment agreement between the Corporation and the Executive. (b) The Supplemental Benefit shall cease to be paid to the Executive (and rights to the Spouse's Supplemental Benefit shall terminate) if he shall disclose material confidential information or trade secrets concerning the Corporation or any of its subsidiaries without the Corporation's consent, or shall engage in any activity that is materially damaging to the Corporation including, but not limited to, engaging in competitive employment at any time. The Executive shall be deemed to engage in competitive employment if he shall render services as an owner, employee, officer, director, consultant or otherwise, for himself or any employer which conducts a business or enterprise in any area where the Corporation or affiliate of the Corporation conducts business that competes directly or indirectly with the Corporation or affiliate of the Corporation. The Committee shall have authority to cease payments under this paragraph (b), and the determination of the Committee shall be final and conclusive. Upon the request of the Executive, the Committee may grant an advance opinion as to whether a proposed activity would violate the provisions of this paragraph (b). -94- (c) In consideration of any benefit payable to the Executive under this Agreement, the Executive upon termination of employment with the Corporation shall execute a separate release and waiver of claims in a form acceptable to the Corporation. The Executive shall not be eligible for any benefit under this Agreement until he has executed such release and waiver of claims. (d) In the event the employment of the Executive terminates prior to a Change of Control, and as a result of such termination the Executive is entitled to receive Continuation Benefits pursuant to an employment agreement between the Corporation and the Executive, then notwithstanding any other provision of this Agreement to the contrary, the Executive shall continue to be credited with creditable service during the Compensation Period, and the annual cash compensation paid to the Executive during the Compensation Period shall be taken into account in determining his Final Average Compensation under this Agreement. The Executive shall be deemed to retire from the Corporation on the last day of the Compensation Period and to have given the Corporation written notice of such retirement at least ninety days before such date. The Executive's Supplemental Benefit shall be paid commencing as of the end of the Compensation Period. The terms "Change of Control," "Continuation Benefits" and "Compensation Period" shall have the meaning given to such terms in the employment agreement between the Corporation and the Executive. (e) Nothing in this Agreement shall be construed as giving the Executive the right to be retained in the employ of the Corporation or any subsidiary of the Corporation at all or for any specified period in any particular position, or any right to any payment whatsoever except to the extent provided for by this Agreement. (f) Notwithstanding any other provisions hereof, if any person entitled to receive payments hereunder (the "recipient") shall be physically or mentally or legally incapable of receiving or acknowledging receipt of such payment, the Corporation, upon the receipt of satisfactory evidence that another person or institution is maintaining the recipient and that no guardian or committee has been appointed for the recipient, may cause such payment to be made to such person or institution so maintaining the recipient. (g) Nothing in this Agreement and no action taken pursuant to the provisions of this Agreement shall create or shall be construed as creating a trust of any kind, or a fiduciary relationship between the Corporation and the Executive or any other person. Any amounts which are or may be set aside hereunder shall continue for all purposes to be a part of the general funds of the Corporation, and no person other than the Corporation shall, by virtue of the provisions of this Agreement, have any interest in such funds. To the extent that any person acquires a right to receive payments from the Corporation hereunder, such right shall be no greater than the right of any unsecured general creditor of the Corporation. (h) The benefits payable under this Agreement may not be assigned by the Executive or any other person nor anticipated in any way. (i) The Committee may, in its sole discretion, terminate, suspend or amend this Agreement at any time or from time to time, in whole or in part; provided, that except as otherwise specifically provided herein no such termination, suspension or amendment made following the date that payments commence hereunder will affect the right of any person to receive benefits earned hereunder. Upon a change of control of the Corporation as defined in the Wachovia Corporation Stock Plan as it may be amended from time to time, this Agreement may not be amended or terminated without the express written consent of the Executive. (j) This Agreement shall be governed by and construed in accordance with the laws of the State of North Carolina, to the extent not preempted by applicable federal law. (k) This Agreement replaces and supersedes any other individual retirement agreement between the Executive and the Corporation. (l) All notices hereunder shall be in writing and deemed properly given if delivered by hand and receipted or if mailed by registered mail, return receipt requested. Notices to the Corporation shall be directed to the Secretary of the Corporation with a copy directed to the Corporation's General Counsel. Notices to the Executive shall be directed to his last known address. Notice may not be provided by e-mail. -95- Section 8. Administration. (j) This Agreement shall be administered by the Corporation. The Corporation shall interpret this Agreement, establish regulations to further the purposes of this Agreement and take any other action necessary to the proper operation of this Agreement. Prior to paying any benefit under this Agreement, the Corporation may require the Executive or his spouse to provide such information or material as the Corporation, in its sole discretion, shall deem necessary for it to make any determination it may be required to make under this Agreement. The Corporation may withhold payment of any benefit under this Agreement until it receives all such information and material and is reasonably satisfied of its correctness and genuineness. (k) If for any reason a benefit payable under this Agreement is not paid when due, the Executive or his spouse may file a written claim with the Corporation. If the claim is denied or no response is received within forty-five (45) days after the date on which the claim was filed with the Corporation (in which case the claim will be deemed to have been denied), the Executive or his spouse may appeal the denial to the Committee within sixty (60) days of receipt of written notification of the denial or the end of the forty-five day period, whichever occurs first. In pursuing an appeal, the Executive or his spouse may request that the Committee review the denial, may review pertinent documents, and may submit issues and documents in writing to the Committee. A decision on appeal will be made within thirty (30) days after the appeal is made, unless special circumstances require the Committee to extend the period for another thirty (30) days. (l) The Corporation may appoint one or more persons to act as administrator and delegate its administrative responsibilities to such administrator. IN WITNESS WHEREOF, this Agreement has been executed in behalf of the Corporation by its duly authorized officers and by the Executive as of the day and year first above stated. WACHOVIA CORPORATION By:_____________________________________ Chief Executive Officer Attest: - ------------------------------ Secretary [Corporate Seal] __________________________________(SEAL) Executive -96- EX-10.14 12 EMPLOYMENT AGREEMENT--LEONARD EXHIBIT 10.14 SENIOR EXECUTIVE RETIREMENT AGREEMENT THIS SENIOR EXECUTIVE RETIREMENT AGREEMENT (the "Agreement"), made and entered into as of the 22nd day of October, 1999, by and between WACHOVIA CORPORATION (the "Corporation"), a North Carolina corporation, and WALTER E. LEONARD, JR. (the "Executive"), a senior management employee of the Corporation; RECITALS The Executive is a senior management employee of the Corporation, and as such has rendered and is expected to continue to render valuable services in behalf of the Corporation. The Management Resources and Compensation Committee (the "Committee") of the Corporation desires for the Corporation to provide the Executive with supplemental retirement benefits partially in recognition of such services. In addition, the Committee has determined that providing such benefits will make the Corporation's benefits package more competitive with packages offered by many other employers and will facilitate management succession planning for the Corporation. NOW, THEREFORE, the Corporation and the Executive hereby mutually agree as follows: Section 1. Definitions. When used herein, the words and phrases below shall have the meanings set forth, unless a different meaning is clearly required by the context. Terms used but not defined herein, and which are defined in the Retirement Plan, shall have the meaning assigned to them in the Retirement Plan. Masculine pronouns include feminine pronouns wherever used and vice versa. 1.5 "Board of Directors" means the Board of Directors of the Corporation. 1.2 "Code" means the Internal Revenue Code of 1986, as it may be amended from time to time. 1.3 "Effective Date" means October 22, 1999. 1.4 "Final Average Compensation" means the average of the annual compensation of the Executive for the three full calendar years within the final five full calendar years of his employment which will produce the highest average. For this purpose, the annual compensation of the Executive shall mean his total cash remuneration from the Corporation, including an amount equal to the average of the annual incentive compensation paid to the Executive by the Corporation, if any, provided that the incentive compensation to be recognized for this purpose shall be approved by the Management Resources and Compensation Committee in good faith and in its sole discretion, plus the sum of: (a) any salary reduction amounts which the Executive elects to have contributed with respect to him to a qualified cash or deferred arrangement under Section 401(k) of the Code, to a benefit enhancement plan in lieu of contributions to such a qualified cash or deferred arrangement, to a cafeteria plan under Section 125 of the Code, or to any similar plan or arrangement, and (b) any amounts deferred under any deferred compensation plan or contract. Amounts described in (a) and (b) shall be deemed received at the time the Executive would have received them but for the programs described in (a) and (b). Notwithstanding the foregoing, the Executive's total cash remuneration shall not include any benefits or compensation provided to the Executive under the Wachovia Corporation Stock Plan, any similar plan, or any successor or replacement plan. 1.5 "Normal Retirement Date" means the first day of the month coincident with or next following the date the Executive attains age sixty. 1.6 "Other Pension Plan" means any defined benefit pension plan, other than the Retirement Plan, in which the Executive is a participant and which is qualified under Section 401(a) of the Code and is maintained by the Corporation or a subsidiary of the Corporation. 1.7 "Retirement Date" means the date the Executive retires under this Agreement on account of early or normal retirement. -97- 1.8 "Retirement Plan" means the Retirement Income Plan of Wachovia Corporation and any successor thereto. 1.9 "Supplemental Benefit" means the monthly benefit payable to the Executive under this Agreement. Section 2. Normal Retirement. (a) At his Normal Retirement Date, the Executive will retire and will be entitled to receive the Supplemental Benefit, computed in the form of a single life annuity for his life. Payment of the Supplemental Benefit will commence on the Executive's Normal Retirement Date. The monthly amount of the Supplemental Benefit shall equal one-twelfth of the product of two and one-half percent (2.5%) of the Executive's Final Average Compensation times the number of years of his creditable service determined under the provisions of the Retirement Plan (subject to a maximum of 62.5%), reduced by the monthly amount payable under the Retirement Plan and any Other Pension Plan. The offset shall equal the monthly amounts actually payable under the Retirement Plan and any Other Pension Plan, based on the payment option elected by the Executive. (b) Notwithstanding the foregoing, if the Executive and the Corporation agree to extend the Executive's employment beyond the Executive's Normal Retirement Date, the Executive shall not be required to terminate employment at his Normal Retirement Date, and shall not forfeit any right to the Supplemental Benefit as a result of retirement after his Normal Retirement Date. Furthermore, the amount of the Supplemental Benefit shall in no event be less than the amount of the Supplemental Benefit that would have been payable to the Executive had he retired at his Normal Retirement Date. For purposes of this subsection, the amount of the Executive's Supplemental Benefit shall be determined on an actuarially equivalent basis using the actuarial factors set forth in the Retirement Plan. Section 3. Early Retirement. If the Executive has attained his fifty-fifth birthday but has not attained his Normal Retirement Date, and has ten or more years of service, he may elect early retirement as of the first day of any calendar month following written notice of at least ninety days to the Corporation and the Committee. The Supplemental Benefit of the Executive who elects early retirement shall equal the benefit determined under Section 2 as of such date, reduced by five percent for each year (with proportionate allowance for complete months) by which the starting date of the benefit precedes attainment of his sixtieth birthday. With the consent of the Committee, the Supplemental Benefit shall be payable to the Executive pursuant to Section 2 commencing as of the first day of any calendar month on or after his early retirement and before his Normal Retirement Date. The request for benefit payment must be filed by the Executive in writing with the Committee at least thirty days prior to the date payments are requested to commence. Section 4. Spouse's Supplemental Benefit. If the Executive shall be married on his Retirement Date, and shall die thereafter survived by such spouse, or if the Executive shall die prior to his Retirement Date and shall be married on the date of his death, such spouse shall be entitled to a monthly supplemental benefit (herein the "Spouse's Supplemental Benefit") payable for life and equal to 60% of the monthly amount of the Supplemental Benefit payable to the Executive (assuming, for an Executive who shall die prior to his Retirement Date, that the Executive had retired on the date immediately preceding the date of his death and that the years of his creditable service included the years and fractions thereof from the date of death to his Normal Retirement Date), before applying the reduction for the monthly amount payable to the Executive under the Retirement Plan and any Other Pension Plan, but reduced by the monthly amount, if any, payable to the spouse under the Retirement Plan and any Other Pension Plan in the calendar month next following the death of the Executive. The monthly amount of the Spouse's Supplemental Benefit shall be payable on the first day of each calendar month following the death of the Executive and preceding the death of such spouse. Section 5. Optional Forms of Payment. Notwithstanding the provisions of Sections 2 through 4, the present value of the sum of the Supplemental Benefit and the Spouse's Supplemental Benefit (if any) may, at the request of the Executive and with the consent of the Executive's spouse (if any) and the Committee, be payable in cash in a lump sum within thirty days following the Retirement Date of the Executive. Such present value shall be the actuarial equivalent (as defined in the Retirement Plan) of the Supplemental Benefit and Spouse's Supplemental Benefit (if any). The request for a lump sum distribution, and the consent of the Executive's spouse, must be filed -98- by the Executive with the Committee at least sixty days prior to the Retirement Date. Such consent shall be in writing on a form provided by the Committee. Section 6. Disability; Death. (a) In the event the Executive suffers a disability (as defined in the Retirement Plan) prior to the Retirement Date, the Executive shall continue to accrue a Supplemental Benefit under this Agreement based upon the Final Average Compensation of the Executive as of the last date the Executive was paid by the Corporation (including sick pay) and taking into account the period from the disability of the Executive to the Normal Retirement Date as creditable service for purposes of this Agreement. The Supplemental Benefit of the Executive who is disabled shall be determined and payable as of the Normal Retirement Date of the Executive. (b) In the event that both the Executive and his spouse (if any) die before the date on which the Executive would have attained age 83, their designated beneficiary (or the estate of the last to die if no beneficiary has been designated) shall receive a lump sum death benefit (the "Death Benefit"). The Death Benefit shall be equal to the product of (i) 60% of the annual amount of the Supplemental Benefit payable to the Executive (subject to the assumptions described in Section 4 if the Executive dies before his Retirement Date), and (ii) the difference between 83 and the age that the Executive attained (or would have attained) as of the later of the date on which he died or the date on which his spouse died. Section 7. Miscellaneous. (a) The Executive shall forfeit any right to the Supplemental Benefit or any other rights hereunder (including the Spouse's Supplemental Benefit) if he (i) declines to retire at his Normal Retirement Date, (ii) terminates employment with the Corporation prior to his Retirement Date without written consent of the Committee, or (iii) is terminated for "cause." Termination for cause shall arise if the Executive's employment by the Corporation is terminated because of or arising out of: (A) criminal dishonesty, (B) refusal to perform his employment duties for the Corporation on substantially a full-time basis, (C) refusal to act in accordance with any specific substantive instructions of the Corporation's Chief Executive Officer or Board of Directors, or (D) engaging in conduct which could be materially damaging to the Corporation without a reasonable good faith belief by the Executive that such conduct was in the best interest of the Corporation. Notwithstanding the foregoing provisions of this Section 7(a), in the event of a Change of Control of the Corporation, the Executive shall be vested in the right to receive payment of the Supplemental Benefit under this Agreement, which right shall not be forfeited upon the termination of the Executive for any reason other than for cause as defined in this Section 7(a). In the event the employment of the Executive is voluntarily or involuntarily terminated during the period beginning on the date of the Change of Control and ending on the third anniversary of such date, and as a result of such termination the Executive is entitled to receive Continuation Benefits pursuant to an employment agreement between the Corporation and the Executive, then notwithstanding any other provision of this Agreement to the contrary, the Executive shall continue to be credited with creditable service during the Compensation Period, and the annual cash compensation paid to the Executive during the Compensation Period shall be taken into account in determining his Final Average Compensation under this Agreement. The Executive's Supplemental Benefit shall be paid commencing as of the later of the end of the Compensation Period or the date the Executive actually attains (or would have attained but for death) the age of fifty-five. If payment of the Executive's Supplemental Benefit commences at a date prior to the Executive's Normal Retirement Date, the Executive shall be deemed to have satisfied all of the conditions and requirements described in Section 3 for purposes of computing the amount of his Supplemental Benefit. For purposes herein, the terms "Change of Control," Continuation Benefits," and "Compensation Period" shall have the meaning given such terms in the employment agreement between the Corporation and the Executive. (b) The Supplemental Benefit shall cease to be paid to the Executive (and rights to the Spouse's Supplemental Benefit shall terminate) if he shall disclose material confidential information or trade secrets concerning the Corporation or any of its subsidiaries without the Corporation's consent, or shall engage in any activity that is materially damaging to the Corporation including, but not limited to, engaging in competitive employment at any time. The Executive shall be deemed to engage in competitive employment if he shall render services as an owner, employee, officer, director, consultant or otherwise, for himself or any employer which conducts a business or enterprise in any area where the Corporation or affiliate of the Corporation conducts business that competes directly or indirectly with the Corporation or affiliate of the Corporation. The Committee shall have -99- authority to cease payments under this paragraph (b), and the determination of the Committee shall be final and conclusive. Upon the request of the Executive, the Committee may grant an advance opinion as to whether a proposed activity would violate the provisions of this paragraph (b). (c) In consideration of any benefit payable to the Executive under this Agreement, the Executive upon termination of employment with the Corporation shall execute a separate release and waiver of claims in a form acceptable to the Corporation. The Executive shall not be eligible for any benefit under this Agreement until he has executed such release and waiver of claims. (d) In the event the employment of the Executive terminates prior to a Change of Control, and as a result of such termination the Executive is entitled to receive Continuation Benefits pursuant to an employment agreement between the Corporation and the Executive, then notwithstanding any other provision of this Agreement to the contrary, the Executive shall continue to be credited with creditable service during the Compensation Period, and the annual cash compensation paid to the Executive during the Compensation Period shall be taken into account in determining his Final Average Compensation under this Agreement. The Executive shall be deemed to retire from the Corporation on the last day of the Compensation Period and to have given the Corporation written notice of such retirement at least ninety days before such date. The Executive's Supplemental Benefit shall be paid commencing as of the end of the Compensation Period. The terms "Change of Control," "Continuation Benefits" and "Compensation Period" shall have the meaning given to such terms in the employment agreement between the Corporation and the Executive. (e) Nothing in this Agreement shall be construed as giving the Executive the right to be retained in the employ of the Corporation or any subsidiary of the Corporation at all or for any specified period in any particular position, or any right to any payment whatsoever except to the extent provided for by this Agreement. (f) Notwithstanding any other provisions hereof, if any person entitled to receive payments hereunder (the "recipient") shall be physically or mentally or legally incapable of receiving or acknowledging receipt of such payment, the Corporation, upon the receipt of satisfactory evidence that another person or institution is maintaining the recipient and that no guardian or committee has been appointed for the recipient, may cause such payment to be made to such person or institution so maintaining the recipient. (g) Nothing in this Agreement and no action taken pursuant to the provisions of this Agreement shall create or shall be construed as creating a trust of any kind, or a fiduciary relationship between the Corporation and the Executive or any other person. Any amounts which are or may be set aside hereunder shall continue for all purposes to be a part of the general funds of the Corporation, and no person other than the Corporation shall, by virtue of the provisions of this Agreement, have any interest in such funds. To the extent that any person acquires a right to receive payments from the Corporation hereunder, such right shall be no greater than the right of any unsecured general creditor of the Corporation. (h) The benefits payable under this Agreement may not be assigned by the Executive or any other person nor anticipated in any way. (i) The Committee may, in its sole discretion, terminate, suspend or amend this Agreement at any time or from time to time, in whole or in part; provided, that except as otherwise specifically provided herein no such termination, suspension or amendment made following the date that payments commence hereunder will affect the right of any person to receive benefits earned hereunder. Upon a change of control of the Corporation as defined in the Wachovia Corporation Stock Plan as it may be amended from time to time, this Agreement may not be amended or terminated without the express written consent of the Executive. (j) This Agreement shall be governed by and construed in accordance with the laws of the State of North Carolina, to the extent not preempted by applicable federal law. (k) This Agreement replaces and supersedes any other individual retirement agreement between the Executive and the Corporation. (l) [OPTIONAL] If the Executive [was a participant in the South Carolina National Corporation Supplemental Executive Retirement Plan] OR [was a party to a Supplemental Retirement Agreement between -100- the Executive and First Atlanta Corporation] (referred to herein as the "Predecessor SERP"), in no event shall the Supplemental Benefit or Spouse's Supplemental Benefit payable under this Agreement be less than the benefit determined pursuant to the Predecessor SERP had such Predecessor SERP remained in effect until the Retirement Date of the Executive. The execution of this Agreement by the Executive constitutes a release by the Executive of all rights and benefits under the Predecessor SERP. (m) All notices hereunder shall be in writing and deemed properly given if delivered by hand and receipted or if mailed by registered mail, return receipt requested. Notices to the Corporation shall be directed to the Secretary of the Corporation with a copy directed to the Corporation's General Counsel. Notices to the Executive shall be directed to his last known address. Notice may not be provided by e-mail. Section 8. Administration. (m) This Agreement shall be administered by the Corporation. The Corporation shall interpret this Agreement, establish regulations to further the purposes of this Agreement and take any other action necessary to the proper operation of this Agreement. Prior to paying any benefit under this Agreement, the Corporation may require the Executive or his spouse to provide such information or material as the Corporation, in its sole discretion, shall deem necessary for it to make any determination it may be required to make under this Agreement. The Corporation may withhold payment of any benefit under this Agreement until it receives all such information and material and is reasonably satisfied of its correctness and genuineness. (n) If for any reason a benefit payable under this Agreement is not paid when due, the Executive or his spouse may file a written claim with the Corporation. If the claim is denied or no response is received within forty-five (45) days after the date on which the claim was filed with the Corporation (in which case the claim will be deemed to have been denied), the Executive or his spouse may appeal the denial to the Committee within sixty (60) days of receipt of written notification of the denial or the end of the forty-five day period, whichever occurs first. In pursuing an appeal, the Executive or his spouse may request that the Committee review the denial, may review pertinent documents, and may submit issues and documents in writing to the Committee. A decision on appeal will be made within thirty (30) days after the appeal is made, unless special circumstances require the Committee to extend the period for another thirty (30) days. (o) The Corporation may appoint one or more persons to act as administrator and delegate its administrative responsibilities to such administrator. IN WITNESS WHEREOF, this Agreement has been executed in behalf of the Corporation by its duly authorized officers and by the Executive as of the day and year first above stated. WACHOVIA CORPORATION By:_____________________________________ Chief Executive Officer Attest: - ------------------------------ Secretary [Corporate Seal] __________________________________(SEAL) Executive -101- EX-10.15 13 RETIREMENT AGREEMENT-EX. OFFICERS EXHIBIT 10.15 SENIOR EXECUTIVE RETIREMENT AGREEMENT THIS SENIOR EXECUTIVE RETIREMENT AGREEMENT (the "Agreement"), made and entered into as of the_____ day of __________________,1999, by and between WACHOVIA CORPORATION (the "Corporation"), a North Carolina corporation, and _____________________(the "Executive"), a senior management employee of the Corporation; RECITALS The Executive is a senior management employee of the Corporation, and as such has rendered and is expected to continue to render valuable services in behalf of the Corporation. The Management Resources and Compensation Committee (the "Committee") of the Corporation desires for the Corporation to provide the Executive with supplemental retirement benefits partially in recognition of such services. In addition, the Committee has determined that providing such benefits will make the Corporation's benefits package more competitive with packages offered by many other employers and will facilitate management succession planning for the Corporation. NOW, THEREFORE, the Corporation and the Executive hereby mutually agree as follows: Section 1. Definitions. When used herein, the words and phrases below shall have the meanings set forth, unless a different meaning is clearly required by the context. Terms used but not defined herein, and which are defined in the Retirement Plan, shall have the meaning assigned to them in the Retirement Plan. Masculine pronouns include feminine pronouns wherever used and vice versa. 1.6 "Board of Directors" means the Board of Directors of the Corporation. 1.2 "Code" means the Internal Revenue Code of 1986, as it may be amended from time to time. 1.3 "Effective Date" means ___________________________________. 1.4 "Final Average Compensation" means the average of the annual compensation of the Executive for the three full calendar years within the final five full calendar years of his employment which will produce the highest average. For this purpose, the annual compensation of the Executive shall mean his total cash remuneration from the Corporation, including an amount equal to the average of the annual incentive compensation paid to the Executive by the Corporation, if any, provided that the incentive compensation to be recognized for this purpose shall be approved by the Management Resources and Compensation Committee in good faith and in its sole discretion, plus the sum of: (a) any salary reduction amounts which the Executive elects to have contributed with respect to him to a qualified cash or deferred arrangement under Section 401(k) of the Code, to a benefit enhancement plan in lieu of contributions to such a qualified cash or deferred arrangement, to a cafeteria plan under Section 125 of the Code, or to any similar plan or arrangement, and (b) any amounts deferred under any deferred compensation plan or contract. Amounts described in (a) and (b) shall be deemed received at the time the Executive would have received them but for the programs described in (a) and (b). Notwithstanding the foregoing, the Executive's total cash remuneration shall not include any benefits or compensation provided to the Executive under the Wachovia Corporation Stock Plan, any similar plan, or any successor or replacement plan. 1.5 "Normal Retirement Date" means the first day of the month coincident with or next following the date the Executive attains age sixty. 1.6 "Other Pension Plan" means any defined benefit pension plan, other than the Retirement Plan, in which the Executive is a participant and which is qualified under Section 401(a) of the Code and is maintained by the Corporation or a subsidiary of the Corporation. 1.7 "Retirement Date" means the date the Executive retires under this Agreement on account of early or normal retirement. -102- 1.8 "Retirement Plan" means the Retirement Income Plan of Wachovia Corporation and any successor thereto. 1.9 "Supplemental Benefit" means the monthly benefit payable to the Executive under this Agreement. Section 2. Normal Retirement. (a) At his Normal Retirement Date, the Executive will retire and will be entitled to receive the Supplemental Benefit, computed in the form of a single life annuity for his life. Payment of the Supplemental Benefit will commence on the Executive's Normal Retirement Date. The monthly amount of the Supplemental Benefit shall equal one-twelfth of the product of two and one-half percent (2.5%) of the Executive's Final Average Compensation times the number of years of his creditable service determined under the provisions of the Retirement Plan (subject to a maximum of 62.5%), reduced by the monthly amount payable under the Retirement Plan and any Other Pension Plan. The offset shall equal the monthly amounts actually payable under the Retirement Plan and any Other Pension Plan, based on the payment option elected by the Executive. (b) Notwithstanding the foregoing, if the Executive and the Corporation agree to extend the Executive's employment beyond the Executive's Normal Retirement Date, the Executive shall not be required to terminate employment at his Normal Retirement Date, and shall not forfeit any right to the Supplemental Benefit as a result of retirement after his Normal Retirement Date. Furthermore, the amount of the Supplemental Benefit shall in no event be less than the amount of the Supplemental Benefit that would have been payable to the Executive had he retired at his Normal Retirement Date. For purposes of this subsection, the amount of the Executive's Supplemental Benefit shall be determined on an actuarially equivalent basis using the actuarial factors set forth in the Retirement Plan. Section 3. Early Retirement. If the Executive has attained his fifty-fifth birthday but has not attained his Normal Retirement Date, and has ten or more years of service, he may elect early retirement as of the first day of any calendar month following written notice of at least ninety days to the Corporation and the Committee. The Supplemental Benefit of the Executive who elects early retirement shall equal the benefit determined under Section 2 as of such date, reduced by five percent for each year (with proportionate allowance for complete months) by which the starting date of the benefit precedes attainment of his sixtieth birthday. With the consent of the Committee, the Supplemental Benefit shall be payable to the Executive pursuant to Section 2 commencing as of the first day of any calendar month on or after his early retirement and before his Normal Retirement Date. The request for benefit payment must be filed by the Executive in writing with the Committee at least thirty days prior to the date payments are requested to commence. Section 4. Spouse's Supplemental Benefit. If the Executive shall be married on his Retirement Date, and shall die thereafter survived by such spouse, or if the Executive shall die prior to his Retirement Date and shall be married on the date of his death, such spouse shall be entitled to a monthly supplemental benefit (herein the "Spouse's Supplemental Benefit") payable for life and equal to 60% of the monthly amount of the Supplemental Benefit payable to the Executive (assuming, for an Executive who shall die prior to his Retirement Date, that the Executive had retired on the date immediately preceding the date of his death and that the years of his creditable service included the years and fractions thereof from the date of death to his Normal Retirement Date), before applying the reduction for the monthly amount payable to the Executive under the Retirement Plan and any Other Pension Plan, but reduced by the monthly amount, if any, payable to the spouse under the Retirement Plan and any Other Pension Plan in the calendar month next following the death of the Executive. The monthly amount of the Spouse's Supplemental Benefit shall be payable on the first day of each calendar month following the death of the Executive and preceding the death of such spouse. Section 5. Optional Forms of Payment. Notwithstanding the provisions of Sections 2 through 4, the present value of the sum of the Supplemental Benefit and the Spouse's Supplemental Benefit (if any) may, at the request of the Executive and with the consent of the Executive's spouse (if any) and the Committee, be payable in cash in a lump sum within thirty days following the Retirement Date of the Executive. Such present value shall be the actuarial equivalent (as defined in the Retirement Plan) of the Supplemental Benefit and Spouse's Supplemental Benefit (if any). The request for a lump sum distribution, and the consent of the Executive's spouse, must be filed -103- by the Executive with the Committee at least sixty days prior to the Retirement Date. Such consent shall be in writing on a form provided by the Committee. Section 6. Disability; Death. (a) In the event the Executive suffers a disability (as defined in the Retirement Plan) prior to the Retirement Date, the Executive shall continue to accrue a Supplemental Benefit under this Agreement based upon the Final Average Compensation of the Executive as of the last date the Executive was paid by the Corporation (including sick pay) and taking into account the period from the disability of the Executive to the Normal Retirement Date as creditable service for purposes of this Agreement. The Supplemental Benefit of the Executive who is disabled shall be determined and payable as of the Normal Retirement Date of the Executive. (b) In the event that both the Executive and his spouse (if any) die before the date on which the Executive would have attained age 83, their designated beneficiary (or the estate of the last to die if no beneficiary has been designated) shall receive a lump sum death benefit (the "Death Benefit"). The Death Benefit shall be equal to the product of (i) 60% of the annual amount of the Supplemental Benefit payable to the Executive (subject to the assumptions described in Section 4 if the Executive dies before his Retirement Date), and (ii) the difference between 83 and the age that the Executive attained (or would have attained) as of the later of the date on which he died or the date on which his spouse died. Section 7. Miscellaneous. (a) The Executive shall forfeit any right to the Supplemental Benefit or any other rights hereunder (including the Spouse's Supplemental Benefit) if he (i) declines to retire at his Normal Retirement Date, (ii) terminates employment with the Corporation prior to his Retirement Date without written consent of the Committee, or (iii) is terminated for "cause." Termination for cause shall arise if the Executive's employment by the Corporation is terminated because of or arising out of: (A) criminal dishonesty, (B) refusal to perform his employment duties for the Corporation on substantially a full-time basis, (C) refusal to act in accordance with any specific substantive instructions of the Corporation's Chief Executive Officer or Board of Directors, or (D) engaging in conduct which could be materially damaging to the Corporation without a reasonable good faith belief by the Executive that such conduct was in the best interest of the Corporation. Notwithstanding the foregoing provisions of this Section 7(a), in the event of a Change of Control of the Corporation, the Executive shall be vested in the right to receive payment of the Supplemental Benefit under this Agreement, which right shall not be forfeited upon the termination of the Executive for any reason other than for cause as defined in this Section 7(a). In the event the employment of the Executive is voluntarily or involuntarily terminated during the period beginning on the date of the Change of Control and ending on the third anniversary of such date, and as a result of such termination the Executive is entitled to receive Continuation Benefits pursuant to an employment agreement between the Corporation and the Executive, then notwithstanding any other provision of this Agreement to the contrary, the Executive shall continue to be credited with creditable service during the Compensation Period, and the annual cash compensation paid to the Executive during the Compensation Period shall be taken into account in determining his Final Average Compensation under this Agreement. The Executive's Supplemental Benefit shall be paid commencing as of the later of the end of the Compensation Period or the date the Executive actually attains (or would have attained but for death) the age of fifty-five. If payment of the Executive's Supplemental Benefit commences at a date prior to the Executive's Normal Retirement Date, the Executive shall be deemed to have satisfied all of the conditions and requirements described in Section 3 for purposes of computing the amount of his Supplemental Benefit. For purposes herein, the terms "Change of Control," Continuation Benefits," and "Compensation Period" shall have the meaning given such terms in the employment agreement between the Corporation and the Executive. (b) The Supplemental Benefit shall cease to be paid to the Executive (and rights to the Spouse's Supplemental Benefit shall terminate) if he shall disclose material confidential information or trade secrets concerning the Corporation or any of its subsidiaries without the Corporation's consent, or shall engage in any activity that is materially damaging to the Corporation including, but not limited to, engaging in competitive employment at any time. The Executive shall be deemed to engage in competitive employment if he shall render services as an owner, employee, officer, director, consultant or otherwise, for himself or any employer which conducts a business or enterprise in any area where the Corporation or affiliate of the Corporation conducts business that competes directly or indirectly with the Corporation or affiliate of the Corporation. The Committee shall have -104- authority to cease payments under this paragraph (b), and the determination of the Committee shall be final and conclusive. Upon the request of the Executive, the Committee may grant an advance opinion as to whether a proposed activity would violate the provisions of this paragraph (b). (c) In consideration of any benefit payable to the Executive under this Agreement, the Executive upon termination of employment with the Corporation shall execute a separate release and waiver of claims in a form acceptable to the Corporation. The Executive shall not be eligible for any benefit under this Agreement until he has executed such release and waiver of claims. (d) In the event the employment of the Executive terminates prior to a Change of Control, and as a result of such termination the Executive is entitled to receive Continuation Benefits pursuant to an employment agreement between the Corporation and the Executive, then notwithstanding any other provision of this Agreement to the contrary, the Executive shall continue to be credited with creditable service during the Compensation Period, and the annual cash compensation paid to the Executive during the Compensation Period shall be taken into account in determining his Final Average Compensation under this Agreement. The Executive shall be deemed to retire from the Corporation on the last day of the Compensation Period and to have given the Corporation written notice of such retirement at least ninety days before such date. The Executive's Supplemental Benefit shall be paid commencing as of the end of the Compensation Period. The terms "Change of Control," "Continuation Benefits" and "Compensation Period" shall have the meaning given to such terms in the employment agreement between the Corporation and the Executive. (e) Nothing in this Agreement shall be construed as giving the Executive the right to be retained in the employ of the Corporation or any subsidiary of the Corporation at all or for any specified period in any particular position, or any right to any payment whatsoever except to the extent provided for by this Agreement. (f) Notwithstanding any other provisions hereof, if any person entitled to receive payments hereunder (the "recipient") shall be physically or mentally or legally incapable of receiving or acknowledging receipt of such payment, the Corporation, upon the receipt of satisfactory evidence that another person or institution is maintaining the recipient and that no guardian or committee has been appointed for the recipient, may cause such payment to be made to such person or institution so maintaining the recipient. (g) Nothing in this Agreement and no action taken pursuant to the provisions of this Agreement shall create or shall be construed as creating a trust of any kind, or a fiduciary relationship between the Corporation and the Executive or any other person. Any amounts which are or may be set aside hereunder shall continue for all purposes to be a part of the general funds of the Corporation, and no person other than the Corporation shall, by virtue of the provisions of this Agreement, have any interest in such funds. To the extent that any person acquires a right to receive payments from the Corporation hereunder, such right shall be no greater than the right of any unsecured general creditor of the Corporation. (h) The benefits payable under this Agreement may not be assigned by the Executive or any other person nor anticipated in any way. (i) The Committee may, in its sole discretion, terminate, suspend or amend this Agreement at any time or from time to time, in whole or in part; provided, that except as otherwise specifically provided herein no such termination, suspension or amendment made following the date that payments commence hereunder will affect the right of any person to receive benefits earned hereunder. Upon a change of control of the Corporation as defined in the Wachovia Corporation Stock Plan as it may be amended from time to time, this Agreement may not be amended or terminated without the express written consent of the Executive. (j) This Agreement shall be governed by and construed in accordance with the laws of the State of North Carolina, to the extent not preempted by applicable federal law. (k) This Agreement replaces and supersedes any other individual retirement agreement between the Executive and the Corporation. (l) [OPTIONAL] If the Executive [was a participant in the South Carolina National Corporation Supplemental Executive Retirement Plan] OR [was a party to a Supplemental Retirement Agreement between the -105- Executive and First Atlanta Corporation] (referred to herein as the "Predecessor SERP"), in no event shall the Supplemental Benefit or Spouse's Supplemental Benefit payable under this Agreement be less than the benefit determined pursuant to the Predecessor SERP had such Predecessor SERP remained in effect until the Retirement Date of the Executive. The execution of this Agreement by the Executive constitutes a release by the Executive of all rights and benefits under the Predecessor SERP. (m) All notices hereunder shall be in writing and deemed properly given if delivered by hand and receipted or if mailed by registered mail, return receipt requested. Notices to the Corporation shall be directed to the Secretary of the Corporation with a copy directed to the Corporation's General Counsel. Notices to the Executive shall be directed to his last known address. Notice may not be provided by e-mail. Section 8. Administration. (p) This Agreement shall be administered by the Corporation. The Corporation shall interpret this Agreement, establish regulations to further the purposes of this Agreement and take any other action necessary to the proper operation of this Agreement. Prior to paying any benefit under this Agreement, the Corporation may require the Executive or his spouse to provide such information or material as the Corporation, in its sole discretion, shall deem necessary for it to make any determination it may be required to make under this Agreement. The Corporation may withhold payment of any benefit under this Agreement until it receives all such information and material and is reasonably satisfied of its correctness and genuineness. (q) If for any reason a benefit payable under this Agreement is not paid when due, the Executive or his spouse may file a written claim with the Corporation. If the claim is denied or no response is received within forty-five (45) days after the date on which the claim was filed with the Corporation (in which case the claim will be deemed to have been denied), the Executive or his spouse may appeal the denial to the Committee within sixty (60) days of receipt of written notification of the denial or the end of the forty-five day period, whichever occurs first. In pursuing an appeal, the Executive or his spouse may request that the Committee review the denial, may review pertinent documents, and may submit issues and documents in writing to the Committee. A decision on appeal will be made within thirty (30) days after the appeal is made, unless special circumstances require the Committee to extend the period for another thirty (30) days. (r) The Corporation may appoint one or more persons to act as administrator and delegate its administrative responsibilities to such administrator. IN WITNESS WHEREOF, this Agreement has been executed in behalf of the Corporation by its duly authorized officers and by the Executive as of the day and year first above stated. WACHOVIA CORPORATION By:_____________________________________ Chief Executive Officer Attest: - ------------------------------ Secretary [Corporate Seal] __________________________________(SEAL) Executive -106- EX-12 14 STATEMENT OF EARNING TO FIXED CHARGES
EXHIBIT 12 RATIO OF EARNINGS TO FIXED CHARGES (A) EXCLUDING INTEREST ON DEPOSITS 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- Earnings: Income before income taxes $ 1,542,373 $ 1,303,781 $ 869,119 $ 1,100,308 $ 1,023,290 Less capitalized interest (160) (593) (167) -- (1,530) Fixed charges 957,002 976,201 884,806 900,277 885,040 ----------- ----------- ----------- ----------- ----------- Earnings as adjusted $ 2,499,215 $ 2,279,389 $ 1,753,758 $ 2,000,585 $ 1,906,800 =========== =========== =========== =========== =========== Fixed charges: Interest on purchased and other short term borrowed funds $ 457,161 $ 563,846 $ 478,162 $ 482,236 $ 527,765 Interest on long-term debt 474,378 390,662 387,107 399,796 340,211 Portion of rents representative of the interest factor (1/3) of rental expense 25,463 21,693 19,537 18,245 17,064 ----------- ----------- ----------- ----------- ----------- Fixed charges $ 957,002 $ 976,201 $ 884,806 $ 900,277 $ 885,040 =========== =========== =========== =========== =========== Ratio of earnings to fixed charges 2.61 X 2.33 X 1.98 X 2.22 X 2.15 X (B) INCLUDING INTEREST ON DEPOSITS: Adjusted earnings from (A) above $ 2,499,215 $ 2,279,389 $ 1,753,758 $ 2,000,585 $ 1,906,800 Add interest on deposits 1,265,195 1,359,705 1,303,549 1,203,739 1,143,179 ----------- ----------- ----------- ----------- ----------- Earnings as adjusted $ 3,764,410 $ 3,639,094 $ 3,057,307 $ 3,204,324 $ 3,049,979 =========== =========== =========== =========== =========== Fixed charges: Fixed charges from (A) above $ 957,002 $ 976,201 $ 884,806 $ 900,277 $ 885,040 Interest on deposits 1,265,195 1,359,705 1,303,549 1,203,739 1,143,179 ----------- ----------- ----------- ----------- ----------- Adjusted fixed charges $ 2,222,197 $ 2,335,906 $ 2,188,355 $ 2,104,016 $ 2,028,219 =========== =========== =========== =========== =========== Adjusted earnings to adjusted fixed charges 1.69 X 1.56 X 1.40 X 1.52 X 1.50 X
-107- EX-13 15 ANNUAL REPORT EXHIBIT 13 RESERVED FOR 1999 ANNUAL REPORT TO SHAREHOLDERS -108- Annual Report 1999 (Photos of people) WACHOVIA - -------------------------------------------------------------------------------- 1999 News Highlights o Wachovia strengthened capabilities with a series of strategic mergers and acquisitions during 1999. Mergers were completed with: Interstate/Johnson Lane, a leading Southeastern full-service broker-dealer and investment banking firm based in Charlotte, North Carolina. OFFITBANK, a New York-based wealth management company serving high-net-worth individuals and institutional clients. Barry, Evans, Josephs & Snipes, a national insurance broker based in Charlotte, with specialty in wealth management strategies for affluent clients. In October, Wachovia announced plans to acquire B C BANKSHARES, parent company of the Bank of Canton, with eight branches in the Atlanta area. The transaction was completed in February 2000. Wachovia announced plans in December to purchase the $2 billion credit card portfolio of PARTNERS FIRST HOLDINGS and completed the transaction in January 2000. o Expanding its FLORIDA PRESENCE, Wachovia established a state headquarters in Tampa, extended its corporate network and announced plans for market expansion in the state. In January 2000, Wachovia opened an OFFITBANK representative office in Miami to provide wealth management services to the upper tier of the affluent market. o Recognized for pioneering efforts in the field of image technology, Wachovia RECEIVED A PATENT for the processes and systems that support disbursement services for more than 1,000 corporate customers. o Wachovia was named ONE OF THE BEST INTERNET BANKS IN THE NATION by a number of professional journals and rating agencies, including Smart Money magazine, CNN and Money Line. Wachovia's commitment to the Internet as a vital customer delivery channel is reflected in the January 2000 formation of an eBUSINESS DIVISION that will provide centralized, strategic leadership and support for initiatives across all lines of business. o Named to Wachovia Corporation's Board of Directors during 1999 were G. JOSEPH PRENDERGAST, president and chief operating officer of Wachovia Corporation; MORRIS W. OFFIT, chairman and chief executive officer of OFFITBANK; and ELIZABETH VALK LONG, executive vice president of Time Inc. 1 - ------------------------- Financial Highlights - --------------------------------------------------------------------------------------------------------- Percent 1999 1998 Change ------- ---- -------- EARNINGS AND DIVIDENDS (thousands, except per share data) Net income (1) ........................................... $ 1,011,221 $ 874,170 15.7 Cash dividends paid on common stock ...................... 418,447 381,798 9.6 Payout ratio (total cash dividends / net income) ......... 41.4 % 43.7 % Net income per common share: Basic ................................................... $ 4.99 $ 4.26 17.1 Diluted ................................................. $ 4.90 $ 4.18 17.2 Cash dividends paid per common share ..................... $ 2.06 $ 1.86 10.8 Average basic shares outstanding ......................... 202,795 205,058 ( 1.1) Average diluted shares outstanding ....................... 206,192 209,153 ( 1.4) Return on average assets ................................. 1.55% 1.37% Return on average shareholders' equity ................... 18.62 16.92 BALANCE SHEET DATA AT YEAR-END (millions, except per share data) Total assets ............................................. $ 67,353 $ 64,123 5.0 Interest-earning assets .................................. 59,583 56,537 5.4 Loans -- net of unearned income .......................... 49,621 45,719 8.5 Deposits ................................................. 41,786 40,995 1.9 Interest-bearing liabilities ............................. 50,973 48,558 5.0 Shareholders' equity ..................................... 5,658 5,338 6.0 Shareholders' equity to total assets ..................... 8.40% 8.32% Risk-based capital ratios: Tier I capital .......................................... 7.52 7.99 Total capital ........................................... 10.98 11.34 Per share: Book value .............................................. $ 28.04 $ 26.30 6.6 Common stock closing price (NYSE) ....................... 68.00 87.44 (22.2) Price/earnings ratio (2) ................................ 13.88 x 20.92 x EXCLUDING EFFECTS OF NONRECURRING ITEMS (1) (thousands, except per share data) Net income ............................................... $1,023,855 $929,847 10.1 Net income per diluted common share ...................... $ 4.97 $ 4.45 11.7 Return on average assets ................................. 1.57% 1.45% Return on average shareholders' equity ................... 18.86 17.99 Price/earnings ratio (2) ................................. 13.68 x 19.65 x
(1) Nonrecurring items in 1999 and 1998 include merger-related charges of $19,309 and $85,312, respectively. (2) Price/earnings ratio is based on end-of-year stock price and net income per diluted share. 2 - ------------------------------------------------------- Wachovia Corporation - -------------------------------------------------------------------------------- Wachovia Corporation ("Wachovia"), with a history dating back to 1879, is a major bank holding company with dual headquarters in Winston-Salem, North Carolina, and Atlanta, Georgia. Its principal subsidiaries are Wachovia Bank, N.A., which operates in Georgia, North Carolina, South Carolina, Virginia and Florida, and The First National Bank of Atlanta, which provides credit card services nationwide. At December 31, 1999, Wachovia's assets of $67.353 billion and market capitalization of $13.723 billion both ranked 16th among U.S. banking companies. Wachovia offers credit and deposit services, insurance, investment and trust products, capital markets, wealth management and information services to consumers, primarily in the Southeast, and to both domestic and foreign corporations. Wachovia provides consumer products and services through a network of retail branches, ATMs, Wachovia On-Call telephone banking, automated Phone Access and internet-based investing and banking at www.wachovia.com. It provides global solutions to corporate clients through locations in Chicago, London, New York and S-o Paulo, through representative offices in Hong Kong and Tokyo, and through worldwide strategic alliances. - ------------------------------------------------------------ Selected Year-End Data - --------------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 1994 --------- -------- -------- -------- ------- ------- Trust assets (millions): Discretionary management ..................... $ 51,922 $ 42,025 $ 33,568 $ 26,161 $22,409 $18,122 Total ........................................ $132,733 $138,130 $129,079 $108,557 $97,952 $83,973 Banking offices: North Carolina ............................... 190 198 201 220 219 216 Virginia ..................................... 234 263 341 242 242 228 Georgia ...................................... 132 131 130 123 124 127 South Carolina ............................... 119 120 125 145 146 150 Florida ...................................... 37 40 33 ---- ---- ---- --------- -------- -------- -------- ------- ------- Total ..................................... 712 752 830 730 731 721 ========= ======== ======== ======== ======= ======= Automated banking machines: North Carolina ............................... 446 446 423 351 328 297 Virginia ..................................... 286 304 325 221 211 194 Georgia ...................................... 301 299 282 222 204 189 South Carolina ............................... 284 289 272 213 180 166 Florida ...................................... 38 34 6 ---- ---- ---- --------- -------- -------- -------- ------- ------- Total ..................................... 1,355 1,372 1,308 1,007 923 846 ========= ======== ======== ======== ======= ======= Employees (full time equivalent) .............. 21,294 20,936 21,652 19,969 19,642 19,148 Common stock shareholders ..................... 52,178 53,971 55,681 47,892 42,868 43,503 Common shares outstanding (thousands) ......... 201,812 202,986 205,927 201,253 208,341 208,095
- ----------------------------------------------------------------------- Forward-Looking Statements - -------------------------------------------------------------------------------- The Annual Report of Wachovia Corporation contains forward-looking statements as encouraged by the Private Securities Litigation Reform Act of 1995. All forward-looking statements involve risks and uncertainty and any number of factors could cause actual results to differ materially from the anticipated results or other expectations expressed in forward-looking statements. Risks and uncertainties that may affect future results include, but are not limited to, changes in the economy, interest rate movements, timely development by Wachovia of technology enhancements for its products and operating systems, the impact of competitive products, services and pricing, Congressional legislation and similar matters. Management cautions readers not to place undue reliance on forward-looking statements, which are subject to influence by the named risk factors and unanticipated future events. 3 Letter To Shareholders (Photo appears here with the following caption) Standing: L. M. Baker, Jr. Chairman and Chief Executive Officer Seated, left to right: G. Joseph Prendergast President and Chief Operating Officer Robert S. McCoy, Jr. Vice Chairman, Chief Financial Officer Dear Wachovia Shareholder, The year 1999 was challenging for banking companies. After posting remarkable performance in every year since 1994, the shares of many traded well below yearly highs. This is discouraging but can be understood. The world is in transition from the old economy to the new. Investors are thinking about the future. They want to understand that their banks are too. Ironically, a number of banks reported solid earnings in 1999, on track with market expectations. And yet, in the eyes of investors banks have lost a degree of lustre in the face of perceived bonanzas dangling from the Internet. In truth, investors may be justified in reacting nervously to the uncertainty of future earnings growth. They are questioning the value proposition banks offer to customers. They are worried about risk. The real question is, "Who will prosper in the new world?" In order to answer this question it is important to understand what is going on. Presently the world is playing out the last vestiges of the Industrial Revolution, completing its phase of globalization while preparing for a new emerging economic paradigm. The foundation of this paradigm is built upon the diffusion of information throughout society, advances in communication technology and free and open access to knowledge across the globe. In this new, emerging society, material and its constructs are less important. Knowledge is key, and its acquisition potentially offsets the stricture of traditional regimens and the inertia caused by geographic, political or organizational boundaries. Traditional sources of power and prestige are dissipating. Democratic capitalism, financial 4 innovation, global integration and massive technology improvement are bedrock in the new world. The new economy, built on creativity and ideas, will not be measured by bulk production but by better quality, instant availability, variety, ease of use and less repair. As a result of technology and the application of science, products and services will get cheaper and better. The early benefits of the new economy can be seen: o We continue to enjoy a nine-year economic expansion with low inflation, record low unemployment and low interest rates. There is little in sight to support an interruption to growth. o In recent years the economy has absorbed internal and external shocks from the dissolution of the Soviet Union, the Asian currency crisis, weakness in South American markets and the debacle of unsound hedge funds. In the wake of each, financial markets rebounded promptly. o The American economy has become broad, diverse and global in a short period of time. This has narrowed volatility. Not many years ago the economy moved on cars and houses. Today these are less important. The economic structure is now dominated by mind rather than matter. The economy is diverse and rich with the entrepreneurial spirit. New companies are built on ideas, creativity and efficient communication. o Government spending as a percentage of gross domestic product is shrinking, and surpluses are possible at state and national levels. This is a far cry from the '80s refrain that $200 billion federal deficits loomed as far as the eye could see. Strong economic growth, low inflation and high employment have combined to save us from the wastrel tendencies of many elected officials. o Governments are being forced to adopt more benign tax, trade and social policies relating to the economy. Smart politicians have a sense of the new economy and see strong business and healthy commerce as enabling of the social good. o Inflation control is a priority of most, if not all, developed and developing nations. Serious effort is being given to preserving currency value and enhancing stability. o American business has evolved from leadership by the managerial class to leadership by the entrepreneurial class. Bloated bureaucracy and hierarchical organization have given way to innovation and persistent questioning of old process and procedure. Creative destruction has become a watchword in organizational thinking. There is a new business ethic built upon high performance. o Notwithstanding hiring pressure, employment costs are tame and will remain so. Requests for higher wages are met with demand for strong productivity, thus boosting the standard of living for all. Many standard of living increases are not captured due to new products and services that cannot be measured by traditional indices. o The Digital Revolution, the Genetic Revolution and the Material Science Revolution are merging 5 within an economy increasingly propelled by synergies and complementary capabilities. New jobs are being produced. Huge boosts to productivity are in evidence, with more not yet properly identified and measured. The end result will be higher standards of living and sustained wealth creation for more people. Costs in the future economy will plummet. o The Internet makes information available for all, and the feedback effect ripples through the economy, stimulating creativity. Electronic commerce is a revolutionary driving force in the transition from the old business method to the new. o Finally, the myth underlying American optimism has become reality for producers, consumers and investors. Every day those who believe in the new economy become more firmly entrenched. Every day there are more disciples who embrace the revolution. It is good to remember that in the great sweep of American history, pessimists have always been wrong. While shouldering the effects of these changes, we have entered an economic cycle that will be distinguished by a moderate rate of growth. A nominal growth rate of 3 to 5 percent is a dramatic swing from levels achieved in the 1980s and early '90s. In the future, inflation will not provide pricing buoyancy that has helped many corporations sustain top-line growth. The economy will perform well but at a subdued pace. From time to time in the coming decade, price levels will be deflationary. In some cases, the cost of raw materials will moderate, reflecting new processing and extractive techniques influenced by technology. Labor costs will be subdued by an abundance of low-wage talent from the emerging world. New capabilities arising from technology will make manufacturing more efficient. Investment in technology will remain high but technology itself will be a benign factor potentially helping to retard expense growth. Today, the world is defined by capital, ideas and energy. These do not abide by artificial or political boundaries. New and exciting uses of information are changing traditional alignment. Some countries are experiencing difficulty adjusting to the new global economy. This has subdued their rate of growth and elevated risk in the eyes of investors, but it does not alter the long-term attractiveness of emerging markets. Around the world millions of people are free. They will work hard to achieve a better life. Longer term, global economic growth will be sustained. There is revolution under way in the development and application of technology. This adds astonishing vitality to the economy. Many benefits await. We are only in the beginning stages of the revolution. The most significant factors at work are the rapid diffusion of technology through society and the ability to use information productively. Useful technology and inexpensive information are available to everyone across the globe. The lower cost and greater availability of information make it a trump card for innovators. In the future, this incredible capability will destroy artificial, inefficient structures at all levels of society. The revolution threatens the existence of traditional political, social and business structures. 6 These are major forces at work fueling a challenging transition in our lives: o A lower nominal growth environment o Price stability o The evolution of the global construct o The substitution of knowledge and technology for labor These factors are stimulating change in process, procedure and business practice. They are causing boundaries to evaporate and standards to be rethought. The combination of lower nominal growth, the lack of pricing power and the incredible revolution in technology is causing our lives to turn upside down, and it will test us severely in the years ahead. This will be a challenging world, but one where enormous opportunities abound. In the last five years, Wachovia has undergone its own revolution to strengthen lines of business, bring technology to customers, stimulate growth in revenue, better manage costs and capital, develop leadership and teach our people to grow. The results are impressive. Revenue has grown at 11 percent annually, shifting toward fee income and reducing reliance on the net interest margin. At the same time, strong growth in loans and core deposits contributed to excellent margin-related revenue performance. While absorbing the investment required to improve revenue and build a growth culture, the overhead ratio has been superb for a bank with a large retail franchise. Low rate consumer deposits have largely been repriced through introduction of new products. This repricing has weighed upon the margin in the short run but avoids violent disintermediation and loss of customers in the future. (Photo appears here with the following caption.) Standing, left to right: Kenneth W. McAllister Senior Executive Vice President, General Counsel/Administrative Services Donald K. Truslow Senior Executive Vice President, Treasurer/Comptroller John C. McLean, Jr. Senior Executive Vice President, Corporate Financial Services Seated, left to right: Stanhope A. Kelly Senior Executive Vice President, General Banking Jean E. Davis Senior Executive Vice President, Operations/Technology Mickey W. Dry Senior Executive Vice President, Chief Credit Officer 7 Mergers helped build a presence in Virginia, establish a new position in Florida and add capabilities in wealth management, corporate finance and investment banking. Recent mergers were completed with OFFITBANK, a premier company dedicated to wealth management, and Barry, Evans, Josephs & Snipes, an insurance broker serving risk management and investment needs of wealthy clients. In each new alliance, valuable products, service techniques and new creative leadership have joined Wachovia. In recent years, line of business and support organizations have undergone growth initiatives to impart to our people a true understanding of the necessary ingredients for growth. Systems have been installed to provide information and operational capability at the point of customer contact. Businesses that lack high growth characteristics have been sold or dismantled. Branches that could not achieve strong volume and profit growth have been closed or sold. This is the kind of discipline necessary to ensure that time, energy and resources are targeted to the highest opportunity for growth. In the years ahead it will be critically important to provide greater value to customers. High levels of service and meaningful interaction will be important. In this demanding world Wachovia will continue to bring superior service to customers through meaningful relationships not easily found in a crowded, hectic financial marketplace. Therefore, execution will be another critical hallmark of those who do well. For example, it will not be sufficient to offer "electronic commerce" if customers lack unfettered access to accounts, information and service. The efficient integration of technology is a differentiating skill. The ability to use technology effectively is a long-time strength of Wachovia and it is currently being recognized in service excellence with consumers and corporations. It will be necessary to practice relentless cost management. Growth demands investment. Excellent people are required. Technology is essential. In the face of the requirement for growth, the management of costs will help define performance. Wachovia has an exceptional record of cost discipline over cycles. In recent years our productivity has improved steadily while strong growth initiatives have been pursued. The final differentiation in performance will lie in risk management. The new world will present new risks. The ability to assess, monitor and manage risk in assets, investment and execution will define excellence as surely in the future as it has in the past. In recent quarters the levels of nonperforming loans in banks have gained scrutiny from investors who are understandably wary in the wake of disclosures of excessive risk in hedge funds and global markets. The reaction to problems disclosed in the fall of 1998 was exceptionally swift. This was to be expected. It is reassuring and healthy to note that investors still harbor a passionate desire to be repaid. Problem loans to corporations and consumers will rise in the future. The intricate nature of the business environment coupled with the incredible pace of change under way means that companies operate in a complex environment. The uncertainty of these times demands vigilance, discipline and care in the management of risk. 8 The exceptional discipline you have come to expect in Wachovia is still there. Risk in the company is more professionally managed than ever before. This is not to assert that as the economic cycle unfolds we will be free of problems. We will have our share. But you may be assured that these will always be promptly identified, reported and aggressively managed to protect your investment. Credit losses in each line of business are well below industry standards. I believe they will continue to be so. This has always been and remains a top corporate priority. Currently, executive officers of the company are engaged in two important, related projects. The first is a new strategic assessment. This process includes auditing existing lines of business for performance, but is primarily forward thinking. The methodology employed attempts to throw off the restraints of traditional organizational thinking. This work will shape our thinking about the future. The second project, an evolving component of the strategic assessment, is a performance project. Wachovians are evaluating future performance including growth in revenue, renewed focus on cost management and investment discipline. The results of this work will be beneficial to shareholders in the years ahead. It will give Wachovia additional strength in a new, evolving environment. It will help provide flexibility as continuing investment is made in high growth areas and in technology. In recent years substantive work has been done to more closely align Wachovia's capabilities with customer interests. The result is a company with major lines of business that are poised to smartly move ahead. Later sections of this report share line of business summaries. From this information it is possible to discern performance improvement and a pattern of consistent growth that has a sense of real promise. Several examples follow. Wachovia enjoys a large, respected and profitable corporate bank with many opportunities to expand the number of customers and the things we do with them. Double-digit rates of growth are expected as multiple services are sold to new and existing customers. New capabilities in capital markets and investment banking are bolstering sales to middle market customers. Strong growth is anticipated in small business banking. Asset and wealth management is an exciting area with enormous potential for growth. Our "wealth" model has been refined in recent years. New capabilities have been added. Wachovia's wealth business methodology works. It is a success. We anticipate double-digit growth and high profit margins. Results in this growing market will be largely determined by the number of financial advisor teams we choose to put into the field. Wachovia's consumer bank provides enormous profit contribution and absorbs substantial expense. Wachovia may well be the best bank in America in serving the real needs of retail customers. Notwithstanding that level of achievement, the business model is being refined to lower costs, elevate productivity and extend services. Sales are rising and we are doing a good job with customers. We will continue to seek a business model that exhibits "breakout" capabilities. Wachovia's credit card operation is large, successful and highly profitable. In performance and profitability we 9 (Photo appears here) compare very favorably with the best performers. The flexibility exists to move this line of business forward. In recent years we have restrained its growth to avoid taking on low quality accounts. Currently our credit losses and operating costs are superior to competitors. All of this is to say that we are very good at what we do, and customers are receiving real value. In each line of business our business models have been refined. Suddenly, the new world has a bright look to it. This is the transformation at Wachovia that is producing strong growth while building for sustained long-term expansion. Wachovia is changing and moving rapidly to the future. We remain committed to strong growth, high standards of performance and unmatched service quality over time. The section following this letter tells in elaborate detail of Wachovia's work in asset and wealth management. The story is a good one. Important to remember is that similar initiatives are under way across this great company. In the long path of history Wachovia's performance has always been excellent. Consistent with our superior risk management, passionate devotion to quality and our dedication to serve is the promise of exceptional shareholder returns over time. Sincerely, /s/ L. M. Baker, Jr. L. M. Baker, Jr. Chairman and Chief Executive Officer February 28, 2000 10 (Photos of people appear in the background) Special Report Wachovia's Strategy For Serving The Affluent More than five million men and women from all walks of life. Nearly 240,000 businesses and corporations. Hundreds of charitable institutions. Several thousand financial institutions and governmental agencies. As these statistics reflect, Wachovia serves a broad and diverse customer base. Each customer group is important. Each claims a share of the corporation's resources and strategic focus. 12 Within this cross-section of today's society, one population segment is experiencing extraordinary growth and presenting new opportunities and challenges for financial service providers. THE AFFLUENT... THE WEALTHY... HIGH-NET-WORTH INDIVIDUALS. AND THOSE ON THE VERGE OF JOINING THEM. Wachovia targeted the affluent as an area of heightened focus in 1994 and has since moved on numerous fronts to align resources, enhance delivery channels, and strengthen and acquire key capabilities. Results are evident in the steady upward climb in revenue and profit contribution from Wachovia's wealth management business. This special report looks at Wachovia's strategy for serving the affluent. Increasingly, that strategy touches areas across the corporation. (Photos of people appear here) 13 (Photos of people appear here) Today's Wealthy: A BRAND NEW MIX, A BOLD NEW CHALLENGE Millionaire. Traditionally, the word has evoked an image of white hair and green pastures, a polished cadre of old-monied protectors and passers-on of wealth. The image still holds, but it no longer stands alone. Today's "newly wealthy" are a diverse and colorful mosaic. Greater wealth has come to people of all ages from all walks of life, thanks to long-term economic prosperity, stock options, initial public offerings, sales of businesses, a record number of inheritances and other wealth creation events. Many of today's affluent are youthful, entrepreneurial, idea-driven, future-focused individuals, keenly interested in innovative approaches to long-term wealth management and willing to delegate that management and move on with life. It is an extraordinarily fast-growing group. The growth rate for affluent households in the United States with incomes of $100,000 or more or net worth of $500,000 or more is 10 times the growth rate for overall households. The growth in millionaire households is 12 times the national rate. Within the United States, 3.3 million households now have investable assets of $1 million or more. Pentamillionaire households have grown from 90,000 in 1994 to 590,000 in 1999 and are projected to reach 3.9 million by 2004. For financial service providers, this high-growth, high-net-worth population is a veritable gold mine of opportunity. In Wachovia's home states alone, the affluent market represents revenue potential in excess of $50 billion. - -------------------------------------------------------------------------------- Affluent households are growing at 10 times the national household growth rate. In Wachovia's home states alone, the affluent market represents revenue potential in excess of $50 billion. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Within the United States, 3.3 million households now have investable assets of $1 million or more. Pentamillionaire households have grown from 90,000 in 1994 to 590,000 in 1999 and are projected to reach 3.9 million by 2004. - -------------------------------------------------------------------------------- 14 - -------------------------------------------------------------------------------- Much of today's wealth is self-made. In 1980, 60 percent of the nation's 400 wealthiest individuals had inherited the majority of their money. By 1997, the figure had dropped to 20 percent. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Looking to the future, intergenerational wealth transfer will reach an all-time high. One study projects $41 trillion over the next decade, to be passed through 113 million bequests. - -------------------------------------------------------------------------------- (Graph appears here with the following plot points.) 1994 1999 2004 10.8 18.4 31.0 Growth of U.S. Affluent Households (Household Income > $100K or Net Worth > $500K) Source: Spectrem Group Yet this is a discerning and demanding market. More than ever, today's affluent reflect a wide variance in financial knowledge and expertise, risk and reward tolerances, delivery channel preferences, and loyalties to sources of counsel and advice. Financial service providers seeking to establish positions of leadership within the affluent market must understand the changing needs and nature of this complex group. Today, with many individuals acquiring substantial assets early in life, there is greater need for long-term planning and management. In addition to investment and tax strategy assistance, credit-based options may be needed since liquidity often is an issue. High-net-worth individuals typically rely on specialized sources of assistance, from accountants to insurance planners to investment advisors. Missing among these sources is a coordinated, integrated approach to financial management. Today's affluent tend to use technology, looking to the Internet and other evolving delivery channels as convenient mechanisms for information and transactions. Yet they value personalization and customization of services. 15 - -------------------------------------------------------------------------------- Wachovia was one of the first providers of trust services in the nation. Its reputation for product innovation and service excellence spans 121 years and encompasses a broad range of wealth management and related financial services. - -------------------------------------------------------------------------------- To be a provider of choice for today's wealth market, a financial institution must deliver comprehensive financial advice and service in ways that combine the best features of boutique providers with the missing and much-needed advantages of integration. Wachovia is committed to this leadership role and this value proposition - and has been moving quietly but boldly since 1994 to put into place components for success. THE FOUNDATION: Relationship Heritage, Strong Market Presence As part of a comprehensive company-wide assessment of market opportunities in 1994, Wachovia identified the affluent market as an area of emphasis. Since then, numerous initiatives have strengthened capabilities and acquired additional services. Wachovia's wealth management business has achieved double-digit growth each year since 1994. Today, Wachovia actively manages more than $50 billion in assets and administers more than $165 billion in assets. Revenue from this segment has grown from $205 million in 1995 to $628 million in 1999, and profit contribution has more than tripled. Future initiatives are designed to continue that growth and strengthen Wachovia's market presence. "In many ways, Wachovia is uniquely equipped to extend its leadership as a wealth management provider," says Robert S. Kniejski, executive vice president for Wachovia Asset and Wealth Management. He cites a combination of factors, some as old as the company itself, others reflecting recent innovations. Among them: Wachovia's strong relationship heritage, corporate culture, advantageous geographic location and proven ability to serve high-wealth clients. Wachovia already has relationships with a large percentage of affluent households in its home states - Georgia, North Carolina, South Carolina, Virginia and Florida. These states are among the most prosperous (Graph appears here with the following information.) ASSET & WEALTH MANAGEMENT PRIVATE FINANCIAL ADVISORS OFFITBANK BARRY EVANS, JOSEPH & SNIPES WACHOVIA SECURITIES WACHOVIA FUNDS WACHOVIA ASSET MANAGEMENT INSTITUTIONAL CLIENT SERVICES WACHOVIA INSURANCE SERVICES 16 (Photos of people appear here) (Graph appears here with the following plot points.) 1995 1996 1997 1998 1999 Revenues = 32% CAGR* $205 $248 $333 $396 $628 Profit Contribution = 36% CAGR* $60 $71 $109 $143 $205 Pretax Income = 42% CAGR* $32 $37 $77 $93 $132 $Millions Asset and Wealth Management Growth Note: Profit Contribution excludes general overhead. *CAGR = Compound Annual Growth Rate and fastest-growing in the nation; Wachovia's markets are projected to grow more than 50 percent faster than the national average from 1999 to 2004. As one of the first providers of trust services in the nation, Wachovia's reputation for product innovation and service excellence spans 121 years and encompasses a broad range of wealth management and related financial services. Wachovia's brand emphasizes relationships in which exceptional knowledge and service earn customers' trust and loyalty. Key to the success of this brand promise is the commitment to put customers' interests first. Living up to that commitment requires an exceptional spirit of teamwork and flexibility across product areas, business lines and support functions. In recent years, Wachovia has embraced a concept called Continuous Relationship Management (CRM), which supports the asset and wealth management strategy by helping attract, serve, develop and retain high-potential customers. Throughout Wachovia, the organization is being aligned to take high-potential customers at any point in their financial journey and continually strengthen the relationship with them. This enables Wachovia to create closer ties with these individuals and to become increasingly important to them at each stage. At the heart of the CRM strategy is a robust information system built to improve understanding of customers' wants and needs. Based on this insight, Wachovia can define appropriate customer segments and develop customized approaches tailored to the needs of each. Wachovia's use of tailored approaches to serve high-potential customers has been successful. One important example is the Profitable Relationship Optimization (PRO) program. Wachovia identifies individuals who, by being at a particular point in their financial journey, may benefit from additional financial services. Skilled PRO bankers contact customers to heighten awareness of key product and service possibilities and to establish a consultative relationship. - -------------------------------------------------------------------------------- Wachovia's commitment to leadership in serving the affluent market reflects a dual focus: increasing its share of business with existing affluent customers and substantially broadening its affluent customer base. - -------------------------------------------------------------------------------- 17 - -------------------------------------------------------------------------------- Through Wachovia's customer migration approach, Retail Financial Services (RFS) identifies PRO customers whose needs can best be served by Asset and Wealth Management (AWM). - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PRO customers typically are individuals in the asset-accumulation stage, and many will experience one or more wealth creation events - from stock options to sales of businesses to sizable inheritances - that will move them to the ranks of the affluent. - -------------------------------------------------------------------------------- (Graph appears here with the following information.) Maximizing Lifetime Customer Value RFS MASS o Targeted Acquisition AWM PRO o Relationship Expansion AFFLUENT o Integrated Wealth Management Customer Migration Growth The response to PRO has been outstanding, says Beverly B. Wells, executive vice president for Wachovia Retail Financial Services. She points to retention of PRO households, which is approximately 8 percentage points greater than overall household retention. Also notable is the lift in financial contribution by PRO households. "PRO customers report a significant increase in satisfaction with their banking relationship," says Wells. "PRO bankers report a similar increase in job satisfaction from the opportunity to be a partner to these high-potential customers." PRO customers typically are in the asset-accumulation stage, and many will experience one or more wealth creation events that will move them to the ranks of the affluent. Wells emphasizes that when the time comes that a customer can best be served by specialist teams in Wachovia Asset and Wealth Management, PRO bankers are expected to make that recommendation. Equally important, a high-net-worth business owner or corporate executive served by the Asset and Wealth Management Division sometimes has needs that can best be served by Wachovia Capital Markets specialists. When this occurs, the Asset and Wealth Management staff proactively works with the Capital Markets staff to achieve the needed coordination. Identifying opportunities to help customers migrate to a more appropriate level of service, and ensuring that the transition is smooth and rewarding for each customer, is a major commitment throughout Wachovia. This is an important way Wachovia demonstrates the brand promise of putting the customer's best interests first and builds long-term customer loyalty. In the process, value is created for Wachovia by seeing that customers are served in the most effective way. 18 - -------------------------------------------------------------------------------- Wachovia's integrated approach to wealth management delivers a full spectrum of critical financial disciplines. Extensive internal and external actions have been taken to build Wachovia's current position of strength. - -------------------------------------------------------------------------------- THE TRANSFORMATION: Paving The Way For Integrated Wealth Management Wachovia's approach to wealth management integrates critical financial disciplines, including estate planning, tax planning, insurance and risk management, traditional banking services, brokerage services, investment management and capital markets products. "While other financial service providers tout this holistic approach, few if any deliver it well," says Kniejski. "As a marketing philosophy, financial integration sounds logical and straightforward. In reality, it is extremely complex because it works against traditional organizational structures that delineate and compensate by product or business line." For Wachovia, the commitment to integrated wealth management has involved a comprehensive realignment of resources to achieve a team approach to client service within the Asset and Wealth Management Division, across other business lines, and beyond Wachovia when appropriate. This team approach has resulted in broad-based wealth integration networks to serve clients. Extensive internal and external actions have been taken to build Wachovia's current position of strength. o In 1995, Wachovia put in place the formal structure for an affluent division and, in 1996, adopted the financial integration/team approach as the foundation for its strategy. (Graphic appears here) 19 - -------------------------------------------------------------------------------- Wachovia uses a team approach to provide affluent clients access to a broad base of knowledge. Emphasis is on personalized relationships and tailored solutions. - -------------------------------------------------------------------------------- o That same year, Wachovia created the Private Financial Advisors (PFA) group to deliver financial integration to affluent customers. Customer analytics were used to identify clients to be served by PFA teams and to determine how best to serve each client based on relationship and potential. PFA sales teams were formed, each including financial advisors and advisors for specialties such as investments, insurance, personal trust, credit, mortgage, estate planning, philanthropy planning and business banking. Across Wachovia's home states, PFA teams now serve 43,000 clients, and sales results have been extraordinary. From 1997 to 1999, deposits rose by 19 percent; loans, 62 percent; estate planning, 69 percent; investment management, 90 percent; and insurance, 386 percent. o With the success of the PFA strategy, a similar approach was taken to serve Wachovia's high-net-worth clients who have greater than $10 million in assets. Using a team approach to provide clients access to a broad base of knowledge, Wachovia Wealth Strategy Advisors placed special emphasis on wealth transfer and tax strategies through personalized relationships and tailored solutions. o In April 1999, Wachovia acquired Interstate/ Johnson Lane (IJL), one of the largest full-service broker-dealers in the Southeast. The match with Wachovia was considered exceptional in terms of capabilities, geographic market, customer base and relationship orientation. Today, IJL Wachovia provides full-service brokerage through 62 offices and 450 financial consultants in Virginia, North Carolina, South Carolina and Georgia. (Graph appears here with the following information.) CLIENT Financial Advisor INSURANCE ADVISOR Banking/Credit o Brokerage Services o Tax Planning INVESTMENT MANAGEMENT ADVISOR TRUST ADVISOR Financial Planning o Business Services o Trusts ESTATE PLANNING ADVISOR Retirement Planning o Mortgage o Education Funding 20 (Photos of people appear here) In addition, its affiliate, CapTrust Financial Advisors, provides comprehensive investment consulting and portfolio management services to institutions and high-net-worth individuals through consulting directors. The IJL Wachovia network complements Wachovia's 150 branch-based investment consultants and self-directed services, Investments Direct. IJL Wachovia clients are gaining access to a broader range of capabilities through Wachovia's wealth management, trust, planning, credit and other banking services. Wachovia clients have the benefit of more investment options through IJL Wachovia. Studies show that 24 percent of affluent individuals think of full-service brokerage firms as their primary provider of financial services. IJL Wachovia's brokerage capabilities prepare Wachovia to capture a significantly larger share of affluent clients' investment business. o Mergers with OFFITBANK and Barry, Evans, Josephs & Snipes (BEJS) in September 1999 provided increased capabilities for serving high-net-worth individuals. OFFITBANK, a premier wealth management bank with offices in New York, San Francisco and Miami, serves clients in 36 states, Latin America, Europe and Asia. Approximately 60 percent of the company's relationships have $30 million or more in managed assets with the firm. OFFITBANK's expertise in fixed-income investment management complements Wachovia's capabilities in specialized lending, philanthropy management, personal trust and equity investment management. These four areas add immediate value to OFFITBANK's high-net-worth client base, while that client base brings important relationships to Wachovia. BEJS represents an ideal complement to the merger with OFFITBANK. A leading national life insurance broker, the firm specializes in designing and implementing wealth transfer strategies for affluent families and benefit plans for corporate executives. BEJS serves a national client base that includes many executives from Fortune 500 companies. (Graph appears here with the folowing plot points.) Deposits 19% Loans 62% Estate Planning 69% Investment Management 90% Insurance* 386% Private Financial Advisors Sales Performance Growth 1997-1999 *1998-1999 - -------------------------------------------------------------------------------- Mergers with Interstate/Johnson Lane, OFFITBANK and Barry, Evans, Josephs & Snipes have significantly increased capabilities and competencies offered by Wachovia Asset and Wealth Management. - -------------------------------------------------------------------------------- 21 (Photos of people appear here) o In 1999, Wachovia sold the master trust, institutional custody and other processing-intensive components of its Institutional Client Services business. This move allows Wachovia to focus on longstanding strengths as one of the nation's preeminent providers of employer-sponsored qualified and nonqualified plans, consulting, investment management and trustee services. Other specialties include innovative philanthropy management, custody and investment management services for foundations, endowments and affluent individuals. o In September 1999, the Asset and Wealth Management Division was formed, bringing under common leadership Wachovia's businesses that serve asset and wealth management needs of individuals, businesses, charitable organizations and other institutions. o Wachovia's family of mutual funds, the Wachovia Funds, continued strong performance and expan-sion, ending 1999 with more than $9.1 billion in assets among 11 equity and fixed income funds, four municipal bond funds and four money market funds. The Wachovia Balanced Fund and the Wachovia Equity Fund were notable performers for the year. The Personal Equity Fund, a new "tax-efficient" fund, was added during the year. The fund's goal is to seek growth of principal and income, while minimizing the impact of taxes on shareholder returns. Additional information about the Wachovia Funds is available at www.wachoviafunds.com. Wachovia has in place the skill and product capability for extended leadership in wealth management. Future initiatives are designed to accelerate growth, leverage strengths, refine business models and expand Wachovia's reach. - -------------------------------------------------------------------------------- Institutional Client Services focuses on asset management, employee benefits, executive services and charitable funds services for businesses, charitable organizations and other institutions. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Wachovia is one of the nation's preeminent providers of employer-sponsored qualified and nonqualified plans, consulting, investment management and trustee services. - -------------------------------------------------------------------------------- 22 - -------------------------------------------------------------------------------- Wachovia's strategy is to deliver comprehensive value not available from competing full-service brokerage companies and private banking/trust companies. - -------------------------------------------------------------------------------- THE DIFFERENTIATOR: Delivering In Ways That Work Best For The Client Wachovia's strategy is to deliver comprehensive value not available from competing providers, including full-service brokerage companies and private banking/trust companies. Wachovia's integrated approach encompasses both business models, as well as variations for niche client groups. Wachovia's brokerage model includes IJL Wachovia financial consultants and Wachovia investment consultants. Their clients primarily want investment-related services, although needs may extend to other areas of wealth management. Wachovia's private banking/trust model focuses on clients with more extensive wealth management needs. Private Financial Advisors teams serve clients in the $500,000 to $10 million segment; clients in the $10 million-plus segment are served by OFFITBANK in a team approach that includes BEJS and other high-wealth specialists. All teams are supported by the full spectrum of Wachovia resources. Both models leverage the same comprehensive set of products. Both are supported by Wachovia's emphasis on technology, reflected in a comprehensive customer information base and a strong and growing array of electronic services for clients, including Online Banking and Online Investing. (Graph appears here with the following information.) ORGANIZATIONAL ALIGNMENT Individuals Businesses Charitable Organizations Personal Financial Services Wachovia Securities o Private Financial Advisors o IJL Wachovia o OFFITBANK o Investment Consultants o BEJS o Investments Direct o Personal Trust o CapTrust o Insurance Services o Private Client Investment Services o Philanthropy Management o Affluent Client Services Institutional Client Services Asset Management o Charitable Funds Management o Investment Strategy o Employee Benefits o Portfolio Management o Executive Services o Wachovia Funds o Hunt, DuPree, Rhine o Alternative Investments 23 - -------------------------------------------------------------------------------- The excellent results achieved by Wachovia Private Financial Advisors teams provide an important foundation for expansion of the wealth management business. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Among priorities for 2000, Wachovia intends to expand OFFITBANK into a national wealth management provider by establishing offices in selected high-wealth markets. - -------------------------------------------------------------------------------- Distribution to institutional customers is channeled through Institutional Client Services. This area of longstanding leadership for Wachovia encompasses asset management, employee benefits, executive services and charitable funds services. Wachovia Asset Management and Wachovia Insurance develop products and portfolios distributed through all channels. The business models are adapted as needed to provide the optimal degree of relationship management and the most effective service delivery. In all cases, service is emphasized over structure. WHAT'S NEXT: Leveraging Strengths, Accelerating Growth With a solid framework in place, Wachovia is turning its attention to product and process initiatives that will strengthen and broaden the reach of Asset and Wealth Management. Special attention is being placed on integrating capabilities acquired through recent mergers. Wachovia plans to expand wealth management services nationally, and within home states to deploy resources to markets of highest opportunity. Internally, Wachovia will increase the use of wealth integration teams in which specialists work in partnerships across business lines. Numerous technology initiatives are under way to better use Wachovia's customer information base to reach affluent clients in ways that work well for them. Priorities for 2000 include: o Wachovia intends to expand OFFITBANK into a national wealth management provider by establishing offices in selected high-wealth markets. In Wachovia's home states, OFFITBANK offices will be added in Atlanta, Charlotte, Palm Beach, Winston-Salem and northern Virginia. Additional Wachovia capabilities will be added to the list of services provided to OFFITBANK clients. o Capitalizing on the BEJS merger, Wachovia will offer insurance-based solutions to many high-net-worth clients of Asset and Wealth Management and Corporate Financial Services while enhancing products and services that BEJS offers. o During 2000, the 120,000 households served by IJL Wachovia will gain access to Wachovia's full range of financial services. 24 (Photos of people appear here) o The excellent results achieved by Wachovia's Private Financial Advisors teams will provide an important foundation for expansion. Plans call for increasing the number of PFA teams to reach additional affluent households in Wachovia's home states. o Wachovia's formation of a Delaware trust in 1999 allows trusts to be structured in perpetuity, providing an additional tool for assisting clients with long-range planning and wealth transfer strategies. o Wachovia Asset Management initiatives are designed to build on current strengths by providing additional management styles, alternative investments and tax-efficient money management capabilities. These expanded offerings will complement the 19 Wachovia Funds managed by Asset Management. o Through Wachovia's new Private Manager Advisory Program, investment specialists on Wachovia's wealth management teams can offer a wider range of investment solutions to clients who prefer using a single advisor to coordinate financial assets but favor a multimanager approach for diversification. In addition to the Wachovia Funds, clients may choose from a group of select investment managers representing the best of class for nine identified styles, such as global and small-cap growth investing. o Planned enhancements in Institutional Client Services include customized charitable fund and donor reporting, innovative wealth replacement vehicles for charitable donors, and individually directed account investment options for 401(k) plan participants. Continuing to build on capabilities gained in the 1998 acquisition of Hunt, DuPree, Rhine and Associates, Wachovia will expand investment consulting for corporate plan sponsors. Increasingly, Institutional Client Services specialists link with other specialists throughout the company to deliver a full array of Wachovia capabilities to senior executives, managers and employees of corporate clients. (Photo of globe appears here) 25 - -------------------------------------------------------------------------------- Partnerships across business lines throughout Wachovia are producing innovative solutions to complex client needs and will remain an area of emphasis. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Wachovia was the first bank in the nation to have fully transactional banking and investing on its web site. Wachovia has more than 250,000 Online Banking customers and 23,000 Online Investing customers. - -------------------------------------------------------------------------------- Further value is added as these wealth integration teams assist companies in analyzing the structure, funding and timing of executive and employee wealth accumulation programs as well as the creation of charitable foundations, trusts and endowments to meet estate planning and philanthropic needs. o Partnerships across Wachovia business lines are producing innovative solutions to complex client needs. Examples include customized mortgages for high-net-worth individuals and the use of equity collars in combination with derivatives to address clients' liquidity concerns by facilitating lending against restricted and controlled stock. o Wachovia's heightened emphasis on eBusiness and accelerated investment in the Internet support the goal of using technology to deliver services in ways most convenient to the client. Wachovia has been named one of the best Internet banks in the nation by a number of professional journals and rating agencies, including Smart Money magazine, CNN and Money Line. The importance of the Internet was emphasized by Wachovia's recent establishment of an eBusiness Division under the leadership of Lawrence G. Baxter, executive vice president. Each line of business, including Asset and Wealth Management, (Graph appears here with the following information.) CLIENT Web-Enabled Technologies Web-Enabled Technologies Sales Team Digital Touch Points Client Service Center Web-Enabled Technologies Web-Enabled Technologies Web-Enabled Technologies o Imaging Centers o Customer Analysis o Legacy Systems - -------------------------------------------------------------------------------- Wachovia is using web-based technology to deliver services and information in ways most convenient to the client. - -------------------------------------------------------------------------------- 26 The high-net-worth segment is the fastest-growing Internet user. Recent studies report that 34 percent of affluent investors use the Internet, and 53 percent of self-directed investors conduct 75 percent of their trades on the Internet. Almost one-third of all online traders have six-figure salaries and nearly one-fifth hold at least a half-million dollars in securities. Information on Wachovia's comprehensive wealth management services can be accessed through Wachovia's Internet site at www.wachovia.com/wealth. Other Wachovia-related sites include www.offitbank.com, www.ijl.com and MacroWorld Research (www.mworld.com), a leading provider of financial news and economic data for investors. (Photo of a PC screen showing Wachovia's web page appears here.) - -------------------------------------------------------------------------------- will have additional Internet expertise. Objectives will include ensuring that the Internet experience is tailored to the needs and preferences of affluent and high-net-worth clients. o A number of enhancements are planned for Wachovia's web sites during 2000. Financial planning tools will be richer and more inter- active. Customers will experience a more personalized, convenient and transactional interface, supplementing and enhancing Wachovia's already popular Internet banking and investing services. o Other technology initiatives planned for 2000 build on Wachovia's customer information system. Web-based technology solutions link clients with the various delivery channels in Asset and Wealth Management and provide new architecture and support tools for sales teams. Wachovia has a comprehensive array of products and services to capture a larger share of the affluent market. Performance aspirations for 2000 include revenue and profit contribution growth in excess of 20 percent. 27 (Photos of people appear here) Standing Tall Among Standouts: Why Wachovia Will Succeed Obviously, Wachovia is not alone in recognizing the opportunity for success in serving the affluent. What gives Wachovia an edge as it commits to expanded leadership? The question is a popular one with interested observers who, increasingly, are taking note of Wachovia's strategic direction and performance. "Wachovia did its homework early on," Kniejski points out. "We had the analytical insight to understand this market and its changing needs. From that understanding came the vision and commitment to Wachovia's holistic approach." Wachovia's wealth management strategy represents an ideal fit with the company brand and culture. Wachovia relies on internal teamwork to achieve long-term customer satisfaction and loyalty. That is not true for all organizations, especially those whose structures inspire internal competition rather than cooperation. "Wachovia has demonstrated the ability to execute our wealth management strategy and provide extraordinary results," says Kniejski. "We have the resources to deliver on the promise. We have proven that we can and do draw from the full array of Wachovia's resources in a team approach that goes across organizational lines, and beyond, to meet clients' needs." Wachovia also has the advantage of location in geographic markets that are experiencing strong growth of affluent populations. At the same time, these markets are not well served by other wealth management providers. "We are truly in those markets," says Kniejski. "We are part of the life of our communities. The people there know Wachovia and believe in us and what we stand for. There is a base of trust that takes years to build and great effort to maintain." Wachovia's reputation has carried over to corporate and institutional clients in locations far from its home states, paving the way for extended leadership as a wealth management provider. Among individuals, businesses and institutions, Wachovia is known for long-term relationships that provide lifetime value for each client. People recognize and respond to this distinctive culture and to these ideals of serving customers. "That commitment and those characteristics differentiate Wachovia," adds Kniejski. "They are the reasons we have been successful as a wealth management provider and will be successful as we extend our leadership still further." - -------------------------------------------------------------------------------- Wachovia has the commitment and resources to understand the affluent market and to successfully deliver on its promise as a preeminent provider of wealth management services. - -------------------------------------------------------------------------------- 28 Management's Discussion and Analysis of Financial Condition and Results of Operations FINANCIAL SUMMARY TABLE 1 - -------------------------------------------------------------------------------------------- 1999 1998 1997 ----------- ----------- ----------- Summary of Operations (thousands, except per share data) Interest income .............................. $ 4,666,820 $ 4,665,245 $ 4,262,385 Interest expense ............................. 2,196,734 2,314,213 2,168,818 ----------- ----------- ----------- Net interest income .......................... 2,470,086 2,351,032 2,093,567 Provision for loan losses (1) ................ 298,105 299,480 264,949 ----------- ----------- ----------- Net interest income after provision for loan losses ................................. 2,171,981 2,051,552 1,828,618 Other operating revenue ...................... 1,610,123 1,228,119 1,005,768 Gain on sale of mortgage servicing portfolio ................................... ---- ---- ---- Securities gains (losses) (2) ................ 10,894 20,442 1,454 ----------- ----------- ----------- Total other income ........................... 1,621,017 1,248,561 1,007,222 Personnel expense ............................ 1,220,286 1,055,353 905,157 Nonrecurring charges (3) ..................... 19,309 85,312 287,532 Other expense ................................ 1,011,030 855,667 774,032 ----------- ----------- ----------- Total other expense .......................... 2,250,625 1,996,332 1,966,721 Income before income tax expense ............. 1,542,373 1,303,781 869,119 Income tax expense ........................... 531,152 429,611 276,313 ----------- ----------- ----------- Net income (4) ............................... $ 1,011,221 $ 874,170 $ 592,806 =========== =========== =========== Net income per common share: Basic ....................................... $ 4.99 $ 4.26 $ 2.99 Diluted (4) ................................. $ 4.90 $ 4.18 $ 2.94 Cash dividends paid per common share (5) ................................... $ 2.06 $ 1.86 $ 1.68 Cash dividends paid on common stock (6) ................................... $ 418,447 $ 381,798 $ 327,303 Cash dividend payout ratio (6) ............... 41.4 % 43.7 % 55.2 % Average basic shares outstanding ............. 202,795 205,058 198,290 Average diluted shares outstanding ........... 206,192 209,153 201,901 SELECTED AVERAGE BALANCES (millions) Total assets ................................. $ 65,420 $ 63,949 $ 57,607 Loans -- net of unearned income .............. 47,223 44,401 39,716 Securities ................................... 9,340 10,582 10,793 Other interest-earning assets ................ 1,553 1,579 1,446 Total interest-earning assets ................ 58,116 56,562 51,955 Interest-bearing deposits .................... 32,325 32,011 29,582 Short-term borrowed funds .................... 9,401 10,895 8,987 Long-term debt ............................... 8,134 6,279 6,122 Total interest-bearing liabilities ........... 49,860 49,185 44,691 Noninterest-bearing deposits ................. 8,255 7,803 6,934 Total deposits ............................... 40,580 39,814 36,516 Shareholders' equity ......................... 5,430 5,168 4,533 RATIOS (averages) Net loan losses to loans ..................... .62% .67% .67% Net yield on interest-earning assets ......... 4.32 4.24 4.14 Shareholders' equity to: Total assets ................................ 8.30 8.08 7.87 Net loans ................................... 11.63 11.78 11.57 Return on assets (7) ......................... 1.55 1.37 1.03 Return on shareholders' equity (7) ........... 18.62 16.92 13.08
Five-Year Compound 1996 1995 1994 Growth Rate ----------- ---------- ---------- ----------- SUMMARY OF OPERATIONS (thousands, except per share data) Interest income .............................. $ 4,009,508 $3,790,110 $3,025,654 9.1% Interest expense ............................. 2,085,771 2,011,155 1,369,006 9.9 ----------- ---------- ---------- Net interest income .......................... 1,923,737 1,778,955 1,656,648 8.3 Provision for loan losses (1) ................ 193,776 130,504 96,122 25.4 ----------- ---------- ---------- Net interest income after provision for loan losses ................................. 1,729,961 1,648,451 1,560,526 6.8 Other operating revenue ...................... 874,732 757,115 690,099 18.5 Gain on sale of mortgage servicing portfolio ................................... ---- 79,025 ---- Securities gains (losses) (2) ................ 4,588 (19,672) (21,972) ----------- ---------- ---------- Total other income ........................... 879,320 816,468 668,127 19.4 Personnel expense ............................ 796,932 733,790 691,512 12.0 Nonrecurring charges (3) ..................... ---- ---- ---- Other expense ................................ 712,041 707,839 651,739 9.2 ----------- ---------- ---------- Total other expense .......................... 1,508,973 1,441,629 1,343,251 10.9 Income before income tax expense ............. 1,100,308 1,023,290 885,402 11.7 Income tax expense ........................... 343,049 315,377 261,480 15.2 ----------- ---------- ---------- Net income (4) ............................... $ 757,259 $ 707,913 $ 623,922 10.1 =========== ========== ========== Net income per common share: Basic ....................................... $ 3.70 $ 3.40 $ 3.00 10.7 Diluted (4) ................................. $ 3.65 $ 3.36 $ 2.96 10.6 Cash dividends paid per common share (5) ................................... $ 1.52 $ 1.38 $ 1.23 10.9 Cash dividends paid on common stock (6) ................................... $ 305,740 $ 282,517 $ 254,397 10.5 Cash dividend payout ratio (6) ............... 40.4 % 39.9 % 40.8 % Average basic shares outstanding ............. 204,889 208,230 208,117 ( .5) Average diluted shares outstanding ........... 207,432 210,600 210,651 ( .4) SELECTED AVERAGE BALANCES (millions) Total assets ................................. $ 55,584 $ 51,703 $ 46,542 7.0 Loans -- net of unearned income .............. 36,739 33,510 29,533 9.8 Securities ................................... 11,876 11,977 11,238 (3.6) Other interest-earning assets ................ 1,629 1,257 1,025 8.7 Total interest-earning assets ................ 50,244 46,744 41,796 6.8 Interest-bearing deposits .................... 27,609 25,601 22,847 7.2 Short-term borrowed funds .................... 9,018 8,860 7,369 5.0 Long-term debt ............................... 6,693 5,695 5,154 9.6 Total interest-bearing liabilities ........... 43,320 40,156 35,370 7.1 Noninterest-bearing deposits ................. 6,491 6,234 6,292 5.6 Total deposits ............................... 34,100 31,835 29,139 6.8 Shareholders' equity ......................... 4,458 4,164 3,812 7.3 RATIOS (averages) Net loan losses to loans ..................... .53% .38% .30% Net yield on interest-earning assets ......... 3.98 4.04 4.23 Shareholders' equity to: Total assets ................................ 8.02 8.05 8.19 Net loans ................................... 12.31 12.62 13.14 Return on assets (7) ......................... 1.36 1.37 1.34 Return on shareholders' equity (7) ........... 16.99 17.00 16.37
(1) Includes $10,845 in nonrecurring merger-related provision in 1997 to align the practices of the merged entities with those of the corporation. (2) Includes $4,639 of nonrecurring losses to restructure the available-for-sale portfolio in 1997. (3) Nonrecurring charges in 1999, 1998 and 1997 include merger-related items of $19,309, $85,312 and $220,330, respectively and a personal computer hardware and software disposal charge of $67,202 in 1997. (4) Net income excluding the effect of nonrecurring items was $1,023,855, $929,847 and $799,929 for 1999, 1998 and 1997, respectively. Net income per diluted share excluding the effect of nonrecurring items was $4.97, $4.45 and $3.96 for 1999, 1998 and 1997, respectively. (5) Cash dividends per common share are those of Wachovia Corporation paid prior to merger with Central Fidelity Banks, Inc. (6) Includes amounts of pooled companies. (7) Excluding the after-tax impact of nonrecurring charges of $12,634, $55,677 and $207,123, returns were 1.57%, 1.45% and 1.39% on assets and 18.85%, 17.99% and 17.65% on shareholders' equity for 1999, 1998 and 1997, respectively. 29 -------------------------- Results of Operations ----------------------------------------------------------------- 1999 vs. 1998 The U.S. economy rose at a moderately strong pace in 1999, OVERVIEW continuing its ninth successive year of Overview expansion. Gross domestic product rose 4.0 percent, based on preliminary data. Economic expansion continued amidst growing concerns about higher levels of inflation, record amounts of consumer indebtedness and tight labor markets. These concerns prompted the Federal Reserve to raise short-term interest rates a quarter of a percentage point in June, August and November of 1999 and again in February 2000. Based on preliminary data, the nation's average unemployment rate fell to 4.2 percent from 4.5 percent in 1998. Economic conditions within Wachovia's five-state operating area remained generally strong, with unemployment averaging approximately 3.5 percent. Wachovia continues to broaden its competitive position by gaining access to new customers and by enhancing products and services through internal development and selective acquisitions and partnerships. Management has pursued a variety of initiatives as part of this strategy. Wachovia completed its acquisition of OFFITBANK Holdings Inc. ("OFFITBANK"), on September 1, 1999 and of Barry, Evans, Josephs & Snipes, Inc. ("BEJS"), on September 2. These transactions followed the acquisition on April 1, 1999 of Interstate/Johnson Lane Inc. ("IJL"), a major regional investment advisor and brokerage firm that subsequently merged with, and became part of, Wachovia Securities, Inc. All three acquisitions strengthen Wachovia's wealth advisory and capital markets capabilities and were accounted for as purchases. Under purchase accounting, the excess of purchase price over the fair value of net assets acquired is recorded as goodwill, and operating results of the acquired companies are included beginning with the effective date of each transaction. The corporation announced on October 7, 1999 an agreement to acquire B C Bankshares, Inc., parent company of the Bank of Canton, a community bank with approximately $400 million in assets based in Cherokee County, Georgia, one of the fastest-growing counties in the metropolitan Atlanta area. In addition, on December 22, 1999, Wachovia announced its agreement to purchase a majority of the credit card business of Partners First Holdings LLC ("Partners First"). The Partners First credit card business will bring an additional 1.2 million customers and managed receivables of approximately $2 billion to Wachovia. Both transactions were consummated early during the first quarter of 2000 and will be accounted for as purchase business combinations. The transactions will result in goodwill and purchased credit card intangibles of approximately $97 million and $230 million, respectively. Wachovia's growth strategy may include the use of strategic acquisitions, and it regularly evaluates opportunities and conducts due diligence activities in connection with possible transactions. As a result, discussions and, in some cases, negotiations may take place and future acquisitions involving cash, debt or equity securities may occur. These typically involve the payment of a premium over book value, and, therefore, some dilution of book value and net income per share may occur in connection with any future transactions. Wachovia's net income for 1999 totaled $1.011 billion or $4.90 per diluted share compared with $874 million or $4.18 per diluted share in 1998. Results for both years included nonrecurring charges, which totaled $19 million pretax in 1999 and $85 million pretax in 1998 for merger-related expenses. Excluding the after-tax impact of nonrecurring charges, net income on an operating basis was $1.024 billion or $4.97 per diluted share in 1999 versus $930 million or $4.45 per diluted share in 1998. 30 (Graph appears here with the following plot points.) NET INCOME PER SHARE (DILUTED) 1994 1995 1996 1997 1998 1999 2.96 3.36 3.65 2.94* 4.18* 4.90* *EXCLUDING NONRECURRING ITEMS, NET INCOME PER DILUTED SHARE WAS $3.96 IN 1997, $4.45 IN 1998 AND $4.97 IN 1999. (Graph appears here with the following plot points.) NET INCOME (MILLIONS) 1994 1995 1996 1997 1998 1999 623.9 707.9 757.3 592.8* 874.2* 1,011.2* *EXCLUDING NONRECURRING ITEMS, NET INCOME WAS $799.9 MILLION IN 1997, $929.8 MILLION IN 1998 AND $1,023.9 MILLION IN 1999. The corporation's operating results for the year reflected strong revenue growth, with total revenues rising $495 million or 13.6 percent to $4.121 billion. Increases occurred in both net interest income and fee-generating businesses as Wachovia's strategies and growth initiatives continued to generate strong revenue momentum. Credit losses abated slightly for the year due to favorable conditions in the credit card portfolio and as a result of the credit card securitization transactions. Wachovia continues to initiate technology enhancements that are expected to moderate expense growth going forward. Expanded discussion of Wachovia's operating results and financial condition is presented in the following narrative with accompanying tables and charts. Interest income is stated on a taxable equivalent basis, which is adjusted for the tax-favored status of earnings from certain loans and securities. References to changes in assets and liabilities represent daily averages unless otherwise noted. Forward-looking statements exclude the effects of business combination transactions that have occurred or may take place in 2000. The narrative should be read in conjunction with the Consolidated Financial Statements and Notes on pages 73 through 93. Expanded six-year financial data appears on pages 94 through 99. Business Segments Wachovia has five reportable business segments: Asset and Wealth Management, Corporate, Credit Card, Consumer and Treasury & Administration. Business segment results are reported on a management accounting basis. Management accounting practices are driven internally. They reflect evolving information needs specific to a company's business managers and may differ by company due to wide discretion in application. As a consequence, Wachovia's business segment results are not necessarily comparable with those of other financial institutions with similar segments or with those of other companies that compete directly in one or more of its lines of business. In addition, business segment results may be restated in the future as Wachovia's management structure, information needs or reporting systems evolve. Several changes were made in the management accounting structure in 1999 that have been reflected for all periods. As a result of management reorganizations and strategic investments made during the year, a new reportable segment focusing on Asset and Wealth Management has been formed. Asset and Wealth Management financial information has been reclassified from that previously reported in Consumer and Corporate. In addition, the Credit Card segment is reflected on a managed basis, with the funding impact and the gain on the sale of the securitized portfolio reflected in Treasury & Administration. The provision for loan losses is charged to each business segment based on the credit risk of each segment's loan portfolio. Overhead expense is allocated based on the proportion of each segment's direct 31 expenses to total direct expenses of the combined segments. Income tax expense is calculated for each business segment with a blended corporate-wide tax rate. This rate is adjusted as applicable for the assumed tax effect of tax-exempt income and nondeductible intangible amortization expense. Footnote C of the Consolidated Financial Statements provides additional information on business segment accounting policies and on items reconciling segment results to consolidated results. Financial results by business segment are discussed below. ASSET AND WEALTH MANAGEMENT Asset and Wealth Management focuses on providing integrated financial services to the affluent marketManagement place. During 1999, Wachovia made three acquisitions to advance this strategy. In April, Wachovia acquired IJL, a full-service brokerage firm with 62 offices throughout Virginia, North Carolina, South Carolina and Georgia. In September, Wachovia completed its acquisition of OFFITBANK, a New York-based wealth management company, and BEJS, a leading Charlotte, North Carolina-based life insurance broker specializing in wealth transfer and benefit plan programs. Also in the third quarter, Wachovia sold its master trust and institutional custody business in order to focus on other business areas. Including securities held in brokerage accounts with Wachovia Securities and Wachovia Investments, and trust assets held in custody, Asset and Wealth Management administers more than $165 billion in customer assets with the amount under discretionary management exceeding $50 billion. PRODUCTS AND SERVICES. Asset and Wealth Management serves clients' wealth creation objectives by delivering innovative, tailored products and services through a variety of channels. The Private Financial Advisors group provides fully integrated financial solutions individually designed for affluent consumers. A full range of products is offered, including banking and credit services, tax planning and consulting, trust services, portfolio management, estate planning, investment counseling and insurance. OFFITBANK and BEJS provide wealth management and specialized investment and insurance products for the high-end of the affluent market. Wachovia's brokerage business offers customers a wide variety of services. IJL Wachovia's (a division of Wachovia Securities) 450 financial consultants are full-service brokers, and Wachovia's 150 branch-based investment consultants offer individuals and businesses access to a complete array of investment products, including the Wachovia Funds. Customers making their own investment decisions can trade through Wachovia Investments Direct using a broker, a touch-tone service or the Internet. In addition to managing the Wachovia Funds, the Asset Management Group provides investment strategies and portfolio management for both individuals and institutions. Institutional Client Services provides asset management, employee benefit services and philanthropy management services to businesses, individuals and foundations. Institutional Client Services also offers retirement services for both plan sponsors and their participants and charitable fund products that enable both individuals and organizations to accomplish their donation objectives. Executive Services is a nationally recognized leader in providing retirement and wealth accumulation products for high-net-worth individuals. It also provides change-of-control and employee benefit protection services to client management teams. INDUSTRY DYNAMICS AND STRATEGY. Wachovia believes the current marketplace is underserved with few national brands and fragmented competition. Within Wachovia's five-state footprint, households are growing 50 percent faster than the national average, and over the next five years, the subset of affluent households is expected to grow substantially. These factors combine to create an attractive market opportunity. Market volatility and the projected need for intergenerational wealth transfer capabilities also will drive demand. 32 Asset and Wealth Management's market presence, brand names and strategic focus, position it to take unique advantage of this environment. In addition to an enviable position in a fast-growing market, Wachovia enjoys a reputation as a trusted and solutions-oriented financial partner. The three strategic acquisitions completed in 1999 allow this business segment to increase its product offerings, leverage existing services and expand distribution channels. In addition, close coordination with Wachovia's Consumer and Corporate business segments creates a continuous pipeline of customers. As retail customers migrate over time to fit the affluent profile, they are offered wealth management products that better serve their changing needs. Corporate identifies potential customers for asset management, retirement plans and executive or charitable funds services. ASSET AND WEALTH MANAGEMENT Table 2 - -------------------------------------------------------------------------------- (Thousands) Variance Variance 1999 1998 Amount Percent ----------- ----------- --------- ---------- Net interest margin ............... $ 143,357 $ 112,255 $ 31,102 27.7 Provision for loan losses ......... 790 1,544 (754) (48.8) Total other income ................ 485,554 285,493 200,061 70.1 Total expenses .................... 495,634 302,760 192,874 63.7 ----------- ----------- --------- Pretax income ..................... $ 132,487 $ 93,444 $ 39,043 41.8 =========== =========== ========= Average total assets .............. $2,928,541 $2,471,775 $ 456,766 18.5
FINANCIAL RESULTS. Compared with 1998, pretax profit contribution rose 42 percent. The net interest margin was up 28 percent from strong loan and deposit growth in the Private Banking and Trust areas. A substantial portion of other income growth resulted from the 1999 acquisitions. Investment and trading income topped $223 million, up 268 percent, reflecting the addition of IJL and OFFITBANK. Nine months of IJL revenue contributed 62 percent of the year's total investment-related income, while four months of OFFITBANK revenue accounted for 6 percent. Insurance revenue at $24 million grew 68 percent, with BEJS accounting for more than a third of the increase. Staff expense, again impacted by the acquisitions, was the major factor in the 64 percent increase in total noninterest expense. Excluding the impact of the acquisitions, the business produced solid profit growth. Net interest margin increased 23 percent, and other income grew 14 percent, while expense growth held at 3 percent. Private Banking loan initiatives and strong growth in trust balances contributed to the higher margin. The Wachovia investment and insurance areas led other income growth at 17 percent and 30 percent, respectively. CORPORATE Corporate aims to be the preferred provider of services to targeted corporate clients through comprehen sive relationship management. To achieve this goal, it works to know its customers better than the competition; anticipate customer needs and provide innovative solutions; invest in what matters most to customers; align products, services and delivery channels with customer needs; and serve customers through insightful, trusted professionals. PRODUCTS AND SERVICES. Through this integrated relationship approach, Corporate provides a comprehensive array of capital solutions, strategic consulting, and risk management services to public and private companies of all sizes across the Southeast, the nation and the world. Wachovia has long been a leading provider of credit services, skillfully helping companies assess and solve their credit-related needs. While remaining a trusted lender, Corporate has expanded its product set beyond senior debt to become a distinctive provider of capital and financial advisory services. These capabilities were further strengthened in 1999 by the acquisition of IJL which doubled the number of investment banking professionals; added equity research, sales and trading; expanded its fixed-income distribution capacity; and resulted in the formation of Wachovia Securities, Inc. (WSI). This Section 20 securities subsidiary has full Tier I and Tier II powers to underwrite and deal in all types of corporate debt and equities. WSI is a member of the 33 NYSE, regional exchanges and the NASD, publishes equity research on an expanding list of approximately 150 companies, and makes a market in more than 180 stocks. In addition, Corporate remains a leading provider of treasury consulting and cash management solutions for companies of all sizes. The Treasury Services group consistently is cited for superior quality of service, technology and operations performance. In the 1999 Large Corporate Cash Management Consortium Study, Wachovia Treasury Services placed first in overall customer satisfaction and first or second in thirteen of the fifteen categories measured. Industry Dynamics and Strategy. In an intensely competitive environment, Corporate has maintained an enviable market position, with a strong share in the Southeast and a top ten share in the U.S. large corporate market. Looking ahead, convergence in the financial services industry will entail a wholesale transformation of the competitive landscape, driven by dramatic change in client attitudes and behaviors. The pace of this transformation is quickening, in part because of rapid developments in technology and communications. To succeed in this environment, Corporate will segment the market to best align its sales approach, service model and product development priorities with customer requirements, and segment profitability and growth potential. As a result, Corporate increasingly is complementing its traditional market-based segmentation with needs-based segmentation where more specialization is appropriate. Examples of segment specialization include Commercial Real Estate, the Emerging Growth and Technology Group, the Communications Group, Leveraged Finance, Sales Finance, Aircraft Finance, Government Contract Finance and Financial Institutions. Based on the attractiveness of Wachovia's Southeastern U.S. home markets, its strong national presence, targeted emphasis on global growth markets and focused alignment with the customer through market- or needs-based segmentation, Wachovia believes the market opportunity is significant. CORPORATE Table 3 - -------------------------------------------------------------------------------- (Thousands) Variance Variance 1999 1998 Amount Percent ------------ ------------ ---------- --------- Net interest margin ............... $ 1,018,320 $ 840,719 $ 177,601 21.1 Provision for loan losses ......... 58,511 19,698 38,813 197.0 Total other income ................ 404,680 325,693 78,987 24.3 Total expenses .................... 639,462 547,704 91,758 16.8 ------------ ------------ ---------- Pretax income ..................... $ 725,027 $ 599,010 $ 126,017 21.0 ============ ============ ========== Average total assets .............. $34,482,234 $31,319,697 $3,162,537 10.1
FINANCIAL RESULTS. Corporate recorded excellent results in 1999, lifting pretax profit by 21 percent. Net interest margin increased $178 million or 21.1 percent. Approximately two-thirds of this margin growth was attributable to a 15 percent ($4 billion) increase in loan balances, driven by significant activity in the large corporate, commercial real estate and leasing areas. The loan loss provision increased $39 million, primarily because of a few isolated credits in the large corporate portfolio. These problem credits were identified early and are being managed appropriately. Other income was up 24.3 percent, reflecting increased service charges and strong performance in the core Capital Markets businesses, including loan syndications and asset-backed finance, as well as the inclusion of IJL for nine months. While the net interest margin will remain a key component of overall performance, Corporate will continue to emphasize the development and delivery of a full range of higher-margin, fee-based products consistent with its expanded capabilities. Noninterest expense increased 16.8 percent, largely due to the added expense base of IJL. CREDIT CARD Credit Card's mission is to be the preferred credit card issuer for creditworthy consumers, offering the best value on a combined rate and fee package and providing excellent customer service. Credit Card manages a $6.6 billion credit card portfolio, including securitized assets of $1.9 billion. In December 1999, Credit 34 Card announced the acquisition of an approximately $2 billion portfolio from Partners First. This transaction was consummated in the first quarter of 2000, making Credit Card the tenth largest Visa/MasterCard issuer in the U.S. PRODUCTS AND SERVICES. The Credit Card business segment is a full-service provider of consumer and business credit cards and merchant acquirer services. Products include VISA Classic, Gold and Platinum; MasterCard Classic, Gold and Platinum; and Merchant Acquirer Services. Credit Card manages all components of consumer credit card processing in-house, including credit underwriting, marketing, account management, transaction processing, card production, statement rendering, payment processing, customer service and collections. For business card products, an outside vendor supplies transaction processing, card production and statement rendering. INDUSTRY DYNAMICS AND STRATEGY. The Credit Card business operates in a highly competitive, concentrated environment. The top ten issuers of general purpose credit cards hold approximately 75 percent of the industry's outstandings. As a result, the tight competition mandates emphasis on scale to maintain profitability. Scalability and integrated business processes driven around an information-based optimization model have been the keys to Credit Card's success. In this environment, Credit Card's strategy focuses on serving the above-average credit quality customers who carry higher-than-average loan balances. To facilitate constant adjustment to changes in the marketplace, teams combining the disciplines of credit, marketing, analytics and operations drive the key processes of acquisitions, delinquency management and portfolio maximization. To optimize the lifetime value of each cardholder, Credit Card manages all aspects of cardholder behavior, including credit lines, usage stimulation, retention, charge-offs and fraud. Credit Card invests heavily in cross-selling to the Consumer customer base. As cardholders, these franchise customers prove to be highly profitable, primarily the result of low attrition and low credit losses. Credit Card also seeks attractively priced opportunities to acquire entire card portfolios in order to leverage its investment in technology, credit management, modeling and cardholder usage management. Approximately 800,000 or 38 percent of active credit card accounts reside in Wachovia's five-state Southeastern footprint. CREDIT CARD Table 4 - -------------------------------------------------------------------------------- (Thousands) Variance Variance 1999 1998 Amount Percent ---------- ---------- ------ --------- Net interest margin ............... $ 536,253 $ 498,028 $ 38,225 7.7 Provision for loan losses ......... 256,598 276,765 (20,167) (7.3) Total other income ................ 168,782 148,442 20,340 13.7 Total expenses .................... 212,222 207,528 4,694 2.3 ----------- ----------- --------- Pretax income ..................... $ 236,215 $ 162,177 $ 74,038 45.7 =========== =========== ========= Average total assets .............. $6,283,549 $6,095,313 $ 188,236 3.1
FINANCIAL RESULTS. Pretax profit rose sharply in 1999, up 45.7 percent as a result of lower loan losses and higher fee revenue. Net interest margin grew 7.7 percent due to loan growth, partially offset by tighter spreads in the rising rate environment during the last half of 1999. Average total managed loans grew 2.9 percent, largely due to the acquisition of a $269 million portfolio in September 1998. The loan loss provision declined 7.3 percent as a result of reduced bankruptcies and contractual charge-offs. Noninterest income increased 13.7 percent. The continued U.S. economic expansion spurred healthy consumer spending, resulting in strong interchange income from higher purchase volume, as well as higher overlimit fees and merchant income. Total expense grew a modest 2.3 percent, reflecting decreased fraud losses, minimal increase in staff expense due to scale and technological efficiencies, and internal cost control initiatives. 35 CONSUMER Consumer seeks to develop customer relationships for the greatest lifetime value, rigorously manage the cost of the sales and service network and capitalize on the digital economy. It targets consumers, worksite groups and small businesses throughout the Southeast, offering a broad array of attractively priced products and a superior customer experience. Consumer's contribution to the entire Wachovia enterprise cannot be measured entirely by its profit contribution since its customer base and the impact of its branch network are fundamental to the success of all Wachovia business segments. PRODUCTS AND SERVICES. Consumer provides the more traditional retail banking services, including mortgage lending, deposit products and consumer loans, as well as services for the small business market. It also offers access to investment and insurance products. Delivery channels include 712 traditional in-store branches and worksite centers, 1,355 ATMs and 33 kiosks, supported by four automated phone centers. Wachovia is the ninth largest debit card issuer, indicative of growing consumer acceptance of this electronic capability. Campus card programs provide card-based banking access to more than 120,000 students and faculty, and Wachovia At Work serves consumers in more than 3,000 companies. The Internet is growing in importance as a delivery channel with 14 percent of Wachovia's demand deposit customers connected via Internet banking. Wachovia's Internet site, www.wachovia.com, serves as a financial portal with full transaction capability enriched with relevant financial news. During 1999, the site was enhanced to support all consumer credit transaction activities and insurance services. INDUSTRY DYNAMICS AND STRATEGY. Consumer's marketplace covers Wachovia's fast-growing home states. Currently, Consumer serves more than 3.5 million consumers and approximately 200,000 small business customers. Sixty-two percent of Wachovia's deposits are in large, high-growth metropolitan areas. Today's banking customers demand a wide range of products, superior service and low cost. Consumer's strategy is to target profitable customers and utilize sophisticated modeling techniques to identify the customers' needs in order to achieve alignment between their financial needs, service expectations and price. Specific initiatives to implement this strategy include: PROFITABLE RELATIONSHIP OPTIMIZATION (PRO). Desktop technology connects to robust data warehouses that analyze customer information and anticipate the next likely desired service. This technology is combined with solution-selling skills by 125 Personal Financial Advisors to serve more than 400,000 high-potential households. Experience with customers served utilizing PRO, results in enhanced financial performance and customer retention. Wachovia At Work and Campus Banking Programs. These strategies involve deploying Wachovia products and services through employers and universities to provide valuable access to employees and students. MARKET NETWORK STRATEGY. Network optimization models provide an analytical framework to reduce branch network expenses, while at the same time maximizing customer points of presence. In the midst of branch consolidation, customer migration programs and sales productivity focus, executed through regional market management, have lifted financial performance. The new eBusiness Division provides corporate-wide eBusiness strategic planning, leadership and operational management. Advances in technology are rapidly transforming the financial services industry. The eBusiness Division is responsible for exploring and driving new eBusiness endeavors for consumer, business-to-business and corporate markets. Current initiatives include major platform enhancements, smart cards, wireless access, secure electronic commerce, electronic bill payment and presentment, and the development of online financial tools and portfolio management products and services. 36 Consumer Table 5 - -------------------------------------------------------------------------------- (Thousands) Variance Variance 1999 1998 Amount Percent ----------- ------------ --------- --------- Net interest margin ............... $ 931,776 $ 938,569 $ (6,793) ( .7) Provision for loan losses ......... 15,079 13,916 1,163 8.4 Total other income ................ 424,577 389,339 35,238 9.1 Total expenses .................... 895,946 901,706 (5,760) ( .6) ----------- ------------ --------- Pretax income ..................... $ 445,328 $ 412,286 $ 33,042 8.0 =========== ============ ========= Average total assets .............. $9,779,241 $10,254,873 ($ 475,632) (4.6)
FINANCIAL RESULTS. Consumer's pretax profit contribution increased 8 percent from the prior year. The net interest margin was .7 percent lower caused by a 4.2 percent decrease in loans. Deposit volumes held well through the 1999 year-end. Marketing campaigns assured customers that "We are ready" for the Year 2000 event, and new CD products were offered at advantageous spreads that attracted approximately $600 million of deposit funding for 7 and 29 months. Total other income increased 9.1 percent to $425 million. Deposit account fee revenue was up 7.9 percent as a result of new pricing strategies. Electronic banking revenues grew 24.4 percent, driven by ATM and debit card revenues. The number of debit cards outstanding increased 8 percent, and volume usage was up 20 percent as consumers continue to recognize the card's convenience. Offsetting these increases were lower gains on the sale of branches, totaling $8 million in 1999 compared with $17 million in 1998. In addition, mortgage fee income decreased $9 million, due to a decline in mortgage loan origination activity caused by higher interest rates. Rising interest rates slowed refinancing activity and resulted in the consumer's shift to adjustable-rate mortgages, which are generally retained on the balance sheet. Although this shift results in reduced fee income, it adds to interest-earning assets and, therefore, to future revenue. Total expenses held level with the prior year. Improvement in staff expense, advertising and marketing, and net operating losses were offset by higher occupancy, equipment, systems and operating costs. Treasury & Administration The Treasury & Administration segment principally reflects asset and liability management for interest rate risk, management of the securities portfolio, internal compensation for funding sources and charges for funds used. It also includes other corporate costs such as Year 2000 costs and nonrecurring expenses. TREASURY & ADMINISTRATION Table 6 - -------------------------------------------------------------------------------- (Thousands) Variance Variance 1999 1998 Amount Percent ------------- ------------- ----------- -------- Net interest margin ............... $ (56,029) $ 76,438 $ (132,467) (173.3) Provision for loan losses ......... (32,873) (12,443) (20,430) 164.2 Total other income ................ 137,424 99,594 37,830 38.0 Total expenses .................... 70,466 104,737 (34,271) ( 32.7) ------------- ------------- ----------- Pretax income ..................... $ 43,802 $ 83,738 $ (39,936) ( 47.7) ============= ============= =========== Average total assets .............. $11,946,693 $13,806,877 ($ 1,860,184) ( 13.5)
FINANCIAL RESULTS. Pretax income for 1999 declined from 1998 by $40 million, to a level of $44 million. The net interest margin dropped $132 million, indicative of a decrease in interest-earning assets of $1.769 billion, largely in the securities portfolio, which saw a reduction in balances of $1.242 billion. Also over the year, short-term borrowed funds fell $1.494 billion, while long-term debt rose $1.855 billion. Noninterest income for the year grew $38 million or 38 percent, driven principally by gains on two credit card securitization transactions during 1999, offset by reductions in securities gains of $10 million. Noninterest expense decreased $34 million, due to a decline in merger-related expenses of $66 million offset by increases in professional services, equipment expense, and outside data processing, programming and software charges. 37 Taxable Equivalent Rate/Volume Analysis -- Year* Table 7 - -------------------------------------------------------------------------------- Average Volume Average Rate -------------------- -------------------- 1999 1998 1999 1998 -------- ---- -------- ---- (Millions) INTEREST INCOME Loans: Commercial .................................... $15,751 $14,023 7.25 7.21 Tax-exempt .................................... 808 1,219 9.79 9.24 -------- ------- Total commercial ............................ 16,559 15,242 7.37 7.37 Direct retail .................................... 1,064 1,143 8.63 9.39 Indirect retail .................................. 3,482 3,091 7.89 8.27 Credit card ...................................... 5,040 5,680 13.44 13.46 Other revolving credit ........................... 589 498 10.93 11.18 -------- ------- Total retail ................................ 10,175 10,412 10.89 11.36 Construction ..................................... 2,193 1,893 8.54 9.00 Commercial mortgages ............................. 7,324 6,813 8.11 8.58 Residential mortgages ............................ 7,421 7,808 7.77 7.92 -------- ------- Total real estate ........................... 16,938 16,514 8.02 8.31 Lease financing .................................. 2,266 1,429 11.07 11.63 Foreign .......................................... 1,285 804 6.56 6.85 -------- ------- Total loans ................................. 47,223 44,401 8.52 8.79 Securities: Held-to-maturity: U.S. Government and agency ................... 604 381 6.12 6.10 Mortgage-backed .............................. 489 800 8.22 8.30 State and municipal .......................... 168 194 9.93 10.92 Other ........................................ 58 101 6.76 6.67 -------- ------- Total held-to-maturity ...................... 1,319 1,476 7.41 7.97 Available-for-sale:** U.S. Government and agency ................... 3,410 4,010 6.40 6.68 Mortgage-backed .............................. 4,044 4,424 6.36 6.65 Other ........................................ 567 672 7.42 7.04 -------- ------- Total available-for-sale .................... 8,021 9,106 6.45 6.69 -------- ------- Total securities ............................ 9,340 10,582 6.58 6.87 Interest-bearing bank balances ................... 118 157 6.25 8.26 Federal funds sold and securities purchased under resale agreements ........................ 606 467 5.07 5.52 Trading account assets ........................... 829 955 3.88 4.76 -------- ------- Total interest-earning assets ............... $58,116 $56,562 8.10 8.33 ======== ======= INTEREST EXPENSE Interest-bearing demand .......................... $ 4,657 $ 4,984 1.25 1.29 Savings and money market savings ................. 13,339 11,604 3.58 3.89 Savings certificates ............................. 8,765 9,943 5.11 5.46 Large denomination certificates .................. 3,318 3,051 5.20 5.42 -------- ------- Total interest-bearing deposits in domestic offices ........................... 30,079 29,582 3.84 4.14 Interest-bearing deposits in foreign offices ..... 2,246 2,429 4.86 5.59 -------- ------- Total interest-bearing deposits ............. 32,325 32,011 3.91 4.25 Federal funds purchased and securities sold under repurchase agreements ..................... 6,150 7,498 4.71 5.18 Commercial paper ................................. 1,485 1,277 4.69 5.02 Other short-term borrowed funds .................. 1,766 2,120 5.53 5.25 -------- ------- Total short-term borrowed funds ............. 9,401 10,895 4.86 5.18 Bank notes ....................................... 2,569 2,620 5.61 6.10 Other long-term debt ............................. 5,565 3,659 5.93 6.31 -------- ------- Total long-term debt ........................ 8,134 6,279 5.83 6.22 -------- ------- Total interest-bearing liabilities .......... $49,860 $49,185 4.41 4.71 ======== ======= --------- ----- Interest rate spread 3.69 3.62 Net yield on interest-earning assets and net ========= ===== interest income .................................. 4.32 4.24 ========= ===== Variance Interest Attributable to ------------------------- ----------------------- 1999 1998 Variance Rate Volume ----------- ----------- -------------- ----------- ---------- INTEREST INCOME (Thousands) Loans: Commercial .................................... $1,141,309 $1,011,401 $ 129,908 $ 4,749 $ 125,159 Tax-exempt .................................... 79,075 112,672 (33,597) 6,290 (39,887) ---------- ---------- ------------- Total commercial ............................ 1,220,384 1,124,073 96,311 (725) 97,036 Direct retail .................................... 91,882 107,405 (15,523) (8,363) (7,160) Indirect retail .................................. 274,843 255,512 19,331 (11,886) 31,217 Credit card ...................................... 677,232 764,426 (87,194) (1,214) (85,980) Other revolving credit ........................... 64,405 55,644 8,761 (1,265) 10,026 ---------- ---------- ------------- Total retail ................................ 1,108,362 1,182,987 (74,625) (48,095) (26,530) Construction ..................................... 187,396 170,403 16,993 (9,019) 26,012 Commercial mortgages ............................. 594,166 584,266 9,900 (32,520) 42,420 Residential mortgages ............................ 576,624 618,118 (41,494) (11,257) (30,237) ---------- ---------- ------------- Total real estate ........................... 1,358,186 1,372,787 (14,601) (49,324) 34,723 Lease financing .................................. 250,868 166,128 84,740 (8,274) 93,014 Foreign .......................................... 84,262 55,067 29,195 (2,458) 31,653 ---------- ---------- ------------- Total loans ................................. 4,022,062 3,901,042 121,020 (121,785) 242,805 Securities: Held-to-maturity: U.S. Government and agency ................... 36,957 23,268 13,689 62 13,627 Mortgage-backed .............................. 40,212 66,416 (26,204) (663) (25,541) State and municipal .......................... 16,689 21,179 (4,490) (1,827) (2,663) Other ........................................ 3,899 6,746 (2,847) 88 (2,935) ---------- ---------- ------------- Total held-to-maturity ...................... 97,757 117,609 (19,852) (7,856) (11,996) Available-for-sale:** U.S. Government and agency ................... 218,132 267,969 (49,837) (11,103) (38,734) Mortgage-backed .............................. 257,069 294,020 (36,951) (12,426) (24,525) Other ........................................ 42,041 47,256 (5,215) 2,468 (7,683) ---------- ---------- ------------- Total available-for-sale .................... 517,242 609,245 (92,003) (21,452) (70,551) ---------- ---------- ------------- Total securities ............................ 614,999 726,854 (111,855) (29,170) (82,685) Interest-bearing bank balances ................... 7,390 12,987 (5,597) (2,778) (2,819) Federal funds sold and securities purchased under resale agreements ........................ 30,696 25,803 4,893 (2,265) 7,158 Trading account assets ........................... 32,159 45,433 (13,274) (7,764) (5,510) ---------- ---------- ------------- Total interest-earning assets ............... 4,707,306 4,712,119 (4,813) (132,506) 127,693 INTEREST EXPENSE Interest-bearing demand .......................... 58,434 64,530 (6,096) (1,941) (4,155) Savings and money market savings ................. 477,557 451,655 25,902 (38,134) 64,036 Savings certificates ............................. 447,583 542,477 (94,894) (33,271) (61,623) Large denomination certificates .................. 172,539 165,384 7,155 (6,897) 14,052 ---------- ---------- ------------- Total interest-bearing deposits in domestic offices ........................... 1,156,113 1,224,046 (67,933) (88,181) 20,248 Interest-bearing deposits in foreign offices ..... 109,082 135,659 (26,577) (16,880) (9,697) ---------- ---------- ------------- Total interest-bearing deposits ............. 1,265,195 1,359,705 (94,510) (107,722) 13,212 Federal funds purchased and securities sold under repurchase agreements ..................... 289,912 388,390 (98,478) (32,846) (65,632) Commercial paper ................................. 69,619 64,088 5,531 (4,415) 9,946 Other short-term borrowed funds .................. 97,630 111,368 (13,738) 5,608 (19,346) ---------- ---------- ------------- Total short-term borrowed funds ............. 457,161 563,846 (106,685) (32,595) (74,090) Bank notes ....................................... 144,166 159,896 (15,730) (12,713) (3,017) Other long-term debt ............................. 330,212 230,766 99,446 (14,366) 113,812 ---------- ---------- ------------- Total long-term debt ........................ 474,378 390,662 83,716 (25,763) 109,479 ---------- ---------- ------------- Total interest-bearing liabilities .......... 2,196,734 2,314,213 (117,479) (148,884) 31,405 ---------- ---------- ------------- Interest rate spread Net yield on interest-earning assets and net interest income .................................. $2,510,572 $2,397,906 $ 112,666 46,036 66,630 ========== ========== =============
* 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. Any variance attributable jointly to volume and rate changes is allocated to the volume and rate in proportion to the relationship of the absolute dollar amount of the change in each. ** Volume amounts are reported at amortized cost; excludes pretax unrealized gains of $18 million in 1999 and $132 million in 1998. 38 CONSOLIDATED FINANCIAL RESULTS NET INTEREST INCOME Wachovia's taxable equivalent net interest income rose $113 million or 4.7 percent in 1999 to $2.511 billion. Strong demand, particularly in commercial lending and commercial real estate loan categories, drove the increase, resulting in a net yield on interest-earning assets of 4.32 percent -- 8 basis points higher than in 1998. Most of the new loan growth was funded with the proceeds from maturing securities, securitized credit card receivables and core deposit growth. (Graph appears here with the following plot points.) NET INCOME INCOME (MILLIONS) 1994 1995 1996 1997 1998 1999 INTEREST INCOME* 3135 3898 4087 4320 4712 4707 INTEREST EXPENSE 1369 2011 2086 2169 2314 2197 NET INTEREST INCOME* 1766 1887 2001 2151 2398 2511 *TAXABLE EQUIVALENT Average yields on both sides of the balance sheet declined from 1998 as reflected in Wachovia's average prime lending rate and the average federal funds rate which declined 37 basis points and 38 basis points, respectively. The decline in rates had a greater effect on interest-bearing liabilities, due to a favorable mix of wholesale funding that added to the positive impact of loan growth. Commercial loan yields held firm year over year, partially the result of improved pricing and a year-end spike in the short-term LIBOR. Real estate and retail loan yields, however, declined considerably in response to 1999's lower average rate environment compared with 1998. Approximately 20 basis points of the 47 basis point decline in retail loan yields was due to the effect of the credit card securitization transactions completed during the year. Both direct and indirect retail loans experienced declining yields, reflecting the competitive landscape in retail automobile lending. Although securities yields declined, the impact on the margin was minimized, due to shrinking volumes and its smaller proportion to total interest-earning assets. During 1998 and 1999, the securities portfolio was allowed to decline to fund part of the loan growth. At December 31, 1999, there were more than sufficient securities to meet the collateral needs for public funds deposits and other financial arrangements requiring the pledging of securities. Over the next year, the securities portfolio is expected to remain near its present level. 39 Wachovia funds its balance sheet with a balanced mix of retail core deposits and wholesale funding products, including senior and subordinated debt, trust capital securities and a global bank note program. During 1999, the average cost of funds declined 30 basis points due to lower rates on most funding sources. In addition to a more favorable average rate environment for funding during 1999, Wachovia's net interest margin also benefited from a more favorable mix in core deposit funding. Most of the savings and money market deposits increase was in Wachovia's Premiere and Business Premiere money market products. The combined effect of the change in mix and lower deposit rates resulted in a 34 basis point decline in the average cost of deposits. Noninterest-bearing funds also had a positive effect on net interest income. The average balances of both shareholders' equity and noninterest-bearing liabilities increased a total of $797 million or 5.4 percent, while the average balance of noninterest-earning assets declined $82 million or just more than 1 percent. The net effect was an additional $879 million in noninterest-bearing funds available to fund interest-earning assets. Noninterest-bearing demand deposits contributed $452 million of the increase in available noninterest-bearing funds. Short-term borrowed funds declined $1.494 billion or 13.7 percent as Wachovia sought to increase liquidity and manage capital by issuing senior and subordinated debt securities. As a result, total long-term debt increased by $1.855 billion. The proceeds from the debt issues were used to reduce Wachovia's dependence on short-term borrowings and to fund loan growth. Wachovia's average rate paid on long-term debt declined 39 basis points to 5.83 percent for 1999. The average cost of short-term borrowed funds dropped 32 basis points. Throughout 1999, Wachovia prepared for potential market disruptions caused by concerns over the Year 2000 date change by extending maturities of short-term borrowings into 2000. The anticipation of Year 2000 disruptions drove the 30-day LIBOR up more than 80 basis points as it spanned year-end. The combined effect of the surge in loan demand and the LIBOR increase had a positive impact on net interest income. The positive impact of the funding preparations, the growth in short-term LIBOR sensitive assets and the increase in the short-term LIBOR helped offset the cost of maintaining excess cash for the anticipated Year 2000 demand. Management expects taxable equivalent net interest income to continue to advance at a steady pace in 2000, reflecting well-balanced asset/liability management and stable loan growth across a diverse and growing economy. 40 RELATED BALANCE SHEET ANALYSIS Average loans expanded $2.822 billion or 6.4 percent for the year, fueled by a strong national economy and a strong economy in Wachovia's five-state primary lending area. Given management's outlook for steady overall economic expansion, management anticipates loan growth of approximately 10 percent in 2000. Managed credit cards are expected to remain level with 1999 as new outstandings replace runoff in the portfolio. In response to 1999's strong economy, commercial loans, including related real estate categories, rose $3.446 billion or 13.2 percent with solid gains occurring in all categories except tax-exempt loans. Taxable commercial loans advanced $1.728 billion or 12.3 percent, and commercial mortgages increased $511 million or 7.5 percent. Lease financing grew $837 million or 58.6 percent. Construction loans rose $300 million or 15.8 percent, while foreign loans were higher by $481 million or 59.8 percent. SELECTED LOAN MATURITIES AND INTEREST SENSITIVITY Table 8 - -------------------------------------------------------------------------------- December 31, 1999 (thousands) One Year One to Over Total or Less Five Years Five Years ----------- ----------- ---------- ---------- Commercial, financial and other ................. $17,042,740 $15,717,027 $ 904,457 $ 421,256 Industrial revenue and other tax-exempt ......... 690,053 222,988 211,038 256,027 Construction and land development ............... 2,311,362 2,189,688 121,674 ---- Commercial mortgages ............................ 7,754,206 3,923,649 1,158,298 2,672,259 Loans to foreign borrowers ...................... 1,260,674 1,234,060 26,614 ---- ----------- ----------- ---------- ---------- Selected loans, net ......................... $29,059,035 $23,287,412 $2,422,081 $3,349,542 =========== =========== ========== ========== Loans with predetermined interest rates ......... $ 5,138,599 $ 1,420,556 $1,763,519 $1,954,524 Loans with floating interest rates .............. 23,920,436 21,866,856 658,562 1,395,018 ----------- ----------- ---------- ---------- Total ...................................... $29,059,035 $23,287,412 $2,422,081 $3,349,542 =========== =========== ========== ==========
Wachovia has foreign credit outstandings consisting of loans and lease financing. Foreign loans at December 31, 1999 were $1.261 billion, representing 2.5 percent of total loans compared with $1.093 billion or 2.4 percent of total loans at year-end 1998. Because foreign loans are reported based on the address of the borrower and not on the country where security for the credit resides, foreign loans as reported do not necessarily indicate country risk exposure. Of the $1.261 billion of foreign loans outstanding at December 31, 1999, the distribution by geographic region was 54.6 percent in Western Europe; 31.1 percent in Latin America, including $219 million in Brazil; 10.1 percent in the United States; and 4.3 percent elsewhere. Wachovia's lease financing total of $2.597 billion at year-end 1999 included $1.240 billion of foreign leveraged leases, all with countries of risk in Western Europe. 41 Consumer loans, including residential mortgages, decreased $624 million or 3.4 percent, primarily as a result of the two credit card securitization transactions in 1999. Increases were recorded in indirect retail loans, which were higher by $391 million or 12.6 percent and primarily consists of automobile sales financing, and other revolving credit, which grew $91 million or 18.3 percent. Residential mortgages declined $387 million or 5 percent year over year, as the refinancing boom through 1998 and the first few months of 1999 resulted in prepayments. The refinancing activity was cut short by the three rate increases initiated by the Federal Reserve that raised the overall cost of home borrowing. Credit card outstandings declined $640 million or 11.3 percent, the result of the securitization transactions that reduced average loan balances by approximately $833 million. Wachovia's managed credit card loans at December 31, 1999 were $6.632 billion, representing 12.9 percent of total managed loans, versus $6.549 billion or 14.2 percent of total managed loans one year earlier. Managed totals included $1.896 billion of securitized credit cards at year-end 1999 and $500 million at year-end 1998. MANAGED CREDIT CARD DATA Table 9 ----------------------------------------------------------------- (thousands) 1999 1998 1997 1996 1995 ----------- ----------- ----------- ----------- ----------- Average credit card loans ................ $ 6,374,676 $ 6,181,109 $ 6,179,456 $ 5,573,626 $ 4,767,657 Period-end loans ......................... 6,632,439 6,549,350 6,419,098 6,221,334 5,234,629 Net loan losses .......................... 257,176 276,705 240,388 183,082 114,014 Net loan losses to average loans ......... 4.03% 4.48% 3.89% 3.28% 2.39% Delinquencies (30 days or more) to year-end loans ........................ 3.22 3.30 2.75 2.35 2.31
Wachovia's credit card securitization transactions were undertaken primarily to diversify funding sources and for overall balance sheet management. Asset securitization involves the sale of a pool of loan receivables to investors through either a public or private issuance of asset-backed securities. The loans are transferred to a trust which then sells certificates representing undivided interests in the trust. Wachovia retains the remaining undivided interests, provides the servicing for the accounts securitized and receives a servicing fee. Asset securitization converts interest income, cash advance fees, late fees and other fees in excess of interest paid to the certificateholders (collectively, the amount that would have been included in the net interest margin); credit losses; and other trust expenses into excess servicing income, a component of credit card income. The transaction reduces on-balance sheet assets as well as their associated sources of funding. Wachovia uses assumptions and estimates in determining the securitization gain recognized at the time of initial sale and each subsequent sale in accordance with Statement of Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." These assumptions include projections concerning the annual percentage rates charged to customers, charge-off experience, loan repayment rates, the cost of funds and discount rates commensurate with the risks involved. Changes in these assumptions could impact the realization of the related receivable, the contractual right to receive interest and other cash flows from the trust recorded at sale date. 42 SECURITIES Table 10 - -------------------------------------------------------------------------------- December 31 (thousands) 1999 --------------------------------------------------------------------- Amortized Unrealized Unrealized Fair Average Cost Gain Loss Value Maturity ------------- ----------- ----------- ---------- ----------- (Yrs./Mos.) HELD-TO-MATURITY U.S. Treasury and other U.S. Government agencies: Within one year ................. $ 11,005 $ 1 $ 9 $ 10,997 One to five years ............... 391,823 1 11,428 380,396 Five to ten years ............... ---- ---- ---- ---- Over ten years .................. ---- ---- ---- ---- ------------- ----------- ----------- ---------- Total ......................... 402,828 2 11,437 391,393 3/6 State and municipal: Within one year ................. 11,625 178 ---- 11,803 One to five years ............... 90,613 5,368 183 95,798 Five to ten years ............... 61,324 5,758 85 66,997 Over ten years .................. 40,727 1,559 133 42,153 ------------- ----------- ----------- ---------- Total ......................... 204,289 12,863 401 216,751 6/3 Mortgage-backed: Within one year ................. 1,318 ---- 3 1,315 One to five years ............... 47,715 304 19 48,000 Five to ten years ............... 36,865 145 50 36,960 Over ten years .................. 313,905 11,693 617 324,981 ------------- ----------- ----------- ---------- Total ......................... 399,803 12,142 689 411,256 16/7 Other: Within one year ................. 37,183 5 35 37,153 One to five years ............... 4,121 10 34 4,097 Five to ten years ............... 500 ---- ---- 500 Over ten years .................. ---- ---- ---- ---- ------------- ----------- ----------- ---------- Total ......................... 41,804 15 69 41,750 0/8 ------------- ----------- ----------- ---------- Total held-to-maturity ........ 1,048,724 25,022 12,596 1,061,150 8/11 AVAILABLE-FOR-SALE U.S. Treasury and other U.S. Government agencies: Within one year ................. 249,632 1,828 16 251,444 One to five years ............... 2,207,069 2,018 35,041 2,174,046 Five to ten years ............... 368,950 3,950 10,568 362,332 Over ten years .................. 8,093 3,085 ---- 11,178 ------------- ----------- ----------- ---------- Total ......................... 2,833,744 10,881 45,625 2,799,000 3/3 State and municipal: Within one year ................. 950 5 ---- 955 One to five years ............... 35,347 416 64 35,699 Five to ten years ............... 13,831 509 100 14,240 Over ten years .................. 6,010 124 33 6,101 ------------- ----------- ----------- ---------- Total ......................... 56,138 1,054 197 56,995 4/11 Mortgage-backed: Within one year ................. 30,101 1 147 29,955 One to five years ............... 243,089 3,393 1,850 244,632 Five to ten years ............... 931,325 1,087 21,661 910,751 Over ten years .................. 2,576,766 3,123 62,263 2,517,626 ------------- ----------- ----------- ---------- Total ......................... 3,781,281 7,604 85,921 3,702,964 15/6 Other: Within one year ................. 2,971 ---- 1 2,970 One to five years ............... 79,896 20 282 79,634 Five to ten years ............... ---- ---- ---- ---- Over ten years .................. 103,361 ---- 2,693 100,668 ------------- ----------- ----------- ---------- Total ......................... 186,228 20 2,976 183,272 15/4 ------------- ----------- ----------- ---------- Total interest earning available-for-sale ........... 6,857,391 19,559 134,719 6,742,231 10/4 Federal Reserve Bank stock and other ........................... 356,799 ---- 3,240 353,559 ------------- ----------- ----------- ---------- Total available-for-sale ...... 7,214,190 19,559 137,959 7,095,790 ------------- ----------- ----------- ---------- Total portfolio ............... $8,262,914 $ 44,581 $ 150,555 $8,156,940 ============= =========== =========== ========== 1999 1998 1997 ----------- ------------------------ --------------------------- Taxable Equivalent Amortized Fair Amortized Fair Yield* Cost Value Cost Value ----------- ----------- --------- ----------- ----------- Held-to-Maturity U.S. Treasury and other U.S. Government agencies: Within one year ................. 5.92% $ 262,934 $ 265,377 $ 97,213 $ 97,229 One to five years ............... 5.53 255,129 259,345 105,700 106,314 Five to ten years ............... ---- ---- ---- ---- Over ten years .................. ---- ---- ---- ---- ----------- ---------- ------------ ----------- Total ......................... 5.54 518,063 524,722 202,913 203,543 State and municipal: Within one year ................. 11.19 12,735 12,887 16,033 16,207 One to five years ............... 12.26 58,864 64,614 59,950 64,287 Five to ten years ............... 11.67 71,232 80,931 94,835 107,903 Over ten years .................. 10.17 33,937 37,857 52,085 57,400 ----------- ---------- ------------ ----------- Total ......................... 11.61 176,768 196,289 222,903 245,797 Mortgage-backed: Within one year ................. 6.19 146 147 553 550 One to five years ............... 7.23 78,227 80,102 103,233 105,106 Five to ten years ............... 6.51 69,450 70,402 129,809 132,484 Over ten years .................. 7.94 462,505 491,341 728,566 768,940 ----------- ---------- ------------ ----------- Total ......................... 7.72 610,328 641,992 962,161 1,007,080 Other: Within one year ................. 6.29 40,670 40,852 37,793 38,069 One to five years ............... 6.78 37,178 37,650 83,219 83,614 Five to ten years ............... 6.60 600 621 350 361 Over ten years .................. ---- ---- ---- ---- ----------- ---------- ------------ ----------- Total ......................... 6.34 78,448 79,123 121,362 122,044 ----------- ---------- ------------ ----------- Total held-to-maturity ........ 7.58 1,383,607 1,442,126 1,509,339 1,578,464 Available-for-Sale U.S. Treasury and other U.S. Government agencies: Within one year ................. 7.23 884,334 894,030 1,428,265 1,436,174 One to five years ............... 6.02 2,091,953 2,153,152 2,966,942 3,010,078 Five to ten years ............... 3.84 139,227 145,666 98,262 99,626 Over ten years .................. 11.96 8,149 12,719 8,078 12,231 ----------- ---------- ------------ ----------- Total ......................... 5.87 3,123,663 3,205,567 4,501,547 4,558,109 State and municipal: Within one year ................. 9.25 5,211 5,253 10,033 10,091 One to five years ............... 8.04 33,565 34,575 36,592 37,433 Five to ten years ............... 9.19 15,276 16,728 17,015 17,592 Over ten years .................. 9.89 6,912 7,605 16,155 17,822 ----------- ---------- ------------ ----------- Total ......................... 8.67 60,964 64,161 79,795 82,938 Mortgage-backed: Within one year ................. 6.03 14,606 14,649 25,113 25,145 One to five years ............... 6.85 280,390 284,579 772,458 778,099 Five to ten years ............... 6.30 796,036 808,650 557,712 562,110 Over ten years .................. 6.46 3,068,432 3,098,876 2,188,428 2,215,829 ----------- ---------- ------------ ----------- Total ......................... 6.44 4,159,464 4,206,754 3,543,711 3,581,183 Other: Within one year ................. 5.92 97 98 52,435 52,676 One to five years ............... 6.43 148,278 149,954 350,400 352,950 Five to ten years ............... 10,084 10,240 6,524 6,917 Over ten years .................. 6.73 174,983 173,417 99,616 98,825 ----------- ---------- ------------ ----------- Total ......................... 6.58 333,442 333,709 508,975 511,368 ----------- ---------- ------------ ----------- Total interest earning available-for-sale ........... 6.23 7,677,533 7,810,191 8,634,028 8,733,598 Federal Reserve Bank stock and other ........................... 171,632 173,457 160,649 175,939 ----------- ---------- ------------ ----------- Total available-for-sale ...... 7,849,165 7,983,648 8,794,677 8,909,537 ----------- ---------- ------------ ----------- Total portfolio ............... $9,232,772 $9,425,774 $10,304,016 $10,488,001 =========== ========== ============ ===========
* Yields are presented on a fully taxable equivalent basis using the federal income tax rate and state tax rates, as applicable. Yields on securities available-for-sale are based on amortized cost. 43 Securities, the second largest category of interest-earning assets, decreased $1.242 billion or 11.7 percent, with reductions in both the available-for-sale portfolio and in securities held-to-maturity as management allowed portfolio attrition to fund a portion of the increase in loans. At year-end 1999, securities available-for-sale totaled $7.096 billion and securities held-to-maturity were $1.049 billion. Total interest-bearing liabilities expanded $675 million or 1.4 percent, led primarily by long-term debt and by domestic deposits. Interest-bearing deposits increased $314 million or less than 1 percent. Savings and money market savings led the growth, expanding $1.735 billion or 15 percent, with the increase occurring primarily in Premiere and Business Premiere accounts, reflecting consumer preference for the flexibility of money market savings accounts. Gross deposits in 1999 averaged $40.580 billion, up $766 million or 1.9 percent from $39.814 billion in 1998. Collected deposits, net of float, averaged $38.450 billion for the year, a rise of $898 million or 2.4 percent from $37.551 billion in 1998. SHORT-TERM BORROWED FUNDS Table 11 - -------------------------------------------------------------------------------- (thousands) 1999 1998 1997 ------------------- ------------------- ------------------- Amount Rate Amount Rate Amount Rate ----------- ----- ----------- ----- ----------- ----- At year-end: Federal funds purchased and securities sold under repurchase agreements .......................... $ 5,372,493 3.64% $ 5,463,418 4.14% $ 8,322,716 5.48% Commercial paper ................................ 1,658,988 4.13 1,359,382 4.21 1,034,024 4.66 Other borrowed funds ............................ 3,071,493 3.97 1,912,262 5.16 752,874 5.39 ------------ ------------ ------------ Total .......................................... $10,102,974 3.82 $ 8,735,062 4.38 $10,109,614 5.39 ============ ============ ============ Average for the year: Federal funds purchased and securities sold under repurchase agreements .......................... $ 6,150,372 4.71 $ 7,498,280 5.18 $ 6,743,997 5.30 Commercial paper* ............................... 1,484,483 4.69 1,276,623 5.02 781,345 5.06 Other borrowed funds ............................ 1,766,069 5.53 2,120,257 5.25 1,461,781 5.57 ------------ ------------ ------------ Total .......................................... $ 9,400,924 4.86 $10,895,160 5.18 $ 8,987,123 5.32 ============ ============ ============ Maximum month-end balance: Federal funds purchased and securities sold under repurchase agreements .......................... $ 7,968,932 $ 8,796,505 $ 8,322,716 Commercial paper ................................ 1,658,988 1,487,187 1,034,024 Other borrowed funds ............................ 3,071,493 2,677,503 1,953,440
* Average interest rate for each year includes effect of fees paid on back-up lines of credit. Long-term debt was up $1.855 billion or 29.5 percent for the year, as Wachovia replaced short-term funds with long-term debt for capital management and liquidity purposes. Medium-term bank notes declined $51 million or 1.9 percent as more issues were allowed to mature without immediate replacement. Offsetting the decrease in medium-term bank notes were higher levels of other long-term debt. Long-term debt consists of senior and subordinated debt and trust capital securities. In late June, Wachovia issued $600 million of 5-year senior fixed-rate notes. This followed the issuance of $400 million of 10-year subordinated fixed-rate notes in March 1999 and December 1998. With each of these debt instruments, Wachovia entered into separate contracts with third parties that qualify for hedge accounting to swap the fixed rate to variable. In December of 1999, $300 million of 7 percent subordinated debt securities matured. LIQUIDITY MANAGEMENT The goal of liquidity management is to ensure Wachovia's ability to meet current and future obligations, including loan commitments, deposit withdrawals, liability maturities and other commitments, and to ensure that Wachovia is well positioned to take advantage of business and investment opportunities in a timely and cost-efficient manner. Wachovia manages liquidity at both the parent and subsidiary levels through active management of the balance sheet. 44 Parent company liquidity comes from short-term investments that can be sold immediately, the ability to issue debt and equity securities, and from dividends and interest income from subsidiaries. At December 31, 1999, Wachovia Corporation had $1.269 billion in interest-bearing balances with Wachovia Bank, N.A. ("Wachovia Bank"), and $1.9 billion available for issuance as senior or subordinate debt securities under existing shelf registrations filed with the Securities and Exchange Commission. At January 1, 2000, $581 million was available from Wachovia Bank to pay dividends to Wachovia Corporation without prior regulatory approval. The amount available at January 1 will increase by the amount of retained net profits Wachovia Bank generates in 2000. During 1999, Wachovia Bank paid $618 million in dividends to the parent company. As a back-up liquidity facility for commercial paper, Wachovia has $400 million in lines of credit from unaffiliated banks. No borrowings have occurred under these lines. Wachovia Corporation's senior notes are rated Aa3 by Moody's and AA- by Standard & Poor's, and the subordinated notes are rated A1 by Moody's and A+ by Standard & Poor's. The subordinated debt securities qualify for inclusion in Tier II capital under risk-based capital guidelines. Capital securities, also classified as part of other long-term debt, totaled $997 million at December 31, 1999. The capital securities are rated aa3 by Moody's and A by Standard & Poor's and qualify as Tier I capital under risk-based capital guidelines. Liquidity at Wachovia Bank is derived from its ability to generate core deposits from a large, diversified customer base spread across its five-state operating area and its ability to purchase noncore money market funds in the U.S. and abroad. Wachovia Bank's ability to attract funds in the wholesale markets rests on its strength of capital, earnings, reputation, credit ratings and high-quality assets. Wachovia Bank draws on a diverse base of wholesale funding sources, including large certificates of deposit, federal funds purchased, securities sold under agreement to repurchase, foreign branch deposits and its global bank note program. Wachovia Bank also has extensive access to funds from its membership in the Federal Home Loan Bank of Atlanta. Through its global bank note program, Wachovia Bank is authorized to issue up to $21.557 billion of bank notes. The global bank note program consists of issuances with original maturities beginning at seven days. Bank notes with original maturities of one year or less are included in other short-term borrowed funds, and bank notes with original maturities greater than one year are considered medium-term in nature and are classified as long-term debt. Under the existing offering circular, Wachovia Bank can have outstanding up to $10 billion of notes at any one time with original maturities from 7 to 270 days. Wachovia Bank may issue up to an aggregate of $8 billion of notes with maturities of more than 270 days. At December 31, 1999, Wachovia Bank had more than $7 billion of the notes with maturities of more than 270 days available under the existing authorization. Short-term bank notes outstanding as of December 31, 1999 were $160 million, with an average cost of 5.57 percent and an average maturity of 1.4 months. Medium-term bank notes were $2.351 billion on the same date, with an average cost of 6.07 percent and an average maturity of 3.9 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 liquidity is maintained through temporary investments, maturity management and the ability to liquidate securities in the available-for-sale investment portfolio. Additional asset liquidity is available from Wachovia's ability to securitize assets such as credit card receivables and other loans. 45 In addition to seeking to maintain liquidity through a strong balance sheet and operating performance that assures market acceptance of its debt obligations, Wachovia limits the level, maturity and concentrations of noncore funding through policy and internal guidelines. Management regularly reviews liquidity positions under normal business conditions and under stress scenario conditions. Liquidity management and contingency planning are reviewed quarterly with the Board Finance Committee. MARKET RISK AND ASSET/LIABILITY MANAGEMENT Market risk is the risk of loss due to adverse changes in instrument values or earnings fluctuation resulting from changes in market factors. This includes, but may not be limited to, changes in interest rates, foreign exchange rates, commodity prices and other market variables including equity price risk. Wachovia has potential exposure to interest rates, no risk in commodity prices (since Wachovia does not directly hold commodities or trade in commodity contracts) and immaterial risk in foreign exchange and changing equity prices. Market risks reside in both the trading and nontrading portfolios. Trading portfolios represent assets and off-balance sheet instruments that are held for short periods of time and are marked-to-market through the income statement. Nontrading portfolios represent assets, liabilities and off-balance sheet instruments that are not marked-to-market through the income statement but are accounted for on an accrual basis or are marked-to-market through equity. The primary risk in both the trading and nontrading portfolios is to changes in interest rates. Exposures to movements in foreign exchange rates exist predominantly in the trading portfolio and are immaterial to consolidated net income. Exposure to equity price movement exists through limited market making activities, parent company investments and capital markets private equity investments. The volatility of values in the equity portfolios is immaterial to net income. Estimating the amount of risk in either the trading or nontrading portfolios requires assumptions about the future. The nature of the assumptions causes all representations of risk to be estimates. These estimates will be different from actual results for many reasons, including but not limited to, changes in the growth of the overall economy which will impact volume growth in the company, changing credit spreads, market interest rates moving in patterns other than the patterns chosen for analysis, changes in customer preferences, changes in tactical and strategic plans and initiatives, and changes in Federal Reserve policy. Stress testing is performed on all market risk measurement analyses to help understand the relative sensitivity of key assumptions and thereby better understand Wachovia's risk profile. TRADING MARKET RISK Trading market risk is the risk to net income from changes in the fair value of assets and liabilities and off-balance sheet instruments that are marked-to-market through the income statement. Trading portfolios are maintained to service customer needs for investment and risk management products and reflect underwriting activities. The key trading portfolios by product are U. S. Treasury and government agencies, municipal bonds, mortgage-backed securities, corporate bonds and money market instruments. Wachovia enters into derivatives contracts and foreign currency exchange contracts to service customer needs and does not take material trading positions in either. Minor equity positions are maintained to support market making activities. The earnings risk due to changes in fair value in the trading portfolios is limited by the short-term holding periods of some of the portfolios, entering into offsetting trades with market counterparties, establishing and monitoring market risk limits by portfolio, and utilizing various hedging techniques. Risk limits, policies, practices and procedures are established in the business units and approved by the relevant risk committees and the Board of Directors to ensure that business objectives are met within a framework of prudent and sound risk management. 46 A value-at-risk (VAR) methodology is used to gauge potential losses in various trading portfolios due to changes in interest rates. The VAR model is a statistical variance/covariance model that calculates an estimate of exposure to interest rate movements within a predetermined confidence level over a defined forward-looking time period. The VAR estimate represents the maximum expected loss in fair value of a trading portfolio over a one day time horizon, given a 99 percent confidence level. In other words, there is about a 1 percent chance, given historical volatility of interest rates, that a loss greater than the VAR estimate will occur by the end of the next day. The VAR estimate takes into account several variables that affect the value of the trading portfolio, including interest rates, security prices and their volatilities, and statistical correlations. The potential expected volatility of interest rates is calculated using a one-year history of market movements. These historical volatilities are exponentially weighted to give more weight to recent market movements. At December 31, 1999, the combined VAR exposure, given the above calculation parameters, was $328 thousand which represented .11 percent of the combined trading portfolio value of $307 million. The combined average VAR exposure for 1999 was $474 thousand, which represented .09 percent of the combined average trading portfolio value of $513 million. These VAR numbers are for the combined U. S. Treasury and government agency, municipal bond, residential mortgage-backed securities, corporate bond, equity and money market instrument trading portfolios. NONTRADING MARKET RISK Nontrading market risk is the risk to net income from changes in interest rates on asset, liability and off-balance sheet portfolios other than trading portfolios. The risk is driven by potential mismatches resulting from timing differences in the repricing of assets, liabilities and off-balance sheet instruments, and potential exercise of explicit and embedded options. There also is net income risk from changes in market rate relationships known as basis risk. Treasury is responsible for managing nontrading market risk. Treasury 47 includes asset/liability management and the management of discretionary securities and funding portfolios. The goal of Treasury is to maintain high-quality and consistent growth in net income, while maintaining acceptable levels of risk to changes in interest rates, and acceptable levels of capital and liquidity. This goal is achieved by influencing the maturity and repricing characteristics of the various lending and deposit taking lines of business, by managing discretionary portfolios, and by utilizing off-balance sheet financial instruments. Treasury operates under the policies established by the Finance Committee of the Board of Directors and the guidance of the Management Finance Committee. Nontrading interest rate risk, liquidity, capital positions and discretionary on- and off-balance sheet activity are reviewed quarterly by the Finance Committee of the Board of Directors. Interim oversight of the function is provided through regular meetings of Treasury managers, the Treasurer and the Chief Financial Officer. Treasury personnel carry out day-to-day activity within approved risk management guidelines and strategies. Wachovia uses a number of tools to measure nontrading interest rate risk, including simulating net income, monitoring the sensitivity of the net present value of the balance sheet, and monitoring the difference or gap between maturing or rate-sensitive assets and liabilities over various time periods. Management believes that nontrading interest rate risk is best measured by simulation modeling which calculates expected net income based on projected interest-earning assets, interest-bearing liabilities, off-balance sheet financial instruments, other income and other expense. The model projections are based upon historical trends and management's expectations of balance sheet growth patterns, spreads to market rates, historical market rate relationships, prepayment behavior, current and expected product offerings, sales activity, and expected exercise of explicit and embedded options. The Management Finance Committee regularly reviews the assumptions used in the model. Wachovia monitors interest rate risk by measuring the potential change in 12 months of net income under eight standard interest rate scenarios. The scenarios are rolled forward by quarter up to four quarters in the future to view income sensitivity over any given 12-month period within the next 24 months. All of the scenarios are compared with a scenario where current market rates are held constant for the forecast period (i.e., the flat rate scenario). The scenarios are immediate shocks of the yield curve up and down 100 and 200 basis points and ramp scenarios for up and down 100 and 200 basis points occurring evenly across the next 12 months. Policy guidelines are approved by the Management Finance Committee and the Finance Committee of the Board of Directors. For simulation, which is a dynamic forward-looking analysis, the guidelines are focused on the 200 basis point ramp scenarios across 12 months. The policy guideline limit for net income simulation is a negative impact to net income of 7.5 percent for the up or down 200 basis point ramp scenarios when compared with the flat rate scenario. Management has generally maintained a risk position well within the policy guideline level. The model indicated the 48 impact of a 200 basis point gradual rise in rates over the next 12 months would cause approximately a 2.1 percent increase in net income at December 31, 1999 versus a .7 percent decrease one year earlier. A gradual decrease in rates over the next 12 months would cause approximately a 2.4 percent decrease in net income as of December 31, 1999 compared with a .01 percent decrease at December 31, 1998. Wachovia runs additional scenarios beyond the standard shock and ramp scenarios, including yield curve steepening, flattening and inversion scenarios. Various sensitivity analyses are performed on a regular basis to segregate interest rate risk into separate components and understand the risk attributable to prepayments, caps and floors, and other options. Extensive assumptions testing is performed to understand the degree of impact from changing key assumptions such as the speed of prepayments, the interest rate elasticity of core deposit rates and faster- or slower-growing balance sheets. Wachovia also utilizes a present value methodology to discern risk levels present in the balance sheet beyond the 24-month time horizon used in simulation analysis. The net present value methodology is a point in time analysis of the balance sheet not including new business volumes or management initiatives. All cash flows from interest-earning assets, interest-bearing liabilities, noninterest-bearing deposits and off-balance sheet instruments are discounted to a present value. Assumptions are made to estimate the expected lives of indeterminate maturity assets and liabilities such as line of credit products and savings and checking accounts. Discount rates used in the analysis are based upon forward rates implied by the current yield curve with credit spreads added to discount current new business back to par value. As in simulation analysis, extensive assumptions testing is performed to understand the degree of impact from changing key assumptions. CREDIT RISK MANAGEMENT Credit risk is the risk of loss due to adverse changes in a borrower's ability to meet its financial obligations under agreed upon terms. Wachovia incurs credit risk in its lending, trading, investing, liquidity/funding and asset management activities. The nature and amount of credit risk depends on the types of transactions pursued, the structure of those transactions, the parties involved and their roles, the correlation between those parties, and the relevant mitigating factors (e.g., covenants, collateral, netting arrangements and credit hedges). In general, credit risk is incidental to Wachovia's trading, liquidity/funding and asset management activities, while it is central to the profit strategy in lending. As a result, the majority of Wachovia's credit risk is incurred in lending activities. Credit risk is managed through individual exposure limits for each material borrower with whom Wachovia conducts business. Credit approvals are based, among other things, on the financial strength of the borrower, assessment of the borrower's management, sector trends, the type of exposure, the transaction structure and the general economic outlook. There are two processes for approving credit risk exposures. The first involves standard approval structures (e.g., rapid approval grids) for use in retail and certain small business lending activities. The second, and more prevalent approach in commercial lending, involves individual approval of exposures in conjunction with Risk Management. Commercial loan approvals are reviewed at inception, and at least annually thereafter, by the appropriate management credit committee. In retail lending, loans/lines are reviewed and monitored monthly on a portfolio basis. 49 In commercial lending, the loan officers are responsible for preparing, initially and at least annually thereafter, an appropriate written review of all assigned credit risk exposures. Risk Management also conducts an independent risk analysis at least annually. For certain exposures, quarterly or semiannual reviews occur. The extent of analysis is based on the amount and degree of risk involved, as well as the overall complexity of the relationship. Projections, including stress tests, are generally included for term exposures. Internal risk ratings are assigned as a part of the day-to-day management of the loan portfolio and are adjusted or confirmed with each review. These reviews are submitted to Line of Business senior management and Risk Management for their concurrence. Borrower exposures may be designated as either "Watch List" or "Closely Followed" accounts when warranted by either environmental factors or individual company performance. Such accounts are submitted to additional quarterly review by the Line of Business management, associated Risk Management and Wachovia's Chief Credit Officer in order to accurately assess their situation and identify timely, appropriate corrective actions. This process is considered essential to both the transparency and effective management of Wachovia's credit risk. In retail lending, Wachovia manages credit risk from a portfolio view rather than by specific borrower as is done in commercial lending. Determining the appropriate risk/return profile for each portfolio is done in conjunction with Risk Management utilizing a variety of tools, including quantitative models and scorecards which have been tailored to meet Wachovia's specific needs and are overlaid with judgmental policy. By incorporating these models and policies into computer programs or "decisioning engines," much of the underwriting is automated. Once a line of credit or other retail loan is extended, it is included in the overall portfolio which is continuously monitored for changes in delinquency trends and other asset quality indicators. For open-end loans such as credit card lines and other revolving banklines, Risk Management utilizes bankruptcy scores, behavior scores, credit bureau scores and internal analysis of predictive characteristics to create matrices that will assist in determining whether a borrower's line of credit should be adjusted or discontinued. Risk Management, with the oversight of the Senior Management Credit Committee and the Board Credit Committee, establishes and monitors the risk perfomance to ensure that the portfolio credit risk remains within an appropriate level. Risk Management is responsible for preparing an independent, semiannual narrative of overall credit risks and trends for each major business unit. This report includes a confirmation of internal risk ratings, assessment of aggregate risk, review of Line of Business management, assessment of policy compliance and recommended corrective actions, if necessary. This report is submitted to Wachovia's Chief Credit Officer, with copies to other corporate officers and the appropriate Line of Business management. The Senior Management Credit Committee, chaired by Wachovia's Chief Executive Officer, meets quarterly to review customer and industry credit concentrations, specific credits or portfolios with a higher degree of risk, and any other relevant issues. Wachovia's Chief Credit Officer then presents a report to the Credit Committee of the Board of Directors. 50 ALLOWANCE FOR LOAN LOSSES Table 12 - -------------------------------------------------------------------------------- (thousands) 1999 1998 --------- -------- SUMMARY OF ACTIVITY Balance at beginning of year ...................... $ 547,992 $544,723 Additions from acquisitions ....................... 39 2,613 Provision for loan losses ......................... 298,105 299,480 Deduct net loan losses: Loans charged off: Commercial ...................................... 46,768 17,880 Credit card ..................................... 248,116 286,520 Other revolving credit .......................... 9,652 10,802 Other retail .................................... 34,264 35,378 Real estate ..................................... 9,522 4,514 Lease financing ................................. 2,940 3,095 Foreign ......................................... ---- ---- --------- -------- Total .......................................... 351,262 358,189 Recoveries: Commercial ...................................... 7,041 6,667 Credit card ..................................... 32,782 28,804 Other revolving credit .......................... 2,919 2,571 Other retail .................................... 11,091 11,494 Real estate ..................................... 5,436 9,339 Lease financing ................................. 667 490 Foreign ......................................... ---- ---- --------- -------- Total .......................................... 59,936 59,365 --------- -------- Net loan losses .................................. 291,326 298,824 --------- -------- Balance at end of year ............................ $ 554,810 $547,992 ========= ======== NET LOAN LOSSES (RECOVERIES) BY CATEGORY Commercial ........................................ $ 39,727 $ 11,213 Credit card ....................................... 215,334 257,716 Other revolving credit ............................ 6,733 8,231 Other retail ...................................... 23,173 23,884 Real estate ....................................... 4,086 (4,825) Lease financing ................................... 2,273 2,605 Foreign ........................................... ---- ---- --------- -------- Total .......................................... $ 291,326 $298,824 ========= ======== Net loan losses -- excluding credit cards ......... $ 75,992 $ 41,108 NET LOAN LOSSES (RECOVERIES) TO AVERAGE LOANS BY CATEGORY Commercial ........................................ .24% .07% Credit card ....................................... 4.27 4.54 Other revolving credit ............................ 1.14 1.65 Other retail ...................................... .51 .56 Real estate ....................................... .02 (.03) Lease financing ................................... .10 .18 Foreign ........................................... ---- ---- Total loans ....................................... .62 .67 Total loans -- excluding credit cards ............. .18 .11 Year-end allowance to outstanding loans ........... 1.12 1.20 Earnings coverage of net loan losses* ............. 6.35x 5.58x ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES** Commercial ........................................ $ 166,690 $129,520 Credit card ....................................... 209,807 228,232 Other revolving credit ............................ 11,402 8,465 Other retail ...................................... 29,410 37,308 Real estate ....................................... 64,305 92,523 Lease financing ................................... 6,413 6,304 Foreign ........................................... 6,881 6,342 Unallocated ....................................... 59,902 39,298 --------- -------- Total ........................................... $ 554,810 $547,992 ========= ======== 1997 1996 1995 1994 -------- -------- -------- -------- SUMMARY OF ACTIVITY Balance at beginning of year ...................... $519,297 $518,808 $516,132 $509,798 Additions from acquisitions ....................... 24,641 200 ---- ---- Provision for loan losses ......................... 264,949 193,776 130,504 96,122 Deduct net loan losses: Loans charged off: Commercial ...................................... 9,254 6,375 6,364 14,319 Credit card ..................................... 246,008 184,387 125,301 83,597 Other revolving credit .......................... 10,564 8,834 5,966 4,933 Other retail .................................... 39,801 41,581 26,958 15,696 Real estate ..................................... 11,564 7,915 15,299 18,292 Lease financing ................................. 4,488 1,635 892 226 Foreign ......................................... ---- ---- ---- ---- -------- -------- -------- -------- Total .......................................... 321,679 250,727 180,780 137,063 Recoveries: Commercial ...................................... 4,171 5,905 9,078 6,848 Credit card ..................................... 26,674 21,445 15,644 13,913 Other revolving credit .......................... 2,361 1,695 1,369 1,278 Other retail .................................... 11,837 11,524 7,472 6,505 Real estate ..................................... 12,133 16,488 19,239 18,495 Lease financing ................................. 339 183 142 204 Foreign ......................................... ---- ---- 8 32 -------- -------- -------- -------- Total .......................................... 57,515 57,240 52,952 47,275 -------- -------- -------- -------- Net loan losses .................................. 264,164 193,487 127,828 89,788 -------- -------- -------- -------- Balance at end of year ............................ $544,723 $519,297 $518,808 $516,132 ======== ======== ======== ======== NET LOAN LOSSES (RECOVERIES) BY CATEGORY Commercial ........................................ $ 5,083 $ 470 $(2,714) $ 7,471 Credit card ....................................... 219,334 162,942 109,657 69,684 Other revolving credit ............................ 8,203 7,139 4,597 3,655 Other retail ...................................... 27,964 30,057 19,486 9,191 Real estate ....................................... (569) (8,573) (3,940) (203) Lease financing ................................... 4,149 1,452 750 22 Foreign ........................................... ---- ---- (8) (32) -------- -------- ---------- -------- Total .......................................... $264,164 $193,487 $127,828 $ 89,788 ======== ======== ========= ======== Net loan losses -- excluding credit cards ......... $ 44,830 $ 30,545 $18,171 $ 20,104 NET LOAN LOSSES (RECOVERIES) TO AVERAGE LOANS BY CATEGORY Commercial ........................................ .04% ----% (.02%) .07% Credit card ....................................... 3.90 3.29 2.41 1.74 Other revolving credit ............................ 1.93 1.71 1.15 .96 Other retail ...................................... .67 .69 .47 .23 Real estate ....................................... ---- (.06) (.03) ---- Lease financing ................................... .43 .22 .27 .01 Foreign ........................................... ---- ---- ---- (.03) Total loans ....................................... .67 .53 .38 .30 Total loans -- excluding credit cards ............. .13 .10 .06 .08 Year-end allowance to outstanding loans ........... 1.23 1.37 1.46 1.63 Earnings coverage of net loan losses* ............. 5.38x 6.66x 8.56x 11.18x ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES** Commercial ........................................ $120,195 $117,883 $123,161 $135,725 Credit card ....................................... 221,142 191,606 141,763 130,111 Other revolving credit ............................ 10,682 8,268 7,174 6,433 Other retail ...................................... 36,669 48,011 42,999 38,175 Real estate ....................................... 93,821 94,167 127,763 143,659 Lease financing ................................... 6,537 3,685 1,666 2,211 Foreign ........................................... 3,702 3,702 3,697 3,830 Unallocated ....................................... 51,975 51,975 70,585 55,988 -------- -------- --------- -------- Total ........................................... $544,723 $519,297 $518,808 $516,132 ======== ======== ========= ========
* Earnings before income taxes and provision for loan losses excluding securities transactions and nonrecurring charges. ** The allocation of the allowance for loan losses above represents an estimate based on historical loss experience, individual credits, economic conditions and other judgmental factors. Since any allocation is judgmental and involves consideration of many factors, the allocation may be more or less than the charge-offs that may ultimately occur. The entire allowance is available for charge-offs in any category of loans. See page 99 for percentage of loan categories to total loans. 51 ALLOWANCE FOR LOAN LOSSES The allowance for loan losses is maintained at a level believed by management to be adequate to absorb probable losses inherent in the portfolio as of the date of the financial statements. Wachovia employs a number of tools in assessing the adequacy of the allowance. No one tool is sufficient to accurately measure losses that exist at the balance sheet date and no group of tools can completely replace seasoned judgment. For the retail portfolios, which include credit cards, residential mortgages and consumer installment loans, the required allowance is established to absorb approximately twelve months of expected net losses which is consistent with the requirements indicated by Wachovia's loss migration model. For the commercial portfolios, Wachovia uses a loss migration analysis as the starting point for determining allowance for loan loss adequacy. Loss migration models are widely used throughout the industry and are generally favored by the regulatory agencies in assessing the adequacy of the allowance for loan losses. Currently, Wachovia's loss migration analysis tracks eight quarters of loan losses to determine historical loss experience for pools of loans with similar characteristics and credit quality ratings. A relatively short period of history, such as eight to twelve quarters, permits the development of meaningful loss patterns without using information that is stale or irrelevant. The loss factors resulting from the migration analysis are tempered for known changes in delinquency trends and economic conditions from the time period used in the analysis. Loss factors resulting from the migration analysis are applied to the balances of each respective segment of the portfolio. The resulting reserves are added to the specific reserves established for impaired loans and the unallocated allowance determined by management in order to develop the total allowance for loan loss requirement. A loan is impaired when all amounts due (including both interest and principal) are not expected to be collected according to the contractual terms of the loan agreement. Generally, a loan is impaired if it exhibits the same level of weakness and probability of loss as loans, or portions of loans, classified as doubtful or loss. An impairment assessment is applied to all loans except large groups of smaller-balance homogeneous consumer loans that are collectively evaluated for impairment. Impaired loans totaled $149 million at December 31, 1999 compared with the $57 million at the prior year-end. The associated allowance for loan losses for these loans was $43 million compared with $7 million a year ago. Total nonaccrual commercial and commercial real estate loans increased over 1998, up 67.9 percent to $158 million from $94 million due to specific problem credits that deteriorated during 1999. Management believes these credits were identified and addressed early in the loss cycle. In total, $38 million in charge-offs was taken on those loans during 1999, and additional reserves were established for anticipated probable losses that have not yet been confirmed. Although the entire allowance for loan losses is available for charge-offs in any category of loans, the unallocated portion represents management's best estimate of the inherent loss present in the loan portfolio as of the financial statement date not specifically identified by historical loss analysis and impairment review. While the total allowance for loan losses was up slightly from year-end 1998, the distribution of the allowance shifted over the year resulting in a higher unallocated balance. At December 31, 1999, the unallocated allowance for loan losses was $60 million or 10.8 percent of the total allowance compared with $39 million, 7.2 percent, at year-end 1998. Expressed in terms of total loans outstanding, the unallocated allowance represents .12 percent and .09 percent at December 31, 1999 and 1998, respectively. 52 The allowance for loan losses at December 31, 1999 represented 1.12 percent of outstanding loans and 2.72 times coverage of nonperforming loans compared with 1.20 percent and 3.49 times, respectively, for 1998. The drop in both ratios was reflective of a change in the mix and relative risk of the overall loan portfolio. At December 31, 1999, credit card loans, which carry a much higher-than-average degree of risk due to their unsecured nature, accounted for 10 percent of total loans outstanding compared with 13 percent at the end of 1998. (Graph appears here with the following plot points.) ALLOWANCE FOR LOAN LOSSES (MILLIONS)
1994 1995 1996 1997 1998 1999 YEAR-END LOAN LOSS ALLOWANCE 516.1 518.8 519.3 544.7 548.0 554.8 X ALLOWANCE TIMES NONPERFORMING LOANS 3.53X 5.07X 5.26X 5.38X 3.49X 2.72X
(Graph appears here with the following plot points.) EARNINGS COVERAGE OF NET LOAN LOSSES* (MILLIONS)
1994 1995 1996 1997 1998 1999 EARNINGS BEFORE INCOME TAXES AND PROVISION FOR LOAN LOSSES 1003.5 1094.4 1289.5 1420.1 1668.1 1848.9 X NUMBER OF TIMES EARNINGS COVERED NET LOAN LOSSES 11.18X 8.56X 6.66X 5.38X 5.58X 6.35X
*EXCLUDING NONRECURRING ITEMS AND SECURITIES TRANSACTIONS. (Graph appears here with the following plot points.) LOAN LOSS EXPERIENCE (MILLIONS) 1994 1995 1996 1997 1998 1999 CREDIT CARD 69.70 109.70 162.90 219.30 257.70 215.30 COMMERCIAL 7.50 (2.70) 0.50 5.10 11.20 39.70 REAL ESTATE (.20) (3.90) (8.60) (.60) (4.80) 4.10 OTHER 12.80 24.70 38.70 40.40 34.70 32.20 % NET LOAN LOSSES TO AVERAGE LOANS Although Wachovia experienced growth in most loan categories during 1999, the largest volume gains were in the commercial and real estate categories which have historically experienced the most favorable loss experience relative to the rest of the portfolio. Additionally, Wachovia experienced growth in short-term lending at the end of the year with most of the increase consisting of large corporate borrowers carrying little credit risk. Loans originated closest to the balance sheet date generally carry a lesser degree of 53 risk than the rest of their respective portfolio since they just completed the underwriting and credit decision process. Although nonperforming loans have increased considerably during the year, they still represented an acceptable level at .41 percent of outstanding loans at December 31, 1999 compared with .34 percent at December 31, 1998. At September 30, 1999, Wachovia ranked tenth among the top 25 largest U. S. banking companies in terms of nonperforming assets to loans and foreclosed property with a ratio of .50 percent. At December 31, 1999, this ratio improved to .45 percent. There were no significant credit concentrations in any one industry at year-end 1999 or 1998. The provision for loan losses charged to earnings is an amount necessary to maintain the allowance at the level determined to be appropriate by management. The provision for loan losses in 1999 was $298 million, just slightly below the amount recorded for 1998. Net loan losses also fell below the amount recorded in the prior year due to favorable conditions in the credit card portfolio and a reduction in the on-balance sheet portfolio resulting from the 1999 securitization transactions. Asset Quality Nonperforming assets increased 23 percent from December 31, 1998, although the balance remained at an acceptable level representing .45 percent of outstanding loans and foreclosed property. In terms of total dollars, nonperforming loans represent only $204 million in a loan portfolio of $49.621 billion. The increase in nonperforming loans occurred during the second and third quarters with the balance declining in the fourth quarter. During those quarters, management noted deterioration in specific commercial credits, suspended the accrual of interest on those loans and charged off amounts deemed uncollectible. Management has provided for anticipated losses on those loans considered impaired. Additional reserves may be necessary as new information is received changing the estimated amount of the loss. The balance of foreclosed property declined as Wachovia successfully disposed of various foreclosed assets at favorable prices. The favorable trend resulted in gains from sales of foreclosed properties that exceeded foreclosed property expense for the year. Nonperforming Assets and Contractually Past Due Loans Table 13 - -------------------------------------------------------------------------------- December 31 (thousands) 1999 1998 --------- --------- Nonperforming Assets Nonaccrual loans .................................. $ 204,098 $ 157,118 Restructured loans ................................ ---- ---- --------- --------- Total nonperforming loans ..................... 204,098 157,118 Foreclosed property: Foreclosed real estate ........................... 19,759 33,443 Less valuation allowance ......................... 5,941 12,678 Other foreclosed assets .......................... 5,874 3,420 --------- --------- Total foreclosed property ..................... 19,692 24,185 --------- --------- Total nonperforming assets .................... $ 223,790 $ 181,303 ========= ========= Nonperforming loans to year-end loans ............. .41% .34% Nonperforming assets to year-end loans and foreclosed property .............................. .45 .40 Year-end allowance for loan losses times nonperforming loans .............................. 2.72x 3.49x Year-end allowance for loan losses times nonperforming assets ............................. 2.48 3.02 Contractually Past Due Loans (accruing loans past due 90 days or more) ......... $ 97,642 $ 136,807 ========= ========= 1997 1996 1995 1994 --------- --------- --------- --------- Nonperforming Assets Nonaccrual loans .................................. $ 101,156 $ 98,638 $ 102,310 $ 146,246 Restructured loans ................................ ---- ---- ---- ---- --------- --------- --------- --------- Total nonperforming loans ..................... 101,156 98,638 102,310 146,246 Foreclosed property: Foreclosed real estate ........................... 38,071 35,472 39,877 53,746 Less valuation allowance ......................... 16,625 10,805 11,136 12,112 Other foreclosed assets .......................... 6,893 8,213 4,212 2,931 --------- --------- --------- --------- Total foreclosed property ..................... 28,339 32,880 32,953 44,565 --------- --------- --------- --------- Total nonperforming assets .................... $ 129,495 $ 131,518 $ 135,263 $ 190,811 ========= ========= ========= ========= Nonperforming loans to year-end loans ............. .23% .26% .29% .46% Nonperforming assets to year-end loans and foreclosed property .............................. .29 .35 .38 .60 Year-end allowance for loan losses times nonperforming loans .............................. 5.38x 5.26x 5.07x 3.53x Year-end allowance for loan losses times nonperforming assets ............................. 4.21 3.95 3.84 2.70 Contractually Past Due Loans (accruing loans past due 90 days or more) ......... $ 114,343 $ 84,788 $ 69,953 $ 48,050 ========= ========= ========= =========
54 With the exception of certain retail loans as described in the following paragraph, loans are classified as nonaccrual and the recognition of interest is discontinued when a loan becomes 90 days past due as to principal and interest or when, in management's judgment, the interest and/or principal will not be collectible in the normal course of business. When interest accruals are discontinued, the balance of accrued interest is reversed. Interest accrual may be continued when the net realizable value of the collateral is sufficient to cover the principal balance and accrued interest (well secured) and the loan is in the process of collection. A loan is considered to be in the process of collection if collection of the asset is proceeding in due course either through legal action, including judgment enforcement procedures or, in appropriate circumstances, through collection efforts not involving legal action which are reasonably expected to result in repayment of the debt or in its restoration to a current status in the near future. For commercial loans and commercial real estate loans, Wachovia records a charge-off when available information confirms that specific loans, or portions thereof, are uncollectible. All loan charge-offs are charged directly to the allowance for loan losses and any recoveries of loans previously charged off are credited to the allowance. The recovery of previously charged off interest is credited directly to interest income. For retail loans, Wachovia follows the guidelines established by the Federal Financial Institution Examinations Council (FFIEC) in recognizing charge-offs. Open-end revolving loans, such as credit cards, are charged off when payments become 180 days past due (defined as a "contractual charge-off"). Closed-end loans, such as installment loans, are charged off when they become 120 days delinquent. In cases of bankruptcy and customer fraud, Wachovia applies the more restrictive charge-off time frames prescribed by the FFIEC. Net loan losses for 1999 declined from the level recorded in 1998. The year-over-year overall decline was due to a change in portfolio mix which shifted away from credit card loans that carry a proportionately higher charge-off rate to commercial and real estate loans that have more favorable charge-off rates. Commercial losses, although still well within acceptable levels, increased sharply from 1998. The increase was due to the recognition of losses on those loans transferred to nonaccrual status during the second and third quarters of 1999. For the year ended December 31, 1999, net commercial loan losses represented .24 percent of average outstandings compared with .07 percent for 1998. Credit card net loan losses showed improvement from 1998 both in terms of total dollars charged off and as a percentage of average loans outstanding. In March and September of 1999, Wachovia securitized $896 million and $500 million, respectively, in credit card receivables which accounted for most of the reduction in charge-offs. In addition, bankruptcy and contractual charge-offs improved considerably, resulting in lower net charge-offs as a percentage of outstanding loans. Noninterest Income Total other operating revenue, which excludes securities gains and losses, rose $382 million or 31.1 percent to $1.610 billion for the year. Growth occurred in all major categories except mortgage fees and other income, with increases highest in investment fees, credit card income, capital markets income, deposit account service charges and trust services fees. The higher income reflected business expansion in addition to the impact of purchase acquisitions completed in the second and third quarters of 1999. Total other operating revenue included gains of $8 million in 1999 and $17 million in 1998 from branch sales. The 1999 other operating revenue also included securitization gains of $27 million from the sale of credit card receivables in two securitization transactions. Excluding additions from purchase acquisitions, total 55 other operating revenue rose approximately 13 percent for the year. Management expects total other operating revenue to continue to increase at roughly the same rate in 2000, based on a stable but slower economic growth outlook and on anticipated increases largely in capital markets, deposit account services, technology-based banking, investment and financial advisory areas. Investment fee income grew $174 million or 282.3 percent, principally due to additions from the purchase acquisitions. IJL added significantly to equity commissions and mutual fund income, and OFFITBANK generated higher portfolio management fees. Included in investment fee income are commissions from sales of the Wachovia Funds by Wachovia's branch-based investor consultants. Credit card income was higher by $84 million or 49.2 percent for the year, which included $27 million in gains from the sale of receivables in two securitization transactions. In addition, excess servicing income, along with growth in merchant discount and card issuers reimbursement, principally accounted for the increase. Excluding the gains from the sale of loans, credit card income was up 31.6 percent for the year. Active managed accounts averaged 2.3 million in 1999 and in 1998. Noninterest Income Table 14 - -------------------------------------------------------------------------------- (thousands) 1999 1998 1997 ---------- ---------- ---------- Service charges on deposit accounts ............................. $ 369,646 $ 334,980 $ 306,231 Fees for trust services ............... 216,392 199,949 175,549 Credit card income -- net of interchange payments ................. 255,243 171,127 162,234 Investment fees ....................... 235,350 61,556 53,290 Capital markets income ................ 170,771 130,083 49,522 Electronic banking .................... 88,626 74,257 64,640 Mortgage fees ......................... 33,213 44,929 23,544 Bankers' acceptance and letter of credit fees .......................... 46,037 39,025 34,526 Other service charges and fees ........ 79,893 54,726 51,916 Other income .......................... 114,952 117,487 84,316 ----------- ----------- ----------- Total other operating revenue .......................... 1,610,123 1,228,119 1,005,768 Gain on sale of mortgage servicing portfolio ............................ ---- ---- ---- Securities gains (losses) ............. 10,894 20,442 1,454 ----------- ----------- ----------- Total ............................. $1,621,017 $1,248,561 $1,007,222 =========== =========== =========== Five-Year Compound 1996 1995 1994 Growth Rate -------- -------- -------- --------------- Service charges on deposit accounts ............................. $280,670 $ 244,671 $ 231,646 9.8% Fees for trust services ............... 154,621 145,464 142,026 8.8 Credit card income -- net of interchange payments ................. 143,382 127,153 126,886 15.0 Investment fees ....................... 40,522 27,037 15,955 71.3 Capital markets income ................ 44,212 29,832 12,131 69.7 Electronic banking .................... 56,226 39,722 28,347 25.6 Mortgage fees ......................... 21,371 26,139 33,997 ( .5) Bankers' acceptance and letter of credit fees .......................... 28,243 25,953 25,801 12.3 Other service charges and fees ........ 49,450 42,748 35,124 17.9 Other income .......................... 56,035 48,396 38,186 24.7 --------- ---------- ---------- Total other operating revenue .......................... 874,732 757,115 690,099 18.5 Gain on sale of mortgage servicing portfolio ............................ ---- 79,025 ---- Securities gains (losses) ............. 4,588 (19,672) (21,972) --------- ---------- ---------- Total ............................. $879,320 $ 816,468 $ 668,127 19.4 ========= ========== ==========
Capital markets income expanded $41 million or 31.3 percent for the year. Higher trading account profits and trading sales commissions principally accounted for the increase. These categories grew approximately $37 million from activity generated through IJL. Revenues from service charges on deposit accounts rose $35 million or 10.3 percent. Higher levels of overdraft and insufficient funds charges, up $12 million or 9.6 percent, and commercial analysis fees, up $20 million or 14.2 percent, primarily drove the increase. The increase in overdraft and insufficient funds fees is partially due to higher pricing and fewer waived fees during 1999, as well as strong fourth quarter consumer spending. Fees for trust services grew $16 million or 8.2 percent. Increases occurred largely in Personal Financial Services, defined contribution plans, charitable funds and management fees associated with the Wachovia Funds. Assets of the Wachovia Funds totaled $9.191 billion at December 31, 1999 compared with $6.423 billion at year-end 1998. 56 At December 31, 1999, trust assets in custody totaled $132.733 billion, including $51.922 billion under management. This compared with total trust assets in custody of $138.130 billion, including $42.025 billion under management at year-end 1998. In September 1999, Wachovia completed its sale of the master trust and institutional custody business to State Street Bank, enabling it to focus on other business areas. The sale of the institutional trust business reduced total trust assets in custody. Electronic banking revenue rose $14 million or 19.4 percent for the year, with debit card interchange income up $13 million or 42.4 percent, as a result of increased consumer acceptance of the service and higher consumer spending. Mortgage fees decreased $12 million or 26.1 percent for the year, primarily reflecting reduced sales of servicing rights on fixed-rate mortgages due to lower origination volumes. Rising interest rates resulted in a shift in consumer demand toward adjustable-rate mortgages, which are generally held in the loan portfolio. Gains on sales of servicing rights declined $9 million or 34 percent due to the shift. Rising interest rates also slowed refinancing activity, resulting in lower origination fees, down $2 million or 14.1 percent. Other major sources of increases in noninterest income were insurance premiums and commissions up $9 million or 60.9 percent, with BEJS adding $5 million, and securitization service fee income up $17 million or 165.7 percent as a result of the 1999 securitization transactions. Securities gains of $11 million in 1999 and $20 million in 1998 resulted primarily from the sale of equity securities. Noninterest Expense Total noninterest expense rose $254 million or 12.7 percent, with growth for the year affected by nonrecurring charges taken both in 1999 and 1998. In 1999, Wachovia incurred merger expenses of $19 million, primarily related to the acquisition of IJL. Nonrecurring charges totaling $85 million were taken in 1998 for systems conversions and signage changes related to its Virginia and Florida acquisitions. Excluding these merger charges, noninterest expense on an operating basis totaled $2.231 billion in 1999 and grew $320 million or 16.8 percent from 1998's expense level of $1.911 billion. In 2000, noninterest expense, including the effect of 1999 acquisitions, is expected to rise approximately 10 percent from 1999's level of $2.231 billion. Excluding the impact of 1999 acquisitions, noninterest expense is expected to grow by approximately 6 percent. Excluding expenses added by the purchase acquisitions completed during 1999, noninterest expense rose approximately 5 percent for the year, concentrated in equipment, outside data processing, programming, and software costs reflecting continued technology investments. Total personnel expense grew $165 million or 15.6 percent. Salaries expense rose $146 million or 16.6 percent, primarily due to expanded incentive pay for revenue-generating businesses and to a higher employee base from acquisitions. Also impacted by the acquisitions, employee benefits expense increased $19 million or 10.7 percent, with growth occurring largely in medical costs, retirement plan expenses and payroll taxes. 57 Net occupancy expense rose $13 million or 9.1 percent, reflecting increased operating premise lease costs, up $9 million and depreciation costs for expanded physical facilities up $3 million. Most of the increase in facilities and related expenses was due to purchase acquisitions completed during 1999. Equipment expense increased $45 million or 29.4 percent, led by higher depreciation of furniture and fixtures, computers, and peripheral devices, together up $30 million, and amortization of technology investments up $12 million. The increase reflected the effect of the 1999 purchase acquisitions and the increasing use of technology to enhance customer service and improve operating efficiency. Noninterest Expense Table 15 - -------------------------------------------------------------------------------- (thousands) 1999 1998 1997 ---------- ----------- ----------- Salaries ............................. $1,020,384 $ 874,750 $ 742,106 Employee benefits .................... 199,902 180,603 163,051 ---------- ----------- ----------- Total personnel expense........... 1,220,286 1,055,353 905,157 Net occupancy expense ................ 151,282 138,636 116,654 Equipment expense .................... 198,062 153,007 139,792 Postage and delivery ................. 55,410 52,981 48,657 Outside data processing, programming and software ............ 102,773 64,450 83,418 Stationery and supplies .............. 35,939 34,767 30,960 Advertising and sales promotion....... 66,468 71,257 73,193 Professional services ................ 75,002 56,066 54,113 Travel and business promotion ........ 33,944 29,254 25,215 Telecommunications ................... 58,088 54,467 43,420 Amortization of intangible assets..... 50,879 39,091 13,308 Foreclosed property expense -- net of income ............ (853) 571 1,875 Personal computer impairment charge* ............................. ---- ---- 67,202 Merger-related charges* .............. 19,309 85,312 220,330 Other expense ........................ 184,036 161,120 143,427 ---------- ----------- ----------- Total ............................ $2,250,625 $ 1,996,332 $ 1,966,721 ========== =========== =========== Overhead ratio** ..................... 54.6% 55.1% 62.3% Overhead ratio without nonrecurring charges ................ 54.2 52.7 53.2 Five-Year Compound 1996 1995 1994 Growth Rate ----------- ----------- ----------- --------------- Salaries ............................. $ 655,065 $ 604,041 $ 566,368 12.5% Employee benefits .................... 141,867 129,749 125,144 9.8 ----------- ----------- ----------- Total personnel expense........... 796,932 733,790 691,512 12.0 Net occupancy expense ................ 114,001 109,543 102,131 8.2 Equipment expense .................... 130,384 124,833 121,701 10.2 Postage and delivery ................. 47,195 44,553 41,169 6.1 Outside data processing, programming and software ............ 48,049 44,935 37,613 22.3 Stationery and supplies .............. 30,043 30,238 27,327 5.6 Advertising and sales promotion....... 69,363 58,804 43,046 9.1 Professional services ................ 41,223 41,152 23,326 26.3 Travel and business promotion ........ 21,096 20,267 16,743 15.2 Telecommunications ................... 40,570 30,557 26,153 17.3 Amortization of intangible assets..... 9,163 12,296 21,042 19.3 Foreclosed property expense -- net of income ............ 1,930 2,420 7,508 Personal computer impairment charge* ............................. ---- ---- ---- Merger-related charges* .............. ---- ---- ---- Other expense ........................ 159,024 188,241 183,980 ----------- ----------- ----------- Total ............................ $ 1,508,973 $ 1,441,629 $ 1,343,251 10.9 =========== =========== =========== Overhead ratio** ..................... 52.5% 54.5% 54.7% Overhead ratio without nonrecurring charges ................ 52.5 54.5 54.7
* Nonrecurring charges ** Noninterest expense as a percentage of taxable equivalent net interest income and total other operating revenue. Outside data processing, programming and software costs rose $38 million or 59.5 percent. The increases were centered in amortization of externally purchased software up $10 million and software maintenance expense up $14 million. These reflected continuing growth in technology investments, as well as the opening of a new data center. Remaining combined categories of noninterest expense rose $59 million or 11.9 percent. Increases were largely in the categories of professional services, reflecting continued investment in strategic initiatives, and amortization of intangible assets, including goodwill and credit card premiums. Income Taxes Applicable income taxes in 1999 increased $102 million or 23.6 percent. The effective rate increased over the prior year as a result of additional nondeductible amortization expense and a decline in the proportion of tax-exempt income to total income. Income taxes computed at the statutory rate were reduced primarily by the assumed tax effect of interest income earned on state and municipal loans, debt securities and increased value of life insurance. The interest earned on certain state and municipal debt instruments is exempt from federal taxes and in some cases state taxes. The tax-exempt nature of these assets provides both an attractive return and substantial interest savings for local governments and their constituents. 58 Year 2000 Wachovia began its third century of providing financial services with the date change to the year 2000. The internal readiness plan, encompassing both information technology systems and computer chip embedded functions, was successfully implemented. While the date change event passed without significant or material impact to the company, contingency plans remain in place to ensure that core business systems and processes continue to function without incident. Management continues to evaluate and monitor Year 2000 readiness on the part of external parties, particularly critical vendors and significant credit customers, to ensure that unanticipated risk is not assumed by Wachovia. Total project costs for the Year 2000 conversion are estimated at $88 million, with $85 million having been spent through December 31, 1999, including $19 million in 1999 and $28 million in 1998. Remaining costs, to be incurred for ongoing monitoring, support activities and wrap-up of the project, are not expected to have a material impact on results of operations, liquidity or capital resources. Euro Conversion On January 1, 1999, eleven member countries of the European Union established the Euro as their common legal currency and established a fixed conversion rate between their current sovereign currencies and the Euro. From January 1, 1999 through the end of 2001, corporations and individuals may transact business in either the Euro or the functional currency of each member nation. Management has a risk assessment committee that has been examining the risks associated with the Euro conversion such as the adequacy of information technology systems, currency risk and the competitive impact of cross-border price transparency. During this interim period, Wachovia is operating parallel accounts in both the Euro and the respective national currency in order to more effectively process transactions. Management does not expect the impact of the Euro conversion to have a material adverse impact on Wachovia's financial condition or results of operations. New Accounting Standards In March 1998, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants 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. Wachovia adopted SOP 98-1 effective January 1, 1998; the effect was not material. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (FASB 133). FASB 133 establishes new accounting and reporting requirements for derivative instruments, including certain derivative instruments embedded in other contracts and hedging activities. The standard requires all derivatives to be measured at fair value and recognized as either assets or liabilities in the statement of condition. Under certain conditions, a derivative may be specifically designated as a hedge. Accounting for the changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. Adoption of the standard is required for Wachovia's December 31, 2001 financial statements with early adoption allowed as of the beginning of any quarter after June 30, 1998. Management is in the process of assessing the impact and plans to adopt the standard effective January 1, 2001. Adoption is not expected to result in a material financial impact. 59 ----------------------------------------------- Shareholders' Equity and Capital Ratios ----------------------------------------------------------------- Shareholders' equity at December 31, 1999 totaled $5.658 billion, rising $320 million or 6 percent from $5.338 billion at year-end 1998. Included in shareholders' equity at December 31, 1999 was $74 million, net of tax, of unrealized losses in securities available-for-sale, marked to fair value, compared with $82 million, net of tax, of unrealized gains one year earlier. The rising rate environment during 1999 drove down the value of Wachovia's mostly fixed-rate securities portfolio. Wachovia's book value at year-end 1999 was $28.04 per share, higher by 6.6 percent from $26.30 per share at the close of 1998. Wachovia's internal capital generation rate (defined as net income less dividends as a percentage of average equity) was 10.9 percent for the year. During 1999, Wachovia repurchased a total of 7,224,000 shares of its common stock under several author-izations by the Board of Directors. The shares were repurchased at an average price of $85.263 per share, for a total cost of $616 million. In 1998, Wachovia repurchased 6,417,200 shares of its common stock at an average price of $82.22 per share, for a total cost of $528 million. On June 23, 1998, the Board of Directors authorized the repurchase of up to 12 million shares of Wachovia's common stock effective through January 28, 2000. As of December 31, 1999, a total of 6,014,213 shares had been repurchased under the June 23, 1998 authorization. On January 28, 2000, the Board of Directors authorized the repurchase of up to 8 million shares of Wachovia's common stock, effective through January 25, 2002. Included in the 1999 purchases were 5,851,987 shares under separate authorizations to accomplish the purchase accounting acquisitions of IJL, OFFITBANK, BEJS and B C Bankshares, Inc. In connection with the purchase acquisitions of IJL, OFFITBANK and BEJS, Wachovia issued 4,801,987 shares of common stock, resulting in an increase in shareholders' equity of $423 million. Intangible assets at December 31, 1999 totaled $940 million, consisting of $823 million of goodwill, $80 million of deposit base intangibles, $34 million of purchased credit card premiums, $3 million of mortgage servicing rights and $412 thousand of other intangibles. Intangible assets one year earlier were $688 million, with $543 million of goodwill, $94 million of deposit base intangibles, $40 million of purchased credit card receivables, $10 million of mortgage servicing rights and $305 thousand of other intangibles. An increase in goodwill of $303 million, net of amortization, resulted from purchase acquisitions consummated in 1999. Capital Components and Ratios Table 16 - -------------------------------------------------------------------------------- December 31 (thousands) 1999 1998 1997 ------------ ----------- ----------- Tier I capital: Common shareholders' equity ............................................. $ 5,658,457 $ 5,338,232 $ 5,174,301 Capital securities ...................................................... 996,744 996,368 995,993 Less ineligible intangible assets ....................................... 931,257 666,672 634,052 Unrealized (gains) losses on securities available-for-sale -- net of tax 72,002 (82,440) (71,098) ------------ ----------- ----------- Total Tier I capital .................................................. 5,795,946 5,585,488 5,465,144 Tier II capital: Allowable allowance for loan losses ..................................... 554,810 547,992 544,723 Allowable long-term debt ................................................ 2,107,334 1,794,148 1,193,451 ------------ ----------- ----------- Tier II capital additions ............................................. 2,662,144 2,342,140 1,738,174 ------------ ----------- ----------- Total capital ......................................................... $ 8,458,090 $ 7,927,628 $ 7,203,318 ============ =========== =========== Risk-adjusted assets ..................................................... $ 77,060,603 $69,928,737 $64,844,037 Quarterly average assets* ................................................ $ 66,113,697 $64,454,538 $59,139,712 Risk-based capital ratios: Tier I capital .......................................................... 7.52% 7.99% 8.43% Total capital ........................................................... 10.98 11.34 11.11 Tier I leverage ratio .................................................... 8.77 8.67 9.24
* Excludes ineligible intangible assets and average unrealized gains (losses) on securities available-for-sale, net of tax. 60 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 allowance for loan losses and certain long-term debt) and measure capital adequacy by applying both capital levels to a banking company's risk-adjusted assets and off-balance sheet items. Regulatory requirements presently specify that Tier I capital should exclude the market appreciation or depreciation of securities available-for-sale arising from marking the portfolio to fair 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. It is Wachovia's policy that it and its banking subsidiaries be well capitalized at all times. Dividends Cash dividends paid in 1999 totaled $418 million, rising $37 million or 9.6 percent from $382 million paid in 1998. The payout ratio of cash dividends paid to net income was 41.4 percent for the year. On January 28, 2000, Wachovia's Board of Directors declared a first quarter 2000 dividend of $.54 per common share, payable March 1, 2000 to shareholders of record on February 10. The dividend is higher by 10.2 percent from $.49 per common share paid in the same period of 1999. (Graph appears here with the following plot points.) YEAR-END SHAREHOLDERS' EQUITY PER SHARE FIVE-YEAR COMPOUND GROWTH RATE=8.3% 1994 1995 1996 1997 1998 1999 18.79 22.08 22.90 25.13 26.30 28.04 61 Financial Summary Table 17 - -------------------------------------------------------------------------------- 1999 ----------------------------------------------------------- Fourth Third Second First Quarter Quarter Quarter Quarter ------------- ----------- ----------- ----------- Summary of Operations (thousands, except per share data) Interest income ................................. $ 1,224,486 $ 1,165,343 $ 1,146,605 $ 1,130,386 Interest expense ................................ 596,583 548,238 529,603 522,310 ------------- ----------- ----------- ----------- Net interest income ............................. 627,903 617,105 617,002 608,076 Provision for loan losses ....................... 66,174 76,770 74,525 80,636 ------------- ----------- ----------- ----------- Net interest income after provision for loan losses ......................................... 561,729 540,335 542,477 527,440 Other operating revenue ......................... 439,469 432,841 404,544 333,269 Securities gains ................................ 60 147 10,453 234 ------------- ----------- ----------- ----------- Total other income .............................. 439,529 432,988 414,997 333,503 Personnel expense ............................... 324,288 317,060 307,752 271,186 Nonrecurring merger-related charges ............. 5,669 5,293 8,347 ---- Other expense ................................... 270,661 254,839 264,518 221,012 ------------- ----------- ----------- ----------- Total other expense ............................. 600,618 577,192 580,617 492,198 Income before income tax expense ................ 400,640 396,131 376,857 368,745 Income tax expense .............................. 137,704 138,632 129,307 125,509 ------------- ----------- ----------- ----------- Net income ...................................... $ 262,936 $ 257,499 $ 247,550 $ 243,236 ============= =========== =========== =========== Net income per common share: Basic .......................................... $ 1.30 $ 1.27 $ 1.21 $ 1.20 Diluted ........................................ $ 1.28 $ 1.25 $ 1.19 $ 1.18 Cash dividends paid per common share ............ $ .54 $ .54 $ .49 $ .49 Cash dividends paid on common stock ............. $ 109,273 $ 109,220 $ 100,292 $ 99,662 Cash dividend payout ratio ...................... 41.56% 42.42% 40.51% 40.97% Average basic shares outstanding ................ 202,168 202,167 203,746 203,119 Average diluted shares outstanding .............. 205,096 205,345 207,400 206,959 Selected Average Balances (millions) Total assets .................................... $ 66,982 $ 64,815 $ 65,454 $ 64,408 Loans -- net of unearned income ................. 48,593 47,003 47,012 46,261 Securities ...................................... 9,016 9,461 9,664 9,221 Other interest-earning assets ................... 1,844 1,464 1,588 1,313 Total interest-earning assets ................... 59,453 57,928 58,264 56,795 Interest-bearing deposits ....................... 33,107 31,996 32,343 31,846 Short-term borrowed funds ....................... 9,836 8,848 9,629 9,292 Long-term debt .................................. 8,327 8,571 7,998 7,627 Total interest-bearing liabilities .............. 51,270 49,415 49,970 48,765 Noninterest-bearing deposits .................... 8,326 8,368 8,261 8,062 Total deposits .................................. 41,433 40,364 40,604 39,908 Shareholders' equity ............................ 5,555 5,391 5,459 5,314 Ratios (averages) Annualized net loan losses to loans ............. .54% .61% .63% .69% Annualized net yield on interest-earning assets ......................................... 4.26 4.29 4.31 4.41 Shareholders' equity to: Total assets ................................... 8.29 8.32 8.34 8.25 Net loans ...................................... 11.56 11.60 11.75 11.62 Annualized return on assets ..................... 1.57 1.59 1.51 1.51 Annualized return on shareholders' equity ....... 18.93 19.11 18.14 18.31 Operating Performance Excluding Nonrecurring Items (thousands, except per share data) Net income ...................................... $ 266,620 $ 260,939 $ 253,060 $ 243,236 Net income per diluted share .................... $ 1.30 $ 1.27 $ 1.22 $ 1.18 Annualized return on assets ..................... 1.59% 1.61% 1.55% 1.51% Annualized return on shareholders' equity ....... 19.20 19.36 18.54 18.31 Cash dividend payout ratio ...................... 40.98 41.86 39.63 40.97 1998 ------------------------------------------------------------- Fourth Third Second First Quarter Quarter Quarter Quarter ------------- ----------- ----------- ----------- Summary of Operations (thousands, except per share data) Interest income ................................. $ 1,176,192 $ 1,171,466 $ 1,169,758 $ 1,147,829 Interest expense ................................ 566,443 582,030 587,054 578,686 ------------- ----------- ----------- ----------- Net interest income ............................. 609,749 589,436 582,704 569,143 Provision for loan losses ....................... 84,104 72,809 68,441 74,126 ------------- ----------- ----------- ----------- Net interest income after provision for loan losses ......................................... 525,645 516,627 514,263 495,017 Other operating revenue ......................... 318,812 310,541 315,043 283,723 Securities gains ................................ 7,407 6,886 2,992 3,157 ------------- ----------- ----------- ----------- Total other income .............................. 326,219 317,427 318,035 286,880 Personnel expense ............................... 269,941 263,282 262,406 259,724 Nonrecurring merger-related charges ............. 6,961 11,934 30,849 35,568 Other expense ................................... 215,784 217,187 223,739 198,957 ------------- ----------- ----------- ----------- Total other expense ............................. 492,686 492,403 516,994 494,249 Income before income tax expense ................ 359,178 341,651 315,304 287,648 Income tax expense .............................. 117,612 114,284 105,388 92,327 ------------- ----------- ----------- ----------- Net income ...................................... $ 241,566 $ 227,367 $ 209,916 $ 195,321 ============= =========== =========== =========== Net income per common share: Basic .......................................... $ 1.19 $ 1.11 $ 1.02 $ .95 Diluted ........................................ $ 1.17 $ 1.09 $ 1.00 $ .93 Cash dividends paid per common share ............ $ .49 $ .49 $ .44 $ .44 Cash dividends paid on common stock ............. $ 99,452 $ 100,784 $ 90,973 $ 90,589 Cash dividend payout ratio ...................... 41.17% 44.33% 43.34% 46.38% Average basic shares outstanding ................ 202,824 204,832 206,718 205,894 Average diluted shares outstanding .............. 206,991 208,837 210,662 210,158 Selected Average Balances (millions) Total assets .................................... $ 65,298 $ 63,429 $ 63,916 $ 63,133 Loans -- net of unearned income ................. 45,966 43,894 43,974 43,749 Securities ...................................... 9,952 10,664 11,102 10,623 Other interest-earning assets ................... 1,622 1,508 1,558 1,630 Total interest-earning assets ................... 57,540 56,066 56,634 56,002 Interest-bearing deposits ....................... 31,766 31,654 32,182 32,455 Short-term borrowed funds ....................... 11,135 10,858 10,947 10,635 Long-term debt .................................. 6,830 6,080 6,092 6,107 Total interest-bearing liabilities .............. 49,731 48,592 49,221 49,197 Noninterest-bearing deposits .................... 8,148 7,874 7,939 7,240 Total deposits .................................. 39,914 39,528 40,121 39,695 Shareholders' equity ............................ 5,178 5,173 5,211 5,109 Ratios (averages) Annualized net loan losses to loans ............. .73% .66% .62% .68% Annualized net yield on interest-earning assets ......................................... 4.28 4.26 4.21 4.21 Shareholders' equity to: Total assets ................................... 7.93 8.16 8.15 8.09 Net loans ...................................... 11.40 11.93 12.00 11.82 Annualized return on assets ..................... 1.48 1.43 1.31 1.24 Annualized return on shareholders' equity ....... 18.66 17.58 16.11 15.29 Operating Performance Excluding Nonrecurring Items (thousands, except per share data) Net income ...................................... $ 246,160 $ 235,243 $ 230,276 $ 218,168 Net income per diluted share .................... $ 1.19 $ 1.13 $ 1.09 $ 1.04 Annualized return on assets ..................... 1.51% 1.48% 1.44% 1.38% Annualized return on shareholders' equity ....... 19.02 18.19 17.68 17.08 Cash dividend payout ratio ...................... 40.40 42.84 39.51 41.52
62 ----------------------------- Fourth Quarter Analysis ----------------------------------------------------------------- Business Segments Asset and Wealth Management. Pretax income grew $12 million or 39.4 percent to $41 million, due in large part to business acquisitions completed during 1999. Net interest income grew $9 million or 30 percent with an increase in interest-earning assets of $217 million or 9.3 percent. Noninterest income rose $71 million or 93.4 percent, with significant increases of $19 million in portfolio management fees, $19 million in brokerage commission income and $12 million in mutual fund income. Noninterest expense rose $68 million or 89.5 percent, led by the added expense base from the acquisitions. Corporate. Pretax income totaled $200 million, an increase of $22 million or 12.2 percent from 1998. Net interest income rose $47 million or 19.6 percent, primarily fueled by strong loan and lease growth in corporate services. Noninterest income, led by gains in capital markets income and brokerage commission income, expanded $25 million or 28.8 percent. The provision for loan losses increased $21 million to $26 million, while noninterest expense was up $29 million or 20.7 percent, primarily reflecting a higher salary base in the capital markets and Corporate Services areas. Credit Card. Pretax income was $67 million, an increase of $15 million or 31.2 percent from 1998. Net interest income declined $4 million or 2.3 percent, driven by a lower net yield and stable loan balances. Noninterest income advanced $8 million or 18.3 percent, with increases in interchange income, overlimit fees and merchant fees largely accounting for the rise. The provision for loan losses declined $16 million or 21.2 percent, while noninterest expense was up $5 million or 6.6 percent, largely due to growth in advertising and professional services costs. Consumer. Pretax income grew $22 million or 21.5 percent to $124 million. Revenue gains were paced by the margin, with net interest income up $12 million or 5 percent and fee income increasing $6 million or 6.3 percent. Growth in net interest income reflected both greater loan volume and improvement in the net yield, while higher levels of deposit fees, up $6 million, and electronic banking revenue, up $5 million, helped pace the increase in noninterest income, offsetting declines in mortgage fee income. The provision for loan losses declined $1 million or 31.6 percent, and noninterest expense declined $3 million or 1.4 percent, with increases primarily in net occupancy and equipment expense. Treasury & Administration. Pretax income declined $29 million to a loss of $20 million in the fourth quarter of 1999 from the comparable period one year earlier. The net interest margin was lower by $45 million, reflecting a $1.574 billion or 18 percent decrease in interest-earning assets, primarily securities. Short-term borrowed funds declined by $1.299 billion, as management utilized long-term discretionary funding sources to support the overall margin. Noninterest income grew $4 million for the quarter, as increases in credit card income of $10 million offset lower securities gains of $7 million. Noninterest expense rose $10 million, lead by increases in equipment expense, outside data processing, programming and software costs, other tax expense, and professional services. Merger-related charges declined $1 million from the 1998 fourth quarter. 63 Business Segments Table 18 - -------------------------------------------------------------------------------- Asset and Wealth Management Corporate Credit Card -------------------- ----------------- ------------------- Operations Summary 1999 1998 1999 1998 1999 1998 --------- -------- ------- ------- -------- ------- (millions) External net interest margin ...................... $ 31 $ 22 $ 604 $ 509 $ 218 $ 216 Internal funding (charge) credit ...................... 8 8 (320) (272) (85) (79) --------- -------- ------- ------- -------- ------- Net interest income* ......... 39 30 284 237 133 137 Total other income ........... 147 76 111 86 48 40 --------- -------- ------- ------- -------- ------- Total revenues ............... 186 106 395 323 181 177 Provision for loan losses..... -- -- 26 5 57 73 Total other expense .......... 145 77 169 140 57 52 --------- -------- ------- ------- -------- ------- Pretax profit ................ 41 29 200 178 67 52 Income taxes (benefit) ....... 16 10 71 62 24 18 --------- -------- ------- ------- -------- ------- Net income (loss) ............ $ 25 $ 19 $ 129 $ 116 $ 43 $ 34 ========= ======== ======= ======= ======== ======= Percentage contribution to total revenues** ......... 17.0% 11.0% 36.1% 33.6% 16.5% 18.4% Percentage contribution to net income ............... 9.5% 7.9% 49.1% 47.9% 16.3% 14.0% Average Balances (billions) Total assets ................. $ 3 $ 3 $ 36 $ 34 $ 6 $ 6 Treasury & Total Consumer Administration Eliminations Corporation ---------------- -------------------- ---------------- --------------- Operations Summary 1999 1998 1999 1998 1999 1998 1999 1998 ------ ------ --------- ---- ------- ------- ------- ------ (millions) External net interest margin ...................... $ (41) $ (44) ($ 173) ($ 82) $ (11) $ (11) $ 628 $ 610 Internal funding (charge) credit ...................... 282 273 131 85 (16) (15) -- -- ------ ------ --------- ---- ------- ------- ------- ------ Net interest income* ......... 241 229 (42) 3 (27) (26) 628 610 Total other income ........... 108 102 26 22 -- -- 440 326 ------ ------ --------- ---- ------- ------- ------- ------ Total revenues ............... 349 331 (16) 25 (27) (26) 1,068 936 Provision for loan losses..... 2 3 (19) 3 -- -- 66 84 Total other expense .......... 223 226 23 13 (16) (15) 601 493 ------ ------ --------- ---- ------- ------- ------- ------ Pretax profit ................ 124 102 (20) 9 (11) (11) 401 359 Income taxes (benefit) ....... 45 35 (7) 3 (11) (11) 138 117 ------ ------ --------- ---- ------- ------- ------- ------ Net income (loss) ............ $ 79 $ 67 $ (13) $ 6 $ -- $ -- $ 263 $ 242 ====== ====== --------- ==== ======= ======= ======= ====== Percentage contribution to total revenues** ......... 31.9% 34.4% (1.5%) 2.6% Percentage contribution to net income ............... 30.0% 27.7% (4.9%) 2.5% Average Balances (billions) Total assets ................. $ 11 $ 9 $ 11 $ 13 $ 67 $ 65
* Net interest income is reported on a taxable equivalent basis by segment and on a nontaxable equivalent basis for the corporation, reflecting segment eliminations. ** Percentage contribution to total revenues is based on the proportion of each segment's revenues to the combined revenues of all segments. Revenues for the total corporation are presented based on nontaxable equivalent net interest income and total other income, including securities transactions. Consolidated Financial Results Net income for the fourth quarter of 1999 was $263 million or $1.28 per diluted share compared with $242 million or $1.17 per diluted share a year earlier. Included in the results for both quarters were nonrecurring charges that totaled $6 million, pretax, in the 1999 period and $7 million, pretax, in the 1998 period for merger-related charges. Excluding the after-tax effect of merger-related charges, operating net income for the fourth quarter of 1999 was $267 million or $1.30 per diluted share versus $246 million or $1.19 per diluted share a year earlier. Total comprehensive income, which includes unrealized gains or losses on securities available-for-sale that are recorded directly to shareholders' equity, was $218 million for the fourth quarter of 1999 compared with $193 million for the same period of 1998. 64 (Graph appears here with the following plot points.) QUARTERLY NET INCOME PER SHARE, 1999 (DILUTED) 1ST Q 2ND Q 3RD Q 4TH Q 1.18 1.19 1.25 1.28 (Graph appears here with the following plot points.) QUARTERLY NET INCOME PER SHARE, 1998 (DILUTED) 1ST Q 2ND Q 3RD Q 4TH Q .93 1.00 1.09 1.17 Revenue growth for the quarter was strong. Total revenues advanced $139 million or 14.8 percent year over year to $1.078 billion, with three-fourths of the revenue expansion from fee income sources. Taxable equivalent net interest income expanded $18 million or 2.9 percent. The rise was driven primarily by strong loan demand, with average loans growing $2.627 billion or 5.7 percent, led largely by taxable commercial loans, commercial real estate loans and lease financing. Two 1999 credit card securitizations reduced average loan balances by approximately $1.396 billion. The average rate earned on loans increased 4 basis points, while the rate on total earning assets rose 6 basis points. Over the same period, Wachovia's average prime lending rate rose 44 basis points and the average federal funds rate rose 45 basis points. Total interest-bearing liabilities rose $1.539 billion or 3.1 percent, while the average rate paid rose 10 basis points. The faster pace at which rates on the liability side of the balance sheet increased compared with interest-earning assets reflects the effect of the 1999 securitizations on the earning asset mix which reduced the fourth quarter yield on interest-earning assets by approximately 12 basis points. The net yield on interest-earning assets declined 2 basis points to 4.26 percent. The fourth quarter 1999 net yield on interest-earning assets was also influenced by the year-end spike in the short-term LIBOR and the effect of maintaining excess cash in anticipation of year 2000 date change demand. 65 Taxable Equivalent Rate/Volume Analysis -- Fourth Quarter* Table 19 - -------------------------------------------------------------------------------- Average Volume Average Rate - -------------------- -------------------- 1999 1998 1999 1998 - -------- ------- -------- ------- Interest Income (Millions) Loans: $16,714 $15,045 7.81 6.97 Commercial ....................................... 720 1,033 12.09 9.72 Tax-exempt ....................................... - -------- ------- 17,434 16,078 7.99 7.14 Total commercial ................................. 1,050 1,112 8.49 8.86 Direct retail .................................... 3,690 3,212 7.85 7.92 Indirect retail .................................. 4,501 5,829 13.69 13.62 Credit card ...................................... 639 523 11.15 11.36 Other revolving credit ........................... - -------- ------- 9,880 10,676 10.79 11.30 Total retail ..................................... 2,272 1,971 8.94 8.78 Construction ..................................... 7,630 6,875 8.30 8.35 Commercial mortgages ............................. 7,604 7,543 7.67 7.72 Residential mortgages ............................ - -------- ------- 17,506 16,389 8.11 8.11 Total real estate ................................ 2,491 1,736 9.97 12.16 Lease financing .................................. 1,282 1,087 6.91 6.85 Foreign .......................................... - -------- ------- 48,593 45,966 8.68 8.64 Total loans ...................................... Securities: Held-to-maturity: 605 526 6.03 6.08 U.S. Government and agency ....................... 417 664 8.13 8.28 Mortgage-backed .................................. 185 181 9.74 11.50 State and municipal .............................. 45 83 6.92 6.53 Other ............................................ - -------- ------- 1,252 1,454 7.31 7.79 Total held-to-maturity ........................... Available-for-sale:** 3,319 3,478 6.40 6.52 U.S. Government and agency ....................... 3,881 4,425 6.34 6.44 Mortgage-backed .................................. 564 595 8.20 6.82 Other ............................................ - -------- ------- 7,764 8,498 6.50 6.50 Total available-for-sale ......................... - -------- ------- 9,016 9,952 6.61 6.68 Total securities ................................. 136 163 6.36 7.73 Interest-bearing bank balances ................... Federal funds sold and securities purchased 681 641 5.48 5.33 under resale agreements .......................... 1,027 818 4.28 3.48 Trading account assets ........................... - -------- ------- $59,453 $57,540 8.25 8.19 Total interest-earning assets .................... ======== ======= Interest Expense $ 4,653 $ 4,639 1.40 1.30 Interest-bearing demand .......................... 13,470 12,481 3.72 3.67 Savings and money market savings ................. 8,774 9,128 5.09 5.35 Savings certificates ............................. 3,428 3,387 5.31 5.31 Large denomination certificates .................. - -------- ------- Total interest-bearing deposits in 30,325 29,635 3.94 4.00 domestic offices ................................. 2,782 2,131 5.19 5.23 Interest-bearing deposits in foreign offices ..... - -------- ------- 33,107 31,766 4.05 4.09 Total interest-bearing deposits .................. Federal funds purchased and securities 6,744 7,404 5.10 4.68 sold under repurchase agreements ................. 1,565 1,439 4.97 4.62 Commercial paper ................................. 1,527 2,292 5.97 5.23 Other short-term borrowed funds .................. - -------- ------- 9,836 11,135 5.22 4.78 Total short-term borrowed funds .................. 2,436 2,459 5.80 6.06 Bank notes ....................................... 5,891 4,371 6.32 6.12 Other long-term debt ............................. - -------- ------- 8,327 6,830 6.17 6.10 Total long-term debt ............................. - -------- ------- $51,270 $49,731 4.62 4.52 Total interest-bearing liabilities ............... ======== ======= --------- ----- 3.63 3.67 Interest rate spread ========= ===== Net yield on interest-earning assets 4.26 4.28 and net interest income .......................... ========= =====
Variance Interest Attributable to ----------------------- 1999 1998 Variance Rate Volume ----- ---- ------- ------- ---- Interest Income (Thousands) Loans: Commercial ....................................... $ 329,115 $ 264,170 $ 64,945 $ 33,962 $ 30,983 Tax-exempt ....................................... 21,951 25,293 (3,342) 5,344 (8,686) ----------- ----------- ------------- Total commercial ................................. 351,066 289,463 61,603 35,997 25,606 Direct retail .................................... 22,484 24,851 (2,367) (1,011) (1,356) Indirect retail .................................. 73,039 64,128 8,911 (555) 9,466 Credit card ...................................... 155,328 200,086 (44,758) 1,044 (45,802) Other revolving credit ........................... 17,945 14,980 2,965 (282) 3,247 ----------- ----------- ------------- Total retail ..................................... 268,796 304,045 (35,249) (13,206) (22,043) Construction ..................................... 51,218 43,617 7,601 832 6,769 Commercial mortgages ............................. 159,619 144,741 14,878 (934) 15,812 Residential mortgages ............................ 147,041 146,794 247 (927) 1,174 ----------- ----------- ------------- Total real estate ................................ 357,878 335,152 22,726 (108) 22,834 Lease financing .................................. 62,585 53,221 9,364 (10,843) 20,207 Foreign .......................................... 22,337 18,782 3,555 159 3,396 ----------- ----------- ------------- Total loans ...................................... 1,062,662 1,000,663 61,999 4,577 57,422 Securities: Held-to-maturity: U.S. Government and agency ....................... 9,199 8,056 1,143 (67) 1,210 Mortgage-backed .................................. 8,543 13,861 (5,318) (246) (5,072) State and municipal .............................. 4,535 5,237 (702) (817) 115 Other ............................................ 784 1,364 (580) 77 (657) ----------- ----------- ------------- Total held-to-maturity ........................... 23,061 28,518 (5,457) (1,669) (3,788) Available-for-sale:** U.S. Government and agency ....................... 53,563 57,126 (3,563) (971) (2,592) Mortgage-backed .................................. 62,001 71,798 (9,797) (1,093) (8,704) Other ............................................ 11,680 10,238 1,442 1,990 (548) ----------- ----------- ------------- Total available-for-sale ......................... 127,244 139,162 (11,918) 116 (12,034) ----------- ----------- ------------- Total securities ................................. 150,305 167,680 (17,375) (1,756) (15,619) Interest-bearing bank balances ................... 2,175 3,166 (991) (512) (479) Federal funds sold and securities purchased under resale agreements .......................... 9,403 8,615 788 246 542 Trading account assets ........................... 11,064 7,173 3,891 1,835 2,056 ----------- ----------- ------------- Total interest-earning assets .................... 1,235,609 1,187,297 48,312 8,614 39,698 Interest Expense Interest-bearing demand .......................... 16,439 15,206 1,233 1,185 48 Savings and money market savings ................. 126,428 115,367 11,061 1,801 9,260 Savings certificates ............................. 112,639 123,203 (10,564) (5,880) (4,684) Large denomination certificates .................. 45,867 45,359 508 (39) 547 ----------- ----------- ------------- Total interest-bearing deposits in domestic offices ................................. 301,373 299,135 2,238 (4,659) 6,897 Interest-bearing deposits in foreign offices ..... 36,393 28,112 8,281 (236) 8,517 ----------- ----------- ------------- Total interest-bearing deposits .................. 337,766 327,247 10,519 (3,183) 13,702 Federal funds purchased and securities sold under repurchase agreements ................. 86,765 87,291 (526) 7,604 (8,130) Commercial paper ................................. 19,622 16,746 2,876 1,350 1,526 Other short-term borrowed funds .................. 22,967 30,209 (7,242) 3,830 (11,072) ----------- ----------- ------------- Total short-term borrowed funds .................. 129,354 134,246 (4,892) 11,557 (16,449) Bank notes ....................................... 35,644 37,576 (1,932) (1,583) (349) Other long-term debt ............................. 93,819 67,374 26,445 2,312 24,133 ----------- ----------- ------------- Total long-term debt ............................. 129,463 104,950 24,513 1,260 23,253 ----------- ----------- ------------- Total interest-bearing liabilities ............... 596,583 566,443 30,140 12,388 17,752 ----------- ----------- ------------- Interest rate spread Net yield on interest-earning assets and net interest income .......................... $ 639,026 $ 620,854 $ 18,172 (2,393) 20,565 =========== =========== =============
* 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. Any variance attributable jointly to volume and rate changes is allocated to the volume and rate in proportion to the relationship of the absolute dollar amount of the change in each. ** Volume amounts are reported at amortized cost; excludes pretax unrealized losses of $65 million in 1999 and unrealized gains of $177 million in 1998. 66 Allowance for Loan Losses Table 20 - -------------------------------------------------------------------------------- (thousands) 1999 --------------------------------------------------- Fourth Third Second First Quarter Quarter Quarter Quarter ---------- -------- -------- -------- Summary of Activity Balance at beginning of period ............ $ 553,894 $ 548,540 $548,302 $ 547,992 Additions from acquisitions ............... ---- ---- 39 ---- Provision for loan losses ................. 66,174 76,770 74,525 80,636 Deduct net loan losses: Loans charged off: Commercial .............................. 17,805 15,509 7,592 5,862 Credit card ............................. 49,478 54,925 69,619 74,094 Other revolving credit .................. 1,332 2,305 3,126 2,889 Other retail ............................ 8,905 8,561 7,888 8,910 Real estate ............................. 2,632 4,005 1,397 1,488 Lease financing ......................... 908 855 585 592 Foreign ................................. ---- ---- ---- ---- ----------- --------- -------- --------- Total ................................. 81,060 86,160 90,207 93,835 Recoveries: Commercial .............................. 2,400 1,018 1,667 1,956 Credit card ............................. 8,152 8,967 8,618 7,045 Other revolving credit .................. 610 774 828 707 Other retail ............................ 2,886 2,674 2,718 2,813 Real estate ............................. 1,627 1,124 1,836 849 Lease financing ......................... 127 187 214 139 Foreign ................................. ---- ---- ---- ---- ----------- --------- -------- --------- Total ................................. 15,802 14,744 15,881 13,509 ----------- --------- -------- --------- Net loan losses .......................... 65,258 71,416 74,326 80,326 ----------- --------- -------- --------- Balance at end of period .................. $ 554,810 $ 553,894 $548,540 $ 548,302 =========== ========= ======== ========= Net Loan Losses (Recoveries) by Category Commercial ................................ $ 15,405 $ 14,491 $ 5,925 $ 3,906 Credit card ............................... 41,326 45,958 61,001 67,049 Other revolving credit .................... 722 1,531 2,298 2,182 Other retail .............................. 6,019 5,887 5,170 6,097 Real estate ............................... 1,005 2,881 (439) 639 Lease financing ........................... 781 668 371 453 Foreign ................................... ---- ---- ---- ---- ----------- --------- -------- --------- Total ................................. $ 65,258 $ 71,416 $ 74,326 $ 80,326 =========== ========= ======== ========= Net loan losses -- excluding credit cards .................................... $ 23,932 $ 25,458 $ 13,325 $ 13,277 Annualized Net Loan Losses (Recoveries) to Average Loans by Category Commercial ................................ .35% .36% .14% .10% Credit card ............................... 3.67 3.76 4.95 4.58 Other revolving credit .................... .45 1.02 1.61 1.60 Other retail .............................. .51 .51 .47 .56 Real estate ............................... .02 .07 (.01) .02 Lease financing ........................... .13 .11 .07 .09 Foreign ................................... ---- ---- ---- ---- Total loans ............................... .54 .61 .63 .69 Total loans -- excluding credit cards ..... .22 .24 .13 .13 Period-end allowance to outstanding loans .................................... 1.12 1.16 1.13 1.18
1998 ------------------------------------------------ Fourth Third Second First Quarter Quarter Quarter Quarter -------- ------ ------ ------ Summary of Activity Balance at beginning of period ............ $ 547,686 $547,572 $544,741 $544,723 Additions from acquisitions ............... ---- ---- 2,613 ---- Provision for loan losses ................. 84,104 72,809 68,441 74,126 Deduct net loan losses: Loans charged off: Commercial .............................. 7,365 4,601 3,252 2,662 Credit card ............................. 75,401 69,043 70,015 72,061 Other revolving credit .................. 3,050 2,736 2,927 2,089 Other retail ............................ 9,851 8,515 6,624 10,388 Real estate ............................. 2,407 264 634 1,209 Lease financing ......................... 701 782 726 886 Foreign ................................. ---- ---- ---- ---- ----------- -------- -------- -------- Total ................................. 98,775 85,941 84,178 89,295 Recoveries: Commercial .............................. 1,979 1,517 1,271 1,900 Credit card ............................. 7,073 7,522 7,270 6,939 Other revolving credit .................. 641 610 630 690 Other retail ............................ 3,167 2,242 3,070 3,015 Real estate ............................. 2,001 1,223 3,578 2,537 Lease financing ......................... 116 132 136 106 Foreign ................................. ---- ---- ---- ---- ----------- -------- -------- -------- Total ................................. 14,977 13,246 15,955 15,187 ----------- -------- -------- -------- Net loan losses .......................... 83,798 72,695 68,223 74,108 ----------- -------- -------- -------- Balance at end of period .................. $ 547,992 $547,686 $547,572 $544,741 =========== ======== ======== ======== Net Loan Losses (Recoveries) by Category Commercial ................................ $ 5,386 $ 3,084 $ 1,981 $ 762 Credit card ............................... 68,328 61,521 62,745 65,122 Other revolving credit .................... 2,409 2,126 2,297 1,399 Other retail .............................. 6,684 6,273 3,554 7,373 Real estate ............................... 406 (959) (2,944) (1,328) Lease financing ........................... 585 650 590 780 Foreign ................................... ---- ---- ---- ---- ----------- -------- -------- -------- Total ................................. $ 83,798 $ 72,695 $ 68,223 $ 74,108 =========== ======== ======== ======== Net loan losses -- excluding credit cards .................................... $ 15,470 $ 11,174 $ 5,478 $ 8,986 Annualized Net Loan Losses (Recoveries) to Average Loans by Category Commercial ................................ .13% .08% .05% .02% Credit card ............................... 4.69 4.40 4.52 4.54 Other revolving credit .................... 1.84 1.67 1.86 1.20 Other retail .............................. .62 .60 .34 .70 Real estate ............................... .01 (.02) (.07) (.03) Lease financing ........................... .13 .16 .19 .29 Foreign ................................... ---- ---- ---- ---- Total loans ............................... .73 .66 .62 .68 Total loans -- excluding credit cards ..... .15 .12 .06 .09 Period-end allowance to outstanding loans .................................... 1.20 1.20 1.23 1.22
The provision for loan losses was $66 million, lower by $18 million or 21.3 percent from the year-earlier period. Net loan losses totaled $65 million or .54 percent of average loans, decreasing $19 million or 22.1 percent from a year earlier. The decrease in overall net loan losses reflected reductions in consumer losses, due in part to the effect of the securitization transactions and the continuation of a favorable trend in consumer bankruptcies and delinquencies. The favorable conditions in the retail portfolio offset higher loss 67 levels in the commercial portfolio. On a managed basis, including securitized loans, credit card net charge-offs totaled $58 million or 3.61 percent of average receivables versus $73 million or 4.61 percent in the same period of 1998. Excluding credit cards, net loan losses were $24 million or .22 percent of loans, an increase of $8 million or 54.7 percent from $15 million or .15 percent of loans in the same three months of 1998. Total other operating revenue rose $121 million or 37.8 percent, with most major categories expanding for the period. Investment fees grew $64 million, principally due to additions from purchase acquisitions involving IJL and OFFITBANK in the second and third quarters of 1999. Major areas of increase included annuity premiums, mutual fund trading and fees, portfolio management fees, equity commissions, and option commissions. Capital markets income rose $13 million or 35.8 percent over the fourth quarter of 1998, due in large part to IJL activity focused in sales commissions on municipal securities, agencies and corporate debt. Also contributing to the increase were derivatives income and loan syndication fees. Credit card income advanced $19 million or 40.8 percent, primarily due to increases in securitization income and overlimit charges. Fees for trust services declined quarter to quarter by $2 million, reflecting the sale of the master trust and institutional custody business in the third quarter of 1999. Mortgage fees declined $8 million or 62.8 percent, largely influenced by reduced sales of servicing rights on fixed-rate mortgages and by lower origination fees as interest rates advanced. Noninterest Income Table 21 - -------------------------------------------------------------------------------- (thousands) 1999 ------------------------------------------- Fourth Third Second First Quarter Quarter Quarter Quarter ----------- ------ ------ ------ Service charges on deposit accounts ........ $ 96,642 $ 94,595 $ 91,454 $ 86,955 Fees for trust services .................... 52,283 60,066 54,907 49,136 Credit card income -- net of interchange payments ...................... 65,046 70,786 58,110 61,301 Investment fees ............................ 78,747 69,364 69,877 17,362 Capital markets income ..................... 48,965 41,914 41,780 38,112 Electronic banking ......................... 24,303 23,310 22,558 18,455 Mortgage fees .............................. 5,006 7,378 9,863 10,966 Bankers' acceptance and letter of credit fees ...................................... 12,444 11,688 11,563 10,342 Other service charges and fees ............. 26,720 19,494 18,153 15,526 Other income ............................... 29,313 34,246 26,279 25,114 ----------- -------- -------- -------- Total other operating revenue .......... 439,469 432,841 404,544 333,269 Securities gains ........................... 60 147 10,453 234 ----------- -------- -------- -------- Total .................................. $ 439,529 $432,988 $414,997 $333,503 =========== ======== ======== ========
1998 --------------------------------------------- Fourth Third Second First Quarter Quarter Quarter Quarter -------- ------ ------ ------ Service charges on deposit accounts ........ $ 86,967 $ 84,674 $ 82,465 $ 80,874 Fees for trust services .................... 53,909 51,185 48,802 46,053 Credit card income -- net of interchange payments ...................... 46,194 43,312 43,077 38,544 Investment fees ............................ 15,170 14,997 16,389 15,000 Capital markets income ..................... 36,044 37,625 40,304 16,110 Electronic banking ......................... 19,746 19,449 18,667 16,395 Mortgage fees .............................. 13,472 12,251 11,502 7,704 Bankers' acceptance and letter of credit fees ...................................... 9,909 9,745 9,802 9,569 Other service charges and fees ............. 13,473 13,608 13,536 14,109 Other income ............................... 23,928 23,695 30,499 39,365 --------- -------- -------- -------- Total other operating revenue .......... 318,812 310,541 315,043 283,723 Securities gains ........................... 7,407 6,886 2,992 3,157 --------- -------- -------- -------- Total .................................. $326,219 $317,427 $318,035 $286,880 ========= ======== ======== ========
Service charges on deposit accounts rose $10 million or 11.1 percent for the quarter, concentrated in commercial analysis fees, up $4 million, and overdraft charges, up $4 million. The increase in overdraft fees reflects the combined effect of a price increase early in the year and fewer waived charges. Including securities sales, total noninterest income was up $113 million or 34.7 percent. Noninterest expense increased $109 million or 22.5 percent for the quarter, excluding merger-related charges of $6 million in 1999 and $7 million in 1998. Excluding expense added by the purchase acquisitions completed during 1999, noninterest expense rose approximately 6 percent for the quarter. Salaries expense grew $55 million or 24.9 percent quarter to quarter, fueled by incentive compensation for increased production volume and by higher staffing levels from the purchase acquisitions. Overall employee benefit costs declined slightly for the quarter. Absent the impact of the purchase acquisitions, total personnel costs would have been flat for the period. Equipment expense increased $12 million or 68 28.5 percent from 1998, due to depreciation charges and other expenses relating to technology investments. Included in these increases was the impact of Wachovia's new data center, which came fully online during 1999. Noninterest Expense Table 22 - -------------------------------------------------------------------------------- (thousands)
1999 -------------------------------------------------- Fourth Third Second First Quarter Quarter Quarter Quarter ----------- ------- ----- ------- Salaries ................................ $ 276,048 $266,488 $ 259,733 $218,115 Employee benefits ....................... 48,240 50,572 48,019 53,071 ----------- -------- --------- -------- Total personnel expense ............. 324,288 317,060 307,752 271,186 Net occupancy expense ................... 38,486 38,955 38,908 34,933 Equipment expense ....................... 52,425 49,081 49,714 46,842 Postage and delivery .................... 13,912 13,700 13,670 14,128 Outside data processing, programming and software ........................... 27,370 26,385 25,561 23,457 Stationery and supplies ................. 9,270 9,262 8,598 8,809 Advertising and sales promotion ......... 21,090 16,086 17,173 12,119 Professional services ................... 23,008 18,619 19,351 14,024 Travel and business promotion ........... 10,106 9,138 8,749 5,951 Telecommunications ...................... 14,801 13,915 15,978 13,394 Amortization of intangible assets ....... 14,540 13,156 12,230 10,953 Foreclosed property expense -- net of income ................................. (602) (470) 301 (82) Merger-related charges .................. 5,669 5,293 8,347 ---- Other expense ........................... 46,255 47,012 54,285 36,484 ----------- -------- --------- -------- Total ............................... $ 600,618 $577,192 $ 580,617 $492,198 =========== ======== ========= ======== Overhead ratio* ......................... 55.7% 54.5% 56.3% 51.7% Overhead ratio without merger-related charges ................................ 55.2 54.0 55.5 51.7
1998 ----------------------------------------------------- Fourth Third Second First Quarter Quarter Quarter Quarter ----------- -------- --------- --------- Salaries ................................ $ 221,019 $221,242 $ 219,731 $ 212,758 Employee benefits ....................... 48,922 42,040 42,675 46,966 ----------- -------- --------- --------- Total personnel expense ............. 269,941 263,282 262,406 259,724 Net occupancy expense ................... 35,838 34,896 34,119 33,783 Equipment expense ....................... 40,790 37,917 40,101 34,199 Postage and delivery .................... 12,962 13,373 13,368 13,278 Outside data processing, programming and software ........................... 18,863 17,777 15,611 12,199 Stationery and supplies ................. 9,339 10,689 7,233 7,506 Advertising and sales promotion ......... 13,066 17,256 22,893 18,042 Professional services ................... 15,311 14,929 14,522 11,304 Travel and business promotion ........... 7,521 7,656 7,638 6,439 Telecommunications ...................... 12,644 14,570 14,662 12,591 Amortization of intangible assets ....... 10,908 9,840 9,226 9,117 Foreclosed property expense -- net of income ................................. 517 (164) 88 130 Merger-related charges .................. 6,961 11,934 30,849 35,568 Other expense ........................... 38,025 38,448 44,278 40,369 ----------- -------- --------- --------- Total ............................... $ 492,686 $492,403 $ 516,994 $ 494,249 =========== ======== ========= ========= Overhead ratio* ......................... 52.4% 54.0% 56.8% 57.2% Overhead ratio without merger-related charges ................................ 51.7 52.7 53.4 53.1
* Noninterest expense as a percentage of taxable equivalent net interest income and total other operating revenue. -------------------------- Results of Operations ----------------------------------------------------------------- 1998 vs. 1997 Business Segments Asset and Wealth Management. Pretax income rose $16 million or 21.2 percent to $93 million. Net interest margin grew $17 million or 17.4 percent, driven by a gain in interest-earning assets of $427 million. Other income grew $46 million or 19.4 percent, led by a $25 million increase in trust fees, a $4 million increase in capital markets income, and a $10 million rise in annuity and mutual fund fee income. Noninterest expense rose $47 million or 18.4 percent, largely due to higher staff expense. Corporate. Pretax income totaled $599 million, an increase of $162 million or 37 percent from 1997. Net interest income rose $175 million or 26.4 percent, primarily fueled by loan and lease growth. Noninterest income, led by higher consulting fees, derivatives income, deposit account fees and foreign exchange income, expanded $86 million or 36.1 percent. The provision for loan losses decreased $1 million or 6.4 percent, while noninterest expense was up $101 million or 22.7 percent, primarily reflecting higher staff and other expenses. Credit Card. Pretax income of $162 million was up $2 million or 1.5 percent from $160 million in 1997. Net interest income rose $47 million or 10.3 percent, driven by a higher external rate earned on credit cards and modest growth in loan balances. Noninterest income advanced $14 million or 10.6 percent, primarily due to increases in cardholder income. The provision for loan losses expanded $37 million or 15.6 percent, while noninterest expense was up $21 million or 11.4 percent, partly due to increased advertising and marketing costs. 69 Consumer. Pretax income grew $14 million or 3.6 percent to $412 million. Revenue increases were broadly spread, with net interest income up $60 million or 6.9 percent and fee income increasing $54 million or 15.9 percent. Growth in net interest income primarily reflected greater loan volume, with noninterest income increasing largely due to higher levels of fees in mortgage, deposit accounts and capital markets, as well as to increases in debit card and ATM income. The provision for loan losses declined $8 million or 37.9 percent, while noninterest expense grew $108 million or 13.6 percent, largely driven by higher compensation and occupancy costs. Treasury & Administration. Pretax income rose to $84 million in 1998 from a loss of $145 million in 1997. Improvement in 1998 was primarily the result of a $230 million reduction in operating expenses, resulting from substantially lower merger-related expenses, Year 2000 expense, and other systems development and nonrecurring expenses. The $35 million reduction in net interest margin was primarily attributable to changes in noninterest-earning assets held in the unit, such as goodwill, changes to the securities portfolio and discretionary funding which includes the optimization of the capital position. The increase in other income is primarily driven by corporate owned life insurance income. Consolidated Financial Results Consolidated net income for 1998 totaled $874 million or $4.18 per diluted share compared with $593 million or $2.94 per diluted share in 1997. Results were impacted by nonrecurring charges totaling $85 million and $303 million, pretax, in 1998 and 1997, respectively. Excluding the after-tax effect of the nonrecurring charges, net income on an operating basis was $930 million or $4.45 per diluted share and $800 million or $3.96 per diluted share in 1998 and 1997, respectively. Taxable equivalent net interest income increased $246 million or 11.5 percent, fueled by good loan demand and a lower average cost of funds. The net yield on interest-earning assets improved 10 basis points to 4.24 percent. Average loans expanded $4.685 billion or 11.8 percent, with the average yield unchanged at 8.79 percent. Taxable commercial loans, the real estate portfolio, and lease financing led the loan growth. Interest-bearing deposits rose $2.428 billion or 8.2 percent, while short-term borrowed funds and long-term debt also increased by $1.908 billion and $158 million, respectively. Comparability between the two periods is effected by purchase accounting transactions completed in late 1997. The following table summarizes the variances in taxable equivalent interest income and interest expense due to changes in rates and volumes between 1998 and 1997. Changes that are not due solely to rate or volume are allocated in proportion to the relationship of the absolute dollar amount of change in each. 70 Taxable Equivalent Interest Income and Expense Variance Table 23 - -------------------------------------------------------------------------------- (thousands) 1998 over 1997 ------------------------------------------- Attributable To -------------------------- Rate Volume Total ------- ------ ----- Increase (decrease) in interest income: Loans -- including fees ................................................. $ (2,561) $ 411,612 $ 409,051 Securities: Held-to-maturity: State and municipal .................................................. (1,997) (3,083) (5,080) Other ................................................................ 2,716 6,083 8,799 Available-for-sale ..................................................... (1,585) (24,365) (25,950) Interest-bearing bank balances .......................................... 2,663 5,094 7,757 Federal funds sold and securities purchased under resale agreements ..... (381) 3,865 3,484 Trading account assets .................................................. (5,931) (290) (6,221) --------- Total interest-earning assets ........................................ 8,064 383,776 391,840 Increase (decrease) in interest expense: Interest-bearing deposits in domestic offices ........................... (59,269) 67,086 7,817 Interest-bearing deposits in foreign offices ............................ 1,237 47,102 48,339 Short-term borrowed funds ............................................... (13,377) 99,061 85,684 Long-term debt .......................................................... (6,274) 9,829 3,555 --------- Total interest-bearing liabilities ................................... (67,588) 212,983 145,395 --------- Increase in net interest income .......................................... $ 246,445 =========
Nonperforming assets at December 31, 1998 were $181 million or .40 percent of loans and foreclosed property. The total was up from year-end 1997 by $52 million or 40 percent related principally to three multibank credits with an aggregate exposure of $48 million. The provision for loan losses was $299 million, increasing $35 million or 13 percent from $265 million in 1997. Included in the provision for 1997 was a special charge of $11 million to conform the credit policies of acquired companies to those of Wachovia. Net loan losses were $299 million or .67 percent of average loans compared with $264 million or .67 percent of loans in 1997. The increase in net loan losses primarily reflected higher net charge-offs in credit cards that included $5 million in losses from the $269 million of receivables purchased in the third quarter. Total other operating revenue increased $222 million or 22.1 percent, with the increase occurring in all categories. Growth was led by service charges on deposit accounts, fees for trust services, mortgage fees, electronic banking and capital markets income. The growth in capital markets income was driven by gains primarily in consulting services, private placement fees, foreign exchange trading and derivatives income. A portion of the growth was due to purchase accounting transactions completed in late 1997. Noninterest expense for 1998 was higher by $30 million or 1.5 percent, with growth for the year affected by nonrecurring charges taken both in 1998 and 1997. In 1998 and 1997, Wachovia incurred merger expenses of $85 million and $220 million, respectively, primarily for systems conversions and signage changes related to its Virginia and Florida banking acquisitions. Noninterest expense for 1997 also included a charge of $67 million for equipment impairment. Excluding the merger expenses and special charge, noninterest expense on an operating basis totaled $1.911 billion in 1998 and grew $232 million or 13.8 percent from 1997, partially as a result of the inclusion of the expense base of acquisitions completed in late 1997 that were accounted for as purchases. Total Year 2000 spending costs in 1998 were $28 million. 71 Management's Responsibility for Financial Reporting The management of Wachovia Corporation is responsible for the preparation of the financial statements, related financial data and other information in this annual report. The financial statements are prepared in accordance with generally accepted accounting principles and include amounts based on management's estimates and judgment where appropriate. Financial information appearing throughout this annual report is consistent with the financial statements. In meeting its responsibility both for the integrity and fairness of these statements and information, management depends on the accounting system and related internal controls that are designed to provide reasonable assurances that transactions are authorized and recorded in accordance with established procedures and that assets are safeguarded and proper and reliable records are maintained. The concept of reasonable assurance is based on the recognition that the cost of internal controls should not exceed the related benefits. As an integral part of internal controls, the Corporation maintains a professional staff of internal auditors who monitor compliance with and assess the effectiveness of internal controls and coordinate audit coverage with the independent auditors. The Audit Committee of Wachovia's Board of Directors, composed solely of outside directors, meets regularly with the Corporation's management, internal auditors, independent auditors and regulatory examiners to review matters relating to financial reporting, internal controls and the nature, extent and results of the audit effort. The independent auditors, internal auditors and banking regulators have direct access to the Audit Committee with or without management present. The financial statements have been audited by Ernst & Young LLP, independent auditors, who render an independent professional opinion on management's financial statements. Their appointment was recommended by the Audit Committee, approved by the Board of Directors and ratified by the shareholders. Their examination provides an objective assessment of the degree to which the Corporation's management meets its responsibility for financial reporting. Their opinion on the financial statements is based on auditing procedures which include reviewing the internal controls and performing selected tests of transactions and records as they deem appropriate. These auditing procedures are designed to provide a reasonable level of assurance that the financial statements are presented fairly in all material respects. Report of Independent Auditors The Board of Directors Wachovia Corporation We have audited the accompanying consolidated statements of condition of Wachovia Corporation and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Wachovia Corporation and subsidiaries at December 31, 1999 and 1998, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. /s/ERNST & YOUNG LLP Winston-Salem, North Carolina January 19, 2000 72
- --------------------------------------- Consolidated Statements of Condition - -------------------------------------------------------------------------------------------------------------------------- $ IN THOUSANDS Wachovia Corporation and Subsidiaries December 31 December 31 1999 1998 Assets Cash and due from banks .................................................................. $ 3,475,004 $ 3,800,265 Interest-bearing bank balances ........................................................... 184,904 109,983 Federal funds sold and securities purchased under resale agreements ...................... 761,962 675,470 Trading account assets ................................................................... 870,304 664,812 Securities available-for-sale ............................................................ 7,095,790 7,983,648 Securities held-to-maturity (fair value of $1,061,150 in 1999 and $1,442,126 in 1998)..... 1,048,724 1,383,607 Loans, net of unearned income ............................................................ 49,621,225 45,719,222 Less allowance for loan losses ........................................................... 554,810 547,992 ----------- ----------- Net loans .............................................................................. 49,066,415 45,171,230 Premises and equipment ................................................................... 953,832 901,681 Due from customers on acceptances ........................................................ 111,684 348,955 Other assets ............................................................................. 3,783,918 3,083,191 ----------- ----------- Total assets ........................................................................... $67,352,537 $64,122,842 =========== =========== Liabilities Deposits in domestic offices: Demand .................................................................................. $ 8,730,673 $ 8,768,271 Interest-bearing demand ................................................................. 4,527,711 4,980,715 Savings and money market savings ........................................................ 13,760,479 12,641,766 Savings certificates .................................................................... 8,701,074 8,982,396 Large denomination certificates ......................................................... 3,154,754 3,344,553 ----------- ----------- Total deposits in domestic offices ..................................................... 38,874,691 38,717,701 Interest-bearing deposits in foreign offices ............................................. 2,911,727 2,277,028 ----------- ----------- Total deposits ......................................................................... 41,786,418 40,994,729 Federal funds purchased and securities sold under repurchase agreements .................. 5,372,493 5,463,418 Commercial paper ......................................................................... 1,658,988 1,359,382 Other short-term borrowed funds .......................................................... 3,071,493 1,912,262 Long-term debt ........................................................................... 7,814,263 7,596,727 Acceptances outstanding .................................................................. 111,684 348,955 Other liabilities ........................................................................ 1,878,741 1,109,137 ----------- ----------- Total liabilities ...................................................................... 61,694,080 58,784,610 Off-balance sheet items, commitments and contingent liabilities Shareholders' Equity Preferred stock, par value $5 per share: Authorized 50,000,000 shares; none outstanding .......................................... ---- ---- Common stock, par value $5 per share: Authorized 1,000,000,000 shares; issued and outstanding 201,812,295 shares in 1999 and 202,986,100 shares in 1998 ............................................................. 1,009,061 1,014,931 Capital surplus .......................................................................... 598,149 669,244 Retained earnings ........................................................................ 4,125,524 3,571,617 Accumulated other comprehensive (loss) income ............................................ (74,277) 82,440 ----------- ----------- Total shareholders' equity ............................................................. 5,658,457 5,338,232 ----------- ----------- Total liabilities and shareholders' equity ............................................. $67,352,537 $64,122,842 =========== ===========
See notes to consolidated financial statements 73
- ------------------------------------ Consolidated Statements of Income - ------------------------------------------------------------------------------------------------------------------------------ THOUSANDS, EXCEPT PER SHARE Wachovia Corporation and Subsidiaries Year Ended December 31 1999 1998 1997 Interest Income Loans, including fees .................................................... $ 4,000,541 $ 3,873,404 $ 3,455,296 Securities available-for-sale ............................................ 504,470 597,557 625,139 Securities held-to-maturity: State and municipal ..................................................... 11,673 15,044 16,452 Other investments ....................................................... 79,919 95,952 87,632 Interest-bearing bank balances ........................................... 7,390 12,988 5,230 Federal funds sold and securities purchased under resale agreements ...... 30,696 25,803 22,319 Trading account assets ................................................... 32,131 44,497 50,317 ------------- ----------- ----------- Total interest income .................................................. 4,666,820 4,665,245 4,262,385 Interest Expense Deposits: Domestic offices ........................................................ 1,156,113 1,224,046 1,216,229 Foreign offices ......................................................... 109,082 135,659 87,320 ------------- ----------- ----------- Total interest on deposits ............................................. 1,265,195 1,359,705 1,303,549 Short-term borrowed funds ................................................ 457,161 563,846 478,162 Long-term debt ........................................................... 474,378 390,662 387,107 ------------- ----------- ----------- Total interest expense ................................................. 2,196,734 2,314,213 2,168,818 Net Interest Income ...................................................... 2,470,086 2,351,032 2,093,567 Provision for loan losses ................................................ 298,105 299,480 264,949 ------------- ----------- ----------- Net interest income after provision for loan losses ...................... 2,171,981 2,051,552 1,828,618 Other Income Service charges on deposit accounts ...................................... 369,646 334,980 306,231 Fees for trust services .................................................. 216,392 199,949 175,549 Credit card income ....................................................... 255,243 171,127 162,234 Investment fees .......................................................... 235,350 61,556 53,290 Capital markets income ................................................... 170,771 130,083 49,522 Electronic banking ....................................................... 88,626 74,257 64,640 Mortgage fees ............................................................ 33,213 44,929 23,544 Other operating income ................................................... 240,882 211,238 170,758 ------------- ----------- ----------- Total other operating revenue .......................................... 1,610,123 1,228,119 1,005,768 Securities gains ......................................................... 10,894 20,442 1,454 ------------- ----------- ----------- Total other income ..................................................... 1,621,017 1,248,561 1,007,222 Other Expense Salaries ................................................................. 1,020,384 874,750 742,106 Employee benefits ........................................................ 199,902 180,603 163,051 ------------- ----------- ----------- Total personnel expense ................................................ 1,220,286 1,055,353 905,157 Net occupancy expense .................................................... 151,282 138,636 116,654 Equipment expense ........................................................ 198,062 153,007 139,792 Personal computer disposal charge ........................................ ---- ---- 67,202 Merger-related charges ................................................... 19,309 85,312 220,330 Other operating expense .................................................. 661,686 564,024 517,586 ------------- ----------- ----------- Total other expense .................................................... 2,250,625 1,996,332 1,966,721 Income before income tax expense ......................................... 1,542,373 1,303,781 869,119 Income tax expense ....................................................... 531,152 429,611 276,313 ------------- ----------- ----------- Net Income ............................................................... $ 1,011,221 $ 874,170 $ 592,806 ============= =========== =========== Net income per common share: Basic ................................................................... $ 4.99 $ 4.26 $ 2.99 Diluted ................................................................. $ 4.90 $ 4.18 $ 2.94 Average shares outstanding: Basic ................................................................... 202,795 205,058 198,290 Diluted ................................................................. 206,192 209,153 201,901
See notes to consolidated financial statements 74
- -------------------------------------------------- Consolidated Statements of Shareholders' Equity - --------------------------------------------------------------------------------------------------------- $ IN THOUSANDS, EXCEPT PER SHARE Wachovia Corporation and Subsidiaries Common Stock Capital Shares Amount Surplus Year Ended December 31, 1997 Balance at beginning of year ............................... 201,252,539 $ 1,006,263 $ 706,649 Comprehensive income: Net income ................................................ Other comprehensive income: Unrealized holding gains on securities available-for-sale (net of deferred tax expense of $11,298)................. Less reclassification adjustment for gains realized in net income (net of tax expense of $648)...................... Comprehensive income .................................... Cash dividends declared by pooled companies: Wachovia Corporation -- $1.68 a share...................... Central Fidelity Banks, Inc. -- $.94 a share............... Common stock issued pursuant to: Stock option and employee benefit plans ................... 1,547,645 7,737 55,689 Dividend reinvestment plan ................................ 298,553 1,493 18,030 Conversion of debentures .................................. 3,628 18 52 Acquisitions .............................................. 11,742,782 58,715 689,029 Common stock acquired ...................................... (8,918,515) (44,593) (500,343) Miscellaneous .............................................. 5,697 -------------- ----------- ---------- Balance at end of year ..................................... 205,926,632 $ 1,029,633 $ 974,803 ============== =========== ========== Year Ended December 31, 1998 Balance at beginning of year ............................... 205,926,632 $ 1,029,633 $ 974,803 Comprehensive income: Net income ................................................ Other comprehensive income: Unrealized holding gains on securities available-for-sale (net of deferred tax expense of $16,233)................. Less reclassification adjustment for gains realized in net income (net of tax expense of $7,982).................... Comprehensive income .................................... Cash dividends declared -- $1.86 a share.................... Common stock issued pursuant to: Stock option and employee benefit plans ................... 2,211,599 11,058 102,540 Dividend reinvestment plan ................................ 301,992 1,510 22,885 Acquisitions .............................................. 1,127,723 5,639 77,674 Common stock acquired ...................................... (6,581,846) (32,909) (508,093) Miscellaneous .............................................. (565) -------------- ----------- ---------- Balance at end of year ..................................... 202,986,100 $ 1,014,931 $ 669,244 ============== =========== ========== Year Ended December 31, 1999 Balance at beginning of year ............................... 202,986,100 $ 1,014,931 $ 669,244 Comprehensive income: Net income ................................................ Other comprehensive income: Unrealized holding losses on securities available-for-sale (net of deferred tax benefit of $92,356)................. Less reclassification adjustment for gains realized in net income (net of tax expense of $3,813).................... Comprehensive income .................................... Cash dividends declared -- $2.06 a share.................... Common stock issued pursuant to: Stock option and employee benefit plans ................... 1,252,596 6,263 111,308 Dividend reinvestment plan ................................ 282,947 1,414 21,692 Acquisitions .............................................. 4,801,987 24,010 399,059 Note conversions .......................................... 3,065 15 235 Common stock acquired ...................................... (7,514,400) (37,572) (603,357) Miscellaneous .............................................. (32) -------------- ----------- ---------- Balance at end of year ..................................... 201,812,295 $ 1,009,061 $ 598,149 ============== =========== ==========
Accumulated Other Retained Comprehensive Earnings Income (Loss) Total Year Ended December 31, 1997 Balance at beginning of year ............................... $ 2,843,803 $ 51,686 $ 4,608,401 Comprehensive income: Net income ................................................ 592,806 592,806 Other comprehensive income: Unrealized holding gains on securities available-for-sale (net of deferred tax expense of $11,298)................. 20,218 20,218 Less reclassification adjustment for gains realized in net income (net of tax expense of $648)...................... (806) (806) ----------- -------- ----------- Comprehensive income .................................... 592,806 19,412 612,218 Cash dividends declared by pooled companies: Wachovia Corporation -- $1.68 a share...................... (273,301) (273,301) Central Fidelity Banks, Inc. -- $.94 a share............... (54,002) (54,002) Common stock issued pursuant to: Stock option and employee benefit plans ................... 63,426 Dividend reinvestment plan ................................ 19,523 Conversion of debentures .................................. 70 Acquisitions .............................................. 747,744 Common stock acquired ...................................... (544,936) Miscellaneous .............................................. (10,539) (4,842) ----------- -------- ----------- Balance at end of year ..................................... $ 3,098,767 $ 71,098 $ 5,174,301 =========== ======== =========== Year Ended December 31, 1998 Balance at beginning of year ............................... $ 3,098,767 $ 71,098 $ 5,174,301 Comprehensive income: Net income ................................................ 874,170 874,170 Other comprehensive income: Unrealized holding gains on securities available-for-sale (net of deferred tax expense of $16,233)................. 23,802 23,802 Less reclassification adjustment for gains realized in net income (net of tax expense of $7,982).................... (12,460) (12,460) ---------- -------- ----------- Comprehensive income .................................... 874,170 11,342 885,512 Cash dividends declared -- $1.86 a share.................... (381,798) (381,798) Common stock issued pursuant to: Stock option and employee benefit plans ................... 113,598 Dividend reinvestment plan ................................ 24,395 Acquisitions .............................................. 83,313 Common stock acquired ...................................... (541,002) Miscellaneous .............................................. (19,522) (20,087) ----------- -------- ----------- Balance at end of year ..................................... $ 3,571,617 $ 82,440 $ 5,338,232 =========== ======== =========== Year Ended December 31, 1999 Balance at beginning of year ............................... $ 3,571,617 $ 82,440 $ 5,338,232 Comprehensive income: Net income ................................................ 1,011,221 1,011,221 Other comprehensive income: Unrealized holding losses on securities available-for-sale (net of deferred tax benefit of $92,356)................. (149,636) (149,636) Less reclassification adjustment for gains realized in net income (net of tax expense of $3,813).................... (7,081) (7,081) ---------- -------- ----------- Comprehensive income .................................... 1,011,221 (156,717) 854,504 Cash dividends declared -- $2.06 a share.................... (418,447) (418,447) Common stock issued pursuant to: Stock option and employee benefit plans ................... 117,571 Dividend reinvestment plan ................................ 23,106 Acquisitions .............................................. 423,069 Note conversions .......................................... 250 Common stock acquired ...................................... (640,929) Miscellaneous .............................................. (38,867) (38,899) ----------- -------- ----------- Balance at end of year ..................................... $ 4,125,524 $(74,277) $ 5,658,457 =========== ======== ===========
See notes to consolidated financial statements 75
- ----------------------------------------- Consolidated Statements of Cash Flows - --------------------------------------------------------------------------------------------------------- THOUSANDS Wachovia Corporation and Subsidiaries Year Ended December 31 1999 Operating Activities Net income ............................................................................ $ 1,011,221 Adjustments to reconcile net income to net cash provided by operations: Provision for loan losses ............................................................ 298,105 Depreciation and amortization ........................................................ 245,803 Deferred income taxes ................................................................ 383,302 Securities gains ..................................................................... (10,894) Gain on sale of noninterest-earning assets ........................................... (13,485) Increase (decrease) in accrued income taxes .......................................... 26,459 (Increase) decrease in accrued interest receivable ................................... (25,158) Increase (decrease) in accrued interest payable ...................................... 11,578 Net change in other accrued and deferred income and expense .......................... (163,073) Net trading account activities ....................................................... (91,125) Net loans held for sale .............................................................. 250,632 -------------- Net cash provided by operating activities ........................................... 1,923,365 Investing Activities Net (increase) decrease in interest-bearing bank balances ............................. (73,826) Net (increase) decrease in federal funds sold and securities purchased under resale agreements ........................................................................... (40,361) Purchases of securities available-for-sale ............................................ (2,222,574) Purchases of securities held-to-maturity .............................................. (95,531) Sales of securities available-for-sale ................................................ 366,714 Calls, maturities and prepayments of securities available-for-sale .................... 2,525,569 Calls, maturities and prepayments of securities held-to-maturity ...................... 431,963 Net increase in loans made to customers ............................................... (5,466,279) Credit card receivables securitized ................................................... 1,395,954 Capital expenditures .................................................................. (213,229) Proceeds from sales of premises and equipment ......................................... 29,067 Net increase in other assets .......................................................... (279,931) Business combinations ................................................................. (11,123) -------------- Net cash (used) provided by investing activities .................................... (3,653,587) Financing Activities Net increase in demand, savings and money market accounts ............................. 628,111 Net increase (decrease) in certificates of deposit .................................... 163,578 Net (decrease) increase in federal funds purchased and securities sold under repurchase agreements ................................................................ (151,068) Net increase in commercial paper ...................................................... 299,606 Net increase (decrease) in other short-term borrowings ................................ 1,125,558 Proceeds from issuance of long-term debt .............................................. 1,588,733 Maturities and repayments of long-term debt ........................................... (1,410,819) Common stock issued ................................................................... 59,478 Dividend payments ..................................................................... (418,447) Common stock repurchased .............................................................. (634,623) Net increase (decrease) in other liabilities .......................................... 154,854 -------------- Net cash provided (used) by financing activities .................................... 1,404,961 (Decrease) Increase in Cash and Cash Equivalents ...................................... (325,261) Cash and cash equivalents at beginning of year ........................................ 3,800,265 -------------- Cash and cash equivalents at end of year .............................................. $ 3,475,004 ============== Supplemental Disclosures Interest paid ......................................................................... $ 2,185,156 Income taxes paid ..................................................................... 119,959
1998 1997 Operating Activities Net income ............................................................................ $ 874,170 $ 592,806 Adjustments to reconcile net income to net cash provided by operations: Provision for loan losses ............................................................ 299,480 264,949 Depreciation and amortization ........................................................ 155,069 165,692 Deferred income taxes ................................................................ 266,451 35,169 Securities gains ..................................................................... (20,442) (1,454) Gain on sale of noninterest-earning assets ........................................... (7,421) (4,775) Increase (decrease) in accrued income taxes .......................................... 224,609 (6,416) (Increase) decrease in accrued interest receivable ................................... 40,246 9,173 Increase (decrease) in accrued interest payable ...................................... (26,107) 36,764 Net change in other accrued and deferred income and expense .......................... (60,053) 196,902 Net trading account activities ....................................................... 334,310 190,704 Net loans held for sale .............................................................. (184,571) 144,849 -------------- -------------- Net cash provided by operating activities ........................................... 1,895,741 1,624,363 Investing Activities Net (increase) decrease in interest-bearing bank balances ............................. 23,208 393 Net (increase) decrease in federal funds sold and securities purchased under resale agreements ........................................................................... 947,064 (1,258,355) Purchases of securities available-for-sale ............................................ (3,106,977) (3,418,951) Purchases of securities held-to-maturity .............................................. (394,956) (36,340) Sales of securities available-for-sale ................................................ 590,447 2,211,721 Calls, maturities and prepayments of securities available-for-sale .................... 3,564,575 2,341,747 Calls, maturities and prepayments of securities held-to-maturity ...................... 532,922 273,696 Net increase in loans made to customers ............................................... (1,514,208) (4,639,373) Credit card receivables securitized ................................................... ---- ---- Capital expenditures .................................................................. (258,719) (162,286) Proceeds from sales of premises and equipment ......................................... 44,860 46,164 Net increase in other assets .......................................................... (347,349) (476,129) Business combinations ................................................................. 16,108 133,081 -------------- -------------- Net cash (used) provided by investing activities .................................... 96,975 (4,984,632) Financing Activities Net increase in demand, savings and money market accounts ............................. 1,301,117 1,719,641 Net increase (decrease) in certificates of deposit .................................... (3,192,149) 3,076,795 Net (decrease) increase in federal funds purchased and securities sold under repurchase agreements ................................................................ (2,870,049) 1,041,778 Net increase in commercial paper ...................................................... 325,358 327,648 Net increase (decrease) in other short-term borrowings ................................ 1,159,388 (286,347) Proceeds from issuance of long-term debt .............................................. 2,684,679 1,636,312 Maturities and repayments of long-term debt ........................................... (1,028,772) (2,734,349) Common stock issued ................................................................... 80,375 59,281 Dividend payments ..................................................................... (381,798) (327,303) Common stock repurchased .............................................................. (531,122) (532,836) Net increase (decrease) in other liabilities .......................................... 38,704 (72,725) -------------- -------------- Net cash provided (used) by financing activities .................................... (2,414,269) 3,907,895 (Decrease) Increase in Cash and Cash Equivalents ...................................... (421,553) 547,626 Cash and cash equivalents at beginning of year ........................................ 4,221,818 3,674,192 -------------- -------------- Cash and cash equivalents at end of year .............................................. $ 3,800,265 $ 4,221,818 ============== ============== Supplemental Disclosures Interest paid ......................................................................... $ 2,340,320 $ 2,132,054 Income taxes paid ..................................................................... 159,500 249,715
See notes to consolidated financial statements 76 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- $ in thousands Wachovia Corporation and Subsidiaries Note A -- Accounting Policies Nature of Operations -- The Corporation is a southeastern interstate bank holding company maintaining dual headquarters in Atlanta, Georgia, and Winston-Salem, North Carolina. The Corporation's principal banking subsidiary is Wachovia Bank, N.A., which maintains operations in Florida, Georgia, North Carolina, South Carolina and Virginia. Credit Card services are provided through The First National Bank of Atlanta, and full-service brokerage and investment underwriting services are provided through Wachovia Securities, Inc. In addition to general commercial banking, the Corporation and its subsidiaries are engaged in trust and investment management, residential mortgage origination, leasing, foreign exchange, corporate finance and other money market services. The Corporation completed three business combinations during 1998 and three during 1999. Disclosure of material business combination transactions is included in Note B -- Business Combinations. In October 1999, Wachovia announced a definitive agreement to acquire Canton, Georgia-based B C Bankshares, Inc., the parent company of the Bank of Canton. The Bank of Canton has eight branches and approximately $400 million in assets in Cherokee County, Georgia, north of Atlanta. The transaction will result in goodwill of approximately $97 million. In December 1999, Wachovia announced an agreement to purchase the credit card business comprising substantially all of the operations of Partners First Holdings LLC. Wachovia will pay a purchase premium of approximately $230 million for the $2 billion portfolio which includes $1.416 billion in securitized loans. Both transactions will be accounted for as purchase business combinations and were completed early during the first quarter of 2000. Principles of Consolidation -- The consolidated financial statements include the accounts of Wachovia Corporation and its subsidiaries after elimination of all material intercompany balances and transactions. Business Combinations -- In business combinations accounted for as poolings-of-interests, the financial position and results of operations and cash flows of the respective companies are restated as though the companies were combined for all historical periods. In business combinations accounted for using the purchase method of accounting, the net assets of the companies acquired are recorded at their fair values at the date of acquisition. Goodwill is amortized on a straight-line basis over the estimated periods benefited. Identifiable intangibles, including deposit base intangibles, are amortized on an accelerated or straight-line basis over the estimated periods benefited. The results of operations of the acquired companies are included since the date of acquisition. Use of Estimates -- The financial statements are prepared in accordance with generally accepted accounting principles which require management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Cash and Due From Banks -- The Corporation considers cash and due from banks, all of which are maintained in financial institutions, as cash and cash equivalents for purposes of the Consolidated Statements of Cash Flows. Trading Instruments -- The Corporation maintains trading positions in both derivative and nonderivative (or cash) financial instruments. Trading cash instruments are held for distribution through retail sales or in anticipation of market movements and are carried at fair value. Gains and losses, both realized and unrealized, are included in capital markets income. Interest revenue arising from cash financial instruments is included in interest income-trading account assets. Trading cash instruments are comprised primarily of securities backed by the U.S. Treasury and various federal agencies and state and local governmental bodies. Trading derivative financial instruments are customer oriented, and trading positions are established as necessary to accommodate customers' requirements. Gains and losses from securities trading derivatives and foreign exchange activities are included in capital markets income. Securities Held-to-Maturity and Available-for-Sale -- Management determines the appropriate classification of debt securities at the time of purchase. Debt securities are classified as held-to-maturity when the Corporation has the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are stated at amortized cost. Debt securities not classified as held-to-maturity or trading and marketable equity securities are classified as available-for-sale and are stated at fair value. Unrealized gains and losses, net of tax, on available-for-sale securities are included in accumulated other comprehensive income -- a separate component of shareholders' equity. The amortized cost of debt securities classified as held-to-maturity or available-for-sale is adjusted for amortization of premiums and accretion of discounts to maturity, or in the case of mortgage-backed securities, over the estimated life of the security. Such amortization is included in interest income from securities. The specific identification method is used to determine realized gains and losses on sales of securities, which are reported as securities gains and losses. Securities Purchased and Sold Agreements -- Securities purchased under resale agreements and securities sold under repurchase agreements are generally accounted for as collateralized financing transactions. They are recorded at the current fair value of the securities plus accrued interest. It is the Corporation's policy to take possession of securities purchased under resale agreements, which are primarily U.S. Government and Government agency securities. The current fair value of these securities is monitored, and additional securities are obtained when deemed appropriate. The Corporation also monitors its exposure with respect to securities sold under repurchase agreements, and a request to the lender for additional money is made when necessary. Risk Management Instruments -- Interest rate swaps and options (caps and floors) are used as part of the Corporation's overall interest rate risk management and are designated as hedges of interest-bearing assets, liabilities, firm commitments and anticipated transactions. These derivatives modify the interest rate characteristics of specified financial instruments. Amounts receivable or payable under interest rate swap and option agreements are recognized in net interest income. Derivative instruments not qualifying as end-user positions are treated as trading positions and marked-to-market. To qualify as a hedge, the swap or option must be designated and documented as a hedge and be effective in reducing the market risk associated with the existing asset, liability, firm commitment or identified anticipated transaction which is probable to occur. Effectiveness of the hedge is evaluated on an initial and ongoing basis using statistical calculations of correlation. Gains and losses on risk management derivatives that are terminated early are deferred and amortized to net interest income over the remaining period 77 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements -- Continued - -------------------------------------------------------------------------------- $ IN THOUSANDS Wachovia Corporation and Subsidiaries Note A -- Accounting Policies -- Concluded originally covered by the instrument. If the underlying designated item is no longer held, or if an anticipated transaction is no longer likely to occur, any previously unrecognized gain or loss on the derivative contract is recognized in earnings and the contract is subsequently accounted for at fair value. Loans and Allowance for Loan Losses -- Loans are carried at their principal amount outstanding, except for loans held for sale which are carried at the lower of cost or market. Interest on loans is accrued and recorded as interest income based upon the principal amount outstanding. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment to the related loan yield using the interest method. Except for certain consumer loans as discussed below, the recognition of interest income is discontinued when a loan becomes 90 days past due as to principal or interest or when, in management's judgment, the principal or interest will not be collectible in the normal course of business. When interest accruals are discontinued, the balance of accrued interest is reversed. Management may elect to continue the accrual of interest when the estimated net realizable value of collateral is sufficient to cover the principal balance and accrued interest and the loan is in the process of collection. Interest is accrued on revolving credit loans until payments become 180 days past due, at which time the outstanding principal balance and accrued unpaid interest is charged off. For installment loans and other closed-end consumer loans, the accrual of interest is discontinued when the loan becomes 120 days past due, at which time the outstanding principal and unpaid interest is charged off. The Corporation records a charge-off for commercial loans and commercial real estate loans when available information confirms that specific loans, or portions thereof, are uncollectible. The Corporation applies Statement of Financial Accounting Standards No. 5, "Accounting for Contingencies" (FASB 5), and Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan" (FASB 114), in determining the balance of the allowance for loan losses and the amount of impaired loans. The allowance is maintained at a level believed to be adequate by management to absorb probable losses in the loan portfolio. Management's determination of the adequacy of the allowance is based on an evaluation of the portfolio, past loan loss experience, current domestic and international economic conditions, volume and composition of the loan portfolio and other risks inherent in the portfolio. The method used to determine the amount of loss inherent in the loan portfolio and thereby assess the adequacy of the recorded balance of the allowance for loan losses involves identifying portfolios of loans with similar characteristics for which estimates of inherent future probable losses can be made. The estimates are based on historical loss factors as adjusted for current business and economic conditions. The loss factors are applied to the respective portfolios in order to determine the overall allowance adequacy. Premises and Equipment -- Premises, equipment and leasehold improvements are stated at cost less accumulated depreciation and amortization. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets. Leasehold improvements are amortized on a straight-line basis over the shorter of the life of the leasehold asset or the lease term. Impairment of Long-Lived Assets -- Impairment losses on long-lived assets to be held and used are recognized whenever events or changes in circumstances result in the carrying value of the assets exceeding the sum of the expected future cash flows. The measurement of the impairment losses recognized is based on the difference between the fair value and carrying value of the assets. Long-lived assets to be disposed of are reported at the lower of carrying value or fair value less cost to sell. Income Taxes -- Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Each subsidiary provides for income taxes based on its contribution to income taxes (benefit) of the consolidated group. The Corporation and its subsidiaries file a consolidated tax return. Stock-Based Compensation -- The Corporation applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Corporation's stock at the date of grant over the amount an employee must pay to acquire the stock. Compensation cost for stock awards and appreciation rights is recorded based on the market price at the date of grant or the date on which the stated performance criteria are met and the end of the period, respectively. Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (FASB 123), encourages, but does not require, adoption of a fair value method of accounting for employee stock-based compensation plans. The Corporation follows the pro forma disclosure provisions of FASB 123. Internal Use Software -- In March 1998, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" (SOP 98-1). SOP 98-1 provides guidance as to when it is or is not appropriate to capitalize the cost of software developed or obtained for internal use. The Corporation adopted SOP 98-1 effective January 1, 1998; the effect was not material. Derivative Instruments and Hedging Activity -- In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (FASB 133). FASB 133 establishes new accounting and reporting requirements for derivative instruments, including certain derivative instruments imbedded in other contracts and hedging activities. The standard requires all derivatives to be measured at fair value and recognized as either assets or liabilities in the statement of condition. Under certain conditions, a derivative may be specifically designated as a hedge. Accounting for the changes in fair value of a derivative depends on the intended use of the derivative and the resulting designation. Adoption of the standard is required for the Corporation's December 31, 2001 financial statements with early adoption allowed as of the beginning of any quarter after June 30, 1998. Management is in the process of assessing the impact and plans to adopt the standard effective January 1, 2001. Adoption is not expected to result in a material financial impact. Reclassification -- Certain 1998 and 1997 amounts have been reclassified to conform to the 1999 presentation. - -------------------------------------------------------------------------------- 78 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements -- Continued - -------------------------------------------------------------------------------- $ in thousands Wachovia Corporation and Subsidiaries Note B -- Business Combinations On December 15, 1997, the Corporation merged with Central Fidelity Banks, Inc. (Central Fidelity), headquartered in Richmond, Virginia. The acquisition of Central Fidelity resulted in the issuance of approximately 36.3 million shares. The acquisition was accounted for as a pooling-of-interests, and accordingly, all historical financial information for the Corporation has been restated to include Central Fidelity historical information for all periods presented herein. Intercompany transactions prior to the merger have been eliminated, and certain reclassifications were made to the Central Fidelity financial statements to conform to the Corporation's presentations. No material adjustments were recorded to conform Central Fidelity's accounting policies. During 1997, the Corporation recorded charges of $220,330 for direct and other costs in connection with the merger including restructuring activities to consolidate the operations, business line locations and administrative functions. Included in systems and operations conversion costs and business line and integration costs are activities such as contract termination, write-down of unutilized assets and other business and systems conversion costs. These activities were completed during 1998. The remaining liability at December 31, 1999 represents contractual compensation continuance for terminated employees. Details of the merger-related costs follow. Dec. 31, Dec. 31, Dec. 31, 1997 Utilized 1997 Utilized 1998 Utilized 1999 Provision In 1997 Balance In 1998 Balance In 1999 Balance --------- --------- -------- ---------- -------- ---------- ------- Severance and personnel related costs ................................ $114,079 $ ---- $114,079 $59,199 $54,880 $32,953 $21,927 Systems and operations conversion costs ..................... 66,953 51,530 15,423 15,356 67 67 ---- Business line and integration expenses ............................. 16,316 9,660 6,656 3,923 2,733 2,733 ---- Deal costs and other expenses ......... 22,982 20,031 2,951 2,951 ---- ---- ---- -------- ------- -------- ------- ------- ------- ------- Total ................................. $220,330 $81,221 $139,109 $81,429 $57,680 $35,753 $21,927 ======== ======= ======== ======= ======= ======= =======
In 1999 and 1998, the Corporation incurred additional expenses of $19,309 and $85,312, respectively, for systems conversion and integration of business lines related to merger transactions. On October 31, 1997, the Corporation completed its merger with Jefferson Bankshares, Inc. (Jefferson), headquartered in Charlottesville, Virginia. The acquisition of Jefferson resulted in the issuance of approximately 8.7 million shares of common stock valued at $554,337. The purchase price was allocated to the net assets acquired resulting in $337,452 of goodwill and $41,512 of deposit base intangibles. On November 11, 1997, the Corporation completed its merger with 1st United Bancorp (1st United), headquartered in Boca Raton, Florida. The acquisition of 1st United resulted in the issuance of approximately 3.0 million shares of common stock valued at $193,407. The purchase price was allocated to the net assets acquired resulting in $141,154 of goodwill and $22,718 of deposit base intangibles. During 1998, the Corporation acquired Ameribank Bancshares (Ameribank), headquartered in Hollywood, Florida, with $280 million in assets; Hunt, DuPree, Rhine and Associates Inc., a benefits consulting company; and Retirement Plan Securities Inc., a registered investment advisor. On April 1, 1999, the Corporation completed its merger with Interstate/ Johnson Lane Inc. (IJL), headquartered in Charlotte, North Carolina. The acquisition of IJL resulted in the issuance of approximately 2.6 million shares of common stock valued at $215,562. The purchase price was allocated to the net assets acquired resulting in $125,205 of goodwill. On September 1, 1999, the Corporation completed its merger with OFFITBANK Holdings Inc. (OFFITBANK), headquartered in New York. The acquisition of OFFITBANK resulted in the issuance of approximately 2.1 million shares of common stock valued at $203,173. The purchase price was allocated to the net assets acquired resulting in $175,568 of goodwill. Also, during 1999, the Corporation acquired Barry, Evans, Josephs & Snipes, a national life insurance broker specializing in wealth transfer strategies and benefit plans for affluent families and corporate executives. The pro forma results, giving effect to the purchase transactions as though they occurred as of the beginning of the reporting periods, do not vary significantly from actual results. Goodwill and deposit base intangibles, arising from the purchase transactions above, are being amortized over 20 to 25 and 7 years, respectively. - -------------------------------------------------------------------------------- Note C -- Business Segment Information The Corporation's reportable segments are strategic business units that provide unique products and services to a variety of customer groups. Each segment has its own management team as well as distinct marketing, production, technology and distribution strategies. The Corporation's five reportable segments are Asset and Wealth Management, Corporate, Credit Card, Consumer and Treasury & Administration. Asset and Wealth Management earns revenues by providing estate planning services, insurance, investment and trust products to high-wealth individuals and corporate executives. Corporate earns its revenues primarily by providing financing, deposit, cash management, investment and asset administration products to corporate customers. Credit Card, which is presented on a managed basis, derives revenues from the marketing, issuing and servicing of credit card products to individuals and corporations. Consumer generates its revenues primarily from individuals and small businesses by providing credit and deposit services as well as insurance, investment and trust products. Treasury & Administration is comprised of balance sheet management activities that include 79 - --------------------------------------------------------- Notes to Consolidated Financial Statements -- Continued - -------------------------------------------------------------------------------- $ IN THOUSANDS Wachovia Corporation and Subsidiaries Note C -- Business Segment Information -- Concluded managing the investment portfolio, discretionary funding, utilization of off-balance sheet financial instruments, optimizing the Corpora tion's equity position and corporate expenses such as merger-related charges, Year 2000 conversion costs and other corporate costs. Asset and Wealth Year Ended December 31, 1999 Management Corporate Credit Card - -------------------------------------- ---------- ------------ ---------- External net interest margin ......... $ 109,806 $ 2,162,749 $ 852,792 Internal funding (charge) credit ..... 33,551 (1,144,429) (316,539) ---------- ------------ ---------- Net interest margin .................. 143,357 1,018,320 536,253 Provision for loan losses ............ 790 58,511 256,598 Total other income ................... 485,554 404,680 168,782 Total expenses ....................... 495,634 639,462 212,222 ---------- ------------ ---------- Income before income tax expense ..... 132,487 725,027 236,215 Income tax expense ................... 50,277 258,018 86,142 ---------- ------------ ---------- Net income ........................... $ 82,210 $ 467,009 $ 150,073 ========== ============ ========== Average total assets ................. $2,928,541 $ 34,482,234 $6,283,549 ========== ============ ========== Treasury & Year Ended December 31, 1999 Consumer Administration Eliminations Total - --------------------------------------- -------- ------------- ------------- ----------- External net interest margin ......... $ (153,647) $ (461,128) $ (40,486) $ 2,470,086 Internal funding (charge) credit ..... 1,085,423 405,099 (63,105) ---- ---------- ----------- ------------- ----------- Net interest margin .................. 931,776 (56,029) (103,591) 2,470,086 Provision for loan losses ............ 15,079 (32,873) ---- 298,105 Total other income ................... 424,577 137,424 ---- 1,621,017 Total expenses ....................... 895,946 70,466 (63,105) 2,250,625 ---------- ----------- ------------- ----------- Income before income tax expense ..... 445,328 43,802 (40,486) 1,542,373 Income tax expense ................... 161,785 15,416 (40,486) 531,152 ---------- ----------- ------------- ----------- Net income ........................... $ 283,543 $ 28,386 $ ---- $ 1,011,221 ========== =========== ============= =========== Average total assets ................. $9,779,241 $11,946,693 $ ---- $65,420,258 ========== =========== ============= ===========
Asset and Wealth Year Ended December 31, 1998 Management Corporate Credit Card - -------------------------------------- ---------- -------- ------------- External net interest margin ......... $ 79,922 $ 1,973,231 $ 829,965 Internal funding (charge) credit ..... 32,333 (1,132,512) (331,937) ---------- ------------ ---------- Net interest margin .................. 112,255 840,719 498,028 Provision for loan losses ............ 1,544 19,698 276,765 Total other income ................... 285,493 325,693 148,442 Total expenses ....................... 302,760 547,704 207,528 ---------- ------------ ---------- Income before income tax expense ..... 93,444 599,010 162,177 Income tax expense ................... 33,984 209,002 57,642 ---------- ------------ ---------- Net income ........................... $ 59,460 $ 390,008 $ 104,535 ========== ============ ========== Average total assets ................. $2,471,775 $ 31,319,697 $6,095,313 ========== ============ ========== Treasury & Year Ended December 31, 1998 Consumer Administration Eliminations Total - --------------------------------------- -------- ----------- ------- ------- External net interest margin ......... $ (183,189) $ (302,023) $ (46,874) $ 2,351,032 Internal funding (charge) credit ..... 1,121,758 378,461 (68,103) ---- ----------- ----------- ------------ ----------- Net interest margin .................. 938,569 76,438 (114,977) 2,351,032 Provision for loan losses ............ 13,916 (12,443) ---- 299,480 Total other income ................... 389,339 99,594 ---- 1,248,561 Total expenses ....................... 901,706 104,737 (68,103) 1,996,332 ----------- ----------- ------------ ----------- Income before income tax expense ..... 412,286 83,738 (46,874) 1,303,781 Income tax expense ................... 147,062 28,795 (46,874) 429,611 ----------- ----------- ------------ ----------- Net income ........................... $ 265,224 $ 54,943 $ ---- $ 874,170 =========== =========== ============ =========== Average total assets ................. $10,254,873 $13,806,877 $ ---- $63,948,535 =========== =========== ============ ===========
Asset and Wealth Year Ended December 31, 1997 Management Corporate Credit Card - -------------------------------------- ---------- -------- ------------- External net interest margin ......... $ 60,947 $ 1,832,586 $ 791,799 Internal funding (charge) credit ..... 34,710 (1,167,219) (340,450) ---------- ------------ ---------- Net interest margin .................. 95,657 665,367 451,349 Provision for loan losses ............ 1,969 21,045 239,461 Total other income ................... 239,070 239,351 134,173 Total expenses ....................... 255,640 446,478 186,258 ---------- ------------ ---------- Income before income tax expense ..... 77,118 437,195 159,803 Income tax expense (benefit) ......... 27,922 156,512 57,495 ---------- ------------ ---------- Net income (loss) .................... $ 49,196 $ 280,683 $ 102,308 ========== ============ ========== Average total assets ................. $1,954,747 $ 27,887,413 $6,045,783 ========== ============ ========== Treasury & Year Ended December 31, 1997 Consumer Administration Eliminations Total - --------------------------------------- ------- ----------- ------- ------- External net interest margin ......... $ (252,537) $ (281,334) $ (57,894) $ 2,093,567 Internal funding (charge) credit ..... 1,130,836 392,520 (50,397) ---- ---------- ----------- ------------ ----------- Net interest margin .................. 878,299 111,186 (108,291) 2,093,567 Provision for loan losses ............ 22,402 (19,928) ---- 264,949 Total other income ................... 335,811 58,817 ---- 1,007,222 Total expenses ....................... 793,616 335,126 (50,397) 1,966,721 ---------- ----------- ------------ ----------- Income before income tax expense ..... 398,092 (145,195) (57,894) 869,119 Income tax expense (benefit) ......... 143,586 (51,308) (57,894) 276,313 ---------- ----------- ------------ ----------- Net income (loss) .................... $ 254,506 $ (93,887) $ ---- $ 592,806 ========== =========== ============ =========== Average total assets ................. $9,035,267 $12,683,865 $ ---- $57,607,075 ========== =========== ============ ===========
The Corporation's management accounting policies generally follow the policies described in Note A, except for net interest income which is reported on a fully taxable equivalent basis. The Corporation's funds transfer pricing system utilizes a multiple pool method to simulate matched funding to compensate or charge for funds provided or used with a corresponding offset in the Treasury & Administration business segment. Provision for loan losses is charged to each segment based on the credit risk of each segment's loan portfolio. Operating expense is recognized as incurred and charged on a fully absorbed basis. Additionally, income tax expense is calculated based on the business segments fully taxable equivalent income and the Corporation's effective tax rate. Reconciling items between management accounting and the Corporation's consolidated financial statements are limited to the taxable equivalent adjustment and other income statement reclassifications shown as Eliminations. The Corporation operates primarily in the United States; accordingly, geographic distribution of revenue and long-lived assets in other countries is not significant. Revenues from no individual customer exceeded 10% of consolidated total revenues. - -------------------------------------------------------------------------------- 80 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements -- Continued - -------------------------------------------------------------------------------- $ in thousandsWachovia Corporation and Subsidiaries Note D -- Securities The aggregate amortized cost, fair value and gross unrealized gains and losses of securities as of December 31 were as follows:
1999 -------------------------------------------------- Amortized Unrealized Unrealized Fair Cost Gains Losses Value ------------- ----------- ---------- -------- Held-to-Maturity - ---------------- U.S. Treasury and other agencies ......... $ 402,828 $ 2 $ 11,437 $ 391,393 State and municipal ...................... 204,289 12,863 401 216,751 Mortgage-backed .......................... 399,803 12,142 689 411,256 Other .................................... 41,804 15 69 41,750 ------------- ------- -------- ---------- $1,048,724 $25,022 $ 12,596 $1,061,150 ============= ======= ======== ========== Available-for-Sale - ------------------ U.S. Treasury and other agencies ......... $2,833,744 $10,881 $ 45,625 $2,799,000 State and municipal ...................... 56,138 1,054 197 56,995 Mortgage-backed .......................... 3,781,281 7,604 85,921 3,702,964 Other .................................... 186,228 20 2,976 183,272 Equity ................................... 356,799 ---- 3,240 353,559 ------------- ------- -------- ---------- $7,214,190 $19,559 $137,959 $7,095,790 ============= ======= ======== ==========
1998 --------------------------------------------------- Amortized Unrealized Unrealized Fair Cost Gains Losses Value ---------- -------- ---------- ---------- Held-to-Maturity - ------------------------------------------- U.S. Treasury and other agencies ......... $ 518,063 $ 6,662 $ 3 $ 524,722 State and municipal ...................... 176,768 19,521 ---- 196,289 Mortgage-backed .......................... 610,328 31,669 5 641,992 Other .................................... 78,448 677 2 79,123 ---------- -------- ---------- ---------- $1,383,607 $ 58,529 $ 10 $1,442,126 ========== ======== ========== ========== Available-for-Sale - ------------------------------------------- U.S. Treasury and other agencies ......... $3,123,663 $ 83,895 $ 1,991 $3,205,567 State and municipal ...................... 60,964 3,199 2 64,161 Mortgage-backed .......................... 4,159,464 50,641 3,351 4,206,754 Other .................................... 333,442 2,250 1,983 333,709 Equity ................................... 171,632 1,825 ---- 173,457 ---------- -------- ---------- ---------- $7,849,165 $141,810 $ 7,327 $7,983,648 ========== ======== ========== ==========
The amortized cost and estimated fair value of securities at December 31, 1999, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations. Amortized Fair Cost Value -------- ------ Held-to-Maturity - ---------------- Due in one year or less ........................ $ 61,131 $ 61,268 Due after one year through five years .......... 534,272 528,291 Due after five years through ten years ......... 98,689 104,457 Due after ten years ............................ 354,632 367,134 ---------- ---------- Total ................................... 1,048,724 1,061,150 Available-for-Sale - ------------------ Due in one year or less ........................ 283,654 285,324 Due after one year through five years .......... 2,565,401 2,534,011 Due after five years through ten years ......... 1,314,106 1,287,323 Due after ten years ............................ 2,694,230 2,635,573 ---------- ---------- Total ................................... 6,857,391 6,742,231 No contractual maturity ........................ 356,799 353,559 ---------- ---------- Total ................................... 7,214,190 7,095,790 ---------- ---------- Total securities ........................ $8,262,914 $8,156,940 ========== ==========
Proceeds, gross gains and losses realized from the sales of securities available-for-sale for December 31 were as follows: 1999 1998 -------- -------- Proceeds ............. $366,714 $590,447 Gross gains .......... 10,996 20,553 Gross losses ......... 102 111
Trading account assets are reported at fair value with net unrealized losses of $526, $554 and $1,736 included in earnings during 1999, 1998 and 1997, respectively. At December 31, 1999 and 1998, securities with a carrying value of $5,811,075 and $5,759,164, respectively, were pledged as collateral to secure public deposits and for other purposes. There were no obligations of any one issuer exceeding 10% of consolidated shareholders' equity at December 31, 1999. There were no transfers or sales of held-to-maturity securities during 1999 or 1998. - -------------------------------------------------------------------------------- 81 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements -- Continued - -------------------------------------------------------------------------------- $ in thousands Wachovia Corporation and Subsidiaries Note E -- Loans and Allowance for Loan Losses Loans at December 31 are summarized as follows:
1999 1998 ----------- ------------ Commercial: Commercial, financial and other ......... $17,042,740 $ 14,328,152 Tax-exempt .............................. 690,053 972,603 Retail: Direct .................................. 1,063,619 1,097,574 Indirect ................................ 3,740,683 3,239,532 Credit card ............................. 4,736,485 6,049,350 Other revolving credit .................. 667,149 536,887 Real estate: Construction ............................ 2,311,362 2,044,437 Commercial mortgages .................... 7,754,206 6,988,050 Residential mortgages ................... 7,756,983 7,490,086 Lease financing -- net ..................... 2,597,271 1,879,123 Foreign .................................... 1,260,674 1,093,428 ----------- ------------ Total loans -- net ...................... $49,621,225 $ 45,719,222 =========== ============
Loans at December 31, 1999 and 1998 that had been placed on nonaccrual were $204, 098 and $157,118, respectively. Interest income which would have been recorded pursuant to the original terms of these loans was $38,121 and $16,906 on the preceding dates. Interest income recorded on these loans was $6,653 and $9,608, respectively. The Corporation follows Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan." A loan is defined as impaired when, based on current information and events, it is probable that the creditor will be unable to collect all amounts of principal and interest due according to the contractual terms of the loan agreement. Impairment is measured either by discounting the expected future cash flows at the loan's effective interest rate, based on the net realizable value of the collateral or based upon an observable market price where applicable. The following table summarizes impaired loans and related allowance information at December 31. 1999 1998 -------- -------- Impaired loans with related allowance ............ $139,815 $ 27,366 Impaired loans with no related allowance ......... 9,441 29,249 -------- -------- Total impaired loans ...................... $149,256 $ 56,615 ======== ======== Allowance on impaired loans ...................... $ 42,900 $ 7,110 ======== ========
The carrying value of impaired loans at December 31, 1999 is net of aggregate charge-offs of $48,306, of which $38,241 was recorded during 1999. Year Ended December 31 ---------------------------------- 1999 1998 1997 -------- ------- ------- Average impaired loans ............. $117,548 $31,026 $47,862 Interest income .................... 2,012 5,942 1,957 Cash-basis interest income ......... 851 2,600 614
At December 31, 1999, the Corporation had no significant outstanding commitments to lend additional funds to borrowers whose loans have been placed on nonaccrual. Changes in the allowance for loan losses for the three years ended December 31 were as follows: 1999 1998 1997 -------- -------- -------- Balance at beginning of year ......... $547,992 $544,723 $519,297 Additions from acquisitions .......... 39 2,613 24,641 Provision for loan losses ............ 298,105 299,480 264,949 Recoveries on loans previously charged off ........................ 59,936 59,365 57,515 Loans charged off .................... (351,262) (358,189) (321,679) -------- -------- -------- Balance at end of year ............... $554,810 $547,992 $544,723 ======== ======== ========
Loans totaling $14,583, $15,258 and $17,413 were transferred to foreclosed real estate during 1999, 1998 and 1997, respectively. It is the policy of the Corporation to review each prospective credit in order to determine an adequate level of security or collateral to obtain prior to making the loan. The type of collateral will vary and ranges from liquid assets to real estate. The Corporation's access to collateral, in the event of borrower default, is assured through adherence to state lending laws and the Corporation's lending standards and credit monitoring procedures. The Corporation regularly monitors its credit concentrations on loan purpose, industry and customer bases. At year-end, there were no material credit concentrations within these categories. The Corporation's subsidiaries have granted loans and extended letters of credit to certain directors and executive officers of the Corporation and its subsidiaries and to their associates. The aggregate amount of loans was $152,904 and $207,462 at December 31, 1999 and 1998, respectively. During 1999, $178,694 in new loans was made and repayments totaled $223,262. Outstanding standby letters of credit to related parties totaled $13,536 at December 31, 1998. There were no outstanding standby letters of credit to related parties at December 31, 1999. Related party loans are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated persons and do not involve more than the normal risk of collectibility. Loans held for sale at December 31 along with activity during the period are summarized as follows: 1999 1998 ---------- ---------- Balance at beginning of year ......... $ 295,817 $ 111,246 Originations/purchases ............... 4,258,957 6,972,491 Sales/transfers ...................... (4,509,589) (6,787,920) ---------- ---------- Balance at end of year ............... $ 45,185 $ 295,817 ========== ==========
- -------------------------------------------------------------------------------- 82 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements -- Continued - -------------------------------------------------------------------------------- $ in thousands Wachovia Corporation and Subsidiaries Note F -- Premises, Equipment and Leases Premises and equipment at December 31 are summarized as follows: 1999 1998 --------- --------- Land ........................................ $ 126,442 $ 130,439 Premises .................................... 685,185 651,199 Equipment ................................... 892,165 904,139 Leasehold improvements ...................... 135,765 123,410 --------- --------- 1,839,557 1,809,187 Less accumulated depreciation and amortization .............................. 885,725 907,506 --------- --------- Total premises and equipment ......... $ 953,832 $ 901,681 ========= =========
The annual minimum rentals under the terms of the Corporation's noncancelable operating leases as of December 31, 1999 are as follows: 2000 ........................................ $ 64,994 2001 ........................................ 56,699 2002 ........................................ 42,545 2003 ........................................ 35,435 2004 ........................................ 31,031 Thereafter .................................. 129,506 -------- Total minimum lease payments ......... $360,210 ========
The net rental expense for all operating leases amounted to $82,377 in 1999, $70,416 in 1998 and $63,701 in 1997. Certain leases have various renewal options and require increased rentals under cost of living escalation clauses. Depreciation expense for the years ended December 31, 1999, 1998 and 1997 was $146,451, $114,742 and $154,223, respectively. During 1997, an impairment charge of $67,202, which approximated the carrying value of certain personal computer hardware and software, was recorded as a result of the Corporation's plan to implement a company-wide distributed technology platform for improved employee communication capabilities. The plan involved the write-down and disposal of these assets. - -------------------------------------------------------------------------------- Note G -- Credit Arrangements, Short-Term Borrowed Funds and Certificates of Deposit At December 31, 1999 and 1998, lines of credit arrangements aggregating $400,000 were available to the Corporation from unaffiliated banks. Commitment fees were 8 basis points in 1999 and 1998; compensating balances are not required. The unused portion of these banking arrangements principally serves as commercial paper back-up lines. There were no borrowings outstanding under credit arrangements during 1999 or 1998. Federal funds purchased and securities sold under repurchase agreements generally mature within one to four days from the transaction date. Securities sold under repurchase agreements are delivered to either broker-dealers or to custodian accounts for customers. The broker-dealers may have sold, loaned or otherwise disposed of such securities to other parties in the normal course of their operations and have agreed to resell to the Corporation identical securities at the maturity of the agreements. Other borrowed funds consists of term federal funds purchased, treasury tax and loan deposits and short-term bank notes and are generally repaid within seven to 120 days from the transaction date. Information concerning short-term borrowed funds is included in Table 11 of Management's Discussion and Analysis of Financial Condition and Results of Operations. The scheduled maturities of certificates of deposit subsequent to December 31, 1999 are $8,612,888 in 2000, $1,882,092 in 2001, $685,957 in 2002, $253,390 in 2003 and $421,501 thereafter. The remaining maturity of domestic office certificates of deposit in denominations of $100 or more is $1,221,078, three months or less; $599,041, over three through six months, $643,985, over six through twelve months; and $690,650, over twelve months. - -------------------------------------------------------------------------------- 83 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements -- Continued - -------------------------------------------------------------------------------- $ in thousands Wachovia Corporation and Subsidiaries Note H -- Long-Term Debt Long-term debt at December 31 is summarized as follows: 1999 1998 ---------- ---------- Wachovia Corporation: Senior debt: Senior floating-rate notes due in 2000, net of discount of $93 and $218, respectively .. $ 249,907 $ 249,782 Senior floating-rate notes due in 2001, net of discount of $266 and $416, respectively . 299,734 299,584 6.70% senior notes due in 2004, net of discount of $1,907 .............................. 598,093 ---- 6.625% senior notes due in 2006, net of discount of $651 and $725, respectively ........ 199,349 199,275 ---------- ---------- Total senior debt ..................................................................... 1,347,083 748,641 Subordinated debt (qualifies for inclusion in the determination of total capital under the Risk-Based Capital guidelines): 7.0% subordinated debt securities due in 1999, net of discount of $456 ................. ---- 299,544 8.15% subordinated notes due in 2002 ................................................... 150,000 150,000 6.375% subordinated debt securities due in 2003, net of discount of $759 and $968, respectively ........................................................................... 249,241 249,032 6.8% subordinated notes due in 2005, net of discount of $226 and $260, respectively .... 249,774 249,740 6.25% subordinated notes due in 2008, net of discount of $2,031 and $2,206, respectively ........................................................................... 347,969 347,793 5.625% subordinated notes due in 2008, net of discount of $2,396 and $2,600, respectively ........................................................................... 397,604 397,400 6.375% subordinated notes due in 2009, net of discount of $232 and $250, respectively .. 249,768 249,750 6.15% subordinated notes due in 2009, net of discount of $2,445 ........................ 397,555 ---- 6.605% subordinated notes due in 2025 .................................................. 250,000 250,000 ---------- ---------- Total subordinated debt ............................................................... 2,291,911 2,193,259 Other ................................................................................... 27,024 27,273 ---------- ---------- Total Wachovia Corporation ............................................................ 3,666,018 2,969,173 Subsidiaries: Bank notes, net of discount of $5,641 and $4,970, respectively (a) ...................... 2,353,053 2,856,230 Federal Home Loan Bank borrowings (b) ................................................... 782,989 762,950 Other ................................................................................... 15,459 12,006 ---------- ---------- Total subsidiaries .................................................................... 3,151,501 3,631,186 Capital Trusts (qualifies for inclusion in Tier I capital under the Risk-Based Capital guidelines): Wachovia Capital Trust I -- 7.64% Capital Securities due in 2027 (c) .................... 300,000 300,000 Wachovia Capital Trust II -- Floating-Rate Capital Securities due in 2027, net of discount of $2,465 and $2,813, respectively (d) ........................................ 297,535 297,187 Wachovia Capital Trust V -- 7.965% Capital Securities due in 2027 (e) ................... 300,000 300,000 Central Fidelity Capital Trust I -- Floating-Rate Capital Securities due in 2027, net of discount of $791 and $819, respectively (f) ............................................ 99,209 99,181 ---------- ---------- Total Capital Trusts .................................................................. 996,744 996,368 ---------- ---------- Total long-term debt .................................................................. $7,814,263 $7,596,727 ========== ==========
(a) Wachovia Bank, N.A., has an ongoing bank note program under which the bank may offer an aggregate principal amount of up to $21.6 billion. The notes can be issued globally as fixed or floating rate and with maturities beginning at seven 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. Interest rates on long-term notes ranged from 4.9% to 7.0% and 4.9% to 7.50% with maturities ranging from 2000 to 2039 and 1999 to 2038 at December 31, 1999 and 1998, respectively. The average rates were 6.07% and 5.64% with average maturities of 3.9 years and 3.5 years at December 31, 1999 and 1998, respectively. (b) The Federal Home Loan borrowings were issued as fixed or floating rate with terms of 2 years to 5 years. Interest rates on the borrowings ranged from 5.63% to 7.06% and 5.16% to 7.06% for December 31, 1999 and 1998 and with maturities ranging from 2000 to 2004 and 1999 to 2003 at December 31, 1999 and 1998, respectively. Borrowings from the Federal Home Loan Bank are collateralized by qualifying securities and loans. (c) In December 1996, Wachovia Capital Trust I (WCT I), a wholly owned subsidiary, issued $300,000 of 7.64% Capital Securities due in 2027. WCT I invested the proceeds of the Capital Securities, together with $9,280 paid by the Corporation for WCT I's Common Securities, in $309,280 of the Corporation's 7.64% Junior Subordinated Deferrable Interest Debentures. WCT I's sole asset is the Junior Subordinated Deferrable Interest Debentures which mature in 2027. The Corporation has guaranteed all of WCT I's obligations under the Capital Securities. (d) In January 1997, Wachovia Capital Trust II (WCT II), a wholly owned subsidiary, issued $300,000 Floating-Rate Capital Securities due in 2027. WCT II invested the proceeds of the Capital Securities, together with $9,280 paid by the Corporation for WCT II's Common Securities, in $305,692, net of discount of $3,588, of the Corporation's Floating-Rate Junior Subordinated Deferrable Interest Debentures. WCT II's sole asset is the Junior Subordinated Deferrable Interest Debentures which mature in 2027. The Corporation has guaranteed all of WCT II's obligations under the Capital Securities. (e) In June 1997, Wachovia Capital Trust V (WCT V), a wholly owned subsidiary, issued $300,000 of 7.965% Capital Securities due in 2027. WCT V invested the proceeds of the Capital Securities, together with $9,280 paid by the Corporation for WCT V's Common Securities, in $309,280 of the Corporation's 7.965% Junior Subordinated Deferrable Interest Debentures. WCT V's sole asset is the Junior Subordinated Deferrable Interest Debentures which mature in 2027. The Corporation has guaranteed all of WCT V's obligations under the Capital Securities. (f) In April 1997, Central Fidelity Capital Trust I (CFCT I), a wholly owned subsidiary, issued $100,000 Floating-Rate Capital Securities due in 2027. CFCT I invested the proceeds of the Capital Securities, together with $3,093 paid by the Corporation for CFCT I's Common Securities, in $103,093 of the Corporation's Floating-Rate Junior Subordinated Debt Securities. CFCT I's sole asset is the Junior Subordinated Debt Securities which mature in 2027. The Corporation has guaranteed all of CFCT I's obligations under the Capital Securities. The principal maturities of long-term debt subsequent to December 31, 1999 are $912,653 in 2000, $1,385,949 in 2001, $704,272 in 2002, $533,851 in 2003, $824,036 in 2004 and $3,453,502 thereafter. - -------------------------------------------------------------------------------- 84 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements -- Continued - -------------------------------------------------------------------------------- $ in thousands Wachovia Corporation and Subsidiaries Note I -- Capital Stock At December 31, 1999, 31,844,078 common shares were reserved for the conversion of notes, issuance for employee benefit plans and the dividend reinvestment plan, and issuance for pending business combinations. During 1999, the Corporation repurchased 7,224,000 shares under five separate stock repurchase authorizations by the Board of Directors. Repurchased shares were or will be used for various corporate purposes, including the issuance of shares for purchase business combinations, employee benefit plans and the dividend reinvestment plan. The Corporation has one active stock option plan, the restated 1994 Wachovia Corporation Stock Plan. Under this Plan, up to 2.5% of the Corporation's outstanding common stock at year-end may be granted to selected key employees and nonemployee directors in the form of incentive and nonqualified stock options, stock appreciation rights (SARS), restricted stock awards and restricted units. Since the inception, a total of 11,514,299 options, 1,793,256 awards and 125,000 SARS have been granted. The Corporation also has several predecessor plans, the 1989 Plan and plans of merged entities which were assumed with appropriate conversion of shares under option and option price. These plans continue to have options outstanding which may be exercised. The Corporation's stock plans provide for the granting of options or awards for the purchase or issuance of 18,185,536 shares at 100% of the fair market value of the stock at the date of the grant. A committee of the Board of Directors determines such times options and awards shall be granted and exercised and the term of the exercise period (not to exceed 10 years). The plan awards officers shares of restricted stock earned contingent upon both a performance requirement and a five- year period. Additionally, newly elected nonemployee directors are granted a one-time award of 1,000 shares of restricted stock to be earned over a three-year period and nonemployee directors are awarded 250 shares of restricted stock annually which are earned over a one-year period. The cost relating to performance-based stock compensation was $26,177, $15,998 and $9,131 during 1999, 1998 and 1997, respectively. The following table reflects pro forma net income and earnings per share had the Company elected to adopt the fair value approach of FASB 123. 1999 1998 1997 ----- ----- ----- Net income: As reported ........... $1,011,221 $874,170 $592,806 Pro forma ............. 995,484 866,883 585,442 Basic earnings per share: As reported ........... $ 4.99 $ 4.26 $ 2.99 Pro forma ............. 4.91 4.23 2.95
The weighted average fair values of options at their grant date during 1999, 1998 and 1997 were $18.18, $16.46 and $13.29, respectively. The estimated fair value of each option granted is calculated using the Black-Scholes option-pricing model. The following summarizes the weighted-average of the assumptions used in the model. 1999 1998 1997 ----- ---- ---- Risk-free interest rate ............... 4.87% 5.73% 6.50% Expected years until exercise ......... 6.50 6.50 6.30 Expected stock volatility ............. 21% 19% 22% Dividend yield ........................ 3.04% 3.20% 3.31%
Activity in the option and award plans during 1999, 1998 and 1997 is summarized as follows: Options and Awards Outstanding --------------------------- Available Option Price for Grant Awards Options Per Share --------------- ------ ------ ----------------- Balance at December 31, 1996 ..................... 4,556,522 444,007 7,159,156 $ 15.42-47.13 Granted .................. (2,732,191) 243,517 2,488,674 43.56-76.69 Assumed (Jefferson and 1st United) ........ ---- ---- 217,355 11.10-45.30 Exercised ................ ---- (26,000) (1,477,080) 15.42-45.30 Cancelled ................ (552,633) ---- ---- ---- Authorized ............... 3,794,392 ---- ---- ---- Forfeited ................ 82,075 (1,550) (92,444) 21.69-57.25 ------------ ------- ---------- Total December 31, 1997 ..................... 5,148,165 659,974 8,295,661 11.10-76.69 Granted .................. (3,209,626) 364,426 2,845,200 75.00-87.38 Exercised ................ ---- (69,150) (2,159,068) 15.73-75.00 Authorized ............... 3,064,084 ---- ---- ---- Forfeited ................ 72,030 (1,000) (115,150) 33.88-86.50 ------------ ------- ---------- Total December 31, 1998 ..................... 5,074,653 954,250 8,866,643 11.10-87.38 Granted .................. (4,243,285) 769,456 3,473,829 79.44-89.19 Assumed (IJL and OFFITBANK) ............. ---- 352,646 200,662 24.35-65.29 Exercised ................ ---- (80,676) (1,151,761) 11.12-85.88 Authorized ............... 3,984,924 ---- ---- ---- Forfeited ................ 229,015 (18,699) (226,121) 19.75-86.50 ------------ ------- ---------- Total December 31, 1999 ..................... 5,045,307 1,976,977 11,163,252 11.10-89.19 ============ ========= ==========
The following table summarizes information concerning currently outstanding and exercisable options. Options Outstanding Options Exercisable - -------------------------------------------------------------------- ------------------------------- Weighted Average Weighted Weighted Remaining Average Average Range of Number Contractual Exercise Number Exercise Exercise Prices Outstanding Life Price Exercisable Price - ------------------- ------------- ----------- -------- ----------- -------- $ 11.10-30.00 773,551 1.83 $ 24.82 773,551 $ 24.82 30.01-50.00 2,828,368 5.17 37.73 2,198,523 36.75 50.01-70.00 1,535,364 8.08 57.24 598,959 57.15 70.01-89.19 6,025,969 6.66 81.73 782,190 79.42 --------- --------- 11,163,252 4,353,223 ========== =========
- -------------------------------------------------------------------------------- 85 - --------------------------------------------------------- Notes to Consolidated Financial Statements -- Continued - -------------------------------------------------------------------------------- $ in thousands Wachovia Corporation and Subsidiaries Note J -- Off-Balance Sheet Trading and Lending Activities The Corporation maintains positions in a variety of financial instruments with off-balance sheet risk to accommodate customers' financing objectives and management of interest rate and foreign currency risk. The Corporation maintains active trading positions in foreign exchange forward contracts and manages credit risk through the establishment of offsetting sell positions, as well as standard limit and monitoring procedures. The Corporation maintains a trading portfolio of interest rate swap and option (caps and floors) contracts and foreign exchange options consisting of generally matched, offsetting contracts with customer and market counterparties. Off-balance sheet financial instruments involve, in varying degrees, exposure to credit and interest rate risk in excess of the amount recognized in the statements of financial condition. The Corporation follows the same credit policies and careful underwriting practices in making commitments and conditional obligations as it does for on-balance sheet instruments. In those instances where collateral is necessary to support financial instrument credit risk, the Corporation assures its ability to access borrower's collateral, in the event of default, through strict adherence to corporate lending policy and applicable state lending laws. Derivative Financial Instruments Held or Issued for Trading Purposes -- The amounts disclosed below represent the year-end notional and fair value of derivative financial instruments held or issued for trading purposes and the average fair value during the year. Notional principal amounts are often used to express the volume of these transactions but do not represent the much smaller amounts potentially subject to credit risk. The Corporation's credit exposure to off-balance sheet derivative financial instruments is represented by the fair value gain of the instrument if a counterparty fails to perform. Options written do not expose the Corporation to credit risk, except to the extent of the underlying risk in the debt instrument that the Corporation may be obligated to acquire under certain written put options. The present value of purchased caps and floors in a gain position represents the Corporation's potential credit exposure. The Corporation controls the credit risk of these instruments through adherence to credit approval policies, monetary limits and monitoring procedures. Entering into interest rate swap agreements involves not only credit risk but also interest rate and foreign currency risk associated with unmatched positions. The Corporation controls the interest rate and foreign currency risk inherent in the derivative trading portfolio by entering into offsetting positions or by using other hedging techniques. Risks are further mitigated for those instruments that trade on organized exchanges, as the exchanges provide oversight and determine who may buy and sell such instruments. Interest Rate Swaps -- These transactions generally involve the exchange of fixed- and floating-rate payments without the exchange of the underlying principal amounts. Payments made or received under swap contracts are accrued based on contractual terms and are reported as other operating income. The related accrued amounts receivable or payable to customers or counterparties are included in other assets or liabilities. Revenues from the customer portfolio represent a small profit margin on intermediated transactions. The difference in the fair value of the offsetting contracts is not material. At December 31, 1999, the weighted average maturity of pay-fixed swaps and receive-fixed swaps held in the customer portfolio was 3.72 years. Under pay-fixed swap agreements, the Corporation paid interest at a weighted average fixed rate of 5.74% and received interest at a weighted average floating rate of 6.18% (based on year-end rates). Under receive-fixed swap agreements, the Corporation received interest at a weighted average fixed rate of 6.16% and paid interest at a weighted average floating rate of 6.52% (based on year-end rates). Interest Rate Caps and Floors -- These instruments are written by the Corporation to enable its customers to transfer, modify or reduce their interest rate risk exposure. In a cap or floor contract, the purchaser pays a premium at the initiation of the contract for the right to receive payments if market interest rates are greater than the strike price of a cap or less than the strike price of a floor. Payments made or received under cap or floor contracts are accrued based on contractual terms and are reported as other operating income. 1999 ----------------------------------------------------- Notional Fair Value Fair Value Average Fair Value Gains (Losses) Value ----------- ----------- ---------- ------------ U.S. dollar interest rate contracts as intermediary: Interest rate swaps-pay fixed ............... $8,240,207 $204,572 $(16,759) $ 172 Interest rate swaps-pay floating ............ 8,038,233 11,850 (136,278) (64) Interest rate caps and floors written ....... 2,009,209 6,138 (33,566) (523) Interest rate caps and floors purchased ..... 1,698,451 10,089 (11,927) 319 Securities trading activities: Commitments to purchase securities, futures and forward contracts .............. 38,850 2 (24) 24 Commitments to sell securities, futures and forward contracts ...................... 74,141 654 ---- 160 Foreign exchange trading activities: Commitments to purchase foreign exchange ................................... 2,888,413 13,708 (32,731) (5,683) Commitments to sell foreign exchange ........ 1,571,906 37,119 (10,482) 10,940 Foreign exchange options written ............ 34,960 416 (365) 24 Foreign exchange options purchased .......... 35,023 576 (551) 9
1998 ---------------------------------------------------- Notional Fair Value Fair Value Average Fair Value Gains (Losses) Value ----------- ---------- ---------- ------------ U.S. dollar interest rate contracts as intermediary: Interest rate swaps-pay fixed ............... $6,101,212 $40,948 ($104,107) $(109) Interest rate swaps-pay floating ............ 6,769,599 120,699 (30,715) 155 Interest rate caps and floors written ....... 2,551,837 2,374 ---- 44 Interest rate caps and floors purchased ..... 2,606,271 ---- (2,372) (44) Securities trading activities: Commitments to purchase securities, futures and forward contracts .............. 55,769 47 (128) 859 Commitments to sell securities, futures and forward contracts ...................... 98,957 346 (16) (718) Foreign exchange trading activities: Commitments to purchase foreign exchange ................................... 1,689,837 36,656 (1,185) 3,676 Commitments to sell foreign exchange ........ 1,336,800 5,542 (37,906) 2,383 Foreign exchange options written ............ 28,972 527 (497) 21 Foreign exchange options purchased .......... 28,972 ---- ---- 2
86 - --------------------------------------------------------- Notes to Consolidated Financial Statements -- Continued - -------------------------------------------------------------------------------- $ in thousands Wachovia Corporation and Subsidiaries Note J -- Off-Balance Sheet Trading and Lending Activities -- Concluded Commitments to Purchase and Sell Securities, Futures and Forward Contracts -- These instruments are contracts for delayed delivery of securities or money market instruments in which the seller agrees to deliver a specified instrument at a specified price or yield at a specified date. Commitments to purchase and sell securities, futures and forward contracts used in securities trading operations are recognized currently at market value and are reported as trading account profits (losses). Net Options Written to Purchase and Sell Foreign Exchange -- Forward commitments involve the purchase or sale of foreign currency amounts for delivery at a specified future date. Payments on forward commitments are exchanged on the delivery date based on the exchange rate in the contract. Forward commitments to purchase and sell foreign exchange are recognized at market value and are reported as other operating income. Foreign Exchange Options -- These agreements represent rights to purchase or sell foreign currency at a predetermined price at a future date. The purchaser pays a premium at the initiation of the contract for the right to exchange a specified amount at the contract's exchange rate at the maturity of the option. Revenues from the derivative trading portfolio are shown below. 1999 1998 1997 ------- ------- ------- Interest rate contracts .... $19,004 $ 19,406 $ 8,020 Securities activities ...... 2,261 (2,304) (3,035) Foreign exchange activities 19,694 20,054 11,283 -------- --------- --------- Total ................. $40,959 $ 37,156 $ 16,268 ======== ========= =========
Off-Balance Sheet Financial Instruments Issued for Lending Activities -- The Corporation issues off-balance sheet financial instruments as part of its commercial and consumer lending activities. The contract amounts of these instruments represent potential credit risk at December 31 as shown below: 1999 1998 ----------- ----------- Commercial and consumer lending activities: Unfunded commitments to extend credit ............................ $56,408,734 $53,178,254 Standby letters of credit ........... 9,564,012 9,062,050 Commercial and similar letters of credit ............................ 146,523 214,086 Participations in bankers' acceptances ....................... 4,950 5,240
Commitments to Extend Credit -- These are legally binding contracts to lend to a customer, provided there is no contract violation. These commitments have fixed termination dates and generally require payment of a fee. As most commitments expire prior to being drawn, the amounts shown do not necessarily represent the future cash requirements of the contracts. Creditworthiness is evaluated and in some instances collateral is obtained to support the borrowing. At December 31, 1999 and 1998, approximately 18% and 16%, respectively, of unfunded commitments to extend credit were supported by collateral. Of the total unfunded commitment amounts presented, approximately 23% in 1999 and 1998 were comprised of cancelable credit card commitments, and approximately 11% in 1999 and 10% in 1998 were represented by real estate commitments. Standby, Commercial and Similar Letters of Credit -- These instruments are conditional commitments issued by the Corporation guaranteeing the performance of a customer to a third party. These guarantees are issued primarily to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending credit to customers and is subject to the Corporation's underwriting process. At December 31, 1999 and 1998, approximately 5% and 3%, respectively, of these instruments were supported by collateral. There were no significant concentrations of letters of credit to any one group of borrowers at either year-end. Participation in Bankers' Acceptances -- These instruments represent risk participation in time drafts drawn by customers under a committed multibank credit facility. These drafts have been accepted and remarketed by other financial institutions. Under the terms of these arrangements, the Corporation may be required to reimburse the accepting financial institution for the Corporation's pro rata share of any payment default by the customer. - -------------------------------------------------------------------------------- Note K -- Off-Balance Sheet Risk Management Activities The Corporation uses a variety of off-balance sheet financial instruments as part of its overall interest rate risk management process. The Corporation's principal objective of asset/liability management activities is to provide maximum levels of net interest income while maintaining acceptable levels of interest rate and liquidity risk and facilitating the Corporation's funding needs. Accordingly, the Corporation uses a combination of derivative financial instruments, including interest rate swaps, futures and options with indices that correlate to on-balance sheet instruments to modify the repricing characteristics of interest-earning assets and interest-bearing liabilities. The amounts disclosed in the following table represent the year-end notional and fair value of derivative financial instruments held for risk management purposes. The Corporation's credit exposure to off-balance sheet derivative financial instruments is represented by the fair value gain of the instrument if a counterparty fails to perform. There were no deferred gains or losses resulting from terminated swap contracts at December 31, 1999 and 1998. 87 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements -- Continued - -------------------------------------------------------------------------------- $ in thousands Wachovia Corporation and Subsidiaries Note K -- Off-Balance Sheet Risk Management Activities -- Concluded 1999 ----------------------------------- Notional Fair Value Fair Value Value Gains (Losses) ---------- --------- ------------ Convert floating-rate liabilities to fixed: Swaps-pay fixed/receive floating .......................... $ 300,000 $ 4,997 $ ---- Convert fixed-rate assets to floating: Swaps-pay fixed/receive floating .......................... 538,427 13,564 (4,515) Forward starting swaps-pay fixed/receive floating ......... ---- ---- ---- Forward starting swaps-pay floating/receive fixed ......... 72,468 ---- (7,633) Convert fixed-rate liabilities to floating: Swaps-receive fixed/pay floating .......................... 3,100,000 842 (144,128) Convert liabilities with quarterly rate resets to monthly: Swaps-receive floating/pay floating ....................... 300,000 28 ---- Convert floating-rate assets to fixed: Swaps-receive fixed/pay floating .......................... 256,383 779 (2,641) ------------ ------- ---------- Total interest rate swaps and options ................... 4,567,278 20,210 (158,917) Credit derivatives ......................................... ---- ---- ---- ------------ ------- ---------- Total derivatives ....................................... $4,567,278 $20,210 ($ 158,917) ============ ======= ----------
1998 ------------------------------------ Notional Fair Value Fair Value Value Gains (Losses) ---------- -------- --------- Convert floating-rate liabilities to fixed: Swaps-pay fixed/receive floating .......................... $ 665,592 $ 1,049 $(7,341) Convert fixed-rate assets to floating: Swaps-pay fixed/receive floating .......................... 329,825 ---- (14,437) Forward starting swaps-pay fixed/receive floating ......... 200,000 ---- (257) Forward starting swaps-pay floating/receive fixed ......... ---- ---- ---- Convert fixed-rate liabilities to floating: Swaps-receive fixed/pay floating .......................... 2,100,000 134,960 (2,220) Convert liabilities with quarterly rate resets to monthly: Swaps-receive floating/pay floating ....................... 300,000 ---- (208) Convert floating-rate assets to fixed: Swaps-receive fixed/pay floating .......................... 456,896 8,768 (87) ---------- -------- --------- Total interest rate swaps and options ................... 4,052,313 144,777 (24,550) Credit derivatives ......................................... 1,500,000 387 ---- ---------- -------- --------- Total derivatives ....................................... $5,552,313 $145,164 ($ 24,550) ========== ======== =========
- -------------------------------------------------------------------------------- Note L -- Income Taxes The provision for income taxes is summarized below. 1999 1998 1997 -------- -------- -------- Current: Federal ........................... $115,593 $145,058 $233,618 Foreign ........................... 1,275 686 594 State and local ................... 30,982 17,416 6,932 -------- -------- -------- Total current ................ 147,850 163,160 241,144 Deferred: Federal ........................... 364,181 251,902 23,453 State ............................. 19,121 14,549 11,716 -------- -------- -------- Total deferred ............... 383,302 266,451 35,169 -------- -------- -------- Total income tax expense ..... $531,152 $429,611 $276,313 ======== ======== ========
The reasons for the difference between consolidated income tax expense and the amount computed by applying the statutory federal income tax rate of 35% to income before taxes were as follows: 1999 1998 1997 ---------- ---------- -------- Income before income taxes .......... $1,542,373 $1,303,781 $ 869,119 =========== =========== ========== Federal income taxes at statutory rate .............................. $ 539,830 $ 456,324 $ 304,192 State and local income taxes, net of federal benefit ................ 32,567 20,778 12,121 Effect of tax-exempt securities interest and other income ......... (47,116) (51,499) (42,031) Other items ......................... 5,871 4,008 2,031 ----------- ----------- ---------- Total income tax expense ..... $ 531,152 $ 429,611 $ 276,313 =========== =========== ==========
Significant components of the Corporation's deferred tax assets and liabilities, which are included in other liabilities, at December 31 are as follows: Deferred Tax Assets ---------------------- 1999 1998 -------- -------- Allowance for loan losses ................ $211,363 $200,546 Employee compensation and retirement benefits .............................. 103,361 76,702 Unrealized losses on securities available- for-sale .............................. 45,450 ---- Other .................................... 23,217 37,867 -------- -------- Gross deferred tax assets ......... $383,391 $315,115 ======== ========
Deferred Tax Liabilities -------------------------- 1999 1998 --------- --------- Unrealized gains on securities available- for-sale ................................... $ ---- $50,719 Depreciation ................................. 40,248 29,279 Lease financing .............................. 798,191 433,753 Accretion of discounts on securities ......... 16,519 19,928 Identifiable intangibles ..................... 12,855 17,459 Other ........................................ 47,159 34,372 --------- --------- Gross deferred tax liabilities ......... $914,972 $585,510 ========= ========= Net deferred tax liability ............. ($531,581) ($270,395) ========= =========
- -------------------------------------------------------------------------------- 88 - --------------------------------------------------------- Notes to Consolidated Financial Statements -- Continued - -------------------------------------------------------------------------------- $ IN THOUSANDS Wachovia Corporation and Subsidiaries Note M -- Cash, Dividend, Loan Restrictions, Capital Ratios and Contingent Liabilities In the normal course of business, the Corporation and its subsidiaries enter into agreements, or are subject to regulatory requirements, that result in cash, debt and dividend restrictions. A summary of the most restrictive items follows. The Corporation's banking subsidiaries are required to maintain average reserve balances with the Federal Reserve Bank. The average amount of those reserve balances for the year ended December 31, 1999 was approximately $207,692. Under current Federal Reserve regulations, the banking subsidiaries also are limited in the amount they may loan to their affiliates, including the Corporation. Loans to a single affiliate may not exceed 10% and loans to all affiliates may not exceed 20% of the bank's capital, surplus and undivided profits plus the allowance for loan losses. Based on these limitations, approximately $807,631 was available for loans to the Corporation at December 31, 1999. The approval of the Comptroller of the Currency is required if the total of all dividends declared by a national bank in any calendar year exceeds the bank's net profits, as defined, for that year combined with its retained net profits for the preceding two calendar years. Under this formula, the banking subsidiaries cannot distribute as dividends to the Corporation in 2000, without the approval of the Comptroller of the Currency, more than $581,060 plus an additional amount equal to the banks' retained net profits for 2000 up to the date of any dividend declaration. As a result of the above dividend and loan restrictions, approximately $4,634,461 of consolidated net assets of the Corporation's banking subsidiaries at December 31, 1999 was restricted from transfer to the Corporation in the form of cash dividends, loans or advances. The Corporation and its banking subsidiaries are subject to various regulatory capital requirements administered by the federal banking agencies. Under the capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation and its banking subsidiaries must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Failure to meet minimum capital requirements can initiate certain mandatory, and possible discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Corporation's financial statements. The Corporation and its banking subsidiaries are required to maintain minimum Tier I capital, total risk-based capital and Tier I leverage ratios of 4%, 8% and 3%, respectively. The Corporation and its banking subsidiaries meet all capital adequacy requirements to which they are subject. At December 31, 1999, the most recent notification from the Comptroller of the Currency categorized the Corporation's banking subsidiaries as well capitalized under the regulatory framework for prompt corrective action. To be well capitalized, the banking subsidiaries must maintain minimum Tier I capital, total risk-based capital, and Tier I leverage ratios of 6%, 10% and 5%, respectively. There are no conditions or events since that notification that management believes have changed the banking subsidiaries' well capitalized status. The actual capital amounts and ratios for the Corporation at December 31, 1999 are presented in the following table: 1999 1998 ----------------------- --------------------- Amount Ratio Amount Ratio ---------- ------- ---------- ----- Wachovia Corporation Tier I capital ....... $5,795,946 7.52% $5,585,488 7.99% Total risk-based capital ............ 8,458,090 10.98 7,927,628 11.34 Tier I leverage ...... 5,795,946 8.77 5,585,488 8.67 Wachovia Bank, N.A. Tier I capital ....... 5,458,716 7.33 5,097,196 7.46 Total risk-based capital ............ 8,191,453 11.00 7,749,905 11.34 Tier I leverage ...... 5,458,716 8.69 5,097,196 8.28
The Corporation, in the normal course of business, is subject to various pending or threatened lawsuits in which claims for monetary damages are asserted. Although it is not possible for the Corporation to predict the outcome of these lawsuits or the range of any possible loss, management, after consultation with legal counsel, does not anticipate that the ultimate aggregate liability, if any, arising from these lawsuits will have a material adverse effect on the Corporation's financial position or operating results. - -------------------------------------------------------------------------------- Note N -- Pension and Other Postretirement Benefits The Corporation maintains several defined benefit pension plans, the first of which covers substantially all employees (the Qualified Plan). The Qualified Plan provides pension benefits that are based upon the employee's length of credited service and final average compensation as defined in the plan. The pension expense of the Qualified Plan is determined using the projected unit credit method. The Corporation's policy is to fund amounts allowable for federal income tax purposes. The Corporation also sponsors separate unfunded nonqualified pension plans that provide certain officers with defined pension benefits in excess of limits imposed on qualified plans by federal tax law and for certain compensation not covered in the qualified plans. The Corporation and its subsidiaries provide certain health care benefits for retired employees. Substantially all of the employees may become eligible for these benefits if they reach normal retirement age while working for the Corporation or its subsidiaries. The benefits are provided through self-insured plans administered by insurance companies whose premiums are based on the claims paid during the year. The following table sets forth the changes in the projected benefit obligations and the fair value of plan assets for the Corporation's defined benefit pension plans and health care benefits provided for retired employees and the amounts recognized in the Consolidated Statements of Condition at December 31. 89 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements -- Continued - -------------------------------------------------------------------------------- $ in thousands Wachovia Corporation and Subsidiaries Note N -- Pension and Other Postretirement Benefits -- Continued Pension Benefits Other Benefits ------------------------------ ------------------------ 1999 1998 1999 1998 ------------ ----- ---------- ------ Change in benefit obligation: Projected benefit obligation at beginning of year ......... $858,601 $754,739 $ 76,059 $ 85,652 Service cost .............................................. 37,346 31,933 1,555 1,396 Interest cost ............................................. 61,407 54,963 5,488 5,573 Actuarial gain ............................................ (91,717) 34,414 (6,767) (2,769) Benefits paid ............................................. (38,322) (31,928) (5,715) (6,046) Plan change ............................................... 921 14,480 ---- (7,747) ------------ --------- ---------- --------- Projected benefit obligation at end of year ............... $828,236 $858,601 $ 70,620 $ 76,059 ============ ========= ========== ========= Change in plan assets: Fair value of plan assets at beginning of year ............ $827,310 $742,203 $ 13,530 $ 12,170 Actual return on plan assets .............................. 117,556 113,372 1,417 1,361 Employer contributions .................................... 4,297 3,663 5,715 ---- Benefits paid ............................................. (38,322) (31,928) (5,715) ---- ------------ --------- ---------- --------- Fair value of plan assets at end of year .................. $910,841 $827,310 $ 14,947 $ 13,531 ============ ========= ========== ========= Accrued benefit cost: Funded status ............................................. $ 82,605 $(31,291) ($55,673) ($ 62,528) Unrecognized transition (asset) liability ................. (16,747) (22,332) 51,736 55,716 Unrecognized prior service cost ........................... 16,479 16,094 (6,103) (6,612) Unrecognized net (gain) loss .............................. (125,889) 13,805 (19,893) (11,185) ------------ --------- ---------- --------- Accrued benefit cost ...................................... $(43,552) $(23,724) ($29,933) ($ 24,609) ============ ========= ========== ========= Weighted-average assumptions as of December 31: Discount rate ............................................. 8.00% 7.00% 8.00% 7.00% Expected return on plan assets ............................ 9.00% 9.00% 7.00% 7.00% 6% through 2005, 6% through 2001, Rate of compensation increase ............................. 5% thereafter 5% thereafter 6.00% 6.00% Assumed rate of increase in health care costs: Retirees under age 65 .................................... ---- ---- 8.00% 8.00% Retirees over age 65 ..................................... ---- ---- 6.00% 6.00%
The rate of increase in health care costs is assumed to remain constant for each category of retirees. Included in plan assets at December 31, 1999 were 130,626 shares of Wachovia Corporation common stock with a market value of $8,883. Dividends of $269 were paid on those shares in 1999. Pension Benefits Other Benefits ------------------------------------------ --------------------------------------- 1999 1998 1997 1999 1998 1997 ------- ------- ------- ------- ------- -------- Components of net periodic benefit cost: Service cost ........................... $37,346 $31,933 $24,660 $ 1,556 $ 1,396 $ 2,407 Interest cost .......................... 61,407 54,963 46,626 5,488 5,573 5,718 Expected return on plan assets ......... (73,438) (63,050) (50,821) (947) (852) (895) Amortization of unrecognized amounts: Transition (asset) liability ........... (5,585) (5,585) (5,297) 3,980 3,980 3,980 Prior service cost ..................... 536 537 (1,532) (509) (509) 57 Net actuarial loss (gain) .............. 3,235 2,132 1,360 (36) (262) (484) ------- ------- ------- ------- -------- --------- Benefit cost ............................ $23,501 $20,930 $14,996 $ 9,532 $ 9,326 $ 10,783 ======= ======= ======= ======= ======== =========
The assumed health care cost trend rate has a significant effect on the amounts reported. A one-percentage-point change in the assumed health care cost trend rate would have the following effects: 1 Percentage 1 Percentage Point Point Increase Decrease ------------ ------------ Effect on total of service and interest cost components in 2000 ............. $ 159 $ 141 Effect on post retirement benefit obligation as of December 31, 1999 ................................ $2,275 $2,014
The projected benefit obligation and accumulated benefit obligation for pension plans with accumulated benefit obligations in excess of plan assets were $126,423 and $101,049, respectively, at December 31, 1999 and $114,577 and $89,857, respectively, at December 31, 1998. Those plans were unfunded at December 31, 1999 and 1998. The Corporation also provides supplemental benefits to substantially all employees through defined contribution plans designed to encourage participants to save on a regular basis and to provide such 90 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements -- Continued - -------------------------------------------------------------------------------- $ IN THOUSANDS Wachovia Corporation and Subsidiaries Note N -- Pension and Other Postretirement Benefits -- Concluded participants with deferred compensation and additional performance incentive. Total expense relating to these plans, which represented the Corporation's matching and discretionary contributions, was $31,585 in 1999, $23,473 in 1998 and $25,969 in 1997. Employee participants may elect to contribute from 1% to 15% of base salary. The Corporation matches 100% of each participant's contribution up to the first 3% of base salary and 50% of each participant's remaining contribution up to 6% of base salary with a maximum employer contribution of 4.5% of base salary. The plans provide for additional contributions of up to 1.5% of salary in accordance with a pre-established formula based on certain earnings performance criteria and also for special discretionary employer contributions of up to 4% of each eligible employee's base salary as approved annually by the Board of Directors. - -------------------------------------------------------------------------------- Note O -- Selected Income Statement Information The components of other operating income and expense for the three years ended December 31 were as follows: 1999 1998 1997 -------- -------- -------- Other operating income: Bankers' acceptance and letter of credit fees ............. $ 46,037 $ 39,025 $ 34,526 Other service charges and fees ............................ 79,893 54,726 51,916 Other income .............................................. 114,952 117,487 84,316 -------- -------- -------- Total other operating income ............................ $240,882 $211,238 $170,758 ======== ======== ======== Other operating expense: Postage and delivery ...................................... $ 55,410 $ 52,981 $ 48,657 Outside data processing, programming and software ......... 102,773 64,450 83,418 Stationery and supplies ................................... 35,939 34,767 30,960 Advertising and sales promotion ........................... 66,468 71,257 73,193 Professional services ..................................... 75,002 56,066 54,113 Travel and business promotion ............................. 33,944 29,254 25,215 Telecommunications ........................................ 58,088 54,467 43,420 Amortization of intangible assets ......................... 50,879 39,091 13,308 Foreclosed property expense ............................... (853) 571 1,875 Other expense ............................................. 184,036 161,120 143,427 -------- -------- -------- Total other operating expense ........................... $661,686 $564,024 $517,586 ======== ======== ========
- -------------------------------------------------------------------------------- Note P -- Earnings Per Share Year Ended December 31 ------------------------------------------ 1999 1998 1997 ---------- ---- ---- Basic (thousands, except per share) Average common shares outstanding .............................. 202,795 205,058 198,290 ========== ======= ======= Net income ..................................................... $1,011,221 $874,170 $592,806 ========== ======== ======== Per share amount ............................................... $ 4.99 $ 4.26 $ 2.99 Diluted (thousands, except per share) Average common shares outstanding .............................. 202,795 205,058 198,290 Dilutive common stock options at average market price .......... 2,976 3,778 3,394 Dilutive common stock awards at average market price ........... 397 300 210 Convertible long-term debt assumed converted ................... 24 17 7 ---------- -------- -------- Average diluted shares outstanding ............................. 206,192 209,153 201,901 ========== ======== ======== Net income ..................................................... $1,011,221 $874,170 $592,806 Add interest on convertible long-term debt, net of tax ......... 71 48 6 ---------- -------- -------- Adjusted net income ............................................ $1,011,292 $874,218 $592,812 ========== ======== ======== Per share amount ............................................... $ 4.90 $ 4.18 $ 2.94
- -------------------------------------------------------------------------------- 91 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements -- Continued - -------------------------------------------------------------------------------- $ in thousands Wachovia Corporation and Subsidiaries Note Q -- Fair Value of Financial Instruments The following methods and assumptions were used by the Corporation in estimating its fair value disclosures for financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rates and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. Also, the fair value estimates presented are based on pertinent information available to management as of December 31, 1999 and 1998. Such amounts have not been comprehensively revalued for purposes of these financial statements since those dates and therefore, current estimates of fair value may differ significantly from the amounts presented. Trading Account Assets -- Fair values are based on quoted market prices as recognized in the statements of condition. Securities -- Fair values are based on quoted market prices. If a quoted market price is not available, fair value is estimated using market prices for similar securities. Loans -- For credit card, equity lines and other loans with short-term or variable rate characteristics, the carrying value reduced by an estimate of credit losses inherent in the portfolio is a reasonable estimate of fair value. The fair value of all other loans is estimated by discounting their future cash flows using interest rates currently being offered for loans with similar terms, reduced by an estimate of credit losses inherent in the portfolio. The discount rates used are commensurate with the interest rate and prepayment risks involved for the various types of loans. Deposits -- The fair values disclosed for demand deposits (e.g., interest- and noninterest-bearing demand, savings and money market savings) are equal to the amounts payable on demand at the reporting date (i.e., their carrying amounts). Fair values for certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated monthly maturities. Long-Term Debt -- Fair values are estimated using discounted cash flow analyses, based on the Corporation's current incremental borrowing rates for similar types of borrowing arrangements. Many of the Corporation's assets and liabilities are short-term financial instruments whose carrying amounts reported in the statements of condition approximate fair value. These items include cash and due from banks, interest-bearing bank balances, federal funds sold and securities purchased under resale agreements, due from customers on acceptances, short-term borrowed funds, acceptances outstanding, and the financial instruments included in other assets and liabilities. The following summarizes estimated fair values of the Corporation's remaining on-balance sheet financial instruments as of December 31. 1999 ----------------------------- Carrying Estimated Value Fair Value ------------ ------------- Financial assets: Trading account assets ......... $ 870,304 $ 870,304 Securities ..................... 8,144,514 8,156,940 Loans, net of allowance for loan losses ....................... 49,066,415 49,085,271 Financial liabilities: Deposits ....................... 41,786,418 41,846,589 Long-term debt ................. 7,814,263 7,819,811
1998 ----------------------------- Carrying Estimated Value Fair Value ---------- ------------- Financial assets: Trading account assets ......... $ 664,812 $ 664,812 Securities ..................... 9,367,255 9,425,774 Loans, net of allowance for loan losses ....................... 45,171,230 45,465,075 Financial liabilities: Deposits ....................... 40,994,729 41,156,155 Long-term debt ................. 7,596,727 7,895,996
Off-Balance Sheet Instruments -- Fair values are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties' credit standing for loan commitments and letters of credit, and the estimated amount the Corporation would receive or pay to terminate or replace the contract at current market rates for the remainder of the off-balance sheet instruments. See Notes J and K for additional information about off-balance sheet financial instruments. The estimated fair values of the Corporation's off-balance sheet financial instruments as of December 31 are summarized below. The amounts for commitments and letters of credit are presented as negative in order to represent the approximate cost the Corporation would incur to pay third parties to assume these commitments. Interest rate contracts and other off-balance sheet financial instruments represent the net fair value gain or loss of the contracts. 1999 1998 Estimated Estimated Fair Value Fair Value ------------ ------------- Unfunded commitments to extend credit ......... $(76,770) $(76,894) Letters of credit ............................. (69,921) (66,434) Interest rate contracts issued for trading purposes ................................... 34,119 26,827 Interest rate contracts held for purposes other than trading ......................... (138,707) 120,614 Other off-balance sheet financial instruments issued or held for trading or lending purposes ........................... 8,322 3,386
This presentation excludes certain financial instruments and all nonfinancial instruments. The disclosures exclude all nonfinancial instruments such as customer relationships, deposit base intangibles and goodwill. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Corporation. - -------------------------------------------------------------------------------- 92 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements -- Concluded - -------------------------------------------------------------------------------- $ in thousands Wachovia Corporation and Subsidiaries Note R -- Wachovia Corporation (Parent Company Only) Information The following is a condensed statement of financial condition of the parent company at December 31. 1999 1998 ----------- ------------ Assets - ------------------------------------------ Cash on demand deposit with bank subsidiary ............................. $ 669 $ 520 Interest-bearing bank balances with bank subsidiaries ...................... 1,269,354 1,041,471 Securities ............................... 170,856 130,829 Demand loans to nonbank subsidiaries ..... 1,243,252 779,035 Notes receivable from subsidiaries ....... 2,456,455 2,521,540 Investments in: Bank subsidiaries ...................... 6,023,150 5,827,743 Nonbank subsidiaries ................... 731,090 293,923 Other assets ............................. 211,670 191,817 ----------- ------------ Total assets ...................... $12,106,496 $ 10,786,878 =========== ============ Liabilities and Shareholders' Equity - ------------------------------------------- Parent company commercial paper .......... $ 1,658,988 $ 1,359,382 Subordinated notes payable to nonbank subsidiaries ........................... 1,027,600 1,031,023 Long-term debt ........................... 3,666,018 2,969,173 Demand loans from bank subsidiary ........ 18,015 18,015 Other liabilities ........................ 77,418 71,053 Shareholders' equity ..................... 5,658,457 5,338,232 ----------- ------------ Total liabilities and shareholders' equity .......................... $12,106,496 $ 10,786,878 =========== ============
The operating results of the parent company for the three years ended December 31 are shown below. 1999 1998 1997 ---------- -------- -------- Income - --------------------------------------- Dividends from: Bank subsidiaries ................... $ 617,800 $562,000 $658,800 Nonbank subsidiaries ................ 77,000 ---- 11,060 Interest from subsidiaries ............ 301,576 222,956 184,476 Other interest income ................. 12,840 7,997 15,320 Other income .......................... 33,317 57,387 34,012 ----------- -------- -------- Total income ................... 1,042,533 850,340 903,668 Expense - ---------------------------------------- Interest on short-term borrowed funds ............................... 69,619 64,086 39,566 Interest on long-term debt ............ 297,646 197,944 169,192 Interest paid to subsidiaries ......... 1,354 1,746 22,354 Other expense ......................... 33,714 47,858 50,655 ----------- -------- -------- Total expense .................. 402,333 311,634 281,767 Income before income tax benefit and equity in undistributed net income (excess dividends) of subsidiaries ........................ 640,200 538,706 621,901 Income tax benefit .................... (19,801) (14,259) (16,519) ----------- -------- -------- Income before equity in undistributed net income (excess dividends) of subsidiaries ........................ 660,001 552,965 638,420 Equity in undistributed net income (excess dividends) of subsidiaries ........................ 351,220 321,205 (45,614) ----------- -------- -------- Net income ..................... $1,011,221 $874,170 $592,806 =========== ======== ========
The cash flows of the parent company for the three years ended December 31, were as follows: 1999 1998 1997 ---------- ---------- -------- Operating Activities - ---------------------------------- Net income ....................... $1,011,221 $ 874,170 $592,806 Other, net ....................... 21,648 52,802 23,830 Equity in excess dividends (undistributed net income) of subsidiaries ................ (351,220) (321,205) 45,614 ---------- ---------- -------- Net cash provided by operations .................. 681,649 605,767 662,250 Investing Activities - ----------------------------------- Net (increase) decrease in interest-bearing bank balances ....................... (227,883) (184,968) 315,194 Purchases of securities .......... (76,433) (105,763) (17,097) Sales, calls, prepayments and maturities of securities ....... 38,371 38,257 349,052 Net (increase) decrease in demand loans to nonbank subsidiaries ................... (464,217) 214,038 (559,130) Notes issued to subsidiaries ..... (213,733) (1,015,908) (550,000) Notes repaid by subsidiaries ..... 300,103 908 ---- Net (increase) decrease in other assets ................... (18,810) (22,318) (5,154) Equity investment in subsidiaries ................... (3,780) (249,001) (45,956) ---------- ---------- -------- Net cash used by investing activities .................. (666,382) (1,324,755) (513,091) Financing Activities - ----------------------------------- Net (decrease) increase in loans and notes from subsidiaries ................... (3,810) (50,474) 355,340 Net increase in commercial paper .......................... 299,606 325,358 327,648 Proceeds from long-term debt ........................... 993,359 1,288,859 ---- Maturities and repayments of long-term debt ................. (318,115) ---- ---- Issuance of stock ................ 59,478 80,375 59,281 Dividend payments ................ (418,447) (381,798) (327,303) Common stock repurchased ......... (634,623) (531,122) (537,855) Increase (decrease) in other liabilities .................... 7,434 (18,658) (19,346) ---------- ---------- -------- Net cash (used) provided by financing activities ..... (15,118) 712,540 (142,235) ---------- ---------- -------- Increase (decrease) in cash ...... 149 (6,448) 6,924 Cash at beginning of year ........ 520 6,968 44 ---------- ---------- -------- Cash at end of year .............. $ 669 $ 520 $ 6,968 ========== ========== ======== Noncash investing and financing activities: Common stock issued on conversion of long-term debt ........................... $ 250 $ ---- $ 70
The principal maturities of the parent company's long-term debt subsequent to December 31, 1999 are $249,907 in 2000, $325,331 in 2001, $151,427 in 2002, $249,240 in 2003, $598,093 in 2004 and $3,119,620 thereafter. 93 - -------------------------------- Consolidated Average Balances - -------------------------------------------------------------------------------- thousands Wachovia Corporation and Subsidiaries 1999 1998 Amount % Amount % Assets Loans -- net of unearned income: Commercial ................................................................. $15,750,629 24.1 $14,023,069 21.9 Tax-exempt ................................................................. 807,957 1.2 1,218,909 1.9 ------------ ----- ------------ ----- Total commercial ........................................................ 16,558,586 25.3 15,241,978 23.8 Direct retail .............................................................. 1,064,215 1.6 1,143,392 1.8 Indirect retail ............................................................ 3,481,534 5.3 3,090,938 4.8 Credit card ................................................................ 5,040,279 7.7 5,680,171 8.9 Other revolving credit ..................................................... 589,173 .9 497,681 .8 ------------ ----- ------------ ----- Total retail ............................................................ 10,175,201 15.5 10,412,182 16.3 Construction ............................................................... 2,193,339 3.4 1,892,817 3.0 Commercial mortgages ....................................................... 7,323,451 11.2 6,812,786 10.6 Residential mortgages ...................................................... 7,421,270 11.3 7,808,436 12.2 ------------ ----- ------------ ----- Total real estate ....................................................... 16,938,060 25.9 16,514,039 25.8 Lease financing ............................................................ 2,265,797 3.5 1,428,872 2.2 Foreign .................................................................... 1,284,883 2.0 803,644 1.3 ------------ ----- ------------ ----- Total loans ............................................................. 47,222,527 72.2 44,400,715 69.4 Securities: Held-to-maturity: State and municipal ....................................................... 168,132 .3 193,911 .3 Other ..................................................................... 1,150,742 1.7 1,282,160 2.0 ------------ ----- ------------ ----- Total held-to-maturity .................................................. 1,318,874 2.0 1,476,071 2.3 Available-for-sale ......................................................... 8,021,432 12.3 9,106,015 14.2 ------------ ----- ------------ ----- Total securities ........................................................ 9,340,306 14.3 10,582,086 16.5 Interest-bearing bank balances .............................................. 118,303 .2 157,219 .3 Federal funds sold and securities purchased under resale agreements ......... 605,585 .9 467,079 .7 Trading account assets ...................................................... 829,399 1.2 954,809 1.5 ------------ ----- ------------ ----- Total interest-earning assets ........................................... 58,116,120 88.8 56,561,908 88.4 Cash and due from banks ..................................................... 3,117,224 4.8 3,210,746 5.1 Premises and equipment ...................................................... 949,640 1.4 856,737 1.3 Other assets (1) ............................................................ 3,778,418 5.8 3,854,897 6.0 Allowance for loan losses ................................................... (541,144) ( .8) (535,753) ( .8) ------------ ------ ------------ ------ Total assets ............................................................ $65,420,258 100.0 $63,948,535 100.0 ============ ====== ============ ====== Liabilities and Shareholders' Equity Interest-bearing deposits in domestic offices: Demand ..................................................................... $ 4,656,515 7.1 $ 4,984,421 7.8 Savings and money market savings ........................................... 13,339,354 20.4 11,603,522 18.2 Savings certificates ....................................................... 8,764,880 13.4 9,943,373 15.5 Large denomination certificates ............................................ 3,317,934 5.1 3,051,290 4.8 ------------ ------ ------------ ------ Total interest-bearing deposits in domestic offices ..................... 30,078,683 46.0 29,582,606 46.3 Interest-bearing deposits in foreign offices ................................ 2,246,413 3.4 2,428,713 3.8 ------------ ------ ------------ ------ Total interest-bearing deposits ......................................... 32,325,096 49.4 32,011,319 50.1 Federal funds purchased and securities sold under repurchase agreements ..... 6,150,371 9.4 7,498,279 11.7 Commercial paper ............................................................ 1,484,484 2.3 1,276,624 2.0 Other short-term borrowed funds ............................................. 1,766,070 2.7 2,120,256 3.3 ------------ ------ ------------ ------ Total short-term borrowed funds ......................................... 9,400,925 14.4 10,895,159 17.0 Long-term debt .............................................................. 8,134,358 12.4 6,278,807 9.8 ------------ ------ ------------ ------ Total interest-bearing liabilities ...................................... 49,860,379 76.2 49,185,285 76.9 Other deposits: Demand in domestic offices ................................................. 8,250,407 12.6 7,797,454 12.2 Demand in foreign offices .................................................. 653 .0 309 .0 Noninterest-bearing time in domestic offices ............................... 4,240 .0 5,203 .0 Other liabilities ........................................................... 1,874,402 2.9 1,792,333 2.8 Shareholders' equity ........................................................ 5,430,177 8.3 5,167,951 8.1 ------------ ------ ------------ ------ Total liabilities and shareholders' equity .............................. $65,420,258 100.0 $63,948,535 100.0 ============ ====== ============ ====== Total deposits .............................................................. $40,580,396 $39,814,285
(1) Includes unrealized gains (losses) of $17,991 in 1999, $131,761 in 1998, $65,846 in 1997, $93,556 in 1996, $34,248 in 1995 and ($12,405) in 1994 on securities available-for-sale. 94
1997 1996 Amount % Amount % Assets Loans -- net of unearned income: Commercial ................................................................. $11,326,589 19.7 $10,480,829 18.9 Tax-exempt ................................................................. 1,743,227 3.0 2,126,486 3.8 ------------ ----- ------------ ----- Total commercial ........................................................ 13,069,816 22.7 12,607,315 22.7 Direct retail .............................................................. 1,193,557 2.1 1,194,349 2.1 Indirect retail ............................................................ 2,966,521 5.1 3,138,707 5.6 Credit card ................................................................ 5,626,062 9.8 4,948,626 8.9 Other revolving credit ..................................................... 423,900 .7 417,953 .8 ------------ ----- ------------ ----- Total retail ............................................................ 10,210,040 17.7 9,699,635 17.4 Construction ............................................................... 1,498,438 2.6 1,069,576 1.9 Commercial mortgages ....................................................... 6,067,194 10.5 5,452,795 9.8 Residential mortgages ...................................................... 7,422,225 12.9 6,796,978 12.2 ------------ ----- ------------ ----- Total real estate ....................................................... 14,987,857 26.0 13,319,349 23.9 Lease financing ............................................................ 955,055 1.7 655,485 1.2 Foreign .................................................................... 493,110 .9 457,500 .8 ------------ ----- ------------ ----- Total loans ............................................................. 39,715,878 69.0 36,739,284 66.0 Securities: Held-to-maturity: State and municipal ....................................................... 221,196 .4 273,529 .5 Other ..................................................................... 1,101,603 1.8 1,199,467 2.1 ------------ ----- ------------ ----- Total held-to-maturity .................................................. 1,322,799 2.2 1,472,996 2.6 Available-for-sale ......................................................... 9,470,064 16.4 10,402,219 18.7 ------------ ----- ------------ ----- Total securities ........................................................ 10,792,863 18.6 11,875,215 21.3 Interest-bearing bank balances .............................................. 88,801 .2 420,838 .8 Federal funds sold and securities purchased under resale agreements ......... 397,213 .7 286,478 .5 Trading account assets ...................................................... 960,244 1.7 921,764 1.7 ------------ ----- ------------ ----- Total interest-earning assets ........................................... 51,954,999 90.2 50,243,579 90.3 Cash and due from banks ..................................................... 2,904,160 5.0 2,789,738 5.1 Premises and equipment ...................................................... 803,362 1.4 785,438 1.4 Other assets (1) ............................................................ 2,465,276 4.3 2,278,391 4.1 Allowance for loan losses ................................................... (520,722) ( .9) (512,943) ( .9) ------------ ------ ------------ ------ Total assets ............................................................ $57,607,075 100.0 $55,584,203 100.0 ============ ====== ============ ====== Liabilities and Shareholders' Equity Interest-bearing deposits in domestic offices: Demand ..................................................................... $ 4,108,606 7.1 $ 3,993,079 7.2 Savings and money market savings ........................................... 10,594,764 18.4 9,440,738 17.0 Savings certificates ....................................................... 10,364,936 18.0 10,521,925 18.9 Large denomination certificates ............................................ 2,929,042 5.1 2,612,410 4.7 ------------ ------ ------------ ------ Total interest-bearing deposits in domestic offices ..................... 27,997,348 48.6 26,568,152 47.8 Interest-bearing deposits in foreign offices ................................ 1,585,149 2.8 1,040,585 1.9 ------------ ------ ------------ ------ Total interest-bearing deposits ......................................... 29,582,497 51.4 27,608,737 49.7 Federal funds purchased and securities sold under repurchase agreements ..... 6,743,997 11.7 7,136,064 12.8 Commercial paper ............................................................ 781,345 1.4 595,806 1.1 Other short-term borrowed funds ............................................. 1,461,781 2.5 1,286,160 2.3 ------------ ------ ------------ ------ Total short-term borrowed funds ......................................... 8,987,123 15.6 9,018,030 16.2 Long-term debt .............................................................. 6,121,823 10.6 6,692,772 12.0 ------------ ------ ------------ ------ Total interest-bearing liabilities ...................................... 44,691,443 77.6 43,319,539 77.9 Other deposits: Demand in domestic offices ................................................. 6,921,083 12.0 6,476,977 11.7 Demand in foreign offices .................................................. 169 .0 1,563 .0 Noninterest-bearing time in domestic offices ............................... 13,192 .0 12,362 .0 Other liabilities ........................................................... 1,447,863 2.5 1,315,939 2.4 Shareholders' equity ........................................................ 4,533,325 7.9 4,457,823 8.0 ------------ ------ ------------ ------ Total liabilities and shareholders' equity .............................. $57,607,075 100.0 $55,584,203 100.0 ============ ====== ============ ====== Total deposits .............................................................. $36,516,941 $34,099,639
1995 1994 Compound Amount % Amount % Growth Rate Assets Loans -- net of unearned income: Commercial ............................................................ $ 9,727,718 18.8 $ 7,923,773 17.1 14.7% Tax-exempt ............................................................ 2,067,016 4.0 2,066,908 4.4 (17.1) ------------- ----- ------------- ----- Total commercial ................................................... 11,794,734 22.8 9,990,681 21.5 10.6 Direct retail ......................................................... 1,177,466 2.3 1,087,952 2.3 ( .4) Indirect retail ....................................................... 2,973,026 5.8 2,862,342 6.2 4.0 Credit card ........................................................... 4,551,448 8.8 4,014,135 8.6 4.7 Other revolving credit ................................................ 398,693 .8 382,216 .8 9.0 ------------- ----- ------------- ----- Total retail ....................................................... 9,100,633 17.7 8,346,645 17.9 4.0 Construction .......................................................... 948,248 1.8 791,154 1.7 22.6 Commercial mortgages .................................................. 4,902,241 9.5 4,529,213 9.7 10.1 Residential mortgages ................................................. 6,182,282 12.0 5,587,543 12.0 5.8 ------------- ----- ------------- ----- Total real estate .................................................. 12,032,771 23.3 10,907,910 23.4 9.2 Lease financing ....................................................... 278,038 .5 180,022 .4 66.0 Foreign ............................................................... 304,277 .6 108,028 .2 64.1 ------------- ----- ------------- ----- Total loans ........................................................ 33,510,453 64.9 29,533,286 63.4 9.8 Securities: Held-to-maturity: State and municipal .................................................. 423,747 .8 599,206 1.3 (22.4) Other ................................................................ 3,735,893 7.1 3,371,132 7.1 (19.3) ------------- ----- ------------- ----- Total held-to-maturity ............................................. 4,159,640 7.9 3,970,338 8.4 (19.8) Available-for-sale .................................................... 7,817,579 15.2 7,267,408 15.6 2.0 ------------- ----- ------------- ----- Total securities ................................................... 11,977,219 23.1 11,237,746 24.0 ( 3.6) Interest-bearing bank balances ......................................... 119,277 .2 31,941 .1 29.9 Federal funds sold and securities purchased under resale agreements .... 221,359 .4 303,177 .7 14.8 Trading account assets ................................................. 916,140 1.8 689,417 1.5 3.8 ------------- ----- ------------- ----- Total interest-earning assets ...................................... 46,744,448 90.4 41,795,567 89.7 6.8 Cash and due from banks ................................................ 2,801,993 5.5 2,688,765 5.9 3.0 Premises and equipment ................................................. 722,418 1.4 663,773 1.4 7.4 Other assets (1) ....................................................... 1,951,842 3.7 1,910,228 4.1 14.6 Allowance for loan losses .............................................. (517,430) ( 1.0) (516,702) ( 1.1) .9 ------------- ------ ------------- ------ Total assets ....................................................... $51,703,271 100.0 $46,541,631 100.0 7.0 ============= ====== ============= ====== Liabilities and Shareholders' Equity Interest-bearing deposits in domestic offices: Demand ................................................................ $ 3,923,942 7.6 $ 4,047,307 8.7 2.8 Savings and money market savings ...................................... 8,318,312 16.1 7,973,997 17.1 10.8 Savings certificates .................................................. 10,435,857 20.3 8,419,653 18.0 .8 Large denomination certificates ....................................... 2,173,624 4.2 1,889,807 4.1 11.9 ------------- ------ ------------- ------ Total interest-bearing deposits in domestic offices ................ 24,851,735 48.2 22,330,764 47.9 6.1 Interest-bearing deposits in foreign offices ........................... 749,511 1.4 516,157 1.1 34.2 ------------- ------ ------------- ------ Total interest-bearing deposits .................................... 25,601,246 49.6 22,846,921 49.0 7.2 Federal funds purchased and securities sold under repurchase agreements. 6,263,319 12.1 6,146,656 13.2 .0 Commercial paper ....................................................... 535,210 1.0 524,715 1.1 23.1 Other short-term borrowed funds ........................................ 2,061,418 4.0 697,743 1.5 20.4 ------------- ------ ------------- ------ Total short-term borrowed funds .................................... 8,859,947 17.1 7,369,114 15.8 5.0 Long-term debt ......................................................... 5,694,683 11.0 5,153,784 11.1 9.6 ------------- ------ ------------- ------ Total interest-bearing liabilities ................................. 40,155,876 77.7 35,369,819 75.9 7.1 Other deposits: Demand in domestic offices ............................................ 6,214,100 12.0 6,215,419 13.4 5.8 Demand in foreign offices ............................................. 6,823 .0 5,380 .0 (34.4) Noninterest-bearing time in domestic offices .......................... 12,537 .0 70,997 .2 (43.1) Other liabilities ...................................................... 1,150,355 2.2 1,067,818 2.3 11.9 Shareholders' equity ................................................... 4,163,580 8.1 3,812,198 8.2 7.3 ------------- ------ ------------- ------ Total liabilities and shareholders' equity ......................... $51,703,271 100.0 $46,541,631 100.0 7.0 ============= ====== ============= ====== Total deposits ......................................................... $31,834,706 $29,138,717 6.8
95 - ------------------------------------------ Net Interest Income -- Taxable Equivalent - -------------------------------------------------------------------------------- thousands Wachovia Corporation and Subsidiaries 1999 1998 Amount % Amount % Interest Income Loans, including fees: Commercial ................................................................. $ 1,141,309 24.2 $ 1,011,401 21.5 Tax-exempt ................................................................. 79,075 1.7 112,672 2.4 ------------- ----- ------------- ----- Total commercial ........................................................ 1,220,384 25.9 1,124,073 23.9 Direct retail .............................................................. 91,882 2.0 107,405 2.3 Indirect retail ............................................................ 274,843 5.8 255,512 5.4 Credit card ................................................................ 677,232 14.4 764,426 16.2 Other revolving credit ..................................................... 64,405 1.4 55,644 1.2 ------------- ----- ------------- ----- Total retail ............................................................ 1,108,362 23.6 1,182,987 25.1 Construction ............................................................... 187,396 4.0 170,403 3.6 Commercial mortgages ....................................................... 594,166 12.6 584,266 12.4 Residential mortgages ...................................................... 576,624 12.2 618,118 13.1 ------------- ----- ------------- ----- Total real estate ....................................................... 1,358,186 28.8 1,372,787 29.1 Lease financing ............................................................ 250,868 5.3 166,128 3.5 Foreign .................................................................... 84,262 1.8 55,067 1.2 ------------- ----- ------------- ----- Total loans ............................................................. 4,022,062 85.4 3,901,042 82.8 Securities: Held-to-maturity: State and municipal ...................................................... 16,689 .4 21,179 .5 Other investments ........................................................ 81,068 1.7 96,430 2.0 ------------- ----- ------------- ----- Total held-to-maturity .................................................. 97,757 2.1 117,609 2.5 Available-for-sale ......................................................... 517,242 11.0 609,245 12.9 ------------- ----- ------------- ----- Total securities ........................................................ 614,999 13.1 726,854 15.4 Interest-bearing bank balances .............................................. 7,390 .2 12,988 .3 Federal funds sold and securities purchased under resale agreements ......... 30,696 .6 25,803 .5 Trading account assets ...................................................... 32,159 .7 45,432 1.0 ------------- ----- ------------- ----- Total interest income .................................................... 4,707,306 100.0 4,712,119 100.0 Interest Expense Interest-bearing demand ..................................................... 58,434 1.2 64,530 1.4 Savings and money market savings ............................................ 477,557 10.2 451,655 9.6 Savings certificates ........................................................ 447,583 9.5 542,477 11.5 Large denomination certificates ............................................. 172,539 3.7 165,384 3.5 ------------- ----- ------------- ----- Total interest-bearing deposits in domestic offices ..................... 1,156,113 24.6 1,224,046 26.0 Interest-bearing deposits in foreign offices ................................ 109,082 2.3 135,659 2.9 ------------- ----- ------------- ----- Total interest-bearing deposits ......................................... 1,265,195 26.9 1,359,705 28.9 Federal funds purchased and securities sold under repurchase agreements ..... 289,912 6.1 388,390 8.2 Commercial paper ............................................................ 69,619 1.5 64,088 1.3 Other short-term borrowed funds ............................................. 97,630 2.1 111,368 2.4 ------------- ----- ------------- ----- Total short-term borrowed funds ......................................... 457,161 9.7 563,846 11.9 Long-term debt .............................................................. 474,378 10.1 390,662 8.3 ------------- ----- ------------- ----- Total interest expense .................................................. 2,196,734 46.7 2,314,213 49.1 ------------- ----- ------------- ----- Net Interest Income ......................................................... $ 2,510,572 53.3 $ 2,397,906 50.9 ============= ===== ============= ===== Percentage of interest-earning assets: Interest income ............................................................ 8.10% 8.33% Interest expense ........................................................... 3.78 4.09 ------------- ------------- Net interest income ..................................................... 4.32% 4.24% ============= ============= Taxable equivalent adjustment included in interest income: Loans ...................................................................... $ 21,521 $ 27,638 Securities ................................................................. 18,937 18,301 Trading account assets ..................................................... 28 935 ------------- ------------- Total (2) ............................................................... $ 40,486 $ 46,874 ============= =============
(1) Percentages reflected above are based on total interest income. (2) The taxable equivalent adjustment reflects the federal income tax rate of 35% and state tax rates, as applicable. 96
1997 1996 Amount % Amount % Interest Income Loans, including fees: Commercial ................................................................. $ 829,406 19.2 $ 747,463 18.3 Tax-exempt ................................................................. 155,689 3.6 190,285 4.7 ------------- ----- ------------- ----- Total commercial ........................................................ 985,095 22.8 937,748 23.0 Direct retail .............................................................. 107,326 2.5 106,634 2.6 Indirect retail ............................................................ 254,001 5.9 266,435 6.5 Credit card ................................................................ 727,114 16.8 595,208 14.6 Other revolving credit ..................................................... 52,007 1.2 51,026 1.2 ------------- ----- ------------- ----- Total retail ............................................................ 1,140,448 26.4 1,019,303 24.9 Construction ............................................................... 140,780 3.3 99,470 2.4 Commercial mortgages ....................................................... 505,876 11.7 452,576 11.1 Residential mortgages ...................................................... 592,907 13.7 552,944 13.5 ------------- ----- ------------- ----- Total real estate ....................................................... 1,239,563 28.7 1,104,990 27.0 Lease financing ............................................................ 92,721 2.1 61,717 1.5 Foreign .................................................................... 34,164 .8 32,098 .8 ------------- ----- ------------- ----- Total loans ............................................................. 3,491,991 80.8 3,155,856 77.2 Securities: Held-to-maturity: State and municipal ...................................................... 26,259 .6 33,547 .8 Other investments ........................................................ 87,631 2.0 96,509 2.4 ------------- ----- ------------- ----- Total held-to-maturity .................................................. 113,890 2.6 130,056 3.2 Available-for-sale ......................................................... 635,195 14.7 700,202 17.1 ------------- ----- ------------- ----- Total securities ........................................................ 749,085 17.3 830,258 20.3 Interest-bearing bank balances .............................................. 5,230 .1 33,284 .8 Federal funds sold and securities purchased under resale agreements ......... 22,319 .5 15,411 .4 Trading account assets ...................................................... 51,654 1.3 51,740 1.3 ------------- ----- ------------- ----- Total interest income .................................................... 4,320,279 100.0 4,086,549 100.0 Interest Expense Interest-bearing demand ..................................................... 64,249 1.5 59,761 1.5 Savings and money market savings ............................................ 405,444 9.4 336,596 8.2 Savings certificates ........................................................ 582,145 13.4 598,869 14.6 Large denomination certificates ............................................. 164,391 3.8 153,571 3.8 ------------- ----- ------------- ----- Total interest-bearing deposits in domestic offices ..................... 1,216,229 28.1 1,148,797 28.1 Interest-bearing deposits in foreign offices ................................ 87,320 2.0 54,942 1.3 ------------- ----- ------------- ----- Total interest-bearing deposits ......................................... 1,303,549 30.1 1,203,739 29.4 Federal funds purchased and securities sold under repurchase agreements ..... 357,190 8.3 382,976 9.4 Commercial paper ............................................................ 39,566 .9 29,054 .7 Other short-term borrowed funds ............................................. 81,406 1.9 70,206 1.7 ------------- ----- ------------- ----- Total short-term borrowed funds ......................................... 478,162 11.1 482,236 11.8 Long-term debt .............................................................. 387,107 9.0 399,796 9.8 ------------- ----- ------------- ----- Total interest expense .................................................. 2,168,818 50.2 2,085,771 51.0 ------------- ----- ------------- ----- Net Interest Income ......................................................... $ 2,151,461 49.8 $ 2,000,778 49.0 ============= ===== ============= ===== Percentage of interest-earning assets: Interest income ............................................................ 8.32% 8.13% Interest expense ........................................................... 4.18 4.15 ------------- ------------- Net interest income ..................................................... 4.14% 3.98% ============= ============= Taxable equivalent adjustment included in interest income: Loans ...................................................................... $ 36,695 $ 46,158 Securities ................................................................. 19,862 28,577 Trading account assets ..................................................... 1,337 2,306 ------------- ------------- Total (2) ............................................................... $ 57,894 $ 77,041 ============= =============
Five-Year 1995 1994 Compound Amount % Amount % Growth Rate Interest Income Loans, including fees: Commercial ............................................................. $ 728,263 18.7 $ 486,566 15.6 18.6% Tax-exempt ............................................................. 203,551 5.2 186,360 5.9 (15.8) ------------- ----- ------------- ----- Total commercial .................................................... 931,814 23.9 672,926 21.5 12.6 Direct retail .......................................................... 103,522 2.7 86,093 2.7 1.3 Indirect retail ........................................................ 245,936 6.3 223,830 7.1 4.2 Credit card ............................................................ 566,391 14.5 453,117 14.6 8.4 Other revolving credit ................................................. 50,544 1.3 44,904 1.4 7.5 ------------- ----- ------------- ----- Total retail ........................................................ 966,393 24.8 807,944 25.8 6.5 Construction ........................................................... 93,152 2.4 70,261 2.2 21.7 Commercial mortgages ................................................... 423,149 10.9 352,563 11.2 11.0 Residential mortgages .................................................. 505,995 13.0 434,177 13.9 5.8 ------------- ----- ------------- ----- Total real estate ................................................... 1,022,296 26.3 857,001 27.3 9.6 Lease financing ........................................................ 24,173 .6 14,090 .4 77.9 Foreign ................................................................ 22,610 .6 6,162 .2 68.7 ------------- ----- ------------- ----- Total loans ......................................................... 2,967,286 76.2 2,358,123 75.2 11.3 Securities: Held-to-maturity: State and municipal .................................................. 50,192 1.3 75,069 2.4 (26.0) Other investments .................................................... 271,292 7.0 234,557 7.5 (19.1) ------------- ----- ------------- ----- Total held-to-maturity .............................................. 321,484 8.3 309,626 9.9 (20.6) Available-for-sale ..................................................... 526,287 13.5 416,408 13.3 4.4 ------------- ----- ------------- ----- Total securities .................................................... 847,771 21.8 726,034 23.2 ( 3.3) Interest-bearing bank balances .......................................... 9,377 .2 1,322 .0 41.1 Federal funds sold and securities purchased under resale agreements ..... 13,279 .3 13,262 .4 18.3 Trading account assets .................................................. 60,416 1.5 36,407 1.2 ( 2.5) ------------- ----- ------------- ----- Total interest income ................................................ 3,898,129 100.0 3,135,148 100.0 8.5 Interest Expense Interest-bearing demand ................................................. 74,179 1.9 70,890 2.3 ( 3.8) Savings and money market savings ........................................ 304,294 7.8 221,317 7.1 16.6 Savings certificates .................................................... 596,122 15.2 383,670 12.2 3.1 Large denomination certificates ......................................... 126,708 3.3 84,669 2.7 15.3 ------------- ----- ------------- ----- Total interest-bearing deposits in domestic offices ................. 1,101,303 28.2 760,546 24.3 8.7 Interest-bearing deposits in foreign offices ............................ 41,876 1.1 22,318 .7 37.3 ------------- ----- ------------- ----- Total interest-bearing deposits ..................................... 1,143,179 29.3 782,864 25.0 10.1 Federal funds purchased and securities sold under repurchase agreements . 374,158 9.6 268,155 8.6 1.6 Commercial paper ........................................................ 29,324 .8 20,587 .7 27.6 Other short-term borrowed funds ......................................... 124,283 3.2 29,559 .9 27.0 ------------- ----- ------------- ----- Total short-term borrowed funds ..................................... 527,765 13.6 318,301 10.2 7.5 Long-term debt .......................................................... 340,211 8.7 267,841 8.5 12.1 ------------- ----- ------------- ----- Total interest expense .............................................. 2,011,155 51.6 1,369,006 43.7 9.9 ------------- ----- ------------- ----- Net Interest Income ..................................................... $ 1,886,974 48.4 $ 1,766,142 56.3 7.3 ============= ===== ============= ===== Percentage of interest-earning assets: Interest income ........................................................ 8.35% 7.50% Interest expense ....................................................... 4.31 3.27 ------------- ------------- Net interest income ................................................. 4.04% 4.23% ============= ============= Taxable equivalent adjustment included in interest income: Loans .................................................................. $ 55,068 $ 52,918 Securities ............................................................. 46,817 52,268 Trading account assets ................................................. 4,594 2,871 ------------- ------------- Total (2) ........................................................... $ 106,479 $ 108,057 ============= =============
97 - ---------------------- Statistical Summary - ------------------------------------------------------------------------------------------------------------------------------- Wachovia Corporation and Subsidiaries 1999 1998 1997 1996 1995 1994 Average Yields Earned (taxable equivalent) Loans: Commercial .................................................... 7.25% 7.21% 7.32% 7.13% 7.49% 6.14% Tax-exempt .................................................... 9.79 9.24 8.93 8.95 9.85 9.02 Total commercial ............................................ 7.37 7.37 7.54 7.44 7.90 6.74 Direct retail ................................................. 8.63 9.39 8.99 8.93 8.79 7.91 Indirect retail ............................................... 7.89 8.27 8.56 8.49 8.27 7.82 Credit card ................................................... 13.44 13.46 12.92 12.03 12.44 11.29 Other revolving credit ........................................ 10.93 11.18 12.27 12.21 12.68 11.75 Total retail ................................................ 10.89 11.36 11.17 10.51 10.62 9.68 Construction .................................................. 8.54 9.00 9.40 9.30 9.82 8.88 Commercial mortgages .......................................... 8.11 8.58 8.34 8.30 8.63 7.78 Residential mortgages ......................................... 7.77 7.92 7.99 8.14 8.18 7.77 Total real estate ........................................... 8.02 8.31 8.27 8.30 8.50 7.86 Lease financing ............................................... 11.07 11.63 9.71 9.42 8.69 7.83 Foreign ....................................................... 6.56 6.85 6.93 7.02 7.43 5.70 Total loans ................................................. 8.52 8.79 8.79 8.59 8.85 7.98 Securities: Held-to-maturity: State and municipal ......................................... 9.93 10.92 11.87 12.26 11.84 12.53 Other ....................................................... 7.04 7.52 7.95 8.05 7.26 6.96 Total held-to-maturity ..................................... 7.41 7.97 8.61 8.83 7.73 7.80 Available-for-sale ............................................ 6.45 6.69 6.71 6.73 6.73 5.73 Total securities ........................................... 6.58 6.87 6.94 6.99 7.08 6.46 Interest-bearing bank balances ................................. 6.25 8.26 5.89 7.91 7.86 4.14 Federal funds sold and securities purchased under resale agreements .................................................... 5.07 5.52 5.62 5.38 6.00 4.37 Trading account assets ......................................... 3.88 4.76 5.38 5.61 6.59 5.28 Total interest-earning assets ............................... 8.10 8.33 8.32 8.13 8.34 7.50 Average Rates Paid Interest-bearing demand ........................................ 1.25% 1.29% 1.56% 1.50% 1.89% 1.75% Savings and money market savings ............................... 3.58 3.89 3.83 3.57 3.66 2.78 Savings certificates ........................................... 5.11 5.46 5.62 5.69 5.71 4.56 Large denomination certificates ................................ 5.20 5.42 5.61 5.88 5.83 4.48 Total interest-bearing deposits in domestic offices ......... 3.84 4.14 4.34 4.32 4.43 3.41 Interest-bearing deposits in foreign offices ................... 4.86 5.59 5.51 5.28 5.59 4.32 Total interest-bearing deposits ............................. 3.91 4.25 4.41 4.36 4.47 3.43 Federal funds purchased and securities sold under repurchase agreements .................................................... 4.71 5.18 5.30 5.37 5.97 4.36 Commercial paper ............................................... 4.69 5.02 5.06 4.88 5.48 3.92 Other short-term borrowed funds ................................ 5.53 5.25 5.57 5.46 6.03 4.24 Total short-term borrowed funds ............................. 4.86 5.18 5.32 5.35 5.96 4.32 Long-term debt ................................................. 5.83 6.22 6.32 5.97 5.97 5.20 Total interest-bearing liabilities .......................... 4.41 4.71 4.85 4.81 5.01 3.87 Interest rate spread ........................................... 3.69 3.62 3.47 3.32 3.33 3.63 Net yield on interest-earning assets ........................... 4.32 4.24 4.14 3.98 4.04 4.23 Ratios (averages) Shareholders' equity to: Total assets .................................................. 8.30% 8.08% 7.87% 8.02% 8.05% 8.19% Net loans ..................................................... 11.63 11.78 11.57 12.31 12.62 13.14 Deposits ...................................................... 13.38 12.98 12.41 13.07 13.08 13.08 Equity and long-term debt ..................................... 40.03 45.15 42.54 39.98 42.24 42.52 Return on deposits ............................................. 2.49 2.20 1.62 2.22 2.22 2.14
98 - ---------------------- Year-End Information - ---------------------------------------------------------------------------------------------------------------------------------- Wachovia Corporation and Subsidiaries 1999 1998 1997 1996 1995 1994 Condensed Balance Sheet (millions) Cash and due from banks .............................. $ 3,475 $ 3,800 $ 4,222 $ 3,674 $ 3,033 $ 2,953 Interest-bearing bank balances ....................... 185 110 133 78 526 7 Federal funds sold and securities purchased under resale agreements ................... 762 675 1,589 276 302 399 Trading account assets ............................... 870 665 999 1,190 1,115 891 Securities: Available-for-sale .................................. 7,096 7,984 8,909 9,825 11,034 7,018 Held-to-maturity .................................... 1,049 1,384 1,509 1,352 1,620 4,185 Loans, net of unearned income ........................ 49,621 45,719 44,194 38,007 35,585 31,664 Less allowance for loan losses ....................... 555 548 544 519 519 516 -------- -------- -------- -------- -------- -------- Net loans .......................................... 49,066 45,171 43,650 37,488 35,066 31,148 Premises and equipment ............................... 954 902 810 794 781 690 Other assets ......................................... 3,896 3,432 3,576 2,552 2,315 1,951 -------- -------- -------- -------- -------- -------- Total assets ....................................... $ 67,353 $ 64,123 $ 65,397 $ 57,229 $ 55,792 $ 49,242 ======== ======== ======== ======== ======== ======== Deposits in domestic offices ......................... $ 38,874 $ 38,718 $ 38,151 $ 34,137 $ 33,594 $ 29,380 Deposits in foreign offices .......................... 2,912 2,277 4,503 1,185 761 916 -------- -------- -------- -------- -------- -------- Total deposits ..................................... 41,786 40,995 42,654 35,322 34,355 30,296 Federal funds purchased and securities sold under repurchase agreements .................... 5,373 5,463 8,323 7,206 6,892 6,939 Commercial paper ..................................... 1,659 1,359 1,034 707 535 432 Other short-term borrowed funds ...................... 3,072 1,912 753 1,039 1,776 1,044 Long-term debt ....................................... 7,814 7,597 5,934 7,025 6,184 5,748 Other liabilities .................................... 1,991 1,459 1,525 1,322 1,449 873 Shareholders' equity ................................. 5,658 5,338 5,174 4,608 4,601 3,910 -------- -------- -------- -------- -------- -------- Total liabilities and shareholders' equity ......... $ 67,353 $ 64,123 $ 65,397 $ 57,229 $ 55,792 $ 49,242 ======== ======== ======== ======== ======== ======== Loan Portfolio (millions) Domestic borrowers: Commercial .......................................... $ 17,043 $ 14,328 $ 13,528 $ 10,341 $ 10,365 $ 8,915 Tax-exempt .......................................... 690 973 1,607 2,016 2,328 1,907 Direct retail ....................................... 1,064 1,098 1,250 1,218 1,197 1,128 Indirect retail ..................................... 3,741 3,240 3,028 3,082 3,118 2,813 Credit card ......................................... 4,736 6,049 5,919 5,596 4,610 4,522 Other revolving credit .............................. 667 537 460 424 417 398 Construction ........................................ 2,311 2,044 1,780 1,247 1,008 829 Commercial mortgages ................................ 7,754 6,988 6,790 5,684 5,113 4,673 Residential mortgages ............................... 7,757 7,490 8,099 7,132 6,537 6,028 Lease financing, net ................................ 2,597 1,879 1,094 831 502 197 -------- -------- -------- -------- -------- -------- Total .............................................. 48,360 44,626 43,555 37,571 35,195 31,410 Foreign ............................................. 1,261 1,093 639 436 390 254 -------- -------- -------- -------- -------- -------- Total loans ........................................ $ 49,621 $ 45,719 $ 44,194 $ 38,007 $ 35,585 $ 31,664 ======== ======== ======== ======== ======== ======== Loan Portfolio (percentages) Commercial ........................................... 35.7 33.5 34.2 32.5 35.7 34.2 Credit card .......................................... 9.6 13.2 13.4 14.7 12.9 14.3 Other revolving credit ............................... 1.3 1.2 1.0 1.1 1.2 1.3 Other retail ......................................... 9.7 9.5 9.7 11.3 12.1 12.4 Real estate .......................................... 35.9 36.1 37.7 37.0 35.6 36.4 Lease financing ...................................... 5.2 4.1 2.5 2.2 1.4 .6 Foreign .............................................. 2.6 2.4 1.5 1.2 1.1 .8 --------- --------- --------- --------- --------- --------- Total .............................................. 100.0 100.0 100.0 100.0 100.0 100.0 ========= ========= ========= ========= ========= =========
99 STOCK DATA The following charts present high and low trading ranges for the corporation's common stock, price to earnings ratios and data on cash dividends per share and cash dividend payouts for the most recent six years. Stock price trading ranges and price to earnings ratios for the most recent eight quarters also are provided. The Five-Year Total Return chart compares Wachovia, the S&P 500 Index and the Keefe, Bruyette & Woods (KBW) 50 Total Return Index in stock price appreciation and dividends, assuming quarterly reinvestment, from the base period December 31, 1994 through year-end 1999. The KBW 50 Index is a market capitalization weighted measure of total return for 50 of the largest U. S. banking companies including all money center and most regional banks. Wachovia's common stock is listed on the New York Stock Exchange under the trading symbol WB. The corporation is a member of the Standard & Poor's 500 Index of stocks and the S&P 500 Major Regional Banks Industry Group. (Graph appears here with the following plot points.) COMMON STOCK PRICE RANGE* NYSE SMBOL: WB 1994 1995 1996 1997 1998 1999 HIGH 35.38 48.25 60.25 83.94 96.81 92.31 LOW 30.13 32.00 39.63 53.50 72.75 65.44 *PRICES REPRESENT THOSE OF WACHOVIA CORPORATION PRIOR TO MERGER WITH CENTRAL FIDELITY BANKS, INC. (Graph appears here with the following plot points.) COMMON STOCK PRICE/EARNINGS RATIOS* 1994 1995 1996 1997 1998 1999 HIGH 11.3 13.8 15.8 28.6 23.2 18.8 LOW 9.7 9.1 10.4 18.2 17.4 13.4 *AMOUNTS BASED ON HIGH AND LOW COMMON STOCK PRICES FOR EACH YEAR AND ANNUAL NET INCOME PER DILUTED SHARE AS ORIGINALLY REPORTED BY WACHOVIA CORPORATION. (Graph appears here with the following plot points.) CASH DIVIDENDS PER SHARE* FIVE-YEAR COMPOUND GROWTH RATE=10.9% 1994 1995 1996 1997 1998 1999 1.23 1.38 1.52 1.68 1.86 2.06 *DIVIDENDS PER SHARE REPRESENT THOSE PAID BY WACHOVIA CORPORATION PRIOR TO MERGER WITH CENTRAL FIDELITY BANKS, INC. (Graph appears here with the following plot points.) CASH DIVIDEND PAYOUT* (MILLIONS) 1994 1995 1996 1997 1998 1999 40.8% 39.9% 40.4% 55.2% 43.7% 41.4% *DIVIDENDS INCLUDE AMOUNTS PAID BY POOLED COMPANIES. % PAYOUT RATIO (TOTAL DIVIDENDS AS A PERCENTAGE OF NET INCOME) Common Stock Data -- Per Share Table 24 - -------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 1994 ------ ---- ---- ---- ---- ---- Market value: * End of year ..................... $ 68.00 $ 87.44 $ 81.13 $ 56.50 $ 45.75 $ 32.25 High ............................ 92.31 96.81 83.94 60.25 48.25 35.38 Low ............................. 65.44 72.75 53.50 39.63 32.00 30.13 Book value ** .................... 28.04 26.30 25.13 22.90 22.08 18.79 Dividend * ....................... 2.06 1.86 1.68 1.52 1.38 1.23 Price/earnings ratio *** ......... 13.9 x 20.9 x 27.6 x 14.8 x 13.1 x 10.3 x
* Information for years before 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. *** Price/earnings ratio is based on end-of-year stock price and net income per diluted share. Information for years before 1997 represents that of Wachovia Corporation prior to merger with Central Fidelity Banks, Inc. Excluding the after-tax impact of nonrecurring charges, the 1999, 1998 and 1997 price/earnings ratios were 13.7x, 19.6x and 20.5x, respectively. 100 (Graph appears here with the following plot points.) QUARTERLY COMMON STOCK PRICE RANGE*
1998 1999 -------------------------------------- ------------------------------------ 1ST Q 2ND Q 3RD Q 4TH Q 1ST Q 2ND Q 3RD Q 4TH Q HIGH 85.75 90.19 90.94 96.81 91.00 92.31 85.25 88.88 LOW 72.75 77.38 72.88 80.88 79.00 80.56 75.31 65.44
*PRICES REPRESENT THOSE OF WACHOVIA CORPORATION PRIOR TO MERGER WITH CENTRAL FIDELITY BANKS, INC. (Graph appears here with the following plot points.) QUARTERLY COMMON STOCK PRICE/EARNING RATIOS*
1998 1999 -------------------------------------- ------------------------------------ 1ST Q 2ND Q 3RD Q 4TH Q 1ST Q 2ND Q 3RD Q 4TH Q HIGH 28.6 30.3 29.9 23.2 20.5 19.9 17.8 18.1 LOW 24.3 26.0 24.0 19.3 17.8 17.4 15.7 13.4
*AMOUNTS BASED ON HIGH AND LOW COMMON STOCK PRICES FOR EACH PERIOD AND NET INCOME PER DILUTED SHARE FOR THE 12 MONTHS ENDED ON THE LAST DAY OF EACH PERIOD AS ORIGINALLY REPORTED BY WACHOVIA CORPORATION. (Graph appears here with the following plot points.) FIVE-YEAR TOTAL RETURN* 1994 1995 1996 1997 1998 1999 WACHOVIA 100.00 147.12 187.74 276.71 307.85 245.98 S&P 500 INDEX 100.00 137.58 169.17 225.61 290.08 351.12 KBW 50 INDEX 100.00 160.16 226.56 331.21 358.63 346.18 *BASE PERIOD 12/31/94 = 100. DIVIDENDS REINVESTED. DATA FOR THE S&P 500 INDEX AND KBW 50 INDEX IS WEIGHTED BY MARKET CAPITALIZATION. 101 Historical Comparative Data The following charts present six-year comparative data for Wachovia Corporation and the median of the 25 largest U. S. bank holding companies based on assets as of each year-end. The median is representative of the typical bank holding company within the comparison group. All historical data is as originally reported, not restated for pooling-of-interests mergers or acquisitions. Wachovia's results were impacted by nonrecurring charges taken in 1999, 1998 and the 1997 fourth quarter. Results for 1999, 1998 and 1997 on an operating basis are footnoted in the relevant charts below. (Graph appears here with the following plot points.) RETURN ON ASSETS (AVERAGE) 1994 1995 1996 1997 1998 1999 WACHOVIA 1.46 1.45 1.43 1.03* 1.37* 1.55* 25 LARGEST U.S. BANKS (MEDIAN) 1.21 1.21 1.29 1.26 1.18 1.42 *EXCLUDING NONRECURRING ITEMS, THE RETURN WAS 1.39% IN 1997, 1.45% IN 1998 AND 1.57% IN 1999. (Graph appears here with the following plot points.) RETURN ON COMMON EQUITY (AVERAGE) 1994 1995 1996 1997 1998 1999 WACHOVIA 17.41 17.67 17.62 13.08* 16.92* 18.62* 25 LARGEST U.S. BANKS (MEDIAN) 16.10 16.77 17.02 18.53 15.86 17.68 *EXCLUDING NONRECURRING ITEMS, THE RETURN WAS 17.65% IN 1997, 17.99% IN 1998 AND 18.85% IN 1999. (Graph appears here with the following plot points.) COMMON EQUITY TO ASSETS (AVERAGE) 1994 1995 1996 1997 1998 1999 WACHOVIA 8.36 8.22 8.09 7.87 8.08 8.30 25 LARGEST U.S. BANKS (MEDIAN) 6.86 7.00 7.47 7.36 7.61 7.46 (Graph appears here with the following plot points.) NET INTEREST INCOME* AS A PERCENTAGE OF AVERAGE EARNING ASSETS 1994 1995 1996 1997 1998 1999 WACHOVIA 4.34 4.16 4.02 4.14 4.24 4.32 25 LARGEST U.S. BANKS (MEDIAN) 4.34 4.45 4.36 4.24 3.97 3.99 *TAXABLE EQUIVALENT (Graph appears here with the following plot points.) NONINTEREST EXPENSE AS A PERCENTAGE OF TOTAL ADJUSTED REVENUES* 1994 1995 1996 1997 1998 1999 WACHOVIA 54.15 54.23 52.21 62.29** 55.06** 54.62** 25 LARGEST U.S. BANKS (MEDIAN) 61.88 61.72 60.91 60.88 64.20 56.92 *EXCLUDING SALES OF SECURITIES TRANSACTIONS, MORTGAGE SERVICING PORTFOLIO AND SUBDIAIARY. **EXCLUDING NONRECURRING ITEMS, THE RATIO WAS 53.19% IN 1997, 52.70% IN 1998 AND 54.15% IN 1999. (Graph appears here with the following plot points.) NET LOAN LOSSES TO AVERAGE LOANS 1994 1995 1996 1997 1998 1999 WACHOVIA .29 .37 .49 .67 .67 .62 25 LARGEST U.S. BANKS (MEDIAN) .39 .44 .53 .63 .49 .37 (Graph appears here with the following plot points.) NONPERFORMING ASSETS TO YEAR-END LOANS AND FORECLOSED PROPERTY 1994 1995 1996 1997 1998 1999 WACHOVIA .39 .24 .25 .29 .40 .45 25 LARGEST U.S. BANKS (MEDIAN) 1.03 .80 .76 .62 .60 .55 102
Directors and Officers Directors of Wachovia Corporation and Wachovia Bank, N.A. - --------------------------------------------------------------------------------------------------------------------- L.M. Baker, Jr. George W. Henderson, III John G. Medlin, Jr. Chairman and Chairman and Chairman Emeritus Chief Executive Officer Chief Executive Officer Burlington Industries, Inc. Lloyd U. Noland, III James S. Balloun Chairman, President and Chairman, President and W. Hayne Hipp Chief Executive Officer Chief Executive Officer Chairman, President and Noland Company National Service Industries, Inc. Chief Executive Officer The Liberty Corporation Morris W. Offit Peter C. Browning Chairman and President and Robert A. Ingram Chief Executive Officer Chief Executive Officer Chief Executive Officer OFFITBANK Sonoco Products Company Glaxo Wellcome plc Chairman of the Board Glaxo Wellcome Inc. G. Joseph Prendergast John T. Casteen III President and President Chief Operating Officer University of Virginia George R. Lewis President and Chief Executive Officer Sherwood H. Smith, Jr. John L. Clendenin Philip Morris Capital Corporation Chairman Emeritus Chairman Emeritus Carolina Power & Light Company BellSouth Corporation Elizabeth Valk Long Executive Vice President John C. Whitaker, Jr. Thomas K. Hearn, Jr. Time Inc. Chairman and President Chief Executive Officer Wake Forest University Inmar Enterprises, Inc. Principal Corporate Officers of Wachovia Corporation - --------------------------------------------------------------------------------------------------------------------- L.M. Baker, Jr. Mickey W. Dry Robert S. McCoy, Jr. Chairman and Senior Executive Vice President Vice Chairman Chief Executive Officer Chief Credit Officer Chief Financial Officer Stanhope A. Kelly John C. McLean, Jr. G. Joseph Prendergast Senior Executive Vice President Senior Executive Vice President President and General Banking Corporate Financial Services Chief Operating Officer Kenneth W. McAllister Donald K. Truslow Jean E. Davis Senior Executive Vice President Senior Executive Vice President Senior Executive Vice President General Counsel/Administrative Services Treasurer/Comptroller Operations/Technology
103 Shareholder Information Corporate Headquarters Wachovia Corporation 100 North Main Street 191 Peachtree Street, NE Winston-Salem, NC 27150 Atlanta, GA 30303 Corporate Mailing Addresses and Telephone Numbers Wachovia Corporation P.O. Box 3099 P.O. Box 4148 Winston-Salem, NC 27150 Atlanta, GA 30302 336-770-5000 404-332-5000 Notice of Annual Meeting The Annual Meeting of Shareholders of Wachovia Corporation will be held Friday, April 28, 2000 at 10:30 a.m. EDT, in the Wachovia Park Building, 101 North Cherry Street, Winston-Salem, North Carolina. All shareholders are invited to attend. Common Stock Wachovia common stock trades on the New York Stock Exchange under the ticker symbol WB. Transfer Agent EquiServe P.O. Box 8218 Boston, MA 02266-8218 1-800-633-4236 Shareholder Account Assistance Shareholders who wish to change the address or ownership of stock, report lost certificates, eliminate duplicate mailings or for other account reregistration procedures and assistance should contact the Transfer Agent at the address or phone number above. Dividend Services Through the Dividend Reinvestment and Common Stock Purchase Plan, record shareholders can invest dividends as well as optional cash payments in additional shares without payment of brokerage commissions or service charges. Direct Deposit of Cash Dividends is a timesaving method of receiving cash dividends through automatic deposit to an account at any financial institution that participates in an Automated Clearing House. Independent Auditors Ernst & Young LLP 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). The toll-free service is available 24-hours-a-day, 7-days-a-week. Internet Address The corporation's Internet address is -- www.wachovia.com The Investor Relations page can be accessed directly through the address -- www.wachovia.com/investor Investor Contact Robert S. McCoy, Jr. Chief Financial Officer 336-732-5926 Marsha L. Smunt Senior Vice President Investor Relations 336-732-5788 Winston-Salem, NC 27150 Shareholder Relations Contact H. Jo Barlow Vice President 336-732-5787 Winston-Salem, NC 27150 Annual Report on Form 10-K The Annual Report on Form 10-K of Wachovia Corporation as filed with the Securities and Exchange Commission is available via the Internet at www.sec.gov or at www.wachovia.com or will be provided upon written request to the Corporate Secretary at the corporate mailing address in Winston-Salem. Credit Ratings December 31, 1999
Moody's Standard & Poor's --------- ------------------ Wachovia Corporation Senior debt Aa3 AA- Subordinated debt A1 A+ Commercial paper P-1 A-1+ Wachovia Bank, N.A. Long-term deposits Aa2 AA Short-term deposits P-1 A-1+
Wachovia Bank's global bank notes are rated the same as short- and long-term deposits. 104 EX-21 16 SUBSIDIARIES EXHIBIT 21 SUBSIDIARIES OF WACHOVIA CORPORATION The following table sets forth the subsidiaries of Wachovia Corporation on December 31, 1999. The financial statements of all subsidiaries are included in the consolidated statements of Wachovia Corporation and subsidiaries.
Organized under the laws of: ---------------------------- Wachovia Bank, N.A. the United States Wachovia International Banking Corporation(1) the United States Wachovia Leasing Corporation North Carolina Wachovia Insurance Services, Inc. North Carolina Greenville Agricultural Credit Corporation North Carolina Barry, Evans, Josephs & Snipes, Inc. North Carolina Mecklenburg Securities Corporation North Carolina Wachovia Mortgage Company North Carolina New Salem, Inc. North Carolina Wachovia Mortgage Reinsurance Company Vermont Wachovia Auto Leasing Company Georgia WMCS, Inc. Georgia Wachovia Capital Associates, Inc. Georgia Wachovia Insurance Services of South Carolina, Inc. South Carolina First National Properties, Inc. South Carolina Mulberry Corporation Virginia G.C. Leasing, Inc. Virginia North Hart Run, Inc. Virginia New Salem of Virginia, Inc. Virginia S. Brooke, Corporation Virginia Central Fidelity Properties, Inc. Virginia Central Fidelity Services, Inc. Virginia CFB Insurance Agency, Inc. Virginia Jefferson Properties, Inc. Virginia Southern Provident Life Insurance Company Arizona Atlantic Savings Bank, FSB the United States Atlantic Mortgage Corporation of South Carolina, Inc. South Carolina Wachovia Investments, Inc. North Carolina Wachovia Corporate Services, Inc. North Carolina Wachovia Operational Services Corporation North Carolina Wachovia Trust Services, Inc. North Carolina Wachovia Exchange Services, Inc. North Carolina Silas Technologies, Inc. North Carolina ISC Realty Corporation North Carolina ISC Futures Corporation North Carolina CTFA, Inc. North Carolina CTFA Holdings, LLC(2) North Carolina IJL Financial Inc. North Carolina IJL Holdings, Inc. North Carolina Cap Trust Financial Advisors, LLC(3) North Carolina The First National Bank of Atlanta (Delaware) the United States OFFITBANK New York OFFITBANK Greater China, Inc. New York OFFITBANK Latin America Fund, Inc. New York OFFITBANK Energy Fund, Inc. New York OFFITBANK M-R Securities, Inc. New York OFFITBANK Derivatives, Inc. Delaware OFFITBANK Cross Market Fund, Inc. New York -109- SUBSIDIARIES (Continued) Organized under the laws of: ------------------------------ Wachovia Bank Card Services, Inc. Delaware Financial Life Insurance Company of Georgia Georgia The Wachovia Insurance Agency of Georgia, Inc. Georgia First Atlanta Lease Liquidating Corporation Georgia Wachovia Corporation of Florida Florida The Johnson Lane Space Smith Corporation Georgia Rhodes-Jennings Building, Inc. Georgia Scarritt Building, Inc. Georgia JLSS Equity, Inc. Georgia Wachovia Corporation of Alabama Alabama Wachovia Corporation of Tennessee Tennessee Wachovia Securities, Inc. North Carolina Wachovia Capital Investments, Inc. Georgia Wachovia International Capital Corporation Georgia WSH Holdings, Ltd. Cayman Islands, British West Indies Banco Wachovia, S.A.(4) Brazil Wachovia International Servicos Limitada(5) Brazil Wachovia Capital Trust I Delaware Wachovia Capital Trust II Delaware Wachovia Capital Trust V Delaware Central Fidelity Capital Trust I Delaware Wachovia Community Development Corporation North Carolina Dogwood Finance 1 Limited United Kingdom First Atlanta Corporation Georgia Hunt, Dupree, Rhine & Associates, Inc. South Carolina Parchment Finance I Corporation Delaware Retirement Plans Securities, Inc. South Carolina Wachovia Trust Company Florida
- ------------------------------------ (1) Organized under Chapter 25(a) of the Federal Reserve Act of the United States. (2) CTFA Holdings, LLC is owned 99% by Wachovia Corporation and 1% by CTFA, Inc. (3) IJL Holdings, Inc. owns 100% voting membership interest and IJL Financial, Inc. owns 100% nonvoting membership interests, respectively, in CapTrust Financial Advisors, LLC. (4) Banco Wachovia, S.A., is owned 99.999214% by WSH Holdings, Inc. and .000786% by Wachovia International Capital Corporation. (5) Wachovia International Servicos Limitada is owned 99% by Wachovia Capital Investments, Inc. and 1% by Wachovia International Capital Corporation. -110- EX-23 17 ACCT. CONSENT EXHIBIT 23 Consent of Independent Auditors We consent to the incorporation by reference in this Annual Report (Form 10-K) of Wachovia Corporation of our report dated January 19, 2000, included in the 1999 Annual Report to Shareholders of Wachovia Corporation. We consent to the incorporation by reference in the Registration Statements (Form S-3: Nos. 33-2232, 333-59165, 333-79183, 333-90161 and Form S-8: Nos. 2-99538, 33-34386, 33-35357, 33-53325, 333-02239, 333-32255, 333-36889, 333-37339, 333-45099, 333-68823, 333-81627 and 333-83583) of Wachovia Corporation and in the related Prospectuses of our report dated January 19, 2000, with respect to the consolidated financial statements of Wachovia Corporation incorporated by reference in this Annual Report (Form 10-K) for the year ended December 31, 1999. Ernst & Young LLP Winston-Salem, North Carolina March 27, 2000 -111- EX-24 18 POWER OF ATTORNEY EXHIBIT 24 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that we, the undersigned directors of Wachovia Corporation, and each of us, do hereby make, constitute and appoint Kenneth W. McAllister and William M. Watson, Jr., and each of them (either of whom may act without the consent or joinder of the other), our attorneys-in-fact and agents with full power of substitution for us and in our name, place and stead, in any and all capacities, to execute for us and in our behalf the Annual Report on Form 10-K of Wachovia Corporation for the year ended December 31, 1999 and any and all amendments to the foregoing Report and any other documents and instruments incidental thereto, and to file the same, with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as we might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents and/or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, we the undersigned have executed this Power of Attorney this 28th day of January 2000.
L. M. BAKER, JR. JAMES S. BALLOUN - ------------------------------------ --------------------------- L. M. Baker, Jr. James S. Balloun PETER C. BROWNING JOHN T CASTEEN III - ------------------------------------ --------------------------- Peter C. Browning John T. Casteen III JOHN L. CLENDENIN THOMAS K HEARN, JR. - ------------------------------------ --------------------------- John L. Clendenin Thomas K. Hearn, Jr. GEORGE W. HENDERSON, III W. HAYNE HIPP - ------------------------------------ --------------------------- George W. Henderson, III W. Hayne Hipp ROBERT A. INGRAM GEORGE R. LEWIS - ------------------------------------ --------------------------- Robert A. Ingram George R. Lewis ELIZABETH VALK LONG JOHN G MEDLIN, JR. - ------------------------------------ --------------------------- Elizabeth Valk Long John G. Medlin, Jr. LLOYD U. NOLAND III MORRIS W. OFFIT - ------------------------------------ --------------------------- Lloyd U. Noland, III Morris W. Offit G. JOSEPH PRENDERGAST SHERWOOD H. SMITH, JR. - ------------------------------------ --------------------------- G. Joseph Prendergast Sherwood H. Smith, Jr. JOHN C. WHITAKER, JR. - ------------------------------------ John C. Whitaker, Jr.
-112- EX-27 19 FINANCIAL DATA SCHEDULE
9 1000 US Dollars 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 1 3,475,004 184,904 761,962 870,304 7,095,790 1,048,724 1,061,150 49,621,225 554,810 67,352,537 41,786,418 10,102,974 1,990,425 7,814,263 0 0 1,009,061 4,649,396 67,352,537 4,000,541 596,062 70,217 4,666,820 1,265,195 2,196,734 2,470,086 298,105 10,894 2,250,625 1,542,373 0 0 0 1,011,221 4.99 4.90 4.32 204,098 97,642 0 0 547,992 351,262 59,936 554,810 488,027 6,881 59,902
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