-----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, B81yl8QYdojywSH753a9Hu9EuzgHYRlOvlCXOLzaKGAvuxo8aX7o95qt5zZLdSO4 BrILkgOdq5JmTWZvkFXdvg== 0000950168-00-001341.txt : 20000515 0000950168-00-001341.hdr.sgml : 20000515 ACCESSION NUMBER: 0000950168-00-001341 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000512 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WACHOVIA CORP/ NC CENTRAL INDEX KEY: 0000774203 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 561473727 STATE OF INCORPORATION: NC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09021 FILM NUMBER: 629426 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-Q 1 FORM 10-Q FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2000 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File Number 1-9021 Wachovia Corporation North Carolina 56-1473727 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Address and Telephone Number: 100 North Main Street 191 Peachtree Street NE Winston-Salem, North Carolina 27101 Atlanta, Georgia 30303 (336) 770-5000 (404) 332-5000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (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. [X] Yes [ ] No As of March 31, 2000, Wachovia Corporation had 202,456,311 shares of common stock outstanding. PART I -- FINANCIAL INFORMATION Item 1. Financial Statements
Page No. --------- Consolidated Statements of Condition at March 31, 2000, December 31, 1999 and March 31, 1999 .................................................. 3 Consolidated Statements of Income for the three months ended March 31, 2000 and March 31, 1999 ............................................... 4 Consolidated Statements of Shareholders' Equity for the three months ended March 31, 2000 and March 31, 1999 .................................. 5 Consolidated Statements of Cash Flows for the three months ended March 31, 2000 and March 31, 1999 ............................................... 6
The unaudited consolidated financial statements referred to above do not include all information and footnotes required under generally accepted accounting principles. However, in the opinion of management, the interim financial information includes all adjustments, consisting of normal recurring adjustments, necessary to present fairly the results of operations for the periods presented. The results of operations shown in the interim statements are not necessarily indicative of the results that may be expected for the entire year. 2 Consolidated Statements of Condition - -------------------------------------------------------------------------------- $ in thousands, except share data Wachovia Corporation and Subsidiaries
March 31 December 31 March 31 2000 1999 1999 ----------- ----------- ----------- Assets Cash and due from banks ......................................................... $ 3,167,792 $ 3,475,004 $3,110,130 Interest-bearing bank balances .................................................. 130,686 184,904 160,529 Federal funds sold and securities purchased under resale agreements ............. 417,023 761,962 524,100 Trading account assets .......................................................... 1,239,924 870,304 809,416 Securities available-for-sale ................................................... 7,109,858 7,095,790 8,399,296 Securities held-to-maturity (fair value of $1,120,825, $1,061,150 and $1,422,225 respectively) .................................................................. 1,114,184 1,048,724 1,373,453 Loans, net of unearned income ................................................... 51,125,316 49,621,225 46,393,132 Less allowance for loan losses .................................................. 595,655 554,810 548,302 ------------- ------------ ------------ Net loans ..................................................................... 50,529,661 49,066,415 45,844,830 Premises and equipment .......................................................... 942,114 953,832 962,609 Due from customers on acceptances ............................................... 87,555 111,684 310,818 Other assets .................................................................... 4,078,691 3,783,918 3,824,307 ------------- ------------ ------------ Total assets .................................................................. $68,817,488 $67,352,537 $65,319,488 ============= ============ ============ Liabilities Deposits in domestic offices: Demand ......................................................................... $ 8,666,743 $ 8,730,673 $ 8,235,680 Interest-bearing demand ........................................................ 4,648,977 4,527,711 4,758,860 Savings and money market savings ............................................... 13,673,221 13,760,479 13,161,018 Savings certificates ........................................................... 9,237,751 8,701,074 8,764,668 Large denomination certificates ................................................ 3,900,896 3,154,754 3,602,130 ------------- ------------ ------------ Total deposits in domestic offices ............................................ 40,127,588 38,874,691 38,522,356 Interest-bearing deposits in foreign offices .................................... 3,588,190 2,911,727 1,765,789 ------------- ------------ ------------ Total deposits ................................................................ 43,715,778 41,786,418 40,288,145 Federal funds purchased and securities sold under repurchase agreements ......... 4,994,119 5,372,493 6,268,563 Commercial paper ................................................................ 1,593,952 1,658,988 1,433,130 Other short-term borrowed funds ................................................. 1,493,962 3,071,493 2,046,994 Long-term debt .................................................................. 8,738,387 7,814,263 7,970,451 Acceptances outstanding ......................................................... 87,555 111,684 310,818 Other liabilities ............................................................... 2,347,305 1,878,741 1,569,448 ------------- ------------ ------------ Total liabilities ............................................................. 62,971,058 61,694,080 59,887,549 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 202,456,311, 201,812,295 and 202,898,450 shares, respectively .............................. 1,012,282 1,009,061 1,014,492 Capital surplus ................................................................. 682,068 598,149 675,686 Retained earnings ............................................................... 4,240,206 4,125,524 3,681,119 Accumulated other comprehensive (loss) income ................................... (88,126) (74,277) 60,642 ------------- ------------ ------------ Total shareholders' equity .................................................... 5,846,430 5,658,457 5,431,939 ------------- ------------ ------------ Total liabilities and shareholders' equity .................................... $68,817,488 $67,352,537 $65,319,488 ============= ============ ============
3 Consolidated Statements of Income - -------------------------------------------------------------------------------- $ in thousands, except per share Wachovia Corporation and Subsidiaries
Three Months Ended March 31 ------------------------------- 2000 1999 ------------- -------------- Interest Income Loans, including fees ................................................... $ 1,093,779 $ 969,294 Securities available-for-sale ........................................... 112,742 123,113 Securities held-to-maturity: State and municipal .................................................... 3,640 2,683 Other investments ...................................................... 15,824 21,635 Interest-bearing bank balances .......................................... 1,523 2,193 Federal funds sold and securities purchased under resale agreements ..... 7,492 5,802 Trading account assets .................................................. 10,357 5,666 ------------- ----------- Total interest income ................................................. 1,245,357 1,130,386 Interest Expense Deposits: Domestic offices ....................................................... 322,858 283,447 Foreign offices ........................................................ 51,922 23,920 ------------- ----------- Total interest on deposits ............................................ 374,780 307,367 Short-term borrowed funds ............................................... 123,317 103,170 Long-term debt .......................................................... 127,764 111,773 ------------- ----------- Total interest expense ................................................ 625,861 522,310 Net Interest Income ..................................................... 619,496 608,076 Provision for loan losses ............................................... 73,666 80,636 ------------- ----------- Net interest income after provision for loan losses ..................... 545,830 527,440 Other Income Service charges on deposit accounts ..................................... 100,811 86,955 Fees for trust services ................................................. 51,234 49,136 Credit card income ...................................................... 71,182 61,301 Investment fees ......................................................... 96,770 17,362 Capital markets income .................................................. 44,786 38,112 Electronic banking ...................................................... 23,396 18,455 Mortgage fees ........................................................... 5,001 10,966 Other operating income .................................................. 77,619 50,982 ------------- ----------- Total other operating revenue ......................................... 470,799 333,269 Securities gains ........................................................ 167 234 ------------- ----------- Total other income .................................................... 470,966 333,503 Other Expense Salaries ................................................................ 287,629 218,115 Employee benefits ....................................................... 56,252 53,071 ------------- ----------- Total personnel expense ............................................... 343,881 271,186 Net occupancy expense ................................................... 39,526 34,933 Equipment expense ....................................................... 49,195 46,842 Merger-related charges .................................................. 8,158 ---- Litigation settlement charge ............................................ 20,000 ---- Other operating expense ................................................. 177,218 139,237 ------------- ----------- Total other expense ................................................... 637,978 492,198 Income before income taxes .............................................. 378,818 368,745 Income tax expense ...................................................... 134,111 125,509 ------------- ----------- Net Income .............................................................. $ 244,707 $ 243,236 ============= =========== Net income per common share: Basic .................................................................. $ 1.21 $ 1.20 Diluted ................................................................ $ 1.20 $ 1.18 Average shares outstanding: Basic .................................................................. 202,464 203,119 Diluted ................................................................ 204,213 206,959
4 Consolidated Statements of Shareholders' Equity - -------------------------------------------------------------------------------- $ in thousands, except per share Wachovia Corporation and Subsidiaries
Common Stock Capital Shares Amount Surplus ------------ ------- ------- Period Ended March 31, 1999 Balance at beginning of year ......................... 202,986,100 $1,014,931 $ 669,244 Net income ........................................... Unrealized holding losses on securities available- for-sale, net of deferred tax benefit and reclassification adjustment ......................... Comprehensive income ............................. Cash dividends declared on common stock -- $.49 a share................................ Common stock issued pursuant to: Stock option and employee benefit plans ............. 513,245 2,566 55,418 Dividend reinvestment plan .......................... 67,042 335 5,384 Common stock acquired ................................ (667,937) (3,340) (54,360) Miscellaneous ........................................ ------------- ---------- --------- Balance at end of period ............................. 202,898,450 $1,014,492 $ 675,686 ============= ========== ========= Period Ended March 31, 2000 Balance at beginning of year ......................... 201,812,295 $1,009,061 $ 598,149 Net income ........................................... Unrealized holding losses on securities available- for-sale, net of deferred tax benefit and reclassification adjustment ......................... Comprehensive income ............................. Cash dividends declared on common stock -- $.54 a share................................ Common stock issued pursuant to: Stock option and employee benefit plans ............. 490,264 2,451 37,717 Dividend reinvestment plan .......................... 98,275 492 5,248 Acquisitions ........................................ 1,623,594 8,118 126,234 Common stock acquired ................................ (1,568,117) (7,840) (85,280) Miscellaneous ........................................ ------------- ---------- --------- Balance at end of period ............................. 202,456,311 $1,012,282 $ 682,068 ============= ========== =========
Accumulated Other Retained Comprehensive Earnings Income (Loss) Total -------- ---------------- ------- Period Ended March 31, 1999 Balance at beginning of year ......................... $3,571,617 $82,440 $5,338,232 Net income ........................................... 243,236 243,236 Unrealized holding losses on securities available- for-sale, net of deferred tax benefit and reclassification adjustment ......................... (21,798) (21,798) ---------- Comprehensive income ............................. 221,438 Cash dividends declared on common stock -- $.49 a share................................ (99,662) (99,662) Common stock issued pursuant to: Stock option and employee benefit plans ............. 57,984 Dividend reinvestment plan .......................... 5,719 Common stock acquired ................................ (57,700) Miscellaneous ........................................ (34,072) (34,072) ---------- --------- ---------- Balance at end of period ............................. $3,681,119 $60,642 $5,431,939 ========== ========= ========== Period Ended March 31, 2000 Balance at beginning of year ......................... $4,125,524 ($ 74,277) $5,658,457 Net income ........................................... 244,707 244,707 Unrealized holding losses on securities available- for-sale, net of deferred tax benefit and reclassification adjustment ......................... (13,849) (13,849) ---------- Comprehensive income ............................. 230,858 Cash dividends declared on common stock -- $.54 a share................................ (110,094) (110,094) Common stock issued pursuant to: Stock option and employee benefit plans ............. 40,168 Dividend reinvestment plan .......................... 5,740 Acquisitions ........................................ 134,352 Common stock acquired ................................ (93,120) Miscellaneous ........................................ (19,931) (19,931) ---------- --------- ---------- Balance at end of period ............................. $4,240,206 ($ 88,126) $5,846,430 ========== ========= ==========
5 Consolidated Statements of Cash Flows - -------------------------------------------------------------------------------- $ in thousands Wachovia Corporation and Subsidiaries
Three Months Ended March 31 -------------------------------- 2000 1999 ---------- ---------- Operating Activities Net income ............................................................................... $ 244,707 $ 243,236 Adjustments to reconcile net income to net cash provided by operations: Provision for loan losses ............................................................... 73,666 80,636 Depreciation and amortization ........................................................... 70,496 57,210 Deferred income taxes ................................................................... 68,211 97,070 Securities gains ........................................................................ (167) (234) Gain on sale of noninterest-earning assets .............................................. (430) (8,698) Increase in accrued income taxes ........................................................ 56,616 125,435 Decrease (increase) in accrued interest receivable ...................................... 1,341 (13,285) Increase in accrued interest payable .................................................... 11,005 14,625 Net change in other accrued and deferred income and expense ............................. 75,615 (74,733) Net trading account activities .......................................................... (369,620) (493,725) Net loans held for resale ............................................................... 15,232 151,859 ------------- ------------- Net cash provided by operating activities .............................................. 246,672 179,396 Investing Activities Net decrease (increase) in interest-bearing bank balances ................................ 69,422 (50,546) Net decrease in federal funds sold and securities purchased under resale agreements ...... 357,429 151,370 Purchases of securities available-for-sale ............................................... (334,225) (1,306,003) Purchases of securities held-to-maturity ................................................. (80,820) (35) Sales of securities available-for-sale ................................................... 259,407 123,267 Calls, maturities and prepayments of securities available-for-sale ....................... 170,784 732,631 Calls, maturities and prepayments of securities held-to-maturity ......................... 43,343 8,716 Net increase in loans made to customers .................................................. (816,862) (1,805,641) Credit card receivables securitized ...................................................... ---- 895,954 Capital expenditures ..................................................................... (25,973) (110,317) Proceeds from sales of premises and equipment ............................................ 4,210 30,590 Net decrease (increase) in other assets .................................................. 53,969 (90,061) Business combinations .................................................................... (768,230) ---- ------------- ------------- Net cash used by investing activities .................................................. (1,067,546) (1,420,075) Financing Activities Net decrease in demand, savings and money market accounts ................................ (189,772) (235,194) Net increase (decrease) in certificates of deposit ....................................... 1,765,035 (471,390) Net (decrease) increase in federal funds purchased and securities sold under repurchase (381,374) 805,145 agreements Net (decrease) increase in commercial paper .............................................. (65,036) 73,748 Net (decrease) increase in other short-term borrowings ................................... (1,577,531) 134,732 Proceeds from issuance of long-term debt ................................................. 1,342,869 740,447 Maturities and repayments of long-term debt .............................................. (420,290) (371,754) Common stock issued ...................................................................... 15,615 19,919 Dividend payments ........................................................................ (110,094) (99,662) Common stock repurchased ................................................................. (93,451) (54,157) Net increase in other liabilities ........................................................ 227,691 8,710 ------------- ------------- Net cash provided by financing activities .............................................. 513,662 550,544 Decrease in Cash and Cash Equivalents .................................................... (307,212) (690,135) Cash and cash equivalents at beginning of year ........................................... 3,475,004 3,800,265 ------------- ------------- Cash and cash equivalents at end of period ............................................... $ 3,167,792 $ 3,110,130 ============= =============
6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Selected Period-End Data Table 1 - --------------------------------------------------------------------------------
March 31 ---------------------- 2000 1999 ------- ------- Banking offices: North Carolina ............................... 190 198 Virginia ..................................... 230 264 Georgia ...................................... 137 131 South Carolina ............................... 118 120 Florida ...................................... 38 40 -------- -------- Total ..................................... 713 753 ======== ======== Automated banking machines: North Carolina ............................... 448 445 Virginia ..................................... 282 305 Georgia ...................................... 305 300 South Carolina ............................... 283 294 Florida ...................................... 38 37 -------- -------- Total ..................................... 1,356 1,381 ======== ======== Employees (full-time equivalent) .............. 21,647 20,704 Common stock shareholders of record ........... 51,911 53,363 Common shares outstanding (thousands) ......... 202,456 202,898
Common Stock Data -- Per Share Table 2 - --------------------------------------------------------------------------------
2000 1999 ---- --------------------------------------------- First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter ------- --------- ------- ------- ------- Market value: Period-end ............................................. $ 67.56 $ 68.00 $ 78.63 $ 85.56 $ 81.19 High ................................................... 68.94 88.88 85.25 92.31 91.00 Low .................................................... 53.63 65.44 75.31 80.56 79.00 Book value at period-end ................................ 28.88 28.04 27.76 26.83 26.77 Dividend ................................................ .54 .54 .54 .49 .49 Price/earnings ratio (1) ................................ 13.7 x 13.9 x 16.4 x 18.5 x 18.3 x Price/earnings ratio without nonrecurring items (1), (2) 13.3 13.7 16.2 18.1 17.7
(1) Based on the most recent four quarters of net income per diluted share and end of period stock price. (2) Excludes the after-tax impact of nonrecurring charges. Forward-Looking Statements - -------------------------------------------------------------------------------- The Quarterly Report on Form 10-Q of Wachovia Corporation ("Wachovia") 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. 7 Financial Summary Table 3 - --------------------------------------------------------------------------------
Twelve Months 2000 Ended ---- March 31 2000 First Quarter ------------- ------------- Summary of Operations (thousands, except per share data) Interest income ......................................... $4,781,791 $ 1,245,357 Interest expense ........................................ 2,300,285 625,861 ------------- ----------- Net interest income ..................................... 2,481,506 619,496 Provision for loan losses ............................... 291,135 73,666 ------------- ----------- Net interest income after provision for loan losses ..... 2,190,371 545,830 Other operating revenue ................................. 1,747,653 470,799 Securities gains ........................................ 10,827 167 ------------- ----------- Total other income ...................................... 1,758,480 470,966 Personnel expense ....................................... 1,292,981 343,881 Merger-related charges .................................. 27,467 8,158 Litigation settlement charge ............................ 20,000 20,000 Other expense ........................................... 1,055,957 265,939 ------------- ----------- Total other expense ..................................... 2,396,405 637,978 Income before income tax expense ........................ 1,552,446 378,818 Income tax expense ...................................... 539,754 134,111 ------------- ----------- Net income .............................................. $1,012,692 $ 244,707 ============= =========== Net income per common share: Basic .................................................. $ 4.99 $ 1.21 Diluted ................................................ $ 4.92 $ 1.20 Cash dividends paid per common share .................... $ 2.11 $ .54 Cash dividends paid on common stock ..................... $ 428,879 $ 110,094 Cash dividend payout ratio .............................. 42.35% 44.99% Average basic shares outstanding ........................ 202,634 202,464 Average diluted shares outstanding ...................... 205,512 204,213 Selected Average Balances (millions) Total assets ............................................ $ 66,250 $ 67,755 Loans -- net of unearned income ......................... 48,287 50,550 Securities .............................................. 9,134 8,395 Other interest-earning assets ........................... 1,536 1,245 Total interest-earning assets ........................... 58,957 60,190 Interest-bearing deposits ............................... 33,077 34,873 Short-term borrowed funds ............................... 9,309 8,920 Long-term debt .......................................... 8,245 8,081 Total interest-bearing liabilities ...................... 50,631 51,874 Noninterest-bearing deposits ............................ 8,318 8,319 Total deposits .......................................... 41,395 43,192 Shareholders' equity .................................... 5,523 5,688 Ratios (averages) Annualized net loan losses to loans ..................... .59% .58% Annualized net yield on interest-earning assets ......... 4.28 4.20 Shareholders' equity to: Total assets ........................................... 8.34 8.39 Net loans .............................................. 11.57 11.38 Annualized return on assets ............................. 1.53 1.44 Annualized return on shareholders' equity ............... 18.34 17.21 Operating Performance Excluding Nonrecurring Items* (thousands, except per share data) Net income .............................................. $1,045,129 $ 264,510 Net income per diluted share ............................ $ 5.09 $ 1.30 Annualized return on assets ............................. 1.58% 1.56% Annualized return on shareholders' equity ............... 18.92 18.60 Cash dividend payout ratio .............................. 41.04 41.62
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 Merger-related charges .................................. 5,669 5,293 8,347 ---- Litigation settlement charge ............................ ---- ---- ---- ---- 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
* Excludes the after-tax effects of merger-related and litigation settlement charges. 8 Results of Operations This Quarterly Report on Form 10-Q should be read in conjunction with Wachovia's 1999 Annual Report on Form 10-K and will serve to update previously reported information for current interim period results. Overview Reports from the twelve Federal Reserve Districts indicated appreciable expansion of economic activ ity during the quarter, continuing the longest period of such growth in U. S. history. Retail sales expanded significantly over their year-earlier levels, while gains in manufacturing output were widespread. Gross domestic product rose 5.4 percent, based on preliminary data. Economic expansion continued in spite of growing concerns about higher levels of inflation, significant amounts of consumer indebtedness and generally tight labor markets. These concerns prompted the Federal Reserve to raise short-term interest rates by 25 basis points, each on five occasions since July 1999. Based on preliminary data, the nation's average unemployment rate fell to 4.1 percent from 4.3 percent during first quarter 1999. Economic conditions within Wachovia's five state operating area remained generally strong, with unemployment averaging approximately 3.4 percent. Wachovia's strategy is to focus on prudently entering and expanding businesses with strong potential for growth, and deploying and redirecting resources as appropriate to provide for the most attractive returns. This will continue to be accomplished by enhancing products and services through internal development, as well as by selective acquisitions and partnerships. On February 1, Wachovia completed its purchase of a majority of the credit card business of Partners First Holdings LLC, adding 1.2 million customers and approximately $2 billion of managed receivables. The transaction resulted in approximately $230 million of purchased credit card intangibles. The acquisition of B C Bankshares, Inc., parent company of the Bank of Canton also was completed in February, resulting in goodwill of approximately $97 million. On March 3, Wachovia announced an agreement to acquire Commerce National Corporation, the parent company of the National Bank of Commerce, a community bank with approximately $180 million in assets based in Winter Park, Florida. This acquisition will give Wachovia a strong presence in the growing and affluent market of Orange County, near Orlando. The transaction is expected to close in the third quarter of 2000 and will be accounted for as a purchase. These first quarter transactions follow several purchase acquisitions completed in 1999 that strengthened Wachovia's wealth advisory and capital markets capabilities. On March 13, Wachovia became a financial holding company under the provisions of the recently enacted Gramm-Leach-Bliley Act (the "Act"). This legislation enables bank holding companies and foreign banks that meet applicable statutory requirements to engage in a broader range of services and to compete more efficiently in existing business lines. In general, the Act authorizes financial holding companies to engage in securities, insurance, and other activities that are financial in nature or incidental to or complementary to a financial activity and that do not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally. These expanded powers may include securities underwriting, dealing and market making; acting as principal, agent or broker for the sale of insurance products; providing management consulting services; and organizing, sponsoring or managing mutual funds. 9 Computation of Earnings Per Common Share Table 4 - -------------------------------------------------------------------------------- (thousands, except per share)
Three Months Ended March 31 ----------------------------- 2000 1999 ----------- ---- Basic Average common shares outstanding ............................ 202,464 203,119 =========== ======= Net income ................................................... $ 244,707 $ 243,236 =========== ========= Per share amount ............................................. $ 1.21 $ 1.20 Diluted Average common shares outstanding ............................ 202,464 203,119 Dilutive common stock options at average market price ........ 1,541 3,417 Dilutive common stock awards at average market price ......... 186 397 Convertible long-term debt assumed converted ................. 22 26 ----------- --------- Average diluted shares outstanding ........................... 204,213 206,959 =========== ========= Net income ................................................... $ 244,707 $ 243,236 Add interest on convertible long-term debt -- net of tax ..... 17 20 ----------- --------- Adjusted net income .......................................... $ 244,724 $ 243,256 =========== ========= Per share amount ............................................. $ 1.20 $ 1.18
Wachovia's operating net income for the first quarter of 2000 was $265 million or $1.30 per diluted share versus $243 million or $1.18 per diluted share a year earlier. On a reported basis, Wachovia's net income for the quarter was $245 million or $1.20 per diluted share versus $243 million or $1.18 per diluted share a year earlier. Comparisons between the 2000 and 1999 quarters are impacted by the results of acquisitions that are included in reported results from their respective acquisition dates each year. During the current quarter, Wachovia reached a settlement with the U. S. Department of Labor on a lawsuit begun against South Carolina National Bank in May 1991. The litigation stemmed from the purchase of stock by an Employee Stock Ownership Plan ("ESOP") to fund retirement bene-fits. South Carolina National Bank, which was acquired by Wachovia in December 1991, served as trustee to the ESOP. The pretax charge against earnings for the quarter amounted to $20 million net of insurance proceeds and previously established accruals. Expanded discussion of results of operations and financial condition follows. 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 average levels unless otherwise noted. Business Wachovia has five reportable business segments: Asset and Wealth Segments Management, Corporate, Credit Card, Consumer and Treasury & Administration. Business segment results are reported on a management accounting basis. 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 result, 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. The provision for loan losses is charged to each business segment based on the credit risk of each segment's loan portfolio. Operating expenses to support business unit revenues are either charged directly as incurred or allocated from support areas based on usage. In addition, general overhead expense that cannot be specifically identified to a business unit is allocated based on the proportion of each segment's direct expenses to total direct expenses of the combined segments. Income tax 10 expense is calculated for each business segment with a blended tax rate. This rate is adjusted as applicable for the assumed tax effect of tax-exempt income and nondeductible intangible amortization expense. Beginning January 2000, Wachovia adopted a marginal matched maturity funds transfer pricing methodology for management reporting. Formerly, Wachovia utilized a multiple pool method to simulate matched funding. This change in management accounting has been reflected for all periods. Given the complexity of the balance sheet products and services offered to customers, the marginal matched maturity method provides an improved method of measuring the economics of these products and services in reported business unit results. The new approach evaluates the cash flows and repricing characteristics of all balance sheet transactions at an instrument level by benchmarking pricing decisions against Wachovia's wholesale cost of funds. This approach removes most forms of interest rate risk, prepayment risk and liquidity risk from the business units and isolates them in Treasury & Administration for centralized evaluation and management. Under marginal matched maturity funds transfer pricing, business unit results represent the economic impact of growth and pricing decisions. Financial results by business segment are discussed below. Business Segments Table 5 - --------------------------------------------------------------------------------
Wealth Management Corporate Credit Card --------------- ---------------- ---------------- 2000 1999 2000 1999 2000 1999 ---- ---- ---- ---- ----- ---- Operations Summary (millions) External net interest margin ....................... $ 37 $ 22 $ 611 $ 505 $ 267 $ 211 Internal funding (charge) credit ....................... 2 6 (370) (291) (113) (79) ------ ------ ------- ------- ------- ------ Net interest income* .......... 39 28 241 214 154 132 Total other income ............ 167 76 110 91 51 37 ------ ------ ------- ------- ------- ------ Total revenues ................ 206 104 351 305 205 169 Provision for loan losses ..... 2 ---- 17 7 87 72 Total other expense ........... 161 80 172 140 65 52 ------ ------ ------- ------- ------- ------ Pretax profit ................. 43 24 162 158 53 45 Income tax expense ............ 17 9 57 56 21 16 ------ ------ ------- ------- ------- ------ Net income .................... $ 26 $ 15 $ 105 $ 102 $ 32 $ 29 ====== ====== ======= ======= ======= ====== Percentage contribution to total revenues** ............. 18.5% 10.8% 31.5% 31.5% 18.4% 17.5% Percentage contribution to net income ................... 10.6% 6.2% 42.9% 42.0% 13.1% 11.9% Average Balances (millions) Total assets .................. $3,569 $2,682 $36,733 $33,457 $7,701 $6,354
Treasury & Total Consumer Administration Eliminations Corporation ----------------- ------------------- ----------------- ----------------- 2000 1999 2000 1999 2000 1999 2000 1999 ------- ------ ------ ------- ------- ------- ------- ------- Operations Summary (millions) External net interest margin ....................... $ (44) $ (36) $ (243) $ (84) $ (9) $ (10) $ 619 $ 608 Internal funding (charge) credit ....................... 266 248 231 131 (16) (15) ---- ---- ------- ------ ------ ------- ------- ------- ------- ------- Net interest income* .......... 222 212 (12) 47 (25) (25) 619 608 Total other income ............ 104 100 39 30 ---- ---- 471 334 ------- ------ ------ ------- ------- ------- ------- ------- Total revenues ................ 326 312 27 77 (25) (25) 1,090 942 Provision for loan losses ..... 5 5 (38) (3) ---- ---- 73 81 Total other expense ........... 224 217 32 18 (16) (15) 638 492 ------- ------ ------ ------- ------- ------- ------- ------- Pretax profit ................. 97 90 33 62 (9) (10) 379 369 Income tax expense ............ 35 33 13 22 (9) (10) 134 126 ------- ------ ------ ------- ------- ------- ------- ------- Net income .................... $ 62 $ 57 $ 20 $ 40 $ ---- $ ---- $ 245 $ 243 ======= ====== ====== ======= ======= ======= ======= ======= Percentage contribution to total revenues** ............. 29.2% 32.3% 2.4% 8.0% Percentage contribution to net income ................... 25.3% 23.5% 8.2% 16.5% Average Balances (millions) Total assets .................. $10,273 $9,591 $9,479 $12,324 $67,755 $64,408
* 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. Asset and Asset and Wealth Management provides integrated financial Wealth services to the affluent marketplace. During 1999, Wachovia made Management three acquisitions that helped advance this strategy. In April, Wachovia acquired Interstate/Johnson Lane Inc. ("IJL"), a full-service brokerage firm with 61 offices throughout Virginia, North Carolina, South Carolina and Georgia. In September, Wachovia completed its acquisitions of OFFITBANK Holdings, Inc. ("OFFITBANK"), a New York-based wealth management company, and Barry, Evans, Josephs & Snipes, Inc. ("BEJS"), a leading Charlotte, North Carolina-based life insurance broker specializing in wealth transfer and benefit plan programs. Also in the third quarter of 1999, Wachovia sold its master trust and institutional custody business in order to focus on other business areas. 11 Products and Services. Asset and Wealth Management delivers innovative tailored products and services through a variety of channels. The Private Financial Advisors group provides a full range of products and services to affluent customers, 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 a wide variety of services and investment products including the Wachovia Funds through full-service brokers and branch-based investment consultants. Customers making their own investment decisions can trade through Wachovia Investments Direct using a broker, a touch-tone service or the Internet. Wachovia Asset Management provides investment strategies and portfolio management for individuals and institutions, in addition to managing the Wachovia Funds. 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. At March 31, 2000, Wachovia had $54.8 billion in trust assets under discretionary management, up $2.9 billion from the amount reported at December 31, 1999. A small portion of these assets are managed by other business segments. Industry Dynamics and Strategy. Wachovia believes the current marketplace is underserved with few national brands and fragmented competition. Within Wachovia's five state geographic footprint, households are growing much 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. Asset and Wealth Management's market presence, brand names and strategic focus, position it to take unique advantage of this environment. The continued integration of the acquisitions has allowed 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. When retail customers 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. Financial Results. Pretax profit increased 82 percent over the same period last year. The acquisition of IJL, OFFITBANK and BEJS accounted for a substantial portion of the increase. Profit from Wachovia's existing business grew 31 percent with particularly strong performances in loan growth and investment fee income. Excluding the impact of the 1999 acquisitions, other income rose 24 percent while other expense rose 8 percent. Corporate Corporate strives to be the preferred provider of services to targeted corporate clients through comprehensive relationship management. To achieve this goal, it works to know its customers better than 12 the competition; anticipate customer needs and provide innovative solutions; align products, services and delivery channels with customer needs; and serve customers through insightful, trusted professionals. Products and Services. Corporate provides a comprehensive array of capital solutions, strategic consulting, and risk management services to public and private companies of all sizes primarily in the Southeast, but also on a national and global level. Corporate is a leading provider of treasury consulting and cash management solutions for companies of all sizes, and its Treasury Services group consistently is cited for superior quality of service, technology and operations performance. Treasury Services is expanding its product and service offerings and will soon offer business-to-business e-commerce services. The acquisition of IJL strengthened Wachovia's capabilities as a provider of capital and financial advisory services by doubling the number of investment banking professionals; adding equity research, sales and trading; and expanding its fixed-income distribution capacity. The acquisition of IJL also resulted in the formation of Wachovia Securities, Inc. (WSI), a Section 20 securities subsidiary that 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 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. Industry Dynamics and Strategy. In a highly competitive environment, Corporate maintains a strong market position in the Southeast and a top ten share in the U. S. large corporate market. Client attitudes and behaviors, as well as rapid changes in technology and communications continue to transform the marketplace. To achieve continued success in this environment, Corporate segments the market to best align its sales approach, service model and product development priorities with customer requirements, segment profitability and growth potential. As a result, the traditional market-based segmentation is augmented with needs-based segmentation where specialization is more appropriate. Examples of Wachovia's segment specialization include Commercial Real Estate, the Emerging Growth and Technology Group, the Communications Group, Leveraged Finance, Dealer Financial Services, Aircraft Finance, Government Contract Finance and Financial Institutions. Financial Results. Net interest margin increased $26 million or 12 percent compared with the first quarter of 1999, reflecting a 14 percent increase in average loans. The loan loss provision increased $10 million related to several isolated problem credits in the large corporate portfolio that were identified early and are being managed appropriately. Other income grew by 21 percent, reflecting the inclusion of former IJL Capital Markets business in the first quarter 2000 results. Noninterest expense was up 23 percent, caused by the addition of former IJL business units. Credit Card Credit Card's mission is to be the preferred credit card issuer, offering the best value on a combined rate and fee package while providing excellent customer service. With over $8 billion in managed receivables, Credit Card remains one of the larger Visa/MasterCard issuers 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. Credit Card manages most components of credit card processing in-house, with the exception of servicing business card products and the Partners First portfolio that are processed through outside vendors. Currently, 91 percent of Wachovia's credit card portfolio accrues interest at a variable rate and 34 percent of the accounts are within Wachovia's five state geographic footprint. Industry Dynamics and Strategy. The credit card industry is in a period of intense competition and consolidation. Leading providers are leveraging technology to build scale and operating efficiencies. 13 Credit Card's strategy focuses on serving above-average credit quality customers who carry higher-than-average loan balances while maintaining an efficient and cost-effective process. Financial Results. Pretax profit rose 17 percent as a result of higher revenue and improved loss ratios. Net interest margin grew 16 percent, primarily due to the Partners First acquisition, partially offset by tighter spreads in the rising rate environment and a lower level of late fees. Average assets grew 21 percent and the loan loss provision increased by 21 percent, primarily as a result of the acquisition. Excluding this transaction, the loss ratio was 4.13 percent of average loans. Noninterest income increased 38 percent due to the acquisition, strong interchange income from increased purchase volume, as well as higher overlimit fees. Total expense rose by 25 percent due to the acquisition and increased marketing investment, offset by internal cost control initiatives. Consumer Consumer develops customer relationships for the greatest lifetime value, manages the cost of the sales and service network and capitalizes on the digital economy. It targets consumers, worksite groups and small businesses throughout the Southeast, offering a broad array of competitively priced products and services. Consumer's importance to the entire Wachovia enterprise cannot be measured entirely by its profit contribution because 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 713 traditional and in-store branches and worksite centers, 1,356 ATMs and 33 kiosks, supported by four automated phone centers. Wachovia is the ninth largest Visa check card issuer and has enjoyed the 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 employees of more than 3,000 companies. The Internet is growing in importance as a delivery channel with 19 percent of Wachovia's demand deposit customers connected via Internet banking, up from 14 percent at year-end and 6 percent the prior year. Wachovia's Internet site, www.wachovia.com, serves as a financial portal with full transaction capability and relevant financial news. Industry Dynamics and Strategy. Consumer serves more than 3.7 million consumers and approximately 200,000 small business customers. A majority of Wachovia's deposits are in large, high-growth metropolitan areas. Consumer's strategy is to assess customer potential, identify their financial needs and achieve alignment between their needs, service expectations and price. Specific initiatives to implement this strategy include: SELECTIVE GEOGRAPHIC EXPANSION. Wachovia continues to evaluate merger and branching opportunities in high-growth areas. During the first quarter of 2000, Wachovia completed the acquisition of Bank of Canton in the suburban Atlanta area and announced an agreement to acquire the National Bank of Commerce in Winter Park, Florida. PROFITABLE RELATIONSHIP OPTIMIZATION (PRO). Desktop technology connects to 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. WACHOVIA AT WORK AND CAMPUS BANKING PROGRAMS. These strategies involve deploying Wachovia products and services through employers and universities to provide 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. 14 The eBusiness Division provides corporate wide eBusiness strategic planning, leadership and operational management. Advances in technology are rapidly transforming the financial services industry. Wachovia's eBusiness strategy is to develop a personalized and seamlessly delivered customer experience when using www.wachovia.com and to augment the site with relevant financial data. During the first quarter, Wachovia announced an alliance with a leading business-to-business e-commerce solutions provider to deliver e-procurement solutions for Wachovia and its customers. Financial Results. Consumer's pretax profit increased 8 percent from the prior year. Deposit and loan sales were up significantly over the prior first quarter by 71 percent and 55 percent in dollar volume, respectively. Net interest margin was 5 percent higher, driven by higher interest rates and by the addition of the Bank of Canton. Loans increased 7 percent over the prior year to $9.462 billion from strong product offerings such as the "Prime for Life" home equity line of credit and improved execution of direct marketing for account acquisition and activation. Other income increased 5 percent over the first quarter of 1999. Deposit account fee revenue was up 9 percent as a result of new pricing strategies. Electronic banking revenues grew 24 percent, driven by strong ATM and debit card volumes. The number of debit cards outstanding increased 11 percent, and transaction volume was up 19 percent as consumers continue to recognize the card's convenience. Mortgage fees decreased 47 percent to $6 million, on lower sales volumes and also a shift in the mix to adjustable-rate mortgages from fixed-rate mortgages. Total expenses increased 3 percent, primarily from the acquisition of the Bank of Canton and eBusiness initiatives. Treasury & The Treasury & Administration segment principally reflects asset Administration 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. Financial Results. Treasury & Administration's net income declined $20 million to $21 million in the first quarter of 2000 from last year's comparable period. The net interest margin was down $58 million, with $53 million of the reduction due to the securitized credit card portfolios. Securities declined by $826 million, with the rate earned down 12 basis points. The loan loss provision declined $34 million, with $30 million from the securitized portfolios. Other income rose $8 million, with processing revenue up $12 million and credit card income down $7 million, both due to the securitized portfolios. Other expense increased $13 million from the litigation settlement charge of $20 million and merger-related expenses of $8 million offset by reduced Year 2000 conversion costs. 15 Taxable Equivalent Rate/Volume Analysis -- First Quarter* Table 6 - --------------------------------------------------------------------------------
Average Volume Average Rate - --------------------- ------------------ 2000 1999 2000 1999 - ------- -------- ------- ------- (Millions) INTEREST INCOME Loans: $17,215 $14,854 8.06 6.96 Commercial......................... 673 931 9.29 9.29 Tax-exempt......................... - -------- -------- 17,888 15,785 8.10 7.10 Total commerical.............. 1,108 1,073 8.70 8.90 Direct retail...................... 3,804 3,310 7.89 7.96 Indirect retail.................... 4,886 5,851 13.40 13.26 Credit card........................ 691 546 11.30 10.95 Other revolving credit............. - -------- -------- 10,489 10,780 10.77 11.08 Total retail.................. 2,455 2,093 8.87 8.56 Construction....................... 7,994 7,053 8.31 8.07 Commercial mortgages............... 7,860 7,336 7.82 7.83 Residential mortgages.............. - -------- -------- 18,309 16,482 8.18 8.03 Total real estate............. 2,605 1,941 9.56 12.13 Lease financing.................... 1,259 1,273 7.36 6.32 Foreign............................ - -------- -------- 50,550 46,261 8.74 8.55 Total loans................... Securities: Held-to-maturity: 436 570 6.69 6.22 U.S. Government and agency...... 407 576 8.02 8.42 Mortgage-backed................. 208 168 9.50 9.74 State and municipal............. 43 72 6.30 6.73 Other........................... - -------- -------- 1,094 1,386 7.70 7.59 Total held-to-maturity........ Available-for-sale:** 2,884 3,173 6.18 6.42 U.S. Government and agency...... 3,769 4,086 6.49 6.46 Mortgage-backed................. 648 576 6.69 7.48 Other........................... - -------- -------- 7,301 7,835 6.39 6.52 Total available-for-sale...... - -------- -------- 8,395 9,221 6.56 6.68 Total securities.............. 97 130 6.30 6.82 Interest-bearing bank balances....... Federal funds sold and securities 525 483 5.73 4.87 purchased under resale agreements.. 623 700 6.68 3.28 Trading acount assets................ - -------- -------- $60,190 $56,795 8.38 8.14 Total interest-earning assets. ======== ======== INTEREST EXPENSE $ 4,755 $ 4,665 1.51 1.11 Interest-bearing demand.............. 13,363 12,889 3.95 3.57 Savings and money market savings..... 8,966 8,846 5.28 5.20 Savings certificates................. 4,025 3,377 5.61 5.25 Large denomination certificates...... - -------- -------- Total interest-bearing 31,109 29,777 4.17 3.86 deposits in domestic offices. Interest-bearing deposits ni foreign 3,764 2,069 5.55 4.69 offices........................... - -------- -------- Total interest-bearing 34,873 31,846 4.32 3.91 deposits..................... Federal funds purchased and securities sold under repurchase 5,845 6,017 5.32 4.34 agreements........................ 1,638 1,420 5.41 4.48 Commercial paper..................... 1,437 1,855 6.72 5.03 Other short-term borrowed funds...... - -------- -------- Total short-term borrowed 8,920 9,292 5.56 4.50 funds........................ 2,071 2,748 6.19 5.69 Bank notes........................... 6,010 4,879 6.42 6.08 Other long-term debt................. - -------- -------- 8,081 7,627 6.36 5.94 Total long-term debt.......... - -------- -------- Total interest bearing $51,874 $48,765 4.85 4.34 liabilities.................. ======== ======== ------ ----- 3.53 3.80 Interest rate spread ====== ===== Net yield on interest-earning assets 4.20 4.41 and net interest income........... ====== =====
VARIANCE INTEREST ATTRIBUTABLE TO -------------------------- ------------------------ 2000 1999 VARIANCE RATE VOLUME ------------ ------------ -------------- ----------- ----------- INTEREST INCOME (Thousands) Loans: Commercial ............................... $ 344,896 $ 254,955 $ 89,941 $ 44,778 $ 45,163 Tax-exempt ............................... 15,559 21,328 (5,769) 8 (5,777) ------------ ------------ ------------- Total commercial ...................... 360,455 276,283 84,172 43,387 40,785 Direct retail ............................ 23,969 23,553 416 (468) 884 Indirect retail .......................... 74,626 64,982 9,644 (557) 10,201 Credit card .............................. 162,812 191,334 (28,522) 2,071 (30,593) Other revolving credit ................... 19,412 14,747 4,665 502 4,163 ------------ ------------ ------------- Total retail .......................... 280,819 294,616 (13,797) (7,098) (6,699) Construction ............................. 54,156 44,189 9,967 1,704 8,263 Commercial mortgages ..................... 165,228 140,322 24,906 4,620 20,286 Residential mortgages .................... 152,780 141,677 11,103 (219) 11,322 ------------ ------------ ------------- Total real estate ..................... 372,164 326,188 45,976 6,612 39,364 Lease financing .......................... 61,937 58,073 3,864 (13,715) 17,579 Foreign .................................. 23,049 19,851 3,198 3,408 (210) ------------ ------------ ------------- Total loans ........................... 1,098,424 975,011 123,413 24,062 99,351 Securities: Held-to-maturity: U.S. Government and agency ............. 7,247 8,745 (1,498) 638 (2,136) Mortgage-backed ........................ 8,119 11,965 (3,846) (544) (3,302) State and municipal .................... 4,919 4,024 895 (100) 995 Other .................................. 668 1,197 (529) (71) (458) ------------ ------------ ------------- Total held-to-maturity ................ 20,953 25,931 (4,978) 401 (5,379) Available-for-sale:** U.S. Government and agency ............. 44,347 50,214 (5,867) (1,678) (4,189) Mortgage-backed ........................ 60,779 65,104 (4,325) 262 (4,587) Other .................................. 10,783 10,630 153 (1,146) 1,299 ------------ ------------ ------------- Total available-for-sale .............. 115,909 125,948 (10,039) (2,332) (7,707) ------------ ------------ ------------- Total securities ...................... 136,862 151,879 (15,017) (2,565) (12,452) Interest-bearing bank balances ............. 1,523 2,193 (670) (155) (515) Federal funds sold and securities purchased under resale agreements ........ 7,492 5,802 1,690 1,133 557 Trading account assets ..................... 10,357 5,653 4,704 5,373 (669) ------------ ------------ ------------- Total interest-earning assets ......... 1,254,658 1,140,538 114,120 37,613 76,507 INTEREST EXPENSE Interest-bearing demand .................... 17,846 12,725 5,121 4,864 257 Savings and money market savings ........... 131,131 113,547 17,584 13,013 4,571 Savings certificates ....................... 117,737 113,449 4,288 2,287 2,001 Large denomination certificates ............ 56,144 43,726 12,418 3,255 9,163 ------------ ------------ ------------- Total interest-bearing deposits in domestic offices .................... 322,858 283,447 39,411 25,416 13,995 Interest-bearing deposits in foreign offices .................................. 51,922 23,920 28,002 5,112 22,890 ------------ ------------ ------------- Total interest-bearing deposits ....... 374,780 307,367 67,413 35,257 32,156 Federal funds purchased and securities sold under repurchase agreements ......... 77,295 64,464 12,831 14,649 (1,818) Commercial paper ........................... 22,016 15,681 6,335 3,631 2,704 Other short-term borrowed funds ............ 24,006 23,025 981 6,786 (5,805) ------------ ------------ ------------- Total short-term borrowed funds........ 123,317 103,170 20,147 24,263 (4,116) Bank notes ................................. 31,869 38,587 (6,718) 3,219 (9,937) Other long-term debt ....................... 95,895 73,186 22,709 4,340 18,369 ------------ ------------ ------------- Total long-term debt .................. 127,764 111,773 15,991 8,645 7,346 ------------ ------------ ------------- Total interest-bearing liabilities .... 625,861 522,310 103,551 67,040 36,511 ------------ ------------ ------------- Interest rate spread Net yield on interest-earning assets and net interest income ........................ $ 628,797 $ 618,228 $ 10,569 (28,293) 38,862 ============ ============ =============
* 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 $149 million in 2000 and pretax unrealized gains of $119 million in 1999. 16 Consolidated Financial Results Net Interest Wachovia's taxable equivalent net interest income rose $11 Income million or 1.7 percent from the first quarter of 1999 to $629 million. The rising rate environment during the last half of 1999 and continuing into the first quarter of 2000 was considerably different from that of a year ago. For the first quarter of 2000, the average federal funds rate and Wachovia's average prime lending rate were 5.68 percent and 8.69 percent, respectively, compared with 4.73 percent and 7.75 percent, respectively, for the first quarter of 1999. The increase in both rates reflects five 25 basis point rate increases since July 1999 by the Federal Reserve to slow the economy. Wachovia's net yield on interest-earning assets was 4.20 percent compared with 4.41 percent reported for the first quarter of 1999. Most of the year-over-year decline in the net yield on interest-earning assets was caused by changes in interest-earning asset mix, resulting from $1.4 billion of credit card securitization transactions offset by solid growth in the commercial loan portfolio. The funding cost associated with acquisitions completed during 1999 and the first quarter of 2000 also contributed to the decline. The impact of the securitization transactions and the business mix of the acquired companies reduced net interest income and increased noninterest income. Managed Credit Card Data Table 7 - -------------------------------------------------------------------------------- (thousands)
2000 ------------ First Quarter ------------ Average credit card loans .............................. $ 7,771,010 Period-end loans ....................................... 8,256,409 Net loan losses ........................................ 87,040 Annualized net loan losses to average loans ............ 4.48% Delinquencies (30 days or more) to period-end loans .... 3.72
1999 --------------------------------------------------------- FOURTH THIRD SECOND FIRST QUARTER QUARTER QUARTER QUARTER ----------- ------------ ------------ ------------ Average credit card loans .............................. $6,397,350 $ 6,343,811 $ 6,327,848 $ 6,430,397 Period-end loans ....................................... 6,632,439 6,371,927 6,340,473 6,350,625 Net loan losses ........................................ 57,720 59,261 70,563 69,632 Annualized net loan losses to average loans ............ 3.61% 3.74% 4.46% 4.33% Delinquencies (30 days or more) to period-end loans .... 3.22 3.35 2.79 3.02
The average yield on interest-earning assets increased 24 basis points from the first quarter of 1999. The rise in rates increased yields in almost all loan categories. The increase in yields was tempered by the addition of the on-book Partners First credit card portfolio that had a number of loans accruing at low introductory rates. Yields also were subdued by the successful implementation of a prime rate home equity product that has a lower rate than the existing portfolio. Asset mix contributed to the lower net yield on interest-earning assets as credit card loans for the first quarter of 2000 represented 8 percent of total interest-earning assets compared with 10 percent for the first quarter of 1999. Securitization transactions completed during 1999 and strong growth in the commercial and real estate loan portfolios accounted for most of the change in mix. The average rate paid on interest-bearing liabilities increased by 51 basis points from the first quarter of 1999. Core deposit funding increased $684 million due to growth within Wachovia's current geographic region and the acquisition of the Bank of Canton that added approximately $169 million in core deposits. The growth was somewhat offset by the sale of branches in the third quarter of 1999. The remainder of the growth in interest-earning assets was funded by wholesale sources. For the remainder of the year, management expects the net yield on interest-earning assets to remain near the 4.20 percent rate reported for the first quarter. Net interest income is anticipated to grow approximately 6 percent for the year given management's expectation for loan growth of approximately 10 percent. 17 Net Interest Income and Average Balances Table 8 - --------------------------------------------------------------------------------
Twelve Months 2000 Ended ------------ March 31, First 2000 Quarter ----------- ------------ Net Interest Income -- Taxable Equivalent (thousands) Interest income: Loans -- including fees ......................... $4,145,475 $ 1,098,424 Securities ...................................... 599,982 136,862 Interest-bearing bank balances .................. 6,720 1,523 Federal funds sold and securities purchased under resale agreements .............. 32,386 7,492 Trading account assets .......................... 36,863 10,357 ----------- ----------- Total ........................................ 4,821,426 1,254,658 Interest expense: Interest-bearing demand ......................... 63,555 17,846 Savings and money market savings ................ 495,141 131,131 Savings certificates ............................ 451,871 117,737 Large denomination certificates ................. 184,957 56,144 Interest-bearing deposits in foreign offices..... 137,084 51,922 Short-term borrowed funds ....................... 477,308 123,317 Long-term debt .................................. 490,369 127,764 ----------- ----------- Total ........................................ 2,300,285 625,861 ----------- ----------- Net interest income .............................. $2,521,141 $ 628,797 =========== =========== Annualized net yield on interest-earning assets ......................... 4.28% 4.20% Average Balances (millions) Assets: Loans -- net of unearned income ................. $ 48,287 $ 50,550 Securities ...................................... 9,134 8,395 Interest-bearing bank balances .................. 110 97 Federal funds sold and securities purchased under resale agreements .............. 616 525 Trading account assets .......................... 810 623 ----------- ----------- Total interest-earning assets ................ 58,957 60,190 Cash and due from banks ......................... 3,095 2,981 Premises and equipment .......................... 958 945 Other assets .................................... 3,837 4,355 Unrealized gains (losses) on securities available-for-sale ............................. (48) (149) Allowance for loan losses ....................... (549) (567) ----------- ----------- Total assets ................................. $ 66,250 $ 67,755 =========== =========== Liabilities and shareholders' equity: Interest-bearing demand ......................... $ 4,679 $ 4,755 Savings and money market savings ................ 13,456 13,363 Savings certificates ............................ 8,795 8,966 Large denomination certificates ................. 3,480 4,025 Interest-bearing deposits in foreign offices..... 2,667 3,764 Short-term borrowed funds ....................... 9,309 8,920 Long-term debt .................................. 8,245 8,081 ----------- ----------- Total interest-bearing liabilities ........... 50,631 51,874 Demand deposits ................................. 8,318 8,319 Other liabilities ............................... 1,778 1,874 Shareholders' equity ............................ 5,523 5,688 ----------- ----------- Total liabilities and shareholders' equity ...................................... $ 66,250 $ 67,755 =========== =========== Total deposits ................................... $ 41,395 $ 43,192
1999 ------------------------------------------------------------ Fourth Third Second First Quarter Quarter Quarter Quarter ------------- ----------- ------------ ------------ Net Interest Income -- Taxable Equivalent (thousands) Interest income: Loans -- including fees ......................... $ 1,062,662 $ 1,004,538 $ 979,851 $ 975,011 Securities ...................................... 150,305 154,296 158,519 151,879 Interest-bearing bank balances .................. 2,175 1,631 1,391 2,193 Federal funds sold and securities purchased under resale agreements .............. 9,403 7,062 8,429 5,802 Trading account assets .......................... 11,064 7,335 8,107 5,653 ------------- ----------- ------------ ------------ Total ........................................ 1,235,609 1,174,862 1,156,297 1,140,538 Interest expense: Interest-bearing demand ......................... 16,439 15,279 13,991 12,725 Savings and money market savings ................ 126,428 121,106 116,476 113,547 Savings certificates ............................ 112,639 110,569 110,926 113,449 Large denomination certificates ................. 45,867 39,954 42,992 43,726 Interest-bearing deposits in foreign offices..... 36,393 24,730 24,039 23,920 Short-term borrowed funds ....................... 129,354 112,336 112,301 103,170 Long-term debt .................................. 129,463 124,265 108,877 111,773 ------------- ----------- ------------ ------------ Total ........................................ 596,583 548,239 529,602 522,310 ------------- ----------- ------------ ------------ Net interest income .............................. $ 639,026 $ 626,623 $ 626,695 $ 618,228 ============= =========== ============ ============ Annualized net yield on interest-earning assets ......................... 4.26% 4.29% 4.31% 4.41% Average Balances (millions) Assets: Loans -- net of unearned income ................. $ 48,593 $ 47,003 $ 47,012 $ 46,261 Securities ...................................... 9,016 9,461 9,664 9,221 Interest-bearing bank balances .................. 136 124 83 130 Federal funds sold and securities purchased under resale agreements .............. 681 550 707 483 Trading account assets .......................... 1,027 790 798 700 ------------- ----------- ------------ ------------ Total interest-earning assets ................ 59,453 57,928 58,264 56,795 Cash and due from banks ......................... 3,532 2,888 2,975 3,071 Premises and equipment .......................... 955 962 970 911 Other assets .................................... 3,653 3,632 3,713 4,047 Unrealized gains (losses) on securities available-for-sale ............................. (65) (47) 68 119 Allowance for loan losses ....................... (546) (548) (536) (535) ------------- ----------- ------------ ------------ Total assets ................................. $ 66,982 $ 64,815 $ 65,454 $ 64,408 ============= =========== ============ ============ Liabilities and shareholders' equity: Interest-bearing demand ......................... $ 4,653 $ 4,617 $ 4,691 $ 4,665 Savings and money market savings ................ 13,470 13,566 13,424 12,889 Savings certificates ............................ 8,774 8,696 8,746 8,846 Large denomination certificates ................. 3,428 3,076 3,394 3,377 Interest-bearing deposits in foreign offices..... 2,782 2,041 2,088 2,069 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 Demand deposits ................................. 8,326 8,368 8,261 8,062 Other liabilities ............................... 1,831 1,641 1,764 2,267 Shareholders' equity ............................ 5,555 5,391 5,459 5,314 ------------- ----------- ------------ ------------ Total liabilities and shareholders' equity ...................................... $ 66,982 $ 64,815 $ 65,454 $ 64,408 ============= =========== ============ ============ Total deposits ................................... $ 41,433 $ 40,364 $ 40,604 $ 39,908
18 Related Wachovia continued to experience strong loan growth during 1999 Balance Sheet and through the first quarter of 2000. In comparison with the Analysis first quarter of 1999, average loan volumes increased $4.289 billion. Adjusting for the effects of the securitization transactions and acquisitions, average loan balances grew at approximately 10 percent, primarily in the commercial and commercial real estate categories. In comparison to the fourth quarter of 1999, average loan volume grew $1.957 billion, of which acquisitions accounted for approximately $460 million. Excluding the acquisitions, annualized loan growth approximated 12 percent. Economic conditions in Wachovia's five state primary lending area, as well as nationally, have been good and resulted in strong demand for construction financing and commercial mortgages despite recent Federal Reserve rate increases. For the remainder of the year, management expects loan volume to grow at a rate of approximately 10 percent annualized. Period-End Loans by Category Table 9 - -------------------------------------------------------------------------------- (thousands)
March 31 Dec. 31 Sept. 30 June 30 March 31 2000 1999 1999 1999 1999 ----------- ----------- ----------- ----------- ----------- Commercial ..................... $17,160,717 $17,042,740 $16,166,045 $16,852,028 $15,639,116 Tax-exempt ..................... 673,634 690,053 757,601 796,523 871,271 ----------- ----------- ----------- ----------- ----------- Total commercial ........... 17,834,351 17,732,793 16,923,646 17,648,551 16,510,387 Direct retail .................. 1,160,287 1,063,619 1,053,909 1,082,526 1,066,011 Indirect retail ................ 3,856,229 3,740,683 3,616,862 3,458,466 3,324,238 Credit card .................... 4,860,455 4,736,485 4,475,973 4,944,519 4,954,671 Other revolving credit ......... 715,317 667,149 620,342 588,880 552,908 ----------- ----------- ----------- ----------- ----------- Total retail ............... 10,592,288 10,207,936 9,767,086 10,074,391 9,897,828 Construction ................... 2,577,621 2,311,362 2,235,387 2,233,128 2,087,886 Commercial mortgages ........... 8,164,304 7,754,206 7,550,770 7,289,241 7,076,217 Residential mortgages .......... 7,994,283 7,756,983 7,498,541 7,385,728 7,301,984 ----------- ----------- ----------- ----------- ----------- Total real estate .......... 18,736,208 17,822,551 17,284,698 16,908,097 16,466,087 Lease financing ................ 2,696,605 2,597,271 2,453,749 2,346,467 2,172,158 Foreign ........................ 1,265,864 1,260,674 1,195,842 1,450,580 1,346,672 ----------- ----------- ----------- ----------- ----------- Total loans ................ $51,125,316 $49,621,225 $47,625,021 $48,428,086 $46,393,132 =========== =========== =========== =========== ===========
Average balances of securities for the first quarter of 2000 declined in comparison to both the first and fourth quarters of 1999. During 1999, Wachovia allowed portfolio attrition to fund a portion of the loan growth. During the first quarter of 2000, maturing securities were replaced to maintain the portfolio near the level it was at the end of 1999. Securities Table 10 - -------------------------------------------------------------------------------- March 31, 2000 (thousands) Securities available-for-sale at fair value: U.S. Government and agency ................ $2,799,546 Mortgage-backed ........................... 3,635,817 Other ..................................... 674,495 ---------- Total available-for-sale ............... 7,109,858 Securities held-to-maturity: U.S. Government and agency ................ 448,688 Mortgage-backed ........................... 413,631 State and municipal ....................... 210,816 Other ..................................... 41,049 ---------- Total held-to-maturity ................. 1,114,184 ---------- Total securities ....................... $8,224,042 ==========
The increase in other assets from the first and fourth quarters of 1999 is primarily the result of increased intangible assets resulting from acquisitions. Average core deposits grew approximately $684 million and $186 million from the first and fourth quarters of 1999, respectively. The acquisition of the Bank of Canton accounted for $169 million of 19 the increase from both 1999 periods. Most of the remaining increase from a year ago occurred in Wachovia's Premiere money market deposit products. Wachovia utilizes a wide variety of wholesale funding sources including large denomination certificates of deposit, foreign deposits, repurchase agreements, federal funds, Federal Home Loan Bank advances, Bank Notes and senior and subordinated debt to fund the balance sheet. The mix of wholesale funding is determined based on balance sheet management needs and available pricing. Several large debt transactions affect comparability of both period-end and average balances between reported periods. During 1999, Wachovia issued $1 billion in senior and subordinated debt. On March 31, 2000, Wachovia issued $300 million in subordinated debt that replaced $300 million in subordinated debt that matured on December 15, 1999. Liquidity Wachovia manages liquidity at both the parent and subsidiary Management levels through active management of the balance sheet. 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 March 31, 2000, Wachovia Corporation had $971 million in interest-bearing balances with Wachovia Bank, N.A. ("Wachovia Bank"), and $1.6 billion available for issuance as senior or subordinate debt securities under existing shelf registrations filed with the Securities and Exchange Commission. At April 1, 2000, $695 million was available from Wachovia Bank to pay dividends to Wachovia Corporation without prior regulatory approval. As a back-up liquidity facility for commercial paper, Wachovia has $490 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 its 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 March 31, 2000. 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. 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 March 31, 2000, Wachovia Bank had approximately $6.8 billion of the notes with maturities of more than 270 days available under the existing authorization. Short-term bank notes outstanding as of March 31, 2000 were $210 million, with an average cost of 5.97 percent and an average maturity of less than 1 month. Medium-term bank notes were $1.974 billion on the same date, with an average cost of 6.15 percent and an average maturity of 5.2 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. 20 Allowance for Loan Losses Table 11 - -------------------------------------------------------------------------------- (thousands)
2000 1999 ---------- -------------------------------------------------- First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter ---------- ---------- ---------- --------- ---------- Summary of Transactions Balance at beginning of period ............... $ 554,810 $ 553,894 $ 548,540 $548,302 $ 547,992 Additions from acquisitions .................. 40,504 ---- ---- 39 ---- Provision for loan losses .................... 73,666 66,174 76,770 74,525 80,636 Deduct net loan losses: Loans charged off: Commercial ................................. 11,280 17,805 15,509 7,592 5,862 Credit card ................................ 62,883 49,478 54,925 69,619 74,094 Other revolving credit ..................... 2,379 1,332 2,305 3,126 2,889 Other retail ............................... 9,875 8,905 8,561 7,888 8,910 Real estate ................................ 1,220 2,632 4,005 1,397 1,488 Lease financing ............................ 568 908 855 585 592 Foreign .................................... ---- ---- ---- ---- ---- --------- ----------- --------- -------- --------- Total .................................... 88,205 81,060 86,160 90,207 93,835 Recoveries: Commercial ................................. 621 2,400 1,018 1,667 1,956 Credit card ................................ 10,129 8,152 8,967 8,618 7,045 Other revolving credit ..................... 647 610 774 828 707 Other retail ............................... 2,566 2,886 2,674 2,718 2,813 Real estate ................................ 786 1,627 1,124 1,836 849 Lease financing ............................ 131 127 187 214 139 Foreign .................................... ---- ---- ---- ---- ---- --------- ----------- --------- -------- --------- Total .................................... 14,880 15,802 14,744 15,881 13,509 --------- ----------- --------- -------- --------- Net loan losses ............................. 73,325 65,258 71,416 74,326 80,326 --------- ----------- --------- -------- --------- Balance at end of period ..................... $ 595,655 $ 554,810 $ 553,894 $548,540 $ 548,302 ========= =========== ========= ======== ========= Net Loan Losses (Recoveries) by Category Commercial ................................... $ 10,659 $ 15,405 $ 14,491 $ 5,925 $ 3,906 Credit card .................................. 52,754 41,326 45,958 61,001 67,049 Other revolving credit ....................... 1,732 722 1,531 2,298 2,182 Other retail ................................. 7,309 6,019 5,887 5,170 6,097 Real estate .................................. 434 1,005 2,881 (439) 639 Lease financing .............................. 437 781 668 371 453 Foreign ...................................... ---- ---- ---- ---- ---- --------- ----------- --------- -------- --------- Total .................................... $ 73,325 $ 65,258 $ 71,416 $ 74,326 $ 80,326 ========= =========== ========= ======== ========= Net loan losses -- excluding credit cards .... $ 20,571 $ 23,932 $ 25,458 $ 13,325 $ 13,277 Annualized Net Loan Losses (Recoveries) to Average Loans by Category Commercial ................................... .24% .35% .36% .14% .10% Credit card .................................. 4.32 3.67 3.76 4.95 4.58 Other revolving credit ....................... 1.00 .45 1.02 1.61 1.60 Other retail ................................. .60 .51 .51 .47 .56 Real estate .................................. .01 .02 .07 (.01) .02 Lease financing .............................. .07 .13 .11 .07 .09 Foreign ...................................... ---- ---- ---- ---- ---- Total loans .................................. .58 .54 .61 .63 .69 Total loans -- excluding credit cards ........ .18 .22 .24 .13 .13 Period-end allowance to outstanding loans .... 1.17 1.12 1.16 1.13 1.18
Allowance for Wachovia's allowance for loan losses is maintained at a level Loan Losses believed by management to be adequate to absorb probable losses inherent in the loan portfolio as of the date of the financial statements. At March 31, 2000, the allowance for loan losses was $596 million or 1.17 percent of outstanding loans compared with $555 million or 1.12 percent and $548 million or 1.18 percent at December 31, 1999 and March 31, 1999, respectively. The allowance for loan losses varied over the periods presented as a result of changes in the portfolio's risk profile reflecting changes in portfolio mix. The change in the ratio of allowance for loan losses to loans for the periods presented was directly related to changes in the credit card portfolio resulting from a securitization transaction in September 1999 and the acquisition of the Partners First credit card portfolio in February 2000. 21 The provision for loan losses charged to earnings was an amount sufficient to maintain the allowance for loan losses at the appropriate level as described previously. For the first quarter of 2000, the provision for loan losses was $74 million compared with $81 million for the same period of 1999. Many factors influence the amount of provision expense recorded during a given period, including changes in asset mix, asset quality and growth in the overall portfolio. Since credit card loans carry significantly higher historical loss rates than the rest of the portfolio, changes in their proportion to the overall loan portfolio has the greatest impact on the loan loss provision during times of stable credit quality. For the first quarter of 2000, average credit card loans accounted for approximately 10 percent of the total loan portfolio and 72 percent of total net charge-offs for the quarter compared with 13 percent and 83 percent, respectively, for the first quarter of 1999. Credit card loss rates show improvement over the first quarter of 1999 due to lower levels of borrower bankruptcies and contractual charge-offs, which occur when balances become more than 180 days past due. For the rest of the loan portfolio, loss rates remain favorable and consistent with recent historical trends. Excluding credit cards, the annualized net charge-off rate for the first quarter of 2000 was .18 percent compared with .13 percent a year ago. Given an outlook for stable credit quality and loan growth of approximately 10 percent for the year, management expects the provision for loan losses for the year to be in the $325 million and $340 million range. Asset quality remained high and within an acceptable level at March 31, 2000, although nonper-forming assets increased from both March 31, 1999 and December 31, 1999. The net increase of $22 million in nonperforming assets from December 31, 1999 primarily was attributable to one commercial credit of $45 million that was downgraded during the quarter. At March 31, 2000, Wachovia's nonperforming assets represent .48 percent of total loans and foreclosed property compared with .45 percent and .37 percent at December 31, 1999 and March 31, 1999, respectively. At March 31, 2000 there were no significant concentrations of loans in any one industry. Nonperforming Assets and Contractually Past Due Loans Table 12 - -------------------------------------------------------------------------------- (thousands)
Mar. 31 Dec. 31 Sept. 30 Jun. 30 Mar. 31 2000 1999 1999 1999 1999 ---------- -------- --------- -------- ---------- Nonperforming assets: Cash-basis assets ....................................... $226,176 $204,098 $214,594 $209,550 $144,763 Restructured loans ...................................... ---- ---- ---- ---- ---- ---------- -------- --------- -------- ---------- Total nonperforming loans ............................ 226,176 204,098 214,594 209,550 144,763 Foreclosed property: Foreclosed real estate ................................. 17,665 19,759 24,540 28,354 30,285 Less valuation allowance ............................... 4,077 5,941 7,456 8,162 9,590 Other foreclosed assets ................................ 6,343 5,874 6,602 5,045 4,998 ---------- -------- --------- -------- ---------- Total foreclosed property ............................ 19,931 19,692 23,686 25,237 25,693 ---------- -------- --------- -------- ---------- Total nonperforming assets ........................... $246,107 $223,790 $238,280 $234,787 $170,456 ========== ======== ========= ======== ========== Nonperforming loans to period-end loans ................. .44% .41% .45% .43% .31% Nonperforming assets to period-end loans and foreclosed property .................................... .48 .45 .50 .48 .37 Period-end allowance for loan losses times nonperforming loans .................................... 2.63x 2.72x 2.58x 2.62x 3.79x Period-end allowance for loan losses times nonperforming assets ................................... 2.42 2.48 2.32 2.34 3.22 Contractually past due loans -- accruing loans past due 90 days or more ......................................... $126,318 $97,642 $106,755 $99,486 $137,116 ========== ======== ========= ======== ==========
22 Noninterest Income Table 13 - -------------------------------------------------------------------------------- (thousands)
2000 1999 ---------- --------------------------------------------- First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter ---------- --------- --------- --------- --------- Service charges on deposit accounts ................... $100,811 $ 96,642 $ 94,595 $ 91,454 $ 86,955 Fees for trust services ............................... 51,234 52,283 60,066 54,907 49,136 Credit card income -- net of interchange payments ..... 71,182 65,046 70,786 58,110 61,301 Investment fees ....................................... 96,770 78,747 69,364 69,877 17,362 Capital markets income ................................ 44,786 48,965 41,914 41,780 38,112 Electronic banking .................................... 23,396 24,303 23,310 22,558 18,455 Mortgage fees ......................................... 5,001 5,006 7,378 9,863 10,966 Bankers' acceptance and letter of credit fees ......... 11,597 12,444 11,688 11,563 10,342 Other service charges and fees ........................ 29,181 26,720 19,494 18,153 15,526 Other income .......................................... 36,841 29,313 34,246 26,279 25,114 --------- --------- -------- -------- -------- Total other operating revenue ....................... 470,799 439,469 432,841 404,544 333,269 Securities gains ...................................... 167 60 147 10,453 234 --------- --------- -------- -------- -------- Total ............................................... $470,966 $439,529 $432,988 $414,997 $333,503 ========= ========= ======== ======== ========
Noninterest Operating revenue, which excludes securities transactions, grew Income $138 million or 41.3 percent year over year to $471 million. All major categories advanced except for mortgage fees. Increases were led by investment fees, service charges on deposit accounts, credit card income and other service charges. The higher level of income reflected continued business expansion, as well as the impact of purchase transactions completed in both years. First quarter 1999 operating revenue included a $17 million gain from the sale of credit card receivables in a securitization transaction. Excluding additions from the purchase and securitization transactions, other operating revenue rose approximately 13 percent for the quarter and is expected to grow in the range of 12 to 14 percent for the year. Investment fee income grew quarter to quarter by $79 million to a level of $97 million, principally due to the acquisitions of Interstate/Johnson Lane and OFFITBANK. Increases occurred in annuity premiums, up $8 million, mutual fund commissions, up $14 million, portfolio management fees, up $20 million, and equity and option commissions, up $36 million. Exclusive of the acquisitions, investment fees grew at a rate estimated to be in excess of 20 percent, primarily due to high transaction volume during the first quarter of 2000. Service charges on deposit accounts increased $14 million or 15.9 percent, with growth concentrated in commercial analysis fees of $8 million and overdraft charges of $4 million. Credit card income was higher by $10 million or 16.1 percent, which included the $17 million gain on sale of loans in 1999. Exclusive of the effects of the 1999 securitization transactions and the Partners First portfolio acquisition, credit card income increased approximately 17 percent from the first quarter of 1999, primarily due to increased pricing for overlimit charges and other fees. Acquisition of the $2 billion managed receivables portfolio from Partners First Holdings LLC on February 1, 2000 added $11 million in credit card income to the quarter. Other service charges and fees rose $14 million or 87.9 percent for the quarter. Most of the increase in this category was due to servicing fees on securitized credit card portfolios, which rose $12 million. Servicing fees related to the Partners First portfolio amounted to $5 million for the quarter. Electronic banking fees rose $5 million or 26.8 percent quarter to quarter. The bulk of the increase was in debit card interchange income, up $4 million or 52.4 percent, the result of increased consumer acceptance of the service and higher levels of consumer spending. Capital markets income increased $7 million or 17.5 percent for the quarter. Higher income on sales commissions, much of it generated through the acquisition of Interstate/Johnson Lane, primarily was responsible for the increase. 23 Mortgage fees declined $6 million or 54.4 percent for the quarter, reflecting reduced sales of servicing rights on fixed-rate mortgages due to lower origination volumes. Interest rates continued to rise throughout the period, resulting in a shift in consumer demand toward adjustable-rate mortgages, which are generally held in the loan portfolio. Rising interest rates also slowed refinancing activity, resulting in lower origination fees. Noninterest Expense Table 14 - -------------------------------------------------------------------------------- (thousands)
2000 1999 -------- ------------------------------------------------- First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter -------- ---------- -------- --------- -------- Salaries .............................................. $287,629 $276,048 $266,488 $ 259,733 $218,115 Employee benefits ..................................... 56,252 48,240 50,572 48,019 53,071 -------- ---------- -------- --------- -------- Total personnel expense ............................. 343,881 324,288 317,060 307,752 271,186 Net occupancy expense ................................. 39,526 38,486 38,955 38,908 34,933 Equipment expense ..................................... 49,195 52,425 49,081 49,714 46,842 Postage and delivery .................................. 13,817 13,912 13,700 13,670 14,128 Outside data processing, programming and software ..... 26,874 27,370 26,385 25,561 23,457 Stationery and supplies ............................... 9,072 9,270 9,262 8,598 8,809 Advertising and sales promotion ....................... 16,649 21,090 16,086 17,173 12,119 Professional services ................................. 13,532 23,008 18,619 19,351 14,024 Travel and business promotion ......................... 9,572 10,106 9,138 8,749 5,951 Telecommunications .................................... 14,726 14,801 13,915 15,978 13,394 Amortization of intangible assets ..................... 20,797 14,540 13,156 12,230 10,953 Foreclosed property expense -- net of income .......... (2,722) (602) (470) 301 (82) Merger-related charges* ............................... 8,158 5,669 5,293 8,347 ---- Litigation settlement charge .......................... 20,000 ---- ---- ---- ---- Other expense ......................................... 54,901 46,255 47,012 54,285 36,484 -------- ---------- -------- --------- -------- Total ............................................... $637,978 $600,618 $577,192 $ 580,617 $492,198 ======== ========== ======== ========= ======== Overhead ratio ........................................ 58.0% 55.7% 54.5% 56.3% 51.7% Overhead ratio without nonrecurring charges ........... 55.5 55.2 54.0 55.5 51.7
* Nonrecurring charges. Noninterest Total noninterest expense rose $146 million or 29.6 percent for Expense the quarter. Comparisons between 2000 and 1999 are impacted by acquisitions, merger-related expenses and a one-time litigation charge. Excluding the effects of these items, noninterest expense rose approximately 4 percent for the quarter and is expected to increase at a rate of approximately 6 percent for the year. Expenses incurred during the quarter for the conclusion of the Year 2000 project were minimal. Total personnel expense increased $73 million or 26.8 percent. Salaries expense rose $70 million or 31.9 percent, primarily due to expanded incentive pay for revenue-generating businesses and to a higher employee base from acquisitions. Exclusive of acquisitions, total personnel expense increased approximately 5 percent quarter over quarter. Employee benefits expense increased $3 million or 6 percent, primarily concentrated in retirement plan expenses and payroll taxes. Net occupancy expense rose $5 million or 13.1 percent, largely reflecting increased operating premise lease costs up resulting from the expansion of physical facilities. Equipment expense increased $2 million or 5.0 percent, led by depreciation of computers and peripheral equipment, up $3 million, and external equipment maintenance, both reflecting continued growth in technology investments. Remaining combined categories of noninterest expense rose $38 million or 27.3 percent. The most significant quarter-to-quarter increase occurred in amortization of intangible assets resulting from acquisitions completed since March 31, 1999. Other increases were largely in the areas of credit card solicitation expense, software maintenance, amortization of externally purchased software, franchise taxes, external bankcard processing associated with the Partners First acquisition and gains on the sale of foreclosed properties. Excluding the addition of acquisitions, nonpersonnel costs increased by approximately 4 percent quarter to quarter. 24 Income Taxes Table 15 - -------------------------------------------------------------------------------- (thousands)
Three Months Ended March 31 ---------------------- 2000 1999 --------- ---------- Income before income taxes .................................... $ 378,818 $ 368,745 ========== ========== Federal income taxes at statutory rate ........................ $ 132,587 $ 129,061 State and local income taxes -- net of federal benefit ........ 8,695 8,052 Effect of tax-exempt securities interest and other income ..... (11,269) (11,194) Other items ................................................... 4,098 (410) ---------- ---------- Total tax expense ......................................... $ 134,111 $ 125,509 ========== ========== Current: Federal ...................................................... $ 55,215 $ 21,523 Foreign ...................................................... 336 302 State and local .............................................. 10,349 6,614 ---------- ---------- Total ..................................................... 65,900 28,439 Deferred: Federal ...................................................... 65,184 91,297 State and local .............................................. 3,027 5,773 ---------- ---------- Total ..................................................... 68,211 97,070 ---------- ---------- Total tax expense ......................................... $ 134,111 $ 125,509 ========== ==========
Income Taxes Applicable income taxes for the first quarter of 2000 increased $9 million or 6.9 percent from the prior year. Wachovia's effective tax rate has risen as a result of a decrease in the proportion of tax-exempt income to total income, as well as an increase in nondeductible amortization associated with purchase business combinations. New Accounting In June 1998, the Financial Accounting Standards Board issued Standards 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 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. Shareholders' Equity and Capital Ratios Shareholders' equity at March 31, 2000 was $5.846 billion, up $414 million or 7.6 percent from $5.432 billion one year earlier. Included in shareholders' equity at the end of the first quarter of 2000 was $88 million, net of tax, of unrealized losses on securities available-for-sale compared with unrealized gains of $61 million, net of tax, one year earlier. Wachovia repurchased a total of 1,500,000 shares of its common stock as authorized by the Board of Directors during the first quarter of 2000 at an average price of $59 per share for a total cost of $89 million. Included in the total were 573,594 shares repurchased to offset shares issued for the acquisition of B C Bankshares, Inc. and 500,000 shares repurchased to offset shares issued for the acquisition of Commerce National Corporation. Wachovia can repurchase up to 8 million shares of its common stock under a January 28, 2000 authorization effective through January 25, 2002. As of March 31, 2000, a total of 426,406 shares had been repurchased under the January 28, 2000 25 authorization. Management will continue to work within the guidelines of its share repurchase authorization while assessing the best deployment of Wachovia's capital. At its April 28, 2000 meeting, the Board of Directors declared a second quarter dividend of $.54 per share, payable June 1 to shareholders of record as of May 11. The dividend is higher by 10.2 percent from $.49 per share paid in the same quarter of 1999. Intangible assets at March 31, 2000 totaled $1.251 billion, consisting of $913 million of goodwill, $76 million of deposit base intangibles, $259 million of purchased credit card premiums and $3 million of other intangibles. The combined acquisitions of B C Bankshares, Inc. and the Partners First Holdings LLC portfolio added approximately $97 million of goodwill and $230 million of purchased credit card premiums, respectively, based on preliminary information. Intangible assets at the end of the first quarter of 1999 were $677 million, with $537 million of goodwill, $90 million of deposit base intangibles, $39 million of purchased credit card premiums, $10 million of other intangibles. Regulatory agencies divide capital into Tier I (consisting of shareholders' equity and certain cumulative preferred stock instruments less ineligible intangible assets) and Tier II (consisting of the allowable portion of the reserve for loan losses and certain long-term debt) and measure capital adequacy by applying both capital levels to a banking company's risk-adjusted assets and off-balance sheet items. Regulatory requirements presently specify that Tier I capital should exclude the unrealized gain or loss, net of tax, on securities available-for-sale. 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. Capital Components and Ratios Table 16 - -------------------------------------------------------------------------------- (thousands)
2000 1999 ------------ ---------------------------------------------------------------- First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter ------------ -------------- ------------ ------------ ----------- Tier I capital: Common shareholders' equity ............... $ 5,846,430 $ 5,658,457 $ 5,628,083 $ 5,426,717 $ 5,431,939 Trust capital securities .................. 996,838 996,744 996,650 996,556 996,462 Less ineligible intangible assets ......... 1,040,021 931,257 944,304 772,696 657,717 Unrealized losses (gains) on securities available-for-sale -- net of tax ......... 87,939 72,002 27,600 9,618 (60,642) ------------ -------------- ------------ ------------ ----------- Total Tier I capital ................... 5,891,186 5,795,946 5,708,029 5,660,195 5,710,042 Tier II capital: Allowable allowance for loan losses ....... 595,655 554,810 553,894 548,540 548,302 Allowable long-term debt .................. 2,407,529 2,107,334 2,137,158 2,136,952 2,191,701 ------------ -------------- ------------ ------------ ----------- Tier II capital additions .............. 3,003,184 2,662,144 2,691,052 2,685,492 2,740,003 ------------ -------------- ------------ ------------ ----------- Total capital .......................... $ 8,894,370 $ 8,458,090 $ 8,399,081 $ 8,345,687 $ 8,450,045 ============ ============== ============ ============ =========== Risk-adjusted assets ....................... $ 79,228,699 $ 77,060,603 $ 73,870,211 $ 74,897,805 $73,871,880 Quarterly average assets * ................. $ 66,863,406 $ 66,113,697 $ 63,916,969 $ 64,611,973 $63,631,476 Risk-based capital ratios: Tier I capital ............................ 7.44% 7.52% 7.73% 7.56% 7.73% Total capital ............................. 11.23 10.98 11.37 11.14 11.44 Tier I leverage ratio ...................... 8.81 8.77 8.93 8.76 8.97
* Excludes ineligible intangible assets and average unrealized gains (losses) on securities available-for-sale, net of tax. 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 that 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. 26 Item 3. Quantitative and Qualitative Disclosures About Market Risk Market Risk Market risk is the risk of loss due to adverse changes in and Asset/ instrument values or earnings fluctuation resulting from changes Liability in market factors including changes in interest rates, foreign Management exchange rates, commodity prices and other market variables such as equity price risk. Wachovia primarily is exposed to interest rate risk with immaterial risk exposure to changes in foreign exchange rates and equity prices in the nontrading portfolios. Trading Trading market risk is the risk to net income from changes in Market Risk the fair value of assets and liabilities and off-balance sheet instruments that are marked-to-market through the income statement. 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. Wachovia uses a value-at-risk (VaR) methodology to gauge potential losses in various trading portfolios due to changes in interest rates. 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. At March 31, 2000, the combined VaR exposure was $393 thousand representing .06 percent of the combined trading portfolio value of $690 million. The combined average VaR exposure for the first quarter of 2000 was $394 thousand representing .07 percent of the combined average trading portfolio value of $539 million. These VaR numbers are for the combined U. S. Treasury and government agency, municipal bond, residential mortgage-backed securities and money market instrument trading portfolios. Nontrading Nontrading market risk is the risk to net income from changes Market Risk in interest rates on asset, liability and off-balance sheet portfolios other than trading. 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. 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 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 impact of a 200 basis point gradual rise in rates over the next 12 months would cause approximately a 1.34 percent increase in net income at March 31, 2000 versus a .90 percent decrease one year earlier. A gradual decrease in rates over the next 12 months would cause approximately a 1.37 percent decrease in net income as of March 31, 2000 compared with a .54 percent increase at March 31, 1999. 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 27 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. PART II -- OTHER INFORMATION Item 1. Legal Proceedings Wachovia Bank, N.A., a wholly owned subsidiary of Wachovia Corporation, has reached an agreement with the U. S. Department of Labor to settle litigation stemming from a lawsuit begun against South Carolina National Bank in May 1991. Wachovia inherited the lawsuit as a result of the acquisition of South Carolina National Bank in December 1991. The litigation stemmed from the purchase of Charter Medical Corporation's then privately held stock by its Employee Stock Ownership Plan to fund retirement benefits. South Carolina National Bank served as the trustee to the ESOP. The amount of the settlement was $30 million of which $20 million was charged to first quarter 2000 earnings, net of expected insurance proceeds and a previously established reserve. Item 2. Changes in Securities and Use of Proceeds None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits -- The exhibits listed on the accompanying Exhibit Index, immediately following the signature page are filed as part of or incorporated by reference into this report. (b) Reports on Form 8-K -- None. 28 SIGNATURES Pursuant to the requirements 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 ROBERT S. MCCOY, JR. May 11, 2000 ----------------------------------------- By: Robert S. McCoy, Jr. Vice Chairman Chief Financial Officer DONALD K. TRUSLOW May 11, 2000 ----------------------------------------- By: Donald K. Truslow Senior Executive Vice President, Treasurer/Comptroller 29 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 Form 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). 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 Wachovia Corporation Amended and Restated Executive Deferred Compensation Plan.
30 EXHIBIT INDEX (continued)
Exhibit Number Description - ----------- ---------------------------------------------------------------------------------------------------------------- 10.3 Employment Agreement between Wachovia Corporation and L. M. Baker, Jr. dated as of November 29, 1999 (incorporated by reference to Exhibit 10.3 of Report on Form 10-K of Wachovia Corporation for the year ended December 31, 1999, File No. 1-9021). 10.4 Employment Agreement between Wachovia Corporation and Robert S. McCoy, Jr. dated as of October 22, 1999 (incorporated by reference to Exhibit 10.4 of Report on Form 10-K of Wachovia Corporation for the year ended December 31, 1999, File No. 1-9021). 10.5 Employment Agreement between Wachovia Corporation and G. Joseph Prendergast dated as of October 22, 1999 (incorporated by reference to Exhibit 10.5 of Report on Form 10-K of Wachovia Corporation for the year ended December 31, 1999, File No. 1-9021). 10.6 Employment Agreement between Wachovia Corporation and Mickey W. Dry dated as of October 22, 1999 (incorporated by reference to Exhibit 10.6 of Report on Form 10-K of Wachovia Corporation for the year ended December 31, 1999, File No. 1-9021). 10.7 Employment Agreement between Wachovia Corporation and Walter E. Leonard, Jr. dated as of October 22, 1999 (incorporated by reference to Exhibit 10.7 of Report on Form 10-K of Wachovia Corporation for the year ended December 31, 1999, File No. 1-9021). 10.8 Form of Employment Agreement between Wachovia Corporation and Executive Officers (other than Messrs. Baker, McCoy, Prendergast, Dry and Leonard) (incorporated by reference to Exhibit 10.8 of Report on Form 10-K of Wachovia Corporation for the year ended December 31, 1999, File No. 1-9021.) 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 (incorporated by reference to Exhibit 10.10 of Report on Form 10-K of Wachovia Corporation for the year ended December 31, 1999, File No. 1-9021). 10.11 Senior Executive Retirement Agreement between Wachovia Corporation and Robert S. McCoy, Jr. dated as of October 22, 1999 (incorporated by reference to Exhibit 10.11 of Report on Form 10-K of Wachovia Corporation for the year ended December 31, 1999, File No. 1-9021). 10.12 Senior Executive Retirement Agreement between Wachovia Corporation and G. Joseph Prendergast dated as of October 22, 1999 (incorporated by reference to Exhibit 10.12 of Report on Form 10-K of Wachovia Corporation for the year ended December 31, 1999, File No. 1-9021). 10.13 Senior Executive Retirement Agreement between Wachovia Corporation and Mickey W. Dry dated as of October 22, 1999 (incorporated by reference to Exhibit 10.13 of Report on Form 10-K of Wachovia Corporation for the year ended December 31, 1999, File No. 1-9021). 10.14 Senior Executive Retirement Agreement between Wachovia Corporation and Walter E. Leonard, Jr. dated as of October 22, 1999 (incorporated by reference to Exhibit 10.14 of Report on Form 10-K of Wachovia Corporation for the year ended December 31, 1999, File No. 1-9021). 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) of 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).
31 EXHIBIT INDEX (concluded)
Exhibit Number Description - ------------ -------------------------------------------------------------------------------------------------------------- 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). 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 for the Board of Directors of Wachovia Corporation (incorporated by reference to Exhibit 10.19 of Report on Form 10-K of First Wachovia Corporation for the year ended December 31, 1990, File No. 1-9021). 10.28 1996 Declaration of Amendment to Deferred Compensation Plan for the Board of Directors of Wachovia Corporation described in Exhibit 10.27 hereto (incorporated by reference to Exhibit 10.26 of Report on Form 10-K of Wachovia Corporation for the year ended December 31, 1996, File No. 1-9021). 10.29 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). 10.30 1983 Amendment to Deferred Compensation Plan described in Exhibit 10.29 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). 10.31 1986 Amendment to Deferred Compensation Plan described in Exhibit 10.29 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). 10.32 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). 10.33 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). 10.34 Amendment to Executive Retirement Agreement described in Exhibit 10.33 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). 10.35 Amendment to Executive Retirement Agreement described in Exhibit 10.33 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). 10.36 Amendment to Executive Retirement Agreement described in Exhibit 10.33 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). 11 "Computation of Earnings Per Common Share" (included on page 9 herein). 12 Statement setting forth computation of ratio of earnings to fixed charges. 27 Financial Data Schedule (for SEC purposes only).
32 EX-10 2 EXHIBIT 10.2 WACHOVIA CORPORATION EXECUTIVE DEFERRED COMPENSATION PLAN AMENDED AND RESTATED JANUARY 1, 2000 TABLE OF CONTENTS EXECUTIVE DEFERRED COMPENSATION PLAN Page Section 1. Purpose:...........................................................1 Section 2. Definitions........................................................2 2.1 "Accrued benefit"....................................................2 2.2 "Active participant".................................................2 2.3 "Adjustment date"....................................................2 2.4 "Beneficiary"........................................................2 2.5 "Board"..............................................................2 2.6 "CFB Plan Account"...................................................2 2.7 "Committee"..........................................................2 2.8 "Compensation".......................................................3 2.9 "Deferred Compensation Account"......................................3 2.10 "Disability".........................................................3 2.11 "EDCP Account".......................................................3 2.12 "Effective date of the plan".........................................3 2.13 "Eligible employee"..................................................3 2.14 "Employee"...........................................................4 2.15 "Employer"...........................................................4 2.16 "IJL Plan Account"...................................................4 2.17 "Incentive compensation".............................................4 2.18 "Incentive Plan".....................................................4 2.19 "Normal retirement age"..............................................4 2.20 "Participant"........................................................4 2.21 "Plan"...............................................................5 2.22 "Plan year"..........................................................5 2.23 "Predecessor plan"...................................................5 2.24 "Retire" or "retirement".............................................5 2.25 "SERP Transfer Account"..............................................5 2.26 "Service"............................................................5 2.27 "Spouse".............................................................5 2.28 "Termination adjustment date"........................................5 2.29 "1934 Act"...........................................................5 Section 3. Credits to Participant Accounts....................................6 3.1 Deferred compensation credits........................................6 3.2 Incentive compensation credits.......................................6 3.3 Benefit equalization credits.........................................7 3.4 Predecessor plan credits.............................................8 Section 4. Retirement; Termination of Service; Death..........................9 4.1 Normal retirement....................................................9 4.2 Delayed retirement...................................................9 4.3 Disability retirement................................................9 4.4 Early retirement....................................................10 4.5 Termination of service..............................................10 4.6 Payment of benefit by reason of retirement or termination...........10 4.7 Payment of benefit by reason of death...............................11 4.8 Hardship............................................................11 4.9 Prepayment..........................................................12 Section 5. Vesting...........................................................13 Section 6. Account; Deemed Investment; Adjustment of Accounts................13 6.1 Deferred Compensation Account.......................................13 6.2 Deemed Investment...................................................13 6.3 Adjustments to Deferred Compensation Accounts.......................13 Section 7. Special Provisions Regarding EDCP Accounts........................14 7.1 Benefit payments at termination of employment.......................14 7.2 Benefit payment when termination of employment occurs between age 60 and 65.............................................15 7.3 Benefit payments upon disability....................................15 7.4 Preretirement death benefits........................................16 7.5 Suicide.............................................................16 7.6 Noncompetition requirement..........................................16 Section 8. Administration by Committee.......................................17 8.1 Membership of Committee.............................................17 8.2 Committee officers; Subcommittee....................................17 8.3 Committee meetings..................................................17 8.4 Transaction of business.............................................17 8.5 Committee records...................................................17 8.6 Establishment of rules..............................................18 8.7 Conflicts of interest...............................................18 8.8 Correction of errors................................................18 8.9 Authority to interpret plan.........................................18 8.10 Third party advisors................................................18 8.11 Compensation of members.............................................19 8.12 Expense reimbursement...............................................19 8.13 Indemnification.....................................................19 Section 9. No Trust..........................................................19 Section 10. Benefits Not Assignable; Facility of Payments....................20 10.1 Benefits not assignable.............................................20 10.2 Payments to minors and others.......................................20 Section 11. Beneficiary......................................................20 Section 12. Amendment and Termination of Plan................................21 Section 13. Communication to Participants....................................21 Section 14. Claims Procedure.................................................21 14.1 Filing of a claim for benefits......................................21 14.2 Notification to claimant of decision................................21 14.3 Procedure for review................................................22 14.4 Decision on review..................................................22 14.5 Action by authorized representative of claimant.....................23 Section 15. Miscellaneous Provisions.........................................23 15.1 Set off.............................................................23 15.2 Notices.............................................................23 15.3 Lost distributees...................................................23 15.4 Reliance on data....................................................24 15.5 Receipt and release for payments....................................24 15.6 Headings............................................................24 15.7 Continuation of employment..........................................24 15.8 Merger or consolidation.............................................24 15.9 Compliance with Securities Laws.....................................25 15.10 Construction.....................................................25 WACHOVIA CORPORATION EXECUTIVE DEFERRED COMPENSATION PLAN SECTION 1. PURPOSE: This Wachovia Corporation Executive Deferred Compensation Plan (the "plan") is intended to be an unfunded plan maintained primarily for the purpose of providing deferred compensation benefits for a select group of management or highly compensated employees of Wachovia Corporation and its affiliates (the "Employer") pursuant to Sections 201(2), 301(a)(3) and 401(a)(1) of the Employee Retirement Income Security Act of 1974 ("ERISA"). The plan is not intended to be a tax-qualified retirement plan under Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"). The plan amends and restates as of February 1, 1998, the Wachovia Corporation Retirement Savings and Profit-Sharing Benefit Equalization Plan (the "RSPSP Equalization Plan"), the South Carolina National Corporation Deferred Compensation Plan (the "SCNC Plan") and the Central Fidelity Banks, Inc. Amended and Restated Supplemental Stock and Thrift Plan (the "CFB Plan"), which were established by the Employer and its affiliates to protect certain highly compensated employees from the loss of benefits under tax-qualified retirement plans as a result of the application of statutory restrictions on benefits which are not applicable to other employees of the Employer. The plan also amends and restates as of February 1, 1998, the Wachovia Corporation Incentive Plan Deferral Arrangement (the "Deferral Arrangement") which was established to permit certain highly compensated employees to defer receipt of a portion of the incentive compensation payable by the Employer. The plan amends and restates as of January 1, 2000, the Interstate/Johnson Lane Corporation Voluntary Deferred Compensation Plan ("IJL Plan"). SECTION 2. DEFINITIONS: As used in the plan, including this Section 2, references to one gender shall include the other and, unless otherwise indicated by the context: 2.1 "ACCRUED BENEFIT" shall mean, with respect to each participant, the balance credited to his Deferred Compensation Account as of the applicable adjustment date, following adjustment to such account as of such adjustment date as provided in Section 6. 2.2 "ACTIVE PARTICIPANT" shall mean, with respect to any day or date, a participant who is in service on such day or date; provided, that a participant who is in service shall cease to be an active participant immediately upon a determination by the Committee that the participant has ceased to be an eligible employee. 2.3 "ADJUSTMENT DATE" shall mean the last day of each month during a plan year, and such other dates as the Committee may select from time to time. The adjustment date occurring on December 31 of each year shall be referred to herein as the "year-end adjustment date." 2.4 "BENEFICIARY" shall mean the person, persons, entity or entities designated or determined pursuant to the provisions of Section 11 of the plan. 2.5 "BOARD" shall mean the Board of Directors of Wachovia Corporation, or such committee of the Board to which the Board shall assign all or part of its duties and powers under the plan. 2.6 "CFB PLAN ACCOUNT" shall mean an account subsidiary to the Deferred Compensation Account of a participant who was a participant in the CFB Plan immediately prior to the effective date of this plan to which shall be credited the balance to the credit of such participant in the CFB Plan as provided in Section 3.4. 2.7 "COMMITTEE" shall mean the Administrative Committee appointed by the Board to administer the benefit plans of the Employer; provided, that where necessary to comply with the requirements of Rule 16b-3 of the 1934 Act, actions to be taken by the Committee shall be acted upon by the Management Resources and Compensation Committee of the Board. - 2 - 2.8 "COMPENSATION" shall mean the base salary payable to the participant by the Employer for services rendered during the plan year and such other amounts of remuneration earned by the participant that is approved by the Committee as compensation to be recognized for purposes of the plan. 2.9 "DEFERRED COMPENSATION ACCOUNT" shall mean the separate account to be kept for each participant to which deferred compensation credits, incentive compensation credits, benefit equalization credits and certain predecessor plan credits shall be credited as described in Section 3. The Deferred Compensation Account of a participant shall include the SERP Transfer Account, CFB Plan Account and IJL Plan Account, if any, but not the EDCP Account. 2.10 "DISABILITY" shall mean the inability of a participant to perform his regular duties with the Employer or any other duties which the Employer is willing to assign to him by reason of any medically determinable physical or mental impairment that can be expected to result in death or to be of long continued or indefinite duration. The determination of the existence or nonexistence of disability shall be made by the Committee in a nondiscriminatory manner pursuant to an examination by a medical doctor selected or approved by the Committee. 2.11 "EDCP ACCOUNT" shall mean the separate account established for a former participant in the SCNC Plan to reflect the benefit amount payable under Article II of the SCNC Plan. 2.12 "EFFECTIVE DATE OF THE PLAN" shall be February 1, 1998. The plan was amended and restated as of January 1, 2000. 2.13 "ELIGIBLE EMPLOYEE" shall mean each employee who is determined by the Committee to be a highly compensated or management employee and who is selected by the Committee to participate in the plan. An employee shall cease to be an eligible employee immediately upon the first to occur of the following: (i) the employee's termination of service; (ii) determination by the Committee that the employee no longer is a highly compensated or - 3 - management employee; or (iii) determination by the Committee in its sole discretion that the employee shall no longer be eligible to participate in the plan. 2.14 "EMPLOYEE" shall mean an individual in the service of the Employer if the relationship between the individual and the Employer is the legal relationship of employer and employee. 2.15 "EMPLOYER" shall mean Wachovia Corporation, a North Carolina corporation with its principal office at Winston-Salem, North Carolina, and any affiliate thereof, or any successor thereto by merger, consolidation or otherwise. 2.16 "IJL PLAN ACCOUNT" shall mean an account subsidiary to the Deferred Compensation Account of a participant who was a participant in the IJL Plan immediately prior to January 1, 2000, to which shall be credited the balance to the credit of such participant in the IJL Plan as provided in Section 3.4. 2.17 "INCENTIVE COMPENSATION" means any compensation payable to a participant pursuant to the terms of an Incentive Plan. 2.18 "INCENTIVE PLAN" means any one or more of the incentive compensation arrangements maintained by the Employer for the benefit of employees, and which permits the deferral of compensation payments pursuant to this plan. By way of illustration and not limitation, such plans include the Wachovia Corporation Senior Management Incentive Plan, the Wachovia Corporation Bond and Money Market Group Variable Compensation Plan, the Trust Investment Management Incentive Plan, the South Carolina National Corporation Executive Incentive Compensation Plan, and any other incentive compensation arrangement as may be approved by the Committee for the deferral of compensation pursuant to this plan. 2.19 "NORMAL RETIREMENT AGE" of a participant shall be age sixty-five. The "normal retirement date" of a participant shall mean the first day of the calendar month coincident with or next following attainment by the participant of his normal retirement age. 2.20 "PARTICIPANT" shall mean with respect to any plan year an eligible employee who has entered the plan and any other employee who has an accrued benefit under - 4 - the plan. An eligible employee who has not otherwise entered the plan shall enter the plan and become a participant as of the date determined by the Committee. A participant who separates from service with the Employer and who later returns to service will not be eligible to defer compensation under the plan except upon satisfaction of such terms and conditions as the Committee shall establish upon the participant's return to service, whether or not the participant shall have an accrued benefit remaining under the plan on the date of his return to service. 2.21 "PLAN" shall mean the unfunded, nonqualified deferred compensation plan as herein set out or as duly amended. 2.22 "PLAN YEAR" shall mean the twelve-month period ending on December 31 of each year. 2.23 "PREDECESSOR PLAN" shall mean the RSPSP Equalization Plan, SCNC Plan, CFB Plan, IJL Plan and Deferral Arrangement described in Section 1. 2.24 "RETIRE" OR "RETIREMENT" shall mean retirement within the meaning of Section 4.1, 4.2, 4.3 or 4.4. 2.25 "SERP TRANSFER ACCOUNT" shall mean an account subsidiary to the Deferred Compensation Account of a participant who was a Predecessor SERP Participant as defined in the RSPSP Equalization Plan immediately prior to the effective date of this plan. The balance to the credit of such participant in the SERP Transfer Account under the RSPSP Equalization Plan shall be credited to the SERP Transfer Account of the participant under this plan as provided in Section 3.4. 2.26 "SERVICE" shall mean employment by the Employer as an employee. 2.27 "SPOUSE" or "surviving spouse" shall mean, except as otherwise provided in the plan, the legally married spouse or surviving spouse of a participant. 2.28 "TERMINATION ADJUSTMENT DATE" shall mean the adjustment date coincident with or next following the date as of which a participant terminates service with the Employer for any reason (including retirement or death). 2.29 "1934 ACT" shall mean the Securities Exchange Act of 1934, as amended. - 5 - SECTION 3. CREDITS TO PARTICIPANT ACCOUNTS: 3.1 DEFERRED COMPENSATION CREDITS: The Committee shall credit to the Deferred Compensation Account of a participant the amount of any compensation for which the participant has elected to defer receipt during the plan year in excess of the amount of the elective deferral allocated to the account of the participant under the Retirement Savings and Profit-Sharing Plan of Wachovia Corporation, as amended from time to time (the "RSPSP"). A participant may elect to defer receipt of a percentage (not to exceed 25%) of the compensation to be earned by him during each calendar quarter of the plan year. Such election shall be filed in writing with the Committee on a form provided by the Committee prior to the first day of the calendar quarter for which such election is to be effective. An election, once filed, shall continue in effect until the first day of the calendar quarter next following receipt by the Committee of a written revocation of such election, or until the participant's earlier termination of employment or termination of participation in the plan. No amount shall be deferred with respect to any eligible employee for any calendar quarter for which there is no election in effect, and no election for any calendar quarter may be revoked after the first day of such calendar quarter. A participant who has revoked an earlier election to defer may file a new election for any calendar quarter (including the first calendar quarter for which such revocation would have been effective) at any time prior to the first day of such calendar quarter. The compensation deferred by a participant shall be credited to the Deferred Compensation Account of the participant as of the adjustment date coincident with or next following the date that such amounts would have been paid to the participant were it not for the deferral. 3.2 INCENTIVE COMPENSATION CREDITS: The Committee shall credit to the Deferred Compensation Account of a participant the amount of any incentive compensation for which the participant has elected to defer receipt during the plan year. Any participant who is eligible to earn incentive compensation under an Incentive Plan of the Employer may elect to defer receipt of a percentage (not to exceed 50%) of the incentive compensation, if any, earned by him for such plan year under an Incentive Plan. Such election shall be filed in writing with - 6 - the Committee on a form provided by the Committee prior to the first day of the plan year for which such election is to be effective. An election, once filed, shall continue in effect until the first day of the plan year next following receipt by the Committee of a written revocation of such election, or until the participant's earlier termination of employment or termination of participation in an Incentive Plan. No amount shall be deferred with respect to any eligible employee for any plan year for which there is no election in effect, and no election for any plan year may be revoked after the beginning of such plan year. The amount of the incentive compensation which can be deferred for any plan year pursuant to the plan shall not be less than $1,000. If the amount to be deferred pursuant to any election for a plan year shall be less than $1,000, such election shall be null and void and of no force and effect. A participant who has revoked an earlier election to defer may file a new election for any plan year (including the first plan year for which such election would have been effective) at any time prior to such plan year. The incentive compensation deferred by a participant shall be credited to the Deferred Compensation Account of the participant as of the adjustment date coincident with or next following the date that such amounts would have been paid to the participant were it not for the deferral. 3.3 BENEFIT EQUALIZATION CREDITS: The Committee shall credit to the Deferred Compensation Account of a participant the amount of any Employer contribution not allocable to the participant under the RSPSP due to the application of any statutory contribution restriction applicable to the RSPSP under Section 401(a) of the Code. Such amount shall be referred to herein as the participant's "restricted amount." By way of illustration and not limitation, the statutory contribution restrictions to be taken into account in determining the restricted amount of the participant shall include the restrictions found in Sections 401(k), 401(m), and 415 of the Code, or any successors thereto or similar statutory restrictions enacted in the future. In the event a contribution is allocated to the RSPSP account of the participant and is subsequently distributed to the participant or forfeited because of a statutory contribution restriction, such distributed or forfeited amount shall be treated for purposes of this plan as a restricted amount as - 7 - of the adjustment date coincident with or next following such distribution or forfeiture. The restricted amount of each participant shall be credited to his Deferred Compensation Account as of the adjustment date coincident or next following the date the restricted amount is determined by the Committee. 3.4 PREDECESSOR PLAN CREDITS: 3.4.1 Deferred Compensation Account: As of the effective date of the plan, the Committee shall credit to the Deferred Compensation Account of each participant who was a participant in the RSPSP Equalization Plan or Deferral Arrangement an amount equal to the balance to the credit of such participant as of January 31, 1998, in the Benefit Equalization Account under the RSPSP Equalization Plan or under a Deferral Arrangement. Following such credit to the Deferred Compensation Account of the participant under this plan, the participant shall have no further rights to such amounts under such predecessor plans. 3.4.2 SERP Transfer Account: As of the effective date of the plan, the Committee shall credit to the SERP Transfer Account of each participant who was a SERP Transfer Participant as defined in the RSPSP Equalization Plan an amount equal to the balance to the credit of such participant as of January 31, 1998, in the SERP Transfer Account under the RSPSP Equalization Plan. Following such credit to the SERP Transfer Account of the participant under this plan, the participant shall have no further rights to such amount under the RSPSP Equalization Plan. 3.4.3 CFB Plan Account: As of the effective date of the plan, the Committee shall credit to the CFB Plan Account of each participant who was a participant in the CFB Plan an amount equal to the balance to the credit of such participant pursuant to the terms of the CFB Plan as of January 31, 1998. Following such credit to the CFB Plan Account of the participant under this plan, the participant shall have no further rights or benefits under the CFB Plan. 3.4.4 EDCP Account: As of the effective date of the plan, the Committee shall credit to the EDCP Account of each participant who was a participant in the SCNC Plan an amount equal to the benefit payable to such participant pursuant to the terms of Article II of the - 8 - SCNC Plan as of January 31, 1998. Following such credit to the EDCP Account of the participant under this plan, the participant shall have no further rights to such amounts under the SCNC Plan. 3.4.5 IJL Plan Account: As of January 1, 2000, the Committee shall credit to the IJL Plan Account of each participant who was a participant in the IJL Plan an amount equal to the balance to the credit of such participant pursuant to the terms of the IJL Plan as of December 31, 1999. Following such credit to the IJL Plan Account of the participant under this plan, the participant shall have no further rights or benefits under the IJL Plan. SECTION 4. RETIREMENT; TERMINATION OF SERVICE; DEATH: 4.1 NORMAL RETIREMENT: A participant who is in service shall be eligible to retire from service at his normal retirement date and commence receiving payment of his accrued benefit, determined as of his termination adjustment date. Payment of such benefit shall be made by the Employer pursuant to Section 4.6. 4.2 DELAYED RETIREMENT: If a participant shall remain in service following his normal retirement date, his retirement date shall be the date he actually terminates service for reasons other than death, whereupon he shall commence receiving payment of his accrued benefit, determined as his termination adjustment date. Payment of such benefit shall be made by the Employer pursuant to Section 4.6. During the period that such participant remains in service pursuant to this Section 4.2, he shall continue to be a participant for and including each plan year in which he meets the requirements therefor. If an employee not otherwise a participant becomes eligible to enter the plan following his normal retirement date, the provisions of this Section 4.2 shall apply in determining his retirement date. 4.3 DISABILITY RETIREMENT: If a participant shall suffer disability while in service prior to his normal retirement date, he shall retire as of the date of establishment of his disability, whereupon he shall commence receiving payment of his accrued benefit, determined as of his termination adjustment date. Such benefit shall be paid by the Employer as provided in Section 4.6. - 9 - 4.4 EARLY RETIREMENT: If a participant has attained at least age fifty-five and completed ten or more years of service, he shall be eligible to retire upon ninety days' prior written notice to the Employer and the Committee, whereupon he shall commence receiving payment of his accrued benefit determined as of his termination adjustment date. Such benefit shall be paid by the Employer as provided in Section 4.6. 4.5 TERMINATION OF SERVICE: If the service of a participant with the Employer shall be terminated for any reason other than retirement or death, his accrued benefit, determined as of his termination adjustment date, shall be paid to him by the Employer as provided in Section 4.6. 4.6 PAYMENT OF BENEFIT BY REASON OF RETIREMENT OR TERMINATION: If a participant shall retire or terminate service, his accrued benefit, determined as of his termination adjustment date, shall be paid by the Employer as follows: 4.6.1 Accrued benefit less than $25,000: If the accrued benefit of the participant as of the termination adjustment date is less than $25,000, such accrued benefit shall be paid to the participant in a single lump sum as soon as practicable following the end of the plan year in which occurs the termination adjustment date. 4.6.2 Accrued benefit at least $25,000: If the accrued benefit of the participant as of the termination adjustment date is at least $25,000, such accrued benefit shall be paid to the participant in approximately equal monthly installments over a term certain of ten years. Payment of such benefit shall commence as of the first day of the plan year next following the termination adjustment date, and shall continue on the first day of each month thereafter for the remainder of the term certain. The amount of each monthly installment shall be adjusted as of each year-end adjustment date during the term certain to reflect credits and debits to the participant's Deferred Compensation Account pursuant to Section 6. Such adjustment shall be made by dividing the balance in his Deferred Compensation Account as of such date (following adjustment as of such date) by the number of monthly installments remaining to be paid - 10 - hereunder; provided, that the last monthly installment due hereunder shall be the entire amount credited to the participant's Deferred Compensation Account on the date of payment. 4.6.3 CFB Plan Account: Notwithstanding the foregoing provisions of this Section 4.6, the portion of the Deferred Compensation Account of the participant consisting of the CFB Plan Account, if any, shall be distributed as elected by the participant pursuant to the terms of the CFB Plan as in effect immediately prior to the effective date of this plan. 4.7 PAYMENT OF BENEFIT BY REASON OF DEATH: 4.7.1 Death while in service: If the participant dies while in service, the Employer shall pay a death benefit to the participant's beneficiary in a single lump sum equal to the participant's accrued benefit determined as of his termination adjustment date. Such death benefit shall be paid to the beneficiary as soon as practicable following the end of the plan year in which occurs the death of the participant. 4.7.2 Death following termination of service: If the participant dies following his retirement or termination of service and before all payments to him under the plan have been made, the remaining accrued benefit of the participant, determined as of the adjustment date next following the death of the participant, shall be paid to the participant's beneficiary in a single lump sum as soon as practicable following such adjustment date. 4.8 HARDSHIP: 4.8.1 A participant may, at any time prior to his termination of service, make application to the Committee to receive a distribution in a lump sum of all or a portion of the total amount credited to his Deferred Compensation Account (determined as of the adjustment date coincident with or immediately preceding the date a request is made) because of an unforeseeable emergency that results in severe financial hardship to the participant. A distribution because of an unforeseeable emergency shall not exceed the amount required to meet the immediate financial need created by the unforeseeable emergency and not otherwise reasonably available from other resources of the participant. Examples of an unforeseeable emergency shall include but shall not be limited to those financial needs arising on account of a - 11 - sudden or unexpected illness or accident of the participant or of a dependent of the participant, loss of the participant's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the participant. 4.8.2 The participant's request for a distribution on account of financial hardship must be made in writing to the Committee. The request must specify the nature of the financial hardship, the total amount requested to be distributed from the Deferred Compensation Account, and the total amount of the actual expense incurred or to be incurred on account of hardship. 4.8.3 If a distribution under this Section 4.8 is approved by the Committee, such distribution will be made as of the next following adjustment date. The processing of the request shall be completed as soon as practicable from the date on which the Committee receives the properly completed written request for a distribution on account of a financial hardship. If a participant's termination of service occurs after a request is approved in accordance with this Section 4.8, but prior to distribution of the full amount approved, the approval of the request shall be automatically null and void and the benefits which the participant is entitled to receive under the plan shall be distributed in accordance with the applicable distribution provisions of the plan. Only one hardship distribution shall be made within any plan year. 4.8.4 The Committee may from time to time adopt additional policies or rules governing the manner in which such distributions may be made so that the plan may be conveniently administered. 4.9 PREPAYMENT: Notwithstanding any other provisions of this plan, if a participant or any other person (a "recipient") is entitled to receive payments under the plan, upon receipt of a request in writing from the recipient, the Committee in its sole discretion may direct the Employer to prepay of all or any part of the payments remaining to be made to or in behalf of the recipient, or to shorten the payment period. The amount of such prepayment shall be in full satisfaction of the Employer's obligations hereunder to the recipient and to all persons claiming under or through the recipient with respect to the payments being prepaid. In the event of a partial prepayment, the Committee shall designate which installments are being prepaid and, - 12 - if applicable, the accounts of the participant from which such prepayments shall be debited. The Committee's determinations under this Section 4.9 shall be final and conclusive upon all parties claiming benefits under this plan. SECTION 5. VESTING: The accrued benefit of each participant shall be fully vested (that is, nonforfeitable) at all times. SECTION 6. ACCOUNT; DEEMED INVESTMENT; ADJUSTMENT OF ACCOUNTS: 6.1 DEFERRED COMPENSATION ACCOUNT: The Committee shall establish a book reserve account, entitled the "Deferred Compensation Account," in behalf of each participant. Such account shall be adjusted as of each adjustment date pursuant to the provisions of Section 6.3. This Section 6 shall not apply to the participant's EDCP Account, if any. 6.2 DEEMED INVESTMENT: The Deferred Compensation Account of a participant shall be credited with an investment rate of return determined as if the account were invested in one or more investment funds made available by the Committee from time to time. The participant shall elect the investment funds in which his Deferred Compensation Account shall be deemed invested in the manner prescribed by the Committee, and such election shall take effect upon the entry of the participant into the plan. The investment election of the participant shall remain in effect until the adjustment date next following the date a new election is made by the participant. In the event the participant fails for any reason to make an effective election of the investment return to be credited to his account, the investment return shall be determined by the Committee. Notwithstanding the foregoing, if a participant is subject to Section 16 of the 1934 Act, then such participant's investment elections shall be subject to such additional rules or bylaws as may be established by the Committee pursuant to Section 15.9 herein. 6.3 ADJUSTMENTS TO DEFERRED COMPENSATION ACCOUNTS: With respect to each participant who has a Deferred Compensation Account under the plan, the amount credited - 13 - to such account as of each adjustment date shall be adjusted as of each succeeding adjustment date by the following debits and credits, in the order stated: 6.3.1 The Deferred Compensation Account shall be debited with the total amount of any payments made from such account since the last preceding adjustment date to him or for his benefit. 6.3.2 The Deferred Compensation Account shall be credited with the total amount of any credits to such account since the last preceding adjustment date. 6.3.3 The Deferred Compensation Account shall be credited or debited with the amount of deemed investment gain or loss resulting from the performance of the investment funds elected by the participant in accordance with Section 6.2. The amount of such deemed investment gain or loss shall be determined by the Committee and such determination shall be final and conclusive upon all concerned. SECTION 7. SPECIAL PROVISIONS REGARDING EDCP ACCOUNTS: Notwithstanding any other provision of the plan, the following special provisions shall apply with respect to a participant having an EDCP Account: 7.1 BENEFIT PAYMENTS AT TERMINATION OF EMPLOYMENT: Upon the termination of service by the participant for any reason other than death, the participant shall be entitled to receive the benefit credited to his EDCP Account (the "EDCP benefit"), determined in accordance with the terms of the SCNC Plan as in effect immediately prior to the effective date of this plan. The participant may elect to receive the EDCP benefit in either (i) a lump sum, or (ii) equal monthly payments over a fifteen year period; with the amount of payments under either method determined in accordance with the schedule of benefits provided to the participant under the SCNC Plan. Payments of the EDCP benefit shall be made to a participant (in the case of a lump sum), or commence (in the case of installment payments) during the January immediately following the participant's termination of service. Any election as to the form of the payment of benefits under this Plan shall be made in the manner and on the form provided by the Committee - 14 - for such purpose, and in no event shall such election be made after the date which is two years prior to the date on which the participant becomes entitled to benefits under this Section 7.1. In the event that such an election is made within the two year period described in the preceding sentence (unless the election is made at the time of the original deferral election under the SCNC Plan), or if no election is made, benefits payable under this Plan shall be paid in equal monthly installments over a fifteen year period. 7.2 BENEFIT PAYMENT WHEN TERMINATION OF EMPLOYMENT OCCURS BETWEEN AGE 60 AND 65: If the participant terminates service after attaining age 60, but prior to age sixty-five 65, the participant may elect to delay the payment, or commencement of payments in the event installments are elected, of his EDCP benefit until the January immediately following the date on which he attains age 65. A participant's election to delay the commencement of his benefits under this Section 7.2 must be made at least two years prior to the participant's termination of service. If a participant makes a valid election to delay the commencement of his benefits until the January immediately following the date he attains age 65 and dies prior to attaining such age, his date of death shall be deemed to be the date of his termination of service and his benefits shall be paid in the form elected by the participant. 7.3 BENEFIT PAYMENTS UPON DISABILITY: If a participant becomes disabled, the participant will continue to participate in this plan, and his benefits will be payable on his retirement under Section 7.1 (or Section 7.2 if a valid election has been made) or on his death under Section 7.4. For this purpose, a disabled participant's retirement date shall be deemed to be the earlier of (i) the date on which he attains age 65, or (ii) the date on which the participant is no longer disabled and does not return to service. In the case of a participant with a valid election in effect under Section 7.2, the preceding sentence will be applied by substituting age 60 for age sixty-five 65. The Committee may from time to time request that a participant who becomes disabled while in service submit to a medical examination or related series of examinations by a physician or physicians acceptable to the Committee to determine whether he continues to be disabled. A participant's refusal to submit to such an examination or related - 15 - series of examinations shall be deemed an admission by him that he is no longer disabled. All examinations requested by the Committee pursuant to this provision shall be at the expense of the Employer. 7.4 PRERETIREMENT DEATH BENEFITS: Subject to Section 7.5, if the participant dies while in service or while disabled as provided in Section 7.4, the participant's beneficiary shall receive a benefit, based on the deferral elections of the participant under the SCNC Plan for each calendar year for which the participant was deemed insurable under the SCNC Plan, in an amount determined with reference to the schedule of benefits provided to the participant under the SCNC Plan (the "preretirement death benefit"), which benefit shall be in lieu of all other benefits with respect to the EDCP Account of the participant. The preretirement death benefit shall be paid, or commence to be paid in the case of installment payments, as soon as is practicable after the death of the participant. 7.5 SUICIDE: Notwithstanding any provision of this plan to the contrary, if an insurable participant as described in Section 7.4 dies as a result of suicide prior to the April 1 of the third calendar year following the calendar year for which the participant made a deferral election under the SCNC Plan, no preretirement death benefit under Section 7.4 shall be payable with respect to that deferral election of the participant; instead, the participant's benefits resulting from such deferral election shall be determined under this Section 7, as applicable, on the basis of the assumption that the participant terminated service on the day immediately preceding his date of death. 7.6 NONCOMPETITION REQUIREMENT: If any participant terminates service for any reason and later accepts employment with, or assumes any other position with, any national bank, state bank, savings and loan association, or any other similar financial institution with one or more branches in South Carolina, and which competes with the Employer, the Committee may at its discretion cause any remaining amounts due to the participant to be paid in one lump sum with the amount of the lump sum payment being equal to the present value at the date of payment of such remaining payments calculated using the present value monthly discount rate - 16 - stated on the schedule of benefits attached to the participant's various deferral elections under the SCNC Plan. SECTION 8. ADMINISTRATION BY COMMITTEE: 8.1 MEMBERSHIP OF COMMITTEE: The Committee shall be responsible for the general administration and interpretation of the plan and for carrying out its provisions, except to the extent all or any of such obligations are specifically imposed on the Board. 8.2 COMMITTEE OFFICERS; SUBCOMMITTEE: The members of the Committee shall elect a Chairman and may elect an acting Chairman. The Committee may appoint from its membership such subcommittees with such powers as the Committee shall determine, and may authorize one or more of its members or any agent to execute or deliver any instruments or to make any payment in behalf of the Committee. The Committee shall appoint the plan administrator, or may itself act as plan administrator. 8.3 COMMITTEE MEETINGS: The Committee shall hold such meetings upon such notice, at such places and at such intervals as it may from time to time determine. Notice of meetings shall not be required if notice is waived in writing by all the members of the Committee at the time in office, or if all such members are present at the meeting. 8.4 TRANSACTION OF BUSINESS: A majority of the members of the Committee at the time in office shall constitute a quorum for the transaction of business. All resolutions or other actions taken by the Committee at any meeting shall be by vote of a majority of those present at any such meeting and entitled to vote. Resolutions may be adopted or other action taken without a meeting upon written consent thereto signed by all of the members of the Committee. 8.5 COMMITTEE RECORDS: The Committee shall maintain full and complete records of its deliberations and decisions. The minutes of its proceedings shall be conclusive proof of the facts of the operation of the plan. - 17 - 8.6 ESTABLISHMENT OF RULES: Subject to the limitations of the plan, the Committee may from time to time establish rules or by-laws for the administration of the plan and the transaction of its business. 8.7 CONFLICTS OF INTEREST: No individual member of the Committee shall have any right to vote or decide upon any matter relating solely to himself or to any of his rights or benefits under the plan (except that such member may sign unanimous written consent to resolutions adopted or other action taken without a meeting), except relating to the terms of his salary reduction agreement. 8.8 CORRECTION OF ERRORS: The Committee may correct errors and, so far as practicable, may adjust any benefit or credit or payment accordingly. The Committee may in its discretion waive any notice requirements in the plan; provided, that a waiver of notice in one or more cases shall not be deemed to constitute a waiver of notice in any other case. With respect to any power or authority which the Committee has discretion to exercise under the plan, such discretion shall be exercised in a nondiscriminatory manner. 8.9 AUTHORITY TO INTERPRET PLAN: Subject to the claims procedure set forth in Section 14, the plan administrator and the Committee shall have the duty and discretionary authority to interpret and construe the provisions of the plan and to decide any dispute which may arise regarding the rights of participants hereunder, including the discretionary authority to construe the plan and to make determinations as to eligibility and benefits under the plan. Determinations by the plan administrator and the Committee shall apply uniformly to all persons similarly situated and shall be binding and conclusive upon all interested persons. 8.10 THIRD PARTY ADVISORS: The Committee may engage an attorney, accountant, actuary or any other technical advisor on matters regarding the operation of the plan and to perform such other duties as shall be required in connection therewith, and may employ such clerical and related personnel as the Committee shall deem requisite or desirable in carrying out the provisions of the plan. The Committee shall from time to time, but no less frequently than annually, review the financial condition of the plan and determine the financial and liquidity - 18 - needs of the plan. The Committee shall communicate such needs to the Employer so that its policies may be appropriately coordinated to meet such needs. 8.11 COMPENSATION OF MEMBERS: No fee or compensation shall be paid to any member of the Committee for his service as such. 8.12 EXPENSE REIMBURSEMENT: The Committee shall be entitled to reimbursement by the Employer for its reasonable expenses properly and actually incurred in the performance of its duties in the administration of the plan. 8.13 INDEMNIFICATION: No member of the Committee shall be personally liable by reason of any contract or other instrument executed by him or on his behalf as a member of the Committee nor for any mistake of judgment made in good faith, and the Employer shall indemnify and hold harmless, directly from its own assets (including the proceeds of any insurance policy the premiums for which are paid from the Employer's own assets), each member of the Committee and each other officer, employee, or director of the Employer to whom any duty or power relating to the administration or interpretation of the plan may be delegated or allocated, against any unreimbursed or uninsured cost or expense (including any sum paid in settlement of a claim with the prior written approval of the Board) arising out of any act or omission to act in connection with the plan unless arising out of such person's own fraud, bad faith, willful misconduct or gross negligence. SECTION 9. NO TRUST: The obligation of the Employer to make payments hereunder shall constitute a contractual liability of the Employer to the participant. Such payments shall be made from the general funds of the Employer. The Employer may but shall not be required to establish or maintain any special or separate fund, or otherwise to segregate assets to assure that such payments shall be made, and the participant shall not have any interest in any particular assets of the Employer by reason of its obligations hereunder. Nothing contained in this plan shall create or be construed as creating a trust of any kind or any other fiduciary relationship between the Employer and the participant or any other person. To the extent that any person acquires a right - 19 - to receive payment from the Employer, such right shall be no greater than the right of an unsecured creditor of the Employer. SECTION 10. BENEFITS NOT ASSIGNABLE; FACILITY OF PAYMENTS: 10.1 BENEFITS NOT ASSIGNABLE: No portion of any benefit credited or paid under the plan with respect to any participant shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt so to anticipate, alienate, sell, transfer, assign, pledge, encumber or charge the same shall be void, nor shall any portion of such benefit be in any manner payable to any assignee, receiver or any one trustee, or be liable for his debts, contracts, liabilities, engagements or torts. 10.2 PAYMENTS TO MINORS AND OTHERS: If any individual entitled to receive a payment under the plan shall be physically, mentally or legally incapable of receiving or acknowledging receipt of such payment, the Committee, upon the receipt of satisfactory evidence of his incapacity and satisfactory evidence that another person or institution is maintaining him and that no guardian or committee has been appointed for him, may cause any payment otherwise payable to him to be made to such person or institution so maintaining him. Payment to such person or institution shall be in full satisfaction of all claims by or through the participant to the extent of the amount thereof. SECTION 11. BENEFICIARY: The participant's beneficiary shall be the person or persons designated by the participant on the beneficiary designation form provided by and filed with the Committee or its designee. If the participant does not designate a beneficiary, the beneficiary shall be his surviving spouse. If the participant does not designate a beneficiary and has no surviving spouse, the beneficiary shall be the participant's estate. The designation of a beneficiary may be changed or revoked only by filing a new beneficiary designation form with the Committee or its designee. If a beneficiary (the "primary beneficiary") is receiving or is entitled to receive payments under the plan and dies before receiving all of the payments due him, the balance to which he is entitled shall be paid to the contingent beneficiary, if any, named in the participant's - 20 - current beneficiary designation form. If there is no contingent beneficiary, the balance shall be paid to the estate of the primary beneficiary. Any beneficiary may disclaim all or any part of any benefit to which such beneficiary shall be entitled hereunder by filing a written disclaimer with the Committee before payment of such benefit is to be made. Such a disclaimer shall be made in form satisfactory to the Committee and shall be irrevocable when filed. Any benefit disclaimed shall be payable from the plan in the same manner as if the beneficiary who filed the disclaimer had died on the date of such filing. SECTION 12. AMENDMENT AND TERMINATION OF PLAN: The Committee may amend any provision of the plan or terminate the plan at any time; provided, that in no event shall such amendment or termination reduce any participant's benefit as of the date of such amendment or termination without such participant's written consent, nor shall any such amendment or termination affect the terms of the plan relating to the payment of such benefit. SECTION 13. COMMUNICATION TO PARTICIPANTS: The Employer shall make a copy of the plan available for inspection by participants and their beneficiaries during reasonable hours at the principal office of the Employer. SECTION 14. CLAIMS PROCEDURE: The following claims procedure shall apply with respect to the plan: 14.1 FILING OF A CLAIM FOR BENEFITS: If a participant or beneficiary (the "claimant") believes that he is entitled to benefits under the plan which are not being paid to him or which are not being accrued for his benefit, he shall file a written claim therefor with the plan administrator. In the event the plan administrator shall be the claimant, all actions which are required to be taken by the plan administrator pursuant to this Section 14 shall be taken instead by another member of the Committee designated by the Committee. 14.2 NOTIFICATION TO CLAIMANT OF DECISION: Within 90 days after receipt of a claim by the plan administrator (or within 180 days if special circumstances require an extension of time), the plan administrator shall notify the claimant of his decision with regard to the claim. - 21 - In the event of such special circumstances requiring an extension of time, there shall be furnished to the claimant prior to expiration of the initial 90-day period written notice of the extension, which notice shall set forth the special circumstances and the date by which the decision shall be furnished. If such claim shall be wholly or partially denied, notice thereof shall be in writing and worded in a manner calculated to be understood by the claimant, and shall set forth: (i) the specific reason or reasons for the denial; (ii) specific reference to pertinent provisions of the plan on which the denial is based; (iii) a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and (iv) an explanation of the procedure for review of the denial. If the plan administrator fails to notify the claimant of the decision in timely manner, the claim shall be deemed denied as of the close of the initial 90-day period (or the close of the extension period, if applicable). 14.3 PROCEDURE FOR REVIEW: Within 60 days following receipt by the claimant of notice denying his claim, in whole or in part, or, if such notice shall not be given, within 60 days following the latest date on which such notice could have been timely given, the claimant shall appeal denial of the claim by filing a written application for review with the Committee. Following such request for review, the Committee shall fully and fairly review the decision denying the claim. Prior to the decision of the Committee, the claimant shall be given an opportunity to review pertinent documents and to submit issues and comments in writing. 14.4 DECISION ON REVIEW: The decision on review of a claim denied in whole or in part by the plan administrator shall be made in the following manner: 14.4.1 Within 60 days following receipt by the Committee of the request for review (or within 120 days if special circumstances require an extension of time), the Committee shall notify the claimant in writing of its decision with regard to the claim. In the event of such special circumstances requiring an extension of time, written notice of the extension shall be furnished to the claimant prior to the commencement of the extension. If the decision on review is not furnished in a timely manner, the claim shall be deemed denied as of the close of the initial 60-day period (or the close of the extension period, if applicable). - 22 - 14.4.2 With respect to a claim that is denied in whole or in part, the decision on review shall set forth specific reasons for the decision, shall be written in a manner calculated to be understood by the claimant, and shall cite specific references to the pertinent plan provisions on which the decision is based. 14.4.3 The decision of the Committee shall be final and conclusive. 14.5 ACTION BY AUTHORIZED REPRESENTATIVE OF CLAIMANT: All actions set forth in this Section 14 to be taken by the claimant may likewise be taken by a representative of the claimant duly authorized by him to act in his behalf on such matters. The plan administrator and the Committee may require such evidence as either may reasonably deem necessary or advisable of the authority to act of any such representative. SECTION 15. MISCELLANEOUS PROVISIONS: 15.1 SET OFF: Notwithstanding any other provision of this plan, the Employer may reduce the amount of any payment otherwise payable to or in behalf of a participant hereunder by the amount of any loan, cash advance, extension of credit or other obligation of the participant to the Employer that is then due and payable, and the participant shall be deemed to have consented to such reduction. 15.2 NOTICES: Each participant who is not in service and each beneficiary shall be responsible for furnishing the Committee or its designee with his current address for the mailing of notices and benefit payments. Any notice required or permitted to be given to such participant or beneficiary shall be deemed given if directed to such address and mailed by regular United States mail, first class, postage prepaid. If any check mailed to such address is returned as undeliverable to the addressee, mailing of checks will be suspended until the participant or beneficiary furnishes the proper address. This provision shall not be construed as requiring the mailing of any notice or notification otherwise permitted to be given by posting or by other publication. 15.3 LOST DISTRIBUTEES: A benefit shall be deemed forfeited if the plan administrator is unable to locate the participant or beneficiary to whom payment is due on or before the fifth anniversary of the date payment is to be made or commence; provided, that the - 23 - adjustment rate shall cease to be applied to the participant's accounts following the first anniversary of such date; provided further, however, that such benefit shall be reinstated if a valid claim is made by or on behalf of the participant or beneficiary for all or part of the forfeited benefit. 15.4 RELIANCE ON DATA: The Employer, the Committee and the plan administrator shall have the right to rely on any data provided by the participant or by any beneficiary. Representations of such data shall be binding upon any party seeking to claim a benefit through a participant, and the Employer, the Committee and the plan administrator shall have no obligation to inquire into the accuracy of any representation made at any time by a participant or beneficiary. 15.5 RECEIPT AND RELEASE FOR PAYMENTS: Subject to the provisions of Section 15.1, any payment made from the plan to or with respect to any participant or beneficiary, or pursuant to a disclaimer by a beneficiary, shall, to the extent thereof, be in full satisfaction of all claims hereunder against the plan and the Employer with respect to the plan. The recipient of any payment from the plan may be required by the Committee, as a condition precedent to such payment, to execute a receipt and release with respect thereto in such form as shall be acceptable to the Committee. 15.6 HEADINGS: The headings and subheadings of the plan have been inserted for convenience of reference and are to be ignored in any construction of the provisions hereof. 15.7 CONTINUATION OF EMPLOYMENT: The establishment of the plan shall not be construed as conferring any legal or other rights upon any employee or any persons for continuation of employment, nor shall it interfere with the right of the Employer to discharge any employee or to deal with him without regard to the effect thereof under the plan. 15.8 MERGER OR CONSOLIDATION: The Employer shall not consolidate or merge into or with another corporation or entity, or transfer all or substantially all of its assets to another corporation, partnership, trust or other entity (a "Successor Entity") unless such Successor Entity shall assume the rights, obligations and liabilities of the employer-party under - 24 - the plan and upon such assumption, the Successor Entity shall become obligated to perform the terms and conditions of the plan. 15.9 COMPLIANCE WITH SECURITIES LAWS: Transactions under the plan are intended to be structured in accordance with the federal securities laws, and the allocation and distribution of benefits pursuant to the plan shall be subject to, and conditional upon compliance with, all applicable securities laws, rules and regulations. Notwithstanding any other provision of the plan, the Committee shall have the authority to establish such rules or bylaws as it deems necessary to ensure that transactions under the plan by persons subject to Section 16 of the 1934 Act comply with Rule 16b-3 of the 1934 Act (or any successor rule). 15.10 CONSTRUCTION: The provisions of the plan shall be construed and enforced according to the laws of the State of North Carolina except to the extent that such laws are superseded by ERISA. IN WITNESS WHEREOF, this nonqualified deferred compensation plan is executed in behalf of the Employer as of the ____ day of ____________, 1999. WACHOVIA CORPORATION By: ________________________________ Chief Executive Officer Attest: ________________________________ Secretary [Corporate Seal] - 25 - EX-12 3 EXHIBIT 12 EXHIBIT 12 RATIO OF EARNINGS TO FIXED CHARGES
March 31 December 31 2000 1999 ----------- ----------- (A) EXCLUDING INTEREST ON DEPOSITS Earnings: Income before income taxes $ 378,818 $ 1,542,373 Less capitalized interest - (160) Fixed charges 258,009 957,002 ----------- ----------- Earnings as adjusted $ 636,827 $ 2,499,215 =========== =========== Fixed charges: Interest on purchased and other short term borrowed funds $ 123,317 $ 457,161 Interest on long-term debt 127,764 474,378 Portion of rents representative of the interest factor (1/3) of rental expense 6,928 25,463 ----------- ----------- Fixed charges $ 258,009 $ 957,002 =========== =========== Ratio of earnings to fixed charges 2.47X 2.61X (B) INCLUDING INTEREST ON DEPOSITS: Adjusted earnings from (A) above $ 636,827 $ 2,499,215 Add interest on deposits 374,780 1,265,195 ----------- ----------- Earnings as adjusted $ 1,011,607 $ 3,764,410 =========== =========== Fixed charges: Fixed charges from (A) above $ 258,009 $ 957,002 Interest on deposits 374,780 1,265,195 ----------- ----------- Adjusted fixed charges $ 632,789 $ 2,222,197 =========== =========== Adjusted earnings to adjusted fixed charges 1.60X 1.69X
EX-27 4 FDS
9 1000 US DOLLARS 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 1 3,167,792 130,686 417,023 1,239,924 7,109,858 1,114,184 1,120,825 51,125,316 595,655 68,817,488 43,715,778 8,082,033 2,434,860 8,738,387 0 0 1,012,282 4,834,148 68,817,488 1,093,779 132,206 19,372 1,245,357 374,780 625,861 619,496 73,666 167 637,978 378,818 0 0 0 244,707 1.21 1.20 4.20 226,176 126,318 0 0 554,810 88,205 14,880 595,655 0 0 0
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