-----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, TquBkxFtq084JJYxhIQpsOt72TPaGQXSdsDVDEPrRgTLQailvjwGnvKOqHb6k3Lh r66JocpaQ0v0vgF/EvLQoQ== 0000950168-97-001294.txt : 19970520 0000950168-97-001294.hdr.sgml : 19970520 ACCESSION NUMBER: 0000950168-97-001294 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WACHOVIA CORP/ NC CENTRAL INDEX KEY: 0000774203 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 561473727 STATE OF INCORPORATION: NC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09021 FILM NUMBER: 97606547 BUSINESS ADDRESS: STREET 1: 301 NORTH MAIN ST CITY: WINSTON SALEM STATE: NC ZIP: 27150 BUSINESS PHONE: 9197705000 MAIL ADDRESS: STREET 1: 301 NORTH MAIN ST CITY: WINSTON SALEM STATE: NC ZIP: 27150 FORMER COMPANY: FORMER CONFORMED NAME: FIRST WACHOVIA CORP DATE OF NAME CHANGE: 19910603 10-Q 1 WACHOVIA 10-Q 1997 FORM 10-Q United States Securities and Exchange Commission Washington, DC 20549 Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended March 31, 1997 Commission File Number 1-9021 WACHOVIA CORPORATION Incorporated in the State of North Carolina IRS Employer Identification Number 56-1473727 Address and Telephone: 100 North Main Street, Winston-Salem, North Carolina 27101, (910) 770-5000 191 Peachtree Street NE, Atlanta, Georgia 30303, (404) 332-5000 Securities registered pursuant to Section 12(b) of the Act: Common Stock -- $5.00 par value, which is registered on the New York Stock Exchange. As of March 31, 1997, Wachovia Corporation had 161,558,786 shares of common stock outstanding. Wachovia Corporation (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. DOCUMENTS INCORPORATED BY REFERENCE Portions of the financial supplement for the quarter ended March 31, 1997 are incorporated by reference into Parts I and II as indicated in the table below. Except for parts of the Wachovia Corporation Financial Supplement expressly incorporated herein by reference, this Financial Supplement is not to be deemed filed with the Securities and Exchange Commission. PART I FINANCIAL INFORMATION Item 1 FINANCIAL STATEMENTS (UNAUDITED) PAGE Selected Period-End Data.........................3 Common Stock Data -- Per Share...................3 Consolidated Statements of Condition............22 Consolidated Statements of Income...............23 Consolidated Statements of Shareholders' Equity.........................24 Consolidated Statements of Cash Flows...........25 Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................................4-21
1997 FORM 10-Q-CONTINUED PART II OTHER INFORMATION Item 6 EXHIBITS AND REPORTS ON FORM 8-K a) 3.2 Bylaws of the Registrant as amended. 4 Instruments defining the rights of security holders, including indentures.* 4.1 Indenture between Wachovia Corporation, Wachovia Capital Trust II and First National Bank of Chicago, as Trustee, relating to Floating Rate Junior Subordinated Deferrable Interest Debentures (Junior Subordinated Debentures). (Exhibit 4 (c) of Amendment No. 1 to Form S-3 Registration Statement of Wachovia Corporation and Wachovia Capital Trust II dated January 22, 1997, File No. 333-19365.) 4.2 Amended and Restated Declaration of Trust of Wachovia Capital Trust II, relating to Preferred Securities (Exhibit 4 (b) (iv) of Amendment No. 1 to Form S-3 Registration Statement of Wachovia Corporation and Wachovia Capital Trust II dated January 22, 1997, File No. 333-19365). 4.3 Preferred Securities Guarantee Agreement of Wachovia Corporation (Exhibit 4 (g) of Amendment No. 1 to Form S-3 Registration Statement of Wachovia Corporation and Wachovia Capital Trust II dated January 22, 1997, File No. 333-19365). 10 Amended and Restated Employment Agreements with L.M. Baker, Jr., G. Joseph Prendergast, Walter E. Leonard, Jr., and Robert S. McCoy, Jr. 11 "Computation of Earnings per Common Share" is presented as Table 3 on page 6 of the first quarter 1997 financial supplement. 12 Statement setting forth computation of ratio of earnings to fixed charges. 19 "Unaudited Consolidated Financial Statements," listed in Part I, Item 1 do not include all information and footnotes required under generally accepted accounting principles. However, in the opinion of management, the profit and loss information presented in the interim financial statements reflects all adjustments necessary to present fairly the results of operations for the periods presented. Adjustments reflected in the first quarter of 1997 figures are of a normal, recurring nature. The results of operations shown in the interim statements are not necessarily indicative of the results that may be expected for the entire year. 27 Financial Data Schedule (for SEC purposes only). b) Reports on Form 8-K: No reports on Form 8-K were filed during the three months ended March 31, 1997. *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. SIGNATURES Pursuant to the requirements to Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WACHOVIA CORPORATION May 14, 1997 ROBERT S. McCOY, JR. Robert S. McCoy, Jr. Executive Vice President and Chief Financial Officer May 14, 1997 DONALD K. TRUSLOW Donald K. Truslow Comptroller (WACHOVIA LOGO APPEARS HERE) FINANCIAL SUPPLEMENT AND FORM 10-Q FIRST QUARTER 1997 WACHOVIA CORPORATION DIRECTORS AND OFFICERS DIRECTORS L. M. BAKER, JR. President and Chief Executive Officer JOHN G. MEDLIN, JR. Chairman of the Board JOHN L. CLENDENIN Chairman of the Board BellSouth Corporation LAWRENCE M. GRESSETTE, JR. Chairman of the Executive Committee SCANA Corporation THOMAS K. HEARN, JR. President Wake Forest University GEORGE W. HENDERSON III President and Chief Executive Officer Burlington Industries, Inc. W. HAYNE HIPP President and Chief Executive Officer The Liberty Corporation ROBERT M. HOLDER, JR. Chairman RMH Group, LLC ROBERT A. INGRAM President and Chief Executive Officer Glaxo Wellcome Inc. JAMES W. JOHNSTON President and Chief Executive Officer Stonemarker Enterprises, Inc. WYNDHAM ROBERTSON Writer and Retired Vice President, Communications University of North Carolina HERMAN J. RUSSELL Chairman of the Board H.J. Russell & Company SHERWOOD H. SMITH, JR. Chairman of the Board Carolina Power & Light Company JOHN C. WHITAKER, JR. Chairman and Chief Executive Officer Inmar Enterprises, Inc. PRINCIPAL CORPORATE OFFICERS L. M. BAKER, JR. President and Chief Executive Officer MICKEY W. DRY Executive Vice President Chief Credit Officer HUGH M. DURDEN Executive Vice President Corporate Services WALTER E. LEONARD, JR. Executive Vice President Operations/Technology KENNETH W. MCALLISTER Executive Vice President General Counsel/Administrative ROBERT S. MCCOY, JR. Executive Vice President Chief Financial Officer G. JOSEPH PRENDERGAST Executive Vice President General Banking RICHARD B. ROBERTS Executive Vice President Treasurer SELECTED PERIOD-END DATA
March 31 March 31 1997 1996 Banking offices: North Carolina..................................................................................... 219 219 Georgia............................................................................................ 123 123 South Carolina..................................................................................... 131 144 Total........................................................................................... 473 486 Automated banking machines: North Carolina..................................................................................... 374 331 Georgia............................................................................................ 232 208 South Carolina..................................................................................... 224 190 Total........................................................................................... 830 729 Employees (full-time equivalent)..................................................................... 16,433 16,191 Common stock shareholders of record.................................................................. 32,402 27,833 Common shares outstanding (thousands)................................................................ 161,559 168,968
COMMON STOCK DATA -- PER SHARE
1997 1996 First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter Market value: Period-end............................................................ $54 1/2 $56 1/2 $49 1/2 $43 3/4 $44 3/4 High.................................................................. 64 5/8 60 1/4 49 7/8 46 1/4 48 3/8 Low................................................................... 54 1/2 48 3/4 39 5/8 40 7/8 41 1/4 Book value at period-end................................................ 22.75 22.96 22.57 22.18 22.07 Dividend................................................................ .40 .40 .40 .36 .36 Price/earnings ratio*................................................... 13.9 X 14.8 x 13.6 x 12.4 x 12.6 x
*Based on most recent twelve months net income per primary share and period-end stock price FINANCIAL INFORMATION Analysts, investors and others seeking additional financial information about Wachovia Corporation or its member companies should contact the following either by phone or in writing. Robert S. McCoy, Jr., Chief Financial Officer, (910) 732-5926 James C. Mabry, Investor Relations Manager, (910) 732-5788 Wachovia Corporation P.O. Box 3099 Winston-Salem, NC 27150 Common Stock Listing -- New York Stock Exchange, ticker symbol - WB 3 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL SUMMARY TABLE 1
Twelve Months Ended 1997 1996 March 31 First Fourth Third Second 1997 Quarter Quarter Quarter Quarter SUMMARY OF OPERATIONS (thousands, except per share data) Interest income -- taxable equivalent...... $3,332,121 $837,010 $842,365 $842,109 $810,637 Interest expense........................... 1,677,229 417,955 421,079 426,723 411,472 Net interest income -- taxable equivalent............................... 1,654,892 419,055 421,286 415,386 399,165 Taxable equivalent adjustment.............. 65,126 14,086 16,246 16,880 17,914 Net interest income........................ 1,589,766 404,969 405,040 398,506 381,251 Provision for loan losses.................. 170,575 47,998 47,443 40,730 34,404 Net interest income after provision for loan losses.............................. 1,419,191 356,971 357,597 357,776 346,847 Other operating revenue.................... 801,474 201,665 203,436 197,778 198,595 Investment securities gains (losses)....... 3,373 335 2,864 393 (219) Total other income......................... 804,847 202,000 206,300 198,171 198,376 Personnel expense.......................... 667,011 174,104 167,236 165,509 160,162 Other expense.............................. 606,429 150,032 155,502 150,970 149,925 Total other expense........................ 1,273,440 324,136 322,738 316,479 310,087 Income before income taxes................. 950,598 234,835 241,159 239,468 235,136 Applicable income taxes*................... 292,829 71,753 70,431 74,872 75,773 Net income................................. $ 657,769 $163,082 $170,728 $164,596 $159,363 Net income per common share: Primary.................................. $ 3.93 $ .99 $ 1.02 $ .98 $ .94 Fully diluted............................ $ 3.92 $ .99 $ 1.02 $ .97 $ .94 Cash dividends paid per common share....... $ 1.56 $ .40 $ .40 $ .40 $ .36 Cash dividends paid on common stock........ $ 258,777 $ 65,408 $ 66,016 $ 66,669 $ 60,684 Cash dividend payout ratio................. 39.3% 40.1% 38.7% 40.5% 38.1% Average primary shares outstanding......... 167,600 165,432 167,118 167,966 169,861 Average fully diluted shares outstanding... 167,769 165,441 167,281 168,354 169,972 SELECTED AVERAGE BALANCES (millions) Total assets............................... $ 45,614 $ 45,984 $ 45,737 $ 45,778 $ 44,956 Loans -- net of unearned income............ 30,810 31,481 31,101 30,660 30,004 Investment securities**.................... 8,495 8,327 8,251 8,734 8,668 Other interest-earning assets.............. 1,447 1,242 1,409 1,611 1,519 Total interest-earning assets.............. 40,752 41,050 40,761 41,005 40,191 Interest-bearing deposits.................. 21,111 22,034 21,211 20,873 20,335 Short-term borrowed funds.................. 7,858 7,444 7,668 8,099 8,216 Long-term debt............................. 6,176 5,910 6,206 6,454 6,129 Total interest-bearing liabilities......... 35,145 35,388 35,085 35,426 34,680 Noninterest-bearing deposits............... 5,489 5,518 5,604 5,408 5,426 Total deposits............................. 26,599 27,552 26,815 26,281 25,761 Shareholders' equity....................... 3,650 3,653 3,671 3,631 3,644 RATIOS (averages) Annualized net loan losses to loans........ .55% .61% .61% .53% .46% Annualized net yield on interest-earning assets................................... 4.06 4.14 4.11 4.03 3.99 Shareholders' equity to: Total assets............................. 8.00 7.94 8.03 7.93 8.11 Net loans................................ 12.00 11.75 11.96 12.00 12.31 Annualized return on assets................ 1.44 1.42 1.49 1.44 1.42 Annualized return on shareholders' equity................................... 18.02 17.86 18.60 18.13 17.49 1996 First Quarter SUMMARY OF OPERATIONS (thousands, except per share data) Interest income -- taxable equivalent...... $802,120 Interest expense........................... 413,328 Net interest income -- taxable equivalent............................... 388,792 Taxable equivalent adjustment.............. 18,877 Net interest income........................ 369,915 Provision for loan losses.................. 27,334 Net interest income after provision for loan losses.............................. 342,581 Other operating revenue.................... 184,105 Investment securities gains (losses)....... 698 Total other income......................... 184,803 Personnel expense.......................... 161,618 Other expense.............................. 146,627 Total other expense........................ 308,245 Income before income taxes................. 219,139 Applicable income taxes*................... 69,269 Net income................................. $149,870 Net income per common share: Primary.................................. $ .87 Fully diluted............................ $ .87 Cash dividends paid per common share....... $ .36 Cash dividends paid on common stock........ $ 61,089 Cash dividend payout ratio................. 40.8% Average primary shares outstanding......... 171,467 Average fully diluted shares outstanding... 171,653 SELECTED AVERAGE BALANCES (millions) Total assets............................... $ 44,435 Loans -- net of unearned income............ 29,218 Investment securities**.................... 8,795 Other interest-earning assets.............. 1,594 Total interest-earning assets.............. 39,607 Interest-bearing deposits.................. 20,666 Short-term borrowed funds.................. 8,055 Long-term debt............................. 5,487 Total interest-bearing liabilities......... 34,208 Noninterest-bearing deposits............... 5,372 Total deposits............................. 26,038 Shareholders' equity....................... 3,687 RATIOS (averages) Annualized net loan losses to loans........ .37% Annualized net yield on interest-earning assets................................... 3.95 Shareholders' equity to: Total assets............................. 8.30 Net loans................................ 12.80 Annualized return on assets................ 1.35 Annualized return on shareholders' equity................................... 16.26
*Income taxes applicable to securities transactions were $1,378, $134, $1,181, $149, ($86) and $278, respectively **Reported at amortized cost; excludes pretax unrealized gains on securities available-for-sale of $62, $60, $74, $40, $74 and $188, respectively 4 RESULTS OF OPERATIONS OVERVIEW Wachovia Corporation ("Wachovia") is a southeastern interstate bank holding company with dual headquarters in Atlanta, Georgia, and Winston-Salem, North Carolina. Principal banking subsidiaries are Wachovia Bank of Georgia, N.A., Wachovia Bank of North Carolina, N.A., and Wachovia Bank of South Carolina, N.A. The First National Bank of Atlanta provides credit card services for Wachovia's affiliated banks. Pending regulatory approval, the corporation plans to merge its three principal banks under a single charter with the surviving entity being Wachovia Bank, N.A. Regulatory approval is expected on or after June 1, 1997. During the first quarter of 1997, the economy continued to expand, rising at a strong annualized rate of 5.6 percent from the preceding three-month period. Concerns over the sustained pace of economic growth led the Federal Reserve to lift short-term interest rates one-quarter of a percent. Within Wachovia's three primary operating states of Georgia, North Carolina and South Carolina, economic conditions remained generally favorable. Unemployment for the period averaged 4.7 percent in Georgia, 3.7 percent in North Carolina and 5.4 percent in South Carolina compared with 5.3 percent for the U.S. Wachovia's net income for the first quarter was $163.082 million or $.99 per fully diluted share versus $149.870 million or $.87 per fully diluted share in the same three months of 1996. The increase in earnings reflected good growth in both net interest income and other operating revenue, with fewer shares outstanding also contributing to the rise on a per share basis. Net income represented annualized returns of 17.86 percent on shareholders' equity and 1.42 percent on assets compared with 16.26 percent and 1.35 percent, respectively, a year earlier. Expanded discussion of operating results and the corporation's financial condition is presented in the following narrative with accompanying tables. Interest income is stated on a taxable equivalent basis which is adjusted for the tax-favored status of earnings from certain loans and investments. References to changes in assets and liabilities represent daily average levels unless otherwise noted. 5 COMPONENTS OF EARNINGS PER PRIMARY SHARE TABLE 2
1997 1996 First First Quarter Quarter Change Interest income -- taxable equivalent.................................. $5.06 $4.68 $.38 Interest expense....................................................... 2.53 2.41 .12 Net interest income -- taxable equivalent.............................. 2.53 2.27 .26 Taxable equivalent adjustment.......................................... .08 .11 (.03) Net interest income.................................................... 2.45 2.16 .29 Provision for loan losses.............................................. .29 .16 .13 Net interest income after provision for loan losses...................................................... 2.16 2.00 .16 Other operating revenue................................................ 1.22 1.07 .15 Investment securities gains (losses)................................... -- -- -- Total other income..................................................... 1.22 1.07 .15 Personnel expense...................................................... 1.05 .94 .11 Other expense.......................................................... .91 .86 .05 Total other expense.................................................... 1.96 1.80 .16 Income before income taxes............................................. 1.42 1.27 .15 Applicable income taxes................................................ .43 .40 .03 Net income............................................................. $ .99 $ .87 $.12
COMPUTATION OF EARNINGS PER COMMON SHARE TABLE 3 (thousands, except per share)
Three Months Three Months Ended Ended March 31 March 31 1997 1996 PRIMARY Average common shares outstanding.......................................... 163,026 169,710 Dilutive common stock options -- based on treasury stock method using average market price.................................. 2,237 1,650 Dilutive common stock awards -- based on treasury stock method using average market price.................................. 169 107 Average primary shares outstanding......................................... 165,432 171,467 Net income................................................................. $163,082 $149,870 Net income per common share -- primary..................................... $ .99 $ .87 FULLY DILUTED Average common shares outstanding.......................................... 163,026 169,710 Dilutive common stock options -- based on treasury stock method using higher of period-end market price or average market price..................................... 2,237 1,650 Dilutive common stock awards -- based on treasury stock method using higher of period-end market price or average market price..................................... 169 107 Convertible notes assumed converted........................................ 9 186 Average fully diluted shares outstanding................................... 165,441 171,653 Net income................................................................. $163,082 $149,870 Add interest on convertible notes after taxes.............................. 2 23 Adjusted net income........................................................ $163,084 $149,893 Net income per common share -- fully diluted............................... $ .99 $ .87
6 NET INTEREST INCOME Taxable equivalent net interest income for the first quarter of 1997 rose $30.263 million or 7.8 percent from the same period a year earlier. The increase reflected good loan growth, a higher average earning yield and a more favorable funding mix, with time deposits continuing to expand while short-term borrowings moderated. Compared with the fourth quarter of 1996, taxable equivalent net interest income decreased $2.231 million or less than 1 percent largely due to the impact of two fewer accrual days in the first quarter. The net yield on interest-earning assets (taxable equivalent net interest income as a percentage of average interest-earning assets) improved 19 basis points year over year and was higher by 3 basis points from the preceding three months. Taxable equivalent interest income was up $34.890 million or 4.3 percent from the year-earlier quarter. The rise was driven by greater loan volume, including increases in the higher-yielding consumer portfolio. Loans expanded $2.263 billion or 7.7 percent with the average rate earned improving 16 basis points compared with total interest-earning asset growth of $1.443 billion or 3.6 percent and an increase of 12 basis points in the average rate earned. Taxable equivalent interest income was lower by $5.355 million or under 1 percent from the fourth quarter of 1996, reflecting the shorter accrual period in the first three months of the year. Growth of interest-earning assets, particularly loans, remained good, however, with loans increasing $380 million or an annualized 4.8 percent from the prior quarter and the average rate earned on loans higher by 6 basis points. Consumer loans, including residential mortgages, rose $1.193 billion or 10.1 percent year over year. Gains were paced primarily by credit cards, up $837 million or 21.1 percent, and by residential mortgages, which increased $431 million or 10.2 percent, reflecting growth in bank equity loans and adjustable rate mortgages. Direct retail loans and other revolving credit expanded modestly, while indirect retail loans, consisting primarily of automobile sales financing, decreased $109 million or 4.2 percent. At March 31, 1997, managed credit card outstandings totaled $5.428 billion compared with $4.593 billion one year earlier and $5.444 billion at December 31, 1996. Managed credit card outstandings at each period-end included $625 million of net securitized loans. Commercial loans, including related real estate categories, were up $1.070 billion or 6.2 percent, led by continued strong demand in the real estate portfolio. Commercial mortgages increased $480 million or 12.1 percent. Construction loans grew $344 million or 49.6 percent. Good gains also occurred in lease financing and in regular commercial loans, while tax-exempt loans declined due to the reduced availability of tax-exempt borrowing and lending at acceptable yields. At March 31, 1997, commercial real estate loans, based on regulatory definitions, were $5.550 billion or 17 percent of total loans versus $4.714 billion or 15.8 percent one year earlier and $5.329 billion or 17 percent at fourth quarter-end 1996. Regulatory definitions for commercial real estate loans include loans which have real estate as the collateral but not the primary consideration in a credit risk evaluation. Period-end loans by category as of March 31, 1997 and the preceding four quarters are presented in the following table.
March 31 Dec. 31 Sept. 30 June 30 $ THOUSANDS 1997 1996 1996 1996 Commercial................ $10,903,268 $ 9,661,757 $10,517,396 $10,280,931 Tax-exempt................ 1,752,655 1,936,785 1,998,718 2,047,475 Total commercial..... 12,655,923 11,598,542 12,516,114 12,328,406 Direct retail............. 752,091 782,478 772,947 767,154 Indirect retail........... 2,438,554 2,491,029 2,562,665 2,582,142 Credit card............... 4,802,836 4,819,197 4,377,293 4,180,440 Other revolving credit.... 355,699 359,594 355,254 358,636 Total retail......... 8,349,180 8,452,298 8,068,159 7,888,372 Construction.............. 1,075,005 979,649 874,928 808,866 Commercial mortgages...... 4,474,620 4,349,438 4,296,306 4,130,537 Residential mortgages..... 4,657,805 4,644,858 4,546,274 4,405,219 Total real estate.... 10,207,430 9,973,945 9,717,508 9,344,622 Lease financing........... 840,833 822,703 745,673 644,087 Foreign................... 516,890 435,704 501,349 467,154 Total loans.......... $32,570,256 $31,283,192 $31,548,803 $30,672,641 March 31 $ THOUSANDS 1996 Commercial................ $10,077,465 Tax-exempt................ 2,135,806 Total commercial..... 12,213,271 Direct retail............. 730,804 Indirect retail........... 2,612,568 Credit card............... 3,967,603 Other revolving credit.... 349,897 Total retail......... 7,660,872 Construction.............. 731,630 Commercial mortgages...... 3,982,332 Residential mortgages..... 4,256,396 Total real estate.... 8,970,358 Lease financing........... 583,403 Foreign................... 441,087 Total loans.......... $29,868,991
7 NET INTEREST INCOME AND AVERAGE BALANCES TABLE 4
Twelve Months Ended 1997 1996 March 31 First Fourth Third Second 1997 Quarter Quarter Quarter Quarter NET INTEREST INCOME -- TAXABLE EQUIVALENT (thousands) Interest income: Loans................................... $2,642,844 $674,907 $674,328 $661,220 $632,389 Investment securities................... 602,960 146,060 147,020 155,485 154,395 Interest-bearing bank balances.......... 24,448 360 5,501 9,329 9,258 Federal funds sold and securities purchased under resale agreements..... 10,526 2,203 1,893 3,275 3,155 Trading account assets.................. 51,343 13,480 13,623 12,800 11,440 Total................................ 3,332,121 837,010 842,365 842,109 810,637 Interest expense: Interest-bearing demand................. 45,929 11,432 12,044 11,537 10,916 Savings and money market savings........ 288,203 79,351 75,359 68,561 64,932 Savings certificates.................... 367,509 89,091 92,584 94,149 91,685 Large denomination certificates......... 130,992 34,889 29,470 33,770 32,863 Time deposits in foreign offices........ 59,198 17,357 17,132 13,676 11,033 Short-term borrowed funds............... 415,773 95,069 100,949 109,725 110,030 Long-term debt.......................... 369,625 90,766 93,541 95,305 90,013 Total................................ 1,677,229 417,955 421,079 426,723 411,472 Net interest income....................... $1,654,892 $419,055 $421,286 $415,386 $399,165 Annualized net yield on interest-earning assets................. 4.06% 4.14% 4.11% 4.03% 3.99% AVERAGE BALANCES (millions) Assets: Loans -- net of unearned income......... $ 30,810 $ 31,481 $ 31,101 $ 30,660 $ 30,004 Investment securities................... 8,495 8,327 8,251 8,734 8,668 Interest-bearing bank balances.......... 312 28 276 478 462 Federal funds sold and securities purchased under resale agreements..... 194 164 138 240 232 Trading account assets.................. 941 1,050 995 893 825 Total interest-earning assets........ 40,752 41,050 40,761 41,005 40,191 Cash and due from banks................. 2,522 2,558 2,576 2,434 2,521 Premises and equipment.................. 639 639 632 642 643 Other assets............................ 2,041 2,079 2,095 2,059 1,931 Unrealized gains (losses) on securities available-for-sale.................... 62 60 74 40 74 Allowance for loan losses............... (402) (402) (401) (402) (404) Total assets......................... $ 45,614 $ 45,984 $ 45,737 $ 45,778 $ 44,956 Liabilities and shareholders' equity: Interest-bearing demand................. $ 3,294 $ 3,297 $ 3,354 $ 3,253 $ 3,272 Savings and money market savings........ 7,924 8,394 8,072 7,733 7,505 Savings certificates.................... 6,506 6,426 6,510 6,598 6,487 Large denomination certificates......... 2,262 2,586 1,989 2,256 2,222 Time deposits in foreign offices........ 1,125 1,331 1,286 1,033 849 Short-term borrowed funds............... 7,858 7,444 7,668 8,099 8,216 Long-term debt.......................... 6,176 5,910 6,206 6,454 6,129 Total interest-bearing liabilities... 35,145 35,388 35,085 35,426 34,680 Demand deposits in domestic offices....... 5,484 5,515 5,599 5,402 5,419 Demand deposits in foreign offices........ 1 -- -- 1 2 Noninterest-bearing time deposits in domestic offices........................ 4 3 5 5 5 Other liabilities......................... 1,330 1,425 1,377 1,313 1,206 Shareholders' equity...................... 3,650 3,653 3,671 3,631 3,644 Total liabilities and shareholders' equity............................... $ 45,614 $ 45,984 $ 45,737 $ 45,778 $ 44,956 Total deposits............................ $ 26,600 $ 27,552 $ 26,815 $ 26,281 $ 25,761 1996 First Quarter NET INTEREST INCOME -- TAXABLE EQUIVALENT (thousands) Interest income: Loans................................... $619,722 Investment securities................... 157,631 Interest-bearing bank balances.......... 9,018 Federal funds sold and securities purchased under resale agreements..... 3,250 Trading account assets.................. 12,499 Total................................ 802,120 Interest expense: Interest-bearing demand................. 12,669 Savings and money market savings........ 64,980 Savings certificates.................... 91,467 Large denomination certificates......... 39,634 Time deposits in foreign offices........ 13,101 Short-term borrowed funds............... 110,390 Long-term debt.......................... 81,087 Total................................ 413,328 Net interest income....................... $388,792 Annualized net yield on interest-earning assets................. 3.95% AVERAGE BALANCES (millions) Assets: Loans -- net of unearned income......... $ 29,218 Investment securities................... 8,795 Interest-bearing bank balances.......... 456 Federal funds sold and securities purchased under resale agreements..... 241 Trading account assets.................. 897 Total interest-earning assets........ 39,607 Cash and due from banks................. 2,612 Premises and equipment.................. 633 Other assets............................ 1,802 Unrealized gains (losses) on securities available-for-sale.................... 188 Allowance for loan losses............... (407) Total assets......................... $ 44,435 Liabilities and shareholders' equity: Interest-bearing demand................. $ 3,314 Savings and money market savings........ 7,285 Savings certificates.................... 6,401 Large denomination certificates......... 2,675 Time deposits in foreign offices........ 991 Short-term borrowed funds............... 8,055 Long-term debt.......................... 5,487 Total interest-bearing liabilities... 34,208 Demand deposits in domestic offices....... 5,365 Demand deposits in foreign offices........ 4 Noninterest-bearing time deposits in domestic offices........................ 3 Other liabilities......................... 1,168 Shareholders' equity...................... 3,687 Total liabilities and shareholders' equity............................... $ 44,435 Total deposits............................ $ 26,038
8 Reflecting continued good loan growth and ongoing balance sheet management, investment securities decreased $468 million or 5.3 percent from the year-earlier quarter. Held-to-maturity securities were lower by $236 million or 14.9 percent and available-for-sale securities declined $232 million or 3.2 percent. Investment securities were up modestly from the fourth quarter of 1996 with management increasing the portfolio in anticipation of additional future runoff. At March 31, 1997, securities available-for-sale totaled $7.144 billion and securities held-to-maturity were $1.326 billion as shown below. $ IN THOUSANDS Securities available-for-sale at market value: U.S. Government and agency......................................................................$5,291,719 Mortgage-backed securities...................................................................... 1,452,111 Other........................................................................................... 400,345 Total securities available-for-sale.......................................................... 7,144,175 Securities held-to-maturity: Mortgage-backed securities...................................................................... 1,097,808 State and municipal............................................................................. 225,523 Other........................................................................................... 2,225 Total securities held-to-maturity............................................................ 1,325,556 Total investment securities..................................................................$8,469,731
Securities held-to-maturity had a market value of $1.378 billion at March 31, 1997, representing a $52 million appreciation over book value. Securities available-for-sale marked to fair market value had an unrealized gain of $12.536 million, pretax, and $8.170 million, net of tax, on the same date. Average securities available-for-sale for the first quarter of 1997 had an unrealized gain of $60.643 million, pretax, and $37.350 million, net of tax. Interest expense for the quarter increased $4.627 million or 1.1 percent from a year earlier. The modest rise reflected higher levels of interest-bearing liabilities moderated by a more favorable mix of funding sources. Interest-bearing liabilities increased $1.180 billion or 3.4 percent while the average rate paid declined 7 basis points. Compared with the fourth quarter of 1996, interest expense was lower by $3.124 million or less than 1 percent due to two fewer accrual days, with interest-bearing liabilities rising $303 million or an annualized 3.6 percent and the average rate paid up 2 basis points. To further broaden its funding base, the corporation is issuing a variety of debt and equity instruments while continuing innovative marketing for traditional funding sources. This includes a global bank note program, the issuance of senior debt and trust capital securities and greater reliance on money market instruments, such as the corporation's Premiere account. Management believes that continued flexibility and innovation will be required by financial institutions to attract future funding through deposit products and alternative sources. Time deposits grew $1.368 billion or 6.6 percent year over year and represented 62.3 percent of total interest-bearing liabilities versus 60.4 percent in the year-earlier quarter and 60.5 percent in the fourth period of 1996. Gains were led principally by savings and money market savings, which rose $1.109 billion or 15.2 percent, and by foreign time deposits, up $340 million or 34.3 percent. Growth in savings and money market savings reflected continued good increases in the corporation's Premiere account, a federally insured savings account offering interest rates competitive with money market rates. Time deposits were higher by $823 million or 3.9 percent from the preceding quarter, with growth occurring primarily in large denomination certificates and in savings and money market savings. Short-term borrowings declined $611 million or 7.6 percent from the year-earlier period and were lower by $224 million or 2.9 percent from the preceding three months. Decreases from both periods reflected lower levels of federal funds purchased and securities sold under repurchase agreements and of other short-term borrowings, which consist mainly of short-term bank notes. Long-term debt rose $423 million or 7.7 percent year over year, reflecting growth in other long-term debt as medium-term bank note borrowings moderated. Compared with the fourth quarter of 1996, long-term debt was lower by $296 million or 4.8 percent. 9 TAXABLE EQUIVALENT RATE/VOLUME VARIANCE ANALYSIS -- FIRST QUARTER* TABLE 5
Variance Attributable Average Volume Average Rate Interest to 1997 1996 1997 1996 1997 1996 Variance Rate (Millions) INTEREST INCOME (Thousands) Loans: $ 9,866 $ 9,609 7.17 7.12 Commercial..................... $174,509 $170,217 $ 4,292 $ 885 1,779 2,149 8.96 8.95 Tax-exempt..................... 39,318 47,829 (8,511) 51 11,645 11,758 7.45 7.46 Total commercial............... 213,827 218,046 (4,219) (514) 763 734 9.39 9.36 Direct retail.................. 17,679 17,068 611 45 2,479 2,588 8.56 8.27 Indirect retail................ 52,354 53,193 (839) 1,643 4,795 3,958 12.59 11.57 Credit card.................... 148,865 113,856 35,009 10,240 358 353 12.17 12.37 Other revolving credit......... 10,730 10,857 (127) (226) 8,395 7,633 11.09 10.27 Total retail................... 229,628 194,974 34,654 15,319 1,037 693 9.23 9.19 Construction................... 23,575 15,848 7,727 67 4,443 3,963 8.19 8.30 Commercial mortgages........... 89,784 81,807 7,977 (1,160) 4,662 4,231 7.98 8.48 Residential mortgages.......... 91,749 89,204 2,545 (5,702) 10,142 8,887 8.20 8.46 Total real estate.............. 205,108 186,859 18,249 (6,131) 831 530 8.98 9.57 Lease financing................ 18,406 12,614 5,792 (829) 468 410 6.88 7.09 Foreign........................ 7,938 7,229 709 (229) 31,481 29,218 8.69 8.53 Total loans.................... 674,907 619,722 55,185 10,685 Investment securities: Held-to-maturity: -- -- -- -- U.S. Government and agency..... -- -- -- -- 1,105 1,269 8.08 8.06 Mortgage-backed securities..... 22,012 25,442 (3,430) 59 236 308 11.22 11.15 State and municipal............ 6,529 8,538 (2,009) 51 2 2 12.98 9.89 Other.......................... 60 57 3 15 Total securities 1,343 1,579 8.64 8.67 held-to-maturity....... 28,601 34,037 (5,436) (122) Available-for-sale:** 5,096 5,553 6.73 6.87 U.S. Government and agency..... 84,617 94,790 (10,173) (2,005) 1,493 1,499 7.20 7.07 Mortgage-backed securities..... 26,498 26,340 158 292 395 164 6.52 6.04 Other.......................... 6,344 2,464 3,880 206 Total securities 6,984 7,216 6.82 6.89 available-for-sale..... 117,459 123,594 (6,135) (1,461) 8,327 8,795 7.11 7.21 Total investment securities.... 146,060 157,631 (11,571) (2,372) Interest-bearing bank 28 456 5.18 7.95 balances....................... 360 9,018 (8,658) (2,330) Federal funds sold and securities purchased under 164 241 5.43 5.43 resale agreements............ 2,203 3,250 (1,047) -- 1,050 897 5.20 5.60 Trading account assets......... 13,480 12,499 981 (963) Total interest-earning $41,050 $39,607 8.27 8.15 assets......................... 837,010 802,120 34,890 9,987 INTEREST EXPENSE $ 3,297 $ 3,314 1.41 1.54 Interest-bearing demand........ 11,432 12,669 (1,237) (1,166) Savings and money market 8,394 7,285 3.67 3.59 savings........................ 79,351 64,980 14,371 4,362 6,426 6,401 5.62 5.75 Savings certificates........... 89,091 91,467 (2,376) (2,635) Large denomination 2,586 2,675 5.47 5.96 certificates................... 34,889 39,634 (4,745) (3,373) Total time deposits in 20,703 19,675 4.13 4.27 domestic offices....... 214,763 208,750 6,013 (3,329) Time deposits in foreign 1,331 991 5.29 5.31 offices........................ 17,357 13,101 4,256 (51) 22,034 20,666 4.20 4.32 Total time deposits...... 232,120 221,851 10,269 (2,825) Federal funds purchased and securities sold under 5,841 5,960 5.18 5.55 repurchase agreements........ 74,553 82,301 (7,748) (5,943) 680 554 4.88 4.93 Commercial paper............... 8,183 6,790 1,393 (72) Other short-term borrowed 923 1,541 5.41 5.56 funds.......................... 12,333 21,299 (8,966) (561) Total short-term 7,444 8,055 5.18 5.51 borrowed funds......... 95,069 110,390 (15,321) (6,726) 3,558 4,155 6.03 5.73 Bank notes..................... 52,905 59,158 (6,253) 2,853 2,352 1,332 6.53 6.62 Other long-term debt........... 37,861 21,929 15,932 (305) 5,910 5,487 6.23 5.94 Total long-term debt..... 90,766 81,087 9,679 3,732 Total interest-bearing $35,388 $34,208 4.74 4.86 liabilities............ 417,955 413,328 4,627 (6,996) 3.53 3.29 INTEREST RATE SPREAD NET YIELD ON INTEREST-EARNING ASSETS AND NET INTEREST 4.14 3.95 INCOME......................... $419,055 $388,792 $30,263 17,162 Variance Attributable to Volume INTEREST INCOME Loans: Commercial..................... $ 3,407 Tax-exempt..................... (8,562) Total commercial............... (3,705) Direct retail.................. 566 Indirect retail................ (2,482) Credit card.................... 24,769 Other revolving credit......... 99 Total retail................... 19,335 Construction................... 7,660 Commercial mortgages........... 9,137 Residential mortgages.......... 8,247 Total real estate.............. 24,380 Lease financing................ 6,621 Foreign........................ 938 Total loans.................... 44,500 Investment securities: Held-to-maturity: U.S. Government and agency..... -- Mortgage-backed securities..... (3,489) State and municipal............ (2,060) Other.......................... (12) Total securities held-to-maturity....... (5,314) Available-for-sale:** U.S. Government and agency..... (8,168) Mortgage-backed securities..... (134) Other.......................... 3,674 Total securities available-for-sale..... (4,674) Total investment securities.... (9,199) Interest-bearing bank balances....................... (6,328) Federal funds sold and securities purchased under resale agreements............ (1,047) Trading account assets......... 1,944 Total interest-earning assets......................... 24,903 INTEREST EXPENSE Interest-bearing demand........ (71) Savings and money market savings........................ 10,009 Savings certificates........... 259 Large denomination certificates................... (1,372) Total time deposits in domestic offices....... 9,342 Time deposits in foreign offices........................ 4,307 Total time deposits...... 13,094 Federal funds purchased and securities sold under repurchase agreements........ (1,805) Commercial paper............... 1,465 Other short-term borrowed funds.......................... (8,405) Total short-term borrowed funds......... (8,595) Bank notes..................... (9,106) Other long-term debt........... 16,237 Total long-term debt..... 5,947 Total interest-bearing liabilities............ 11,623 INTEREST RATE SPREAD NET YIELD ON INTEREST-EARNING ASSETS AND NET INTEREST INCOME......................... 13,101
*Interest income and yields are presented on a fully taxable equivalent basis using the federal income tax rate and state tax rates, as applicable, reduced by the nondeductible portion of interest expense **Volume amounts are reported at amortized cost; excludes pretax unrealized gains of $60 million in 1997 and $188 million in 1996 10 Other long-term debt at March 31, 1997 included a total of $600 million of 30-year trust capital securities issued in December 1996 and January 1997 and $200 million of 10-year senior debt fixed-rate notes issued in November 1996. The January 1997 issuance of trust capital securities was made by Wachovia Capital Trust II (WCTII), a consolidated subsidiary, for $300 million of floating rate capital securities due in 2027. WCTII invested the proceeds of the capital securities, together with $9.280 million paid by the corporation for WCTII's common securities, in $305.692 million, net of discount of $3.588 million, of the corporation's floating rate junior subordinated deferrable interest debentures. WCTII's sole asset is the junior subordinated deferrable interest debentures which mature in 2027. The corporation has fully and unconditionally guaranteed all of WCTII's obligations under the capital securities. Additionally, the capital securities qualify for inclusion in Tier I capital under the risk-based capital guidelines. The trust capital securities are rated Aa3 by Moody's and A+ by Standard & Poor's. Medium-term bank notes are part of Wachovia Bank of North Carolina's $16 billion global bank note program consisting of short-term issues of 7 days to one year and medium-term issues of greater than one year. Included in medium-term bank notes at March 31, 1997 were three issues placed in Europe in 1996: $500 million of five-year floating rate notes issued in May; $100 million of two-year fixed-rate notes issued in August; and $250 million of 12-year fixed-rate notes issued in October. All of the medium-term bank notes are rated Aa2 by Moody's and AA+ by Standard & Poor's. Gross deposits averaged $27.552 billion for the quarter, up $1.514 billion or 5.8 percent from $26.038 billion a year earlier. Collected deposits, net of float, averaged $25.675 billion, higher by $1.477 billion or 6.1 percent from $24.198 billion in the same three months of 1996. ASSET AND LIABILITY MANAGEMENT, INTEREST RATE SENSITIVITY AND LIQUIDITY MANAGEMENT The corporation uses a number of tools to measure interest rate risk, including simulating net interest income under various rate scenarios, monitoring the change in present value of the asset and liability portfolios under the same rate scenarios and monitoring the difference or gap between rate sensitive assets and liabilities over various time periods. Management believes that rate risk is best measured by simulation modeling which calculates expected net interest income based on projected interest-earning assets, interest-bearing liabilities, off-balance sheet financial instruments and interest rates. The corporation monitors exposure to a gradual change in rates of 200 basis points up or down over a rolling 12-month period and an interest rate shock of an instantaneous change in rates of 200 basis points up or down over the same period. From time to time, the model horizon is expanded to a 24-month period. The corporation policy limit for the maximum negative impact on net interest income from a gradual change in interest rates of 200 basis points over 12 months is 7.5 percent. Management generally has maintained a risk position well within the policy guideline level. As of March 31, 1997, the model indicated the impact of a 200 basis point gradual rise in rates over 12 months would approximate a 1.5 percent decrease in net interest income, while a 200 basis point decline in rates over the same period would approximate a 1.3 percent increase from an unchanged rate environment. In addition to on-balance sheet instruments such as investment securities and purchased funds, the corporation uses off-balance sheet derivative instruments to manage interest rate risk, liquidity and net interest income. Off-balance sheet instruments include interest rate swaps, futures and options with indices that directly correlate to on-balance sheet instruments. The corporation has used off-balance sheet financial instruments, principally interest rate swaps, over a number of years and believes their use on a sound basis enhances the effectiveness of asset and liability and interest rate sensitivity management. Off-balance sheet asset and liability derivative transactions are based on referenced or notional amounts. At March 31, 1997, the corporation had $2.360 billion notional amount of derivatives outstanding for asset and liability management purposes. Credit risk of off-balance sheet derivative financial instruments is equal to the fair value gain of the instrument if a counterparty fails to perform. 11 The credit risk is normally a small percentage of the notional amount and fluctuates as interest rates move up or down. The corporation mitigates this risk by subjecting the transactions to the same rigorous approval and monitoring process as is used for on-balance sheet credit transactions, by dealing in the national market with highly rated counterparties, by executing transactions under International Swaps and Derivatives Association Master Agreements and by using collateral instruments to reduce exposure where appropriate. Collateral is delivered by either party when the fair value of a particular transaction or group of transactions with the same counterparty on a net basis exceeds an acceptable threshold of exposure. The threshold level is determined based on the strength of the individual counterparty. The fair value of all asset and liability derivative positions for which the corporation was exposed to counterparties totaled $6 million at March 31, 1997. The fair value of all asset and liability derivative positions for which counterparties were exposed to the corporation amounted to $27 million on the same date. Fair value details and additional asset and liability derivative information are included in the following tables. Estimated Fair Value of Asset and Liability Management Derivatives by Purpose
March 31, 1997 March 31, 1996 Notional Fair Value Fair Value Net Fair Value Notional Net Fair Value $ IN MILLIONS Value Gains (Losses) Gains (Losses) Value Gains (Losses) Convert floating rate liabilities to fixed: Swaps-pay fixed/receive floating.... $ 164 $ 2 $ (2) $-- $ 116 $ (3) Convert fixed rate assets to floating: Swaps-pay fixed/receive floating.... 368 -- (4) (4) 387 (5) Forward starting swaps-pay fixed/receive floating............ 18 -- (1) (1) 39 (3) Convert fixed rate liabilities to floating: Swaps-receive fixed/pay floating.... 950 1 (19) (18) 300 (1) Convert liabilities with quarterly rate resets to monthly: Swaps-receive floating/pay floating.......................... 300 -- -- -- -- -- Convert floating rate assets to fixed: Swaps-receive fixed/pay floating.... 310 -- (1) (1) 167 1 Index amortizing swaps-receive fixed/pay floating................ 250 3 -- 3 325 11 Total derivatives............... $2,360 $ 6 ($27) ($21) $1,334 $--
12 Maturity Schedule of Asset and Liability Management Derivatives March 31, 1997
Within Over Average One Two Three Four Five Five Life Year Years Years Years Years Years Total (Years) $ IN MILLIONS Interest rate swaps: Pay fixed/receive floating: Notional amount.......................... $307 $ 116 $ 39 $ 4 $ 2 $ 64 $ 532 1.73 Weighted average rates received.......... 4.39% 5.55% 5.60 % 5.90% 6.24% 5.55% 4.90% Weighted average rates paid.............. 7.22 6.15 6.48 9.01 9.06 7.87 7.04 Receive fixed/pay floating: Notional amount.......................... $125 $ 152 $251 $ 103 $ 102 $ 527 $1,260 10.81 Weighted average rates received.......... 7.05% 6.57% 7.08 % 6.48% 7.12% 5.69% 6.39% Weighted average rates paid.............. 5.59 5.65 5.52 5.51 5.58 5.83 5.68 Receive floating/pay floating: Notional amount.......................... -- -- -- -- $ 300 -- $ 300 4.18 Weighted average rates received.......... -- -- -- -- 5.52% -- 5.52% Weighted average rates paid.............. -- -- -- -- 5.44 -- 5.44 Index amortizing swaps:* Receive fixed/pay floating: Notional amount.......................... $196 $ 27 $ 7 $ 20 -- -- $ 250 1.09 Weighted average rates received.......... 8.13% 8.56% 8.56 % 8.56% -- -- 8.22% Weighted average rates paid.............. 5.56 5.56 5.56 5.56 -- -- 5.56 Total interest rate swaps: Notional amount............................ $628 $ 295 $297 $ 127 $ 404 $ 591 $2,342 6.86 Weighted average rates received............ 6.10% 6.35% 6.91 % 6.78% 5.93% 5.68% 6.14% Weighted average rates paid................ 6.37 5.84 5.65 5.64 5.50 6.05 5.94 Forward starting interest rate swaps: Notional amount............................ -- -- -- -- -- $ 18 $ 18 7.05 Weighted average rates paid................ -- -- -- -- -- 8.04% 8.04% Total derivatives (notional amount).... $628 $ 295 $297 $ 127 $ 404 $ 609 $2,360 6.86
*Maturity is based upon expected average lives rather than contractual lives. Asset and liability transactions are accounted for following hedge accounting rules. Accordingly, gains and losses related to the fair value of derivative contracts used for asset and liability management purposes are not immediately recognized in earnings. If the hedged or altered balance sheet amounts were marked to market, the resulting unrealized balance sheet gains or losses could be expected to approximately offset unrealized derivatives gains and losses. To ensure the corporation is positioned to meet immediate and future cash demands, management relies on liquidity analysis, knowledge of business trends over past economic cycles and forecasts of future conditions. Liquidity is maintained through a strong balance sheet and operating performance that assures market acceptance as well as through policy guidelines which limit the level, maturity and concentration of noncore funding sources. Through its balance sheet, the corporation generates liquidity on the asset side by maintaining significant amounts of available-for-sale investment securities, which may be sold at any time, and by loans which may be securitized or sold. Additionally, the corporation generates cash through deposit growth, the issuance of bank notes, the availability of unused lines of credit and through other forms of debt and equity instruments. Through policy guidelines, the corporation limits net purchased funds to 50 percent of long-term assets, which include net loans and leases, investment securities with remaining maturities over one year and net foreclosed real estate. Policy guidelines insure against concentrations by maturity of noncore funding sources by limiting the cumulative percentage of purchased funds that mature overnight, within 30 days and within 90 days. Guidelines also require the monitoring of significant concentrations of funds by single sources and by type of borrowing category. 13 NONPERFORMING ASSETS Nonperforming assets at March 31, 1997 were $73.431 million or .23 percent of period-end loans and foreclosed property. The total was down $4.121 million or 5.3 percent from one year earlier and decreased $4.059 million or 5.2 percent from December 31, 1996. Declines from both periods principally reflected lower levels of foreclosed property. Included in total nonperforming assets at March 31, 1997 were real estate nonperforming assets of $55.966 million or .55 percent of real estate loans and foreclosed real estate. This compared with $63.937 million or .71 percent at first quarter-close 1996 and with $59.109 million or .59 percent at December 31, 1996. Real estate nonperforming loans were $45.752 million at March 31, 1997, $49.547 million one year earlier and $49.898 million at year-end 1996. Commercial real estate nonperforming assets were $29.766 million or .54 percent of related loans and foreclosed real estate versus $33.370 million or .71 percent at March 31, 1996 and $30.556 million or .57 percent at December 31, 1996. Included in these totals were commercial real estate nonperforming loans of $26.525 million at March 31, 1997, $29.815 million one year earlier and $27.080 million at year-end 1996. NONPERFORMING ASSETS AND CONTRACTUALLY PAST DUE LOANS TABLE 6 (thousands)
March 31 Dec. 31 Sept. 30 June 30 1997 1996 1996 1996 NONPERFORMING ASSETS Cash-basis assets -- domestic borrowers....................... $57,934 * $60,066 $61,283 $55,219 Restructured loans -- domestic................................ -- ** -- -- -- Total nonperforming loans............................... 57,934 60,066 61,283 55,219 Foreclosed property: Foreclosed real estate...................................... 12,189 11,326 12,852 15,162 Less valuation allowance.................................... 1,975 2,115 2,165 2,656 Other foreclosed assets..................................... 5,283 8,213 6,180 4,920 Total foreclosed property............................... 15,497 17,424 16,867 17,426 Total nonperforming assets.............................. $73,431 *** $77,490 $78,150 $72,645 Nonperforming loans to period-end loans....................... .18% .19% .19% .18% Nonperforming assets to period-end loans and foreclosed property..................................... .23 .25 .25 .24 Period-end allowance for loan losses times nonperforming loans................................... 7.07 X 6.81x 6.68 x 7.41x Period-end allowance for loan losses times nonperforming assets.................................. 5.57 5.28 5.24 5.63 CONTRACTUALLY PAST DUE LOANS (accruing loans past due 90 days or more) Domestic borrowers............................................ $54,717 $58,842 $53,304 $63,317 March 31 1996 NONPERFORMING ASSETS Cash-basis assets -- domestic borrowers....................... $57,867 Restructured loans -- domestic................................ -- Total nonperforming loans............................... 57,867 Foreclosed property: Foreclosed real estate...................................... 17,209 Less valuation allowance.................................... 2,819 Other foreclosed assets..................................... 5,295 Total foreclosed property............................... 19,685 Total nonperforming assets.............................. $77,552 Nonperforming loans to period-end loans....................... .19% Nonperforming assets to period-end loans and foreclosed property..................................... .26 Period-end allowance for loan losses times nonperforming loans................................... 7.07 x Period-end allowance for loan losses times nonperforming assets.................................. 5.27 CONTRACTUALLY PAST DUE LOANS (accruing loans past due 90 days or more) Domestic borrowers............................................ $57,415
*Includes $16,251 of loans which have been defined as impaired per Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan" (FASB 114) **Excludes $197 of loans which have been renegotiated at market rates and have been reclassified to performing status ***Net of cumulative corporate and commercial real estate charge-offs and foreclosed real estate write-downs totaling $13,430; includes $2,865 of nonperforming assets on which interest and principal are paid current 14 PROVISION AND ALLOWANCE FOR LOAN LOSSES The provision for loan losses for the first quarter was $47.998 million, slightly exceeding net loan losses and higher by $20.664 million or 75.6 percent from $27.334 million in the same period a year earlier. Compared with the fourth quarter of 1996, the provision was up $555 thousand or 1.2 percent. The provision reflects management's assessment of the adequacy of the allowance for loan losses to absorb potential write-offs in the loan portfolio due to a deterioration in credit conditions or change in risk profile. Factors considered in this assessment include growth and mix of the loan portfolio, current and anticipated economic conditions, historical credit loss experience and changes in borrowers' financial positions. The adequacy of the allowance also is assessed by management based on the corporation's practice to aggressively recognize problem credits and generally match charge-offs through the provision. Net loan losses were $47.983 million or .61 percent annualized of average loans, an increase of $20.769 million or 76.3 percent from the same three months in 1996. The rise reflected both higher losses in consumer loans, principally credit cards, and lower but more normalized recoveries of real estate loans previously charged off. Net loan losses rose $566 thousand or 1.2 percent from the preceding quarter, primarily due to reduced recoveries of commercial loan charge-offs. Excluding credit cards, net loan losses for the first quarter totaled $7.901 million or .12 percent annualized of average loans versus net recoveries of $664 thousand or .01 percent a year earlier and net loan losses of $7.759 million or .12 percent of loans in the fourth quarter of 1996. Credit card net charge-offs were $40.082 million or 3.34 percent annualized of average credit card loans, up $12.204 million or 43.8 percent from $27.878 million or 2.82 percent of average receivables in the year-earlier period. Other retail net charge-offs, associated with direct and indirect retail loans, rose $1.531 million or 34.5 percent to $5.974 million or .74 percent of related average receivables. Real estate loans had net recoveries of $277 thousand or .01 percent of average real estate loans, down $5.167 million or 94.9 percent from net recoveries of $5.444 million or .25 percent of real estate loans in the same three months of 1996. Selected data on the corporation's managed credit card portfolio, which includes securitized loans, is presented in the following table. Managed Credit and Data
1997 1996 First Fourth Third Second First $ IN THOUSANDS Quarter Quarter Quarter Quarter Quarter Average credit card outstandings............ $5,420,000 $5,167,000 $4,895,000 $4,670,000 $4,583,000 Net loan losses............................. 45,444 45,162 39,370 36,733 32,359 Annualized net loan losses to average loans..................................... 3.35% 3.50% 3.22% 3.15% 2.82% Delinquencies (30 days or more) to period-end loans.......................... 2.27 2.14 2.26 2.01 2.29
At March 31, 1997, the allowance for loan losses was $409.312 million, representing 1.26 percent of period-end loans and 707 percent of nonperforming loans. Comparable amounts were $408.928 million, 1.37 percent and 707 percent, respectively, one year earlier and $409.297 million, 1.31 percent and 681 percent, respectively, at fourth quarter-close 1996. 15 ALLOWANCE FOR LOAN LOSSES TABLE 7 (thousands)
1997 1996 First Fourth Third Second Quarter Quarter Quarter Quarter SUMMARY OF TRANSACTIONS Balance at beginning of period............................. $409,297 $409,271 $409,205 $408,928 Additions from acquisitions................................ -- -- -- 200 Provision for loan losses.................................. 47,998 47,443 40,730 34,404 Deduct net loan losses: Loans charged off: Commercial............................................. 268 451 2,748 324 Credit card............................................ 46,101 44,640 38,783 36,343 Other revolving credit................................. 1,637 2,834 1,790 1,346 Other retail........................................... 7,675 7,057 5,556 4,840 Real estate............................................ 1,455 814 191 1,371 Lease financing........................................ 1,366 675 348 235 Foreign................................................ -- -- -- -- Total................................................ 58,502 56,471 49,416 44,459 Recoveries: Commercial............................................. 476 1,689 666 1,198 Credit card............................................ 6,019 4,982 4,579 4,599 Other revolving credit................................. 532 384 495 290 Other retail........................................... 1,701 1,336 1,379 1,138 Real estate............................................ 1,732 633 1,575 2,866 Lease financing........................................ 59 30 58 41 Foreign................................................ -- -- -- -- Total................................................ 10,519 9,054 8,752 10,132 Net loan losses.......................................... 47,983 47,417 40,664 34,327 Balance at end of period*.................................. $409,312 $409,297 $409,271 $409,205 NET LOAN LOSSES (RECOVERIES) BY CATEGORY Commercial................................................. $ (208) $ (1,238) $ 2,082 $ (874) Credit card................................................ 40,082 39,658 34,204 31,744 Other revolving credit..................................... 1,105 2,450 1,295 1,056 Other retail............................................... 5,974 5,721 4,177 3,702 Real estate................................................ (277) 181 (1,384) (1,495) Lease financing............................................ 1,307 645 290 194 Foreign.................................................... -- -- -- -- Total................................................ $ 47,983 $ 47,417 $ 40,664 $ 34,327 Net loan losses -- excluding credit cards.................. $ 7,901 $ 7,759 $ 6,460 $ 2,583 ANNUALIZED NET LOAN LOSSES (RECOVERIES) TO AVERAGE LOANS BY CATEGORY Commercial................................................. (.01%) (.04%) .07% (.03%) Credit card................................................ 3.34 3.49 3.20 3.14 Other revolving credit..................................... 1.24 2.76 1.46 1.19 Other retail............................................... .74 .69 .50 .44 Real estate................................................ (.01) .01 (.06) (.07) Lease financing............................................ .63 .34 .17 .13 Foreign.................................................... -- -- -- -- Total loans................................................ .61 .61 .53 .46 Total loans -- excluding credit cards...................... .12 .12 .10 .04 Period-end allowance to outstanding loans.................. 1.26 1.31 1.30 1.33 1996 First Quarter SUMMARY OF TRANSACTIONS Balance at beginning of period............................. $408,808 Additions from acquisitions................................ -- Provision for loan losses.................................. 27,334 Deduct net loan losses: Loans charged off: Commercial............................................. 65 Credit card............................................ 31,902 Other revolving credit................................. 1,092 Other retail........................................... 5,495 Real estate............................................ 134 Lease financing........................................ 377 Foreign................................................ -- Total................................................ 39,065 Recoveries: Commercial............................................. 860 Credit card............................................ 4,024 Other revolving credit................................. 283 Other retail........................................... 1,052 Real estate............................................ 5,578 Lease financing........................................ 54 Foreign................................................ -- Total................................................ 11,851 Net loan losses.......................................... 27,214 Balance at end of period*.................................. $408,928 NET LOAN LOSSES (RECOVERIES) BY CATEGORY Commercial................................................. $ (795) Credit card................................................ 27,878 Other revolving credit..................................... 809 Other retail............................................... 4,443 Real estate................................................ (5,444) Lease financing............................................ 323 Foreign.................................................... -- Total................................................ $ 27,214 Net loan losses -- excluding credit cards.................. $ (664) ANNUALIZED NET LOAN LOSSES (RECOVERIES) TO AVERAGE LOANS BY CATEGORY Commercial................................................. (.03%) Credit card................................................ 2.82 Other revolving credit..................................... .92 Other retail............................................... .54 Real estate................................................ (.25) Lease financing............................................ .24 Foreign.................................................... -- Total loans................................................ .37 Total loans -- excluding credit cards...................... (.01) Period-end allowance to outstanding loans.................. 1.37
*Includes the related allowance for credit losses for impaired loans as defined in FASB 114, "Accounting by Creditors for Impairment of a Loan," of $792, $1,960, $1,453, $791 and $883, respectively 16 NONINTEREST INCOME Total other operating revenue for the quarter increased $17.560 million or 9.5 percent from a year earlier. Gains were led by deposit account service charge revenues, credit card fee income, electronic banking and trust service fees. Compared with the fourth quarter of 1996, total other operating revenue was lower by $1.771 million or slightly less than 1 percent, primarily due to reduced trading account profits and to softer growth in capital markets fees which are classified as part of other income. Deposit account service charge revenues rose $7.344 million or 13 percent year over year, reflecting growth largely in commercial analysis fees, overdraft charges and insufficient fund charges. Credit card fee income expanded $3.172 million or 9.8 percent driven by higher interchange income and increased overlimit charge activity. Electronic banking revenues, consisting of fees from debit card and ATM usage, were up $3.170 million or 33.9 percent. Growth reflected higher levels of debit card interchange income as well as the assessment of ATM foreign access fees. The access fees were implemented in all three of the corporation's operating states effective with the second quarter of 1996. Trust service fees rose $2.009 million or 5.8 percent, reflecting growth largely in personal trust services and in advisory fees earned on the corporation's proprietary Biltmore funds. Trading account profits were higher by $828 thousand or 24 percent due principally to improved bond market conditions compared with the year-earlier quarter. Trading account profits consist of profit and losses on securities in the corporation's trading account portfolio, income earned on foreign exchange transactions and income from derivatives valuation. Investment fee income increased $591 thousand or 5.8 percent. Higher income occurred in mutual fund business, loan syndication activity and brokerage commissions. Mortgage fee income decreased $916 thousand or 20.8 percent. The decline reflected lower mortgage loan production due to a higher interest rate environment. Remaining combined categories of total other operating revenue rose $1.362 million or 4.1 percent. Insurance premiums and commissions were up $1.844 million or 49.2 percent, and bankers' acceptance and letter of credit fees increased $1.273 million or 21.6 percent. Other service charges and fees declined modestly, and other income was lower by $1.667 million or 11.1 percent, reflecting softer growth largely in capital markets fee income. Including gains on investment securities sales, total noninterest income for the first quarter increased $17.197 million or 9.3 percent from a year earlier. Gains on investment securities sales totaled $335 thousand in the first three months of 1997 compared with $698 thousand in the same period of 1996. NONINTEREST INCOME TABLE 8 (thousands)
1997 1996 First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter Service charges on deposit accounts....................... $ 63,942 $ 62,564 $ 62,278 $ 60,928 $ 56,598 Fees for trust services................................... 36,354 35,116 33,872 34,508 34,345 Credit card income -- net of interchange payments......... 35,694 35,679 37,089 33,848 32,522 Electronic banking........................................ 12,510 13,274 12,910 12,582 9,340 Investment fee income..................................... 10,820 11,262 10,145 10,842 10,229 Mortgage fee income....................................... 3,485 4,195 4,099 4,289 4,401 Trading account profits -- excluding interest............. 4,280 7,593 6,076 5,698 3,452 Insurance premiums and commissions........................ 5,592 4,584 4,666 4,032 3,748 Bankers' acceptance and letter of credit fees............. 7,171 6,656 6,684 6,109 5,898 Other service charges and fees............................ 8,502 7,641 8,373 7,985 8,590 Other income.............................................. 13,315 14,872 11,586 17,774 14,982 Total other operating revenue....................... 201,665 203,436 197,778 198,595 184,105 Investment securities gains (losses)...................... 335 2,864 393 (219) 698 Total............................................... $202,000 $206,300 $198,171 $198,376 $184,803
17 NONINTEREST EXPENSE Total noninterest expense was up $15.891 million or 5.2 percent year over year. Growth was driven primarily by higher personnel costs, largely salaries. Compared with the fourth quarter of 1996, total noninterest expense grew $1.398 million or under 1 percent, principally due to higher social security tax payments in the first quarter. The corporation's overhead ratio measuring noninterest expense as a percentage of total adjusted revenues (taxable equivalent net interest income and total other operating revenue) improved to 52.2 percent from 53.8 percent a year earlier and compared with 51.7 percent in the preceding quarter. Total personnel expense grew $12.486 million or 7.7 percent. Salaries expense rose $10.435 million or 7.9 percent, reflecting increased employee headcount in growing business lines and in salesforce personnel. At March 31, 1997, full-time equivalent employees were 16,433 versus 16,191 one year earlier and 16,208 at the end of the 1996 fourth quarter. Employee benefits expense was up $2.051 million or 6.9 percent due to an increase in flexible benefit costs and payroll taxes associated with a larger personnel base. Combined net occupancy and equipment expense was down a modest $543 thousand or 1.1 percent. Net occupancy expense accounted for substantially all the decrease as building maintenance and renovation costs declined from the year-earlier quarter. Remaining combined categories of noninterest expense rose $3.948 million or 4.2 percent, due in large part to higher costs for outside data processing, programming and software expense. Included in this expense category are contract programming costs for systems investments largely in support of corporate growth initiatives. The corporation anticipates spending between $40 million to $50 million in 1997 for systems conversions related to making its computer systems year 2000 compliant. The majority of this expense will be incurred in the remaining three quarters of the year. NONINTEREST EXPENSE TABLE 9 (thousands)
1997 1996 First Fourth Third Second Quarter Quarter Quarter Quarter Salaries................................................... $142,255 $141,342 $137,627 $132,438 Employee benefits.......................................... 31,849 25,894 27,882 27,724 Total personnel expense.............................. 174,104 167,236 165,509 160,162 Net occupancy expense...................................... 22,193 21,559 23,161 22,184 Equipment expense.......................................... 28,873 29,032 28,844 28,054 Postage and delivery....................................... 10,483 9,813 9,973 9,780 Outside data processing, programming and software.......... 12,890 11,477 11,339 11,179 Stationery and supplies.................................... 6,203 6,131 6,012 6,951 Advertising and sales promotion............................ 13,648 13,289 14,442 15,502 Professional services...................................... 8,554 9,662 8,173 10,743 Travel and business promotion.............................. 5,321 5,959 4,929 5,335 Regulatory agency fees and other bank services............. 2,988 2,576 3,781 1,320 Amortization of intangible assets.......................... 1,063 1,091 1,095 1,098 Foreclosed property expense................................ (235) 225 (370) 175 Other expense.............................................. 38,051 44,688 39,591 37,604 Total................................................ $324,136 $322,738 $316,479 $310,087 Overhead ratio............................................. 52.2% 51.7% 51.6% 51.9% 1996 First Quarter Salaries................................................... $131,820 Employee benefits.......................................... 29,798 Total personnel expense.............................. 161,618 Net occupancy expense...................................... 22,678 Equipment expense.......................................... 28,931 Postage and delivery....................................... 10,452 Outside data processing, programming and software.......... 10,704 Stationery and supplies.................................... 7,006 Advertising and sales promotion............................ 17,071 Professional services...................................... 9,707 Travel and business promotion.............................. 4,237 Regulatory agency fees and other bank services............. 1,053 Amortization of intangible assets.......................... 1,078 Foreclosed property expense................................ (126) Other expense.............................................. 33,836 Total................................................ $308,245 Overhead ratio............................................. 53.8%
18 INCOME TAXES Applicable income taxes for the quarter were up $2.484 million or 3.6 percent. Income taxes computed at the statutory rate are reduced primarily by the interest earned on state and municipal loans and debt securities. Also, within certain limitations, one-half of the interest income earned on qualifying employee stock ownership plan loans is exempt from federal taxes. The interest earned on state and municipal debt instruments is exempt from federal taxes and, except for out-of-state issues, from Georgia and North Carolina taxes as well. The tax-exempt nature of these assets provides both an attractive return for the corporation and substantial interest savings for local governments and their constituents. INCOME TAXES TABLE 10 (thousands)
Three Months Three Months Ended Ended March 31 March 31 1997 1996 Income before income taxes................................................. $234,835 $219,139 Federal income taxes at statutory rate..................................... $ 82,192 $ 76,699 State and local income taxes -- net of federal benefit.......................................................... 3,709 2,890 Effect of tax-exempt securities interest and other income................................................ (11,322) (10,392) Other items................................................................ (2,826) 72 Total tax expense..................................................... $ 71,753 $ 69,269 Currently payable: Federal.................................................................. $ 52,798 $ 50,178 Foreign.................................................................. 59 96 State and local.......................................................... 1,878 2,205 Total................................................................. 54,735 52,479 Deferred: Federal.................................................................. 13,194 14,566 State and local.......................................................... 3,824 2,224 Total................................................................. 17,018 16,790 Total tax expense..................................................... $ 71,753 $ 69,269
19 NEW ACCOUNTING STANDARDS In June 1996, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" (FASB 125), which provides new accounting and reporting standards for sales, securitizations, and servicing of receivables and other financial assets and extinguishments of liabilities. FASB 125 is effective for transactions occurring after December 31, 1996, except for the provisions relating to repurchase agreements, securities lending and other similar transactions and pledged collateral, which have been delayed until after December 31, 1997 by FASB 127, "Deferral of the Effective Date of Certain Provisions of FASB Statement No. 125, an amendment of FASB Statement No. 125." Adoption of FASB 125 was not material; FASB 127 will be adopted as required in 1998 and is not expected to be material. In February 1997, Statement of Financial Accounting Standards No. 128, "Earnings per Share" (FASB 128), was issued and establishes new standards for computing and presenting earnings per share. FASB 128 is effective for the corporation's December 31, 1997 financial statements, including restatement of interim periods; earlier application is not permitted. The effect of the new standard will not be material. FINANCIAL CONDITION AND CAPITAL RATIOS Total assets at March 31, 1997 were $47.491 billion, including $42.260 billion of interest-earning assets and $32.570 billion of loans. Comparable amounts one year earlier were $45.425 billion of assets, $40.527 billion of interest-earning assets and $29.869 billion of loans. At December 31, 1996, assets totaled $46.905 billion, interest-earning assets were $40.789 billion and loans were $31.283 billion. Deposits at the end of the first quarter of 1997 were $28.832 billion, including $22.340 billion of time deposits, representing 77.5 percent of the total. Deposits one year earlier were $25.909 billion with time deposits of $20.384 billion or 78.7 percent of the total, and at December 31, 1996, deposits were $27.250 billion, including $21.135 billion of time deposits or 77.6 percent of the total. Shareholders' equity at March 31, 1997 was $3.676 billion compared with $3.729 billion one year earlier. The reduction in shareholders' equity primarily reflected the impact of the corporation's increased share repurchase activity. On January 24, 1997, the corporation was authorized by the board of directors to repurchase up to 10 million additional shares of its common stock replacing the most recent authorization approved on April 26, 1996 to repurchase up to 8 million shares. During the first quarter of 1997, the corporation repurchased a total of 2,665,100 shares of its common stock at an average price of $60.273 per share for a total cost of $160.634 million. This compared with a total of 1,955,700 shares that were repurchased in the same three months of 1996. Shareholders' equity at March 31, 1997 also included $8.170 million, net of tax, of unrealized gains on securities available- for-sale marked to fair market value versus $57.338 million, net of tax, one year earlier. Intangible assets totaled $38.297 million at March 31, 1997, consisting of $32.056 million in goodwill, $5.095 million in deposit base intangibles, $401 thousand in purchased credit card intangibles and $745 thousand in other intangibles. Comparable amounts one year earlier were $38.015 million of total intangible assets, with $29.099 million in goodwill, $6.559 million in deposit base intangibles, $1.194 million in purchased credit card intangibles and $1.163 million in other intangible assets. Regulatory agencies divide capital into Tier I (consisting of shareholders' equity and certain cumulative preferred stock instruments less ineligible intangible assets) and Tier II (consisting of the allowable portion of the reserve for loan losses and certain long-term debt) and measure capital adequacy by applying both capital levels to a banking company's risk-adjusted assets and off-balance sheet items. Regulatory requirements presently specify that Tier I capital should exclude the market appreciation or depreciation of securities available-for-sale arising from marking the securities portfolio to market value. In addition to these capital ratios, regulatory agencies have established a Tier I leverage ratio which measures Tier I capital to average assets less ineligible intangible assets. 20 Regulatory guidelines require a minimum of total capital to risk-adjusted assets ratio of 8 percent with at least one-half consisting of tangible common shareholders' equity and a minimum Tier I leverage ratio of 3 percent. Banks which meet or exceed a Tier I ratio of 6 percent, a total capital ratio of 10 percent and a Tier I leverage ratio of 5 percent are considered well-capitalized by regulatory standards. At March 31, 1997, the corporation's Tier I to risk-adjusted assets ratio was 9.81 percent and total capital to risk-adjusted assets was 13.40 percent. The Tier I leverage ratio was 9.22 percent. The capital ratios at first quarter-close 1997 included a total of $600 million of trust capital securities issued in December 1996 and January 1997. All of the corporation's banks are well-capitalized. CAPITAL COMPONENTS AND RATIOS TABLE 11 (thousands)
1997 1996 First Fourth Third Second Quarter Quarter Quarter Quarter Tier I capital: Common shareholders' equity......................... $ 3,676,080 $ 3,761,832 $ 3,729,194 $ 3,699,612 Trust capital securities............................ 596,578 300,000 -- -- Less ineligible intangible assets................... 32,056 32,474 32,893 33,312 Unrealized gains on securities available-for-sale, net of tax.................... (8,170) (42,462) (32,924) (24,066) Total Tier I capital............................ 4,232,432 3,986,896 3,663,377 3,642,234 Tier II capital: Allowable allowance for loan losses................. 409,312 409,297 409,271 409,205 Allowable long-term debt............................ 1,138,138 1,138,041 1,198,177 1,198,837 Tier II capital additions....................... 1,547,450 1,547,338 1,607,448 1,608,042 Total capital................................... $ 5,779,882 $ 5,534,234 $ 5,270,825 $ 5,250,276 Risk-adjusted assets.................................. $43,126,886 $42,669,628 $41,047,310 $40,249,143 Quarterly average assets.............................. $45,983,826 $45,737,397 $45,777,699 $44,956,032 Risk-based capital ratios: Tier I capital...................................... 9.81% 9.34% 8.92% 9.05% Total capital....................................... 13.40 12.97 12.84 13.04 Tier I leverage ratio*................................ 9.22 8.73 8.01 8.12 Shareholders' equity to total assets.................. 7.74 8.02 7.85 8.03 1996 First Quarter Tier I capital: Common shareholders' equity......................... $ 3,729,349 Trust capital securities............................ -- Less ineligible intangible assets................... 29,099 Unrealized gains on securities available-for-sale, net of tax.................... (57,338) Total Tier I capital............................ 3,642,912 Tier II capital: Allowable allowance for loan losses................. 408,928 Allowable long-term debt............................ 1,204,191 Tier II capital additions....................... 1,613,119 Total capital................................... $ 5,256,031 Risk-adjusted assets.................................. $38,803,497 Quarterly average assets.............................. $44,434,973 Risk-based capital ratios: Tier I capital...................................... 9.39% Total capital....................................... 13.55 Tier I leverage ratio*................................ 8.22 Shareholders' equity to total assets.................. 8.21
*Ratio excludes the average unrealized gains (losses) on securities available-for-sale, net of tax, of $37,350, $45,135, $24,358, $44,957 and $114,386, respectively 21 WACHOVIA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CONDITION
March 31 December 31 March 31 $ IN THOUSANDS 1997 1996 1996 ASSETS Cash and due from banks..................................................... $ 3,001,027 $3,367,673 $ 2,661,486 Interest-bearing bank balances.............................................. 36,581 27,871 460,481 Federal funds sold and securities purchased under resale agreements......................................... 126,055 179,426 398,560 Trading account assets...................................................... 1,056,922 1,185,688 856,077 Securities available-for-sale............................................... 7,144,175 6,760,486 7,407,370 Securities held-to-maturity (fair value of $1,377,812, $1,423,555 and $1,615,807, respectively).................................. 1,325,556 1,352,091 1,535,660 Loans and net leases........................................................ 32,578,613 31,290,905 29,877,059 Less unearned income on loans............................................... 8,357 7,713 8,068 Total loans............................................................ 32,570,256 31,283,192 29,868,991 Less allowance for loan losses.............................................. 409,312 409,297 408,928 Net loans.............................................................. 32,160,944 30,873,895 29,460,063 Premises and equipment...................................................... 640,861 644,000 643,412 Due from customers on acceptances........................................... 631,242 957,109 707,239 Other assets................................................................ 1,367,786 1,556,276 1,294,767 Total assets........................................................... $47,491,149 $46,904,515 $45,425,115 LIABILITIES Deposits in domestic offices: Demand.................................................................... $ 6,491,504 $6,115,540 $ 5,522,490 Interest-bearing demand................................................... 3,350,544 3,462,952 3,352,894 Savings and money market savings.......................................... 8,611,879 8,337,329 7,451,042 Savings certificates...................................................... 6,421,058 6,436,437 6,418,985 Large denomination certificates........................................... 2,791,697 1,710,061 2,239,966 Noninterest-bearing time.................................................. 4,067 2,974 4,030 Total deposits in domestic offices..................................... 27,670,749 26,065,293 24,989,407 Deposits in foreign offices: Demand.................................................................... -- -- 2,353 Time...................................................................... 1,160,977 1,184,829 916,803 Total deposits in foreign offices...................................... 1,160,977 1,184,829 919,156 Total deposits......................................................... 28,831,726 27,250,122 25,908,563 Federal funds purchased and securities sold under repurchase agreements.......................................... 6,255,895 6,298,130 6,983,025 Commercial paper............................................................ 663,524 706,226 549,034 Other short-term borrowed funds............................................. 1,340,838 967,097 909,311 Long-term debt: Bank notes................................................................ 3,065,344 4,307,802 4,823,147 Other long-term debt...................................................... 2,445,631 2,159,099 1,330,346 Total long-term debt................................................... 5,510,975 6,466,901 6,153,493 Acceptances outstanding..................................................... 631,242 957,109 707,239 Other liabilities........................................................... 580,869 497,098 485,101 Total liabilities...................................................... 43,815,069 43,142,683 41,695,766 SHAREHOLDERS' EQUITY Preferred stock, par value $5 per share: Authorized 50,000,000 shares; none outstanding............................ -- -- -- Common stock, par value $5 per share: Issued 161,558,786, 163,844,198 and 168,968,164, respectively............. 807,794 819,221 844,841 Capital surplus............................................................. 301,854 424,873 656,050 Retained earnings........................................................... 2,558,262 2,475,276 2,171,120 Unrealized gains on securities available-for-sale, net of tax............... 8,170 42,462 57,338 Total shareholders' equity............................................. 3,676,080 3,761,832 3,729,349 Total liabilities and shareholders' equity............................. $47,491,149 $46,904,515 $45,425,115
22 WACHOVIA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended March 31 $ IN THOUSANDS, EXCEPT PER SHARE 1997 1996 INTEREST INCOME Loans.............................................................................................. $665,577 $608,285 Securities available-for-sale: Other investments................................................................................ 115,081 119,274 Securities held-to-maturity: State and municipal.............................................................................. 4,496 5,883 Other investments................................................................................ 22,072 25,499 Interest-bearing bank balances..................................................................... 360 9,018 Federal funds sold and securities purchased under resale agreements................................................................ 2,203 3,250 Trading account assets............................................................................. 13,135 12,034 Total interest income....................................................................... 822,924 783,243 INTEREST EXPENSE Deposits: Domestic offices................................................................................. 214,763 208,750 Foreign offices.................................................................................. 17,357 13,101 Total interest on deposits.................................................................. 232,120 221,851 Short-term borrowed funds.......................................................................... 95,069 110,390 Long-term debt..................................................................................... 90,766 81,087 Total interest expense...................................................................... 417,955 413,328 NET INTEREST INCOME................................................................................ 404,969 369,915 Provision for loan losses.......................................................................... 47,998 27,334 Net interest income after provision for loan losses................................................ 356,971 342,581 OTHER INCOME Service charges on deposit accounts................................................................ 63,942 56,598 Fees for trust services............................................................................ 36,354 34,345 Credit card income................................................................................. 35,694 32,522 Electronic banking................................................................................. 12,510 9,340 Investment fee income.............................................................................. 10,820 10,229 Mortgage fee income................................................................................ 3,485 4,401 Trading account profits............................................................................ 4,280 3,452 Other operating income............................................................................. 34,580 33,218 Total other operating revenue............................................................... 201,665 184,105 Investment securities gains........................................................................ 335 698 Total other income.......................................................................... 202,000 184,803 OTHER EXPENSE Salaries........................................................................................... 142,255 131,820 Employee benefits.................................................................................. 31,849 29,798 Total personnel expense..................................................................... 174,104 161,618 Net occupancy expense.............................................................................. 22,193 22,678 Equipment expense.................................................................................. 28,873 28,931 Other operating expense............................................................................ 98,966 95,018 Total other expense......................................................................... 324,136 308,245 Income before income taxes......................................................................... 234,835 219,139 Applicable income taxes............................................................................ 71,753 69,269 NET INCOME......................................................................................... $163,082 $149,870 Net income per common share: Primary.......................................................................................... $ .99 $ .87 Fully diluted.................................................................................... $ .99 $ .87 Average shares outstanding: Primary.......................................................................................... 165,432 171,467 Fully diluted.................................................................................... 165,441 171,653
23 WACHOVIA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Unrealized Securities Common Stock Capital Retained Gains $ IN THOUSANDS, EXCEPT PER SHARE Shares Amount Surplus Earnings (Losses) PERIOD ENDED MARCH 31, 1996 Balance at beginning of year....................... 170,358,504 $851,793 $713,120 $2,092,731 $116,113 Net income......................................... 149,870 Cash dividends declared on common stock -- $.36 a share............................ (61,089) Common stock issued pursuant to: Stock option and employee benefit plans.......... 320,441 1,602 17,091 Dividend reinvestment plan....................... 75,843 379 3,149 Conversion of debentures......................... 228,096 1,141 3,244 Common stock acquired.............................. (2,014,720) (10,074) (80,553) Unrealized losses on securities available-for-sale, net of tax................... (58,775) Miscellaneous...................................... (1) (10,392) Balance at end of period........................... 168,968,164 $844,841 $656,050 $2,171,120 $ 57,338 PERIOD ENDED MARCH 31, 1997 Balance at beginning of year....................... 163,844,198 $819,221 $424,873 $2,475,276 $ 42,462 Net income......................................... 163,082 Cash dividends declared on common stock -- $.40 a share............................ (65,408) Common stock issued pursuant to: Stock option and employee benefit plans.......... 386,892 1,934 23,890 Dividend reinvestment plan....................... 58,328 292 3,231 Common stock acquired.............................. (2,730,632) (13,653) (150,818) Unrealized losses on securities available-for-sale, net of tax................... (34,292) Miscellaneous...................................... 678 (14,688) Balance at end of period........................... 161,558,786 $807,794 $301,854 $2,558,262 $ 8,170
24 WACHOVIA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31 $ IN THOUSANDS 1997 1996 OPERATING ACTIVITIES Net income...................................................................................... $ 163,082 $ 149,870 Adjustments to reconcile net income to net cash provided by operations: Provision for loan losses..................................................................... 47,998 27,334 Depreciation and amortization................................................................. 21,847 22,263 Deferred income taxes......................................................................... 17,018 16,790 Investment securities gains................................................................... (335) (698) Gain on sale of noninterest-earning assets.................................................... (28) (448) Increase in accrued income taxes.............................................................. 54,179 59,271 Increase in accrued interest receivable....................................................... (9,853) (6,378) Increase (decrease) in accrued interest payable............................................... 50,300 (1,984) Net change in other accrued and deferred income and expense................................... (54,246) (41,544) Net trading account activities................................................................ 128,766 258,849 Net change in loans held for resale........................................................... (297,120) 5,436 Net cash provided by operating activities................................................... 121,608 488,761 INVESTING ACTIVITIES Net increase in interest-bearing bank balances.................................................. (8,710) (9,202) Net decrease (increase) in federal funds sold and securities purchased under resale agreements............................................................. 53,371 (254,455) Purchases of securities available-for-sale...................................................... (850,111) (405,217) Purchases of securities held-to-maturity........................................................ (35,152) (505) Sales of securities available-for-sale.......................................................... 123,163 790 Calls, maturities and prepayments of securities available-for-sale.............................. 278,167 310,636 Calls, maturities and prepayments of securities held-to-maturity................................ 62,719 85,792 Net increase in loans made to customers......................................................... (1,039,839) (641,194) Capital expenditures............................................................................ (23,154) (40,297) Proceeds from sales of premises and equipment................................................... 865 5,257 Net decrease (increase) in other assets......................................................... 252,500 (65,629) Net cash used by investing activities....................................................... (1,186,181) (1,014,024) FINANCING ACTIVITIES Net increase in demand, savings and money market accounts....................................... 539,199 3,683 Net increase (decrease) in certificates of deposit.............................................. 1,042,405 (463,877) Net (decrease) increase in federal funds purchased and securities sold under repurchase agreements.............................................................. (42,235) 1,132,485 Net (decrease) increase in commercial paper..................................................... (42,702) 46,898 Net increase (decrease) in other short-term borrowings.......................................... 373,741 (811,281) Proceeds from issuance of bank notes............................................................ -- 1,349,236 Maturities of bank notes........................................................................ (1,241,283) (614,328) Proceeds from issuance of other long-term debt.................................................. 293,252 -- Payments on other long-term debt................................................................ (122) (106) Common stock issued............................................................................. 9,583 7,799 Dividend payments............................................................................... (65,408) (61,089) Common stock repurchased........................................................................ (161,155) (88,319) Net decrease in other liabilities............................................................... (7,348) (6,670) Net cash provided by financing activities................................................... 697,927 494,431 DECREASE IN CASH AND CASH EQUIVALENTS........................................................... (366,646) (30,832) Cash and cash equivalents at beginning of year.................................................. 3,367,673 2,692,318 Cash and cash equivalents at end of period...................................................... $3,001,027 $2,661,486 SUPPLEMENTAL DISCLOSURES Unrealized losses on securities available-for-sale: Decrease in securities available-for-sale..................................................... $ (56,778) $ (95,566) Increase in deferred taxes.................................................................... 22,486 36,791 Decrease in shareholders' equity.............................................................. (34,292) (58,775)
25 (WACHOVIA LOGO APPEARS HERE) Wachovia Corporation Bulk Rate P.O. Box 3099 U.S. POSTAGE PAID Winston-Salem, NC 27150 WACHOVIA CORPORATION EX-3 2 EXHIBIT 3.2 BYLAWS OF WACHOVIA CORPORATION Effective October 23, 1992 Amended through January 24, 1997 TABLE OF CONTENTS TO BYLAWS OF WACHOVIA CORPORATION
Page ARTICLE 1 MEETINGS OF SHAREHOLDERS........................................................................................ 1 Section 1.1. Place of Meeting................................................................ 1 Section 1.2. Annual Meeting.................................................................. 1 Section 1.3. Substitute Annual Meeting....................................................... 1 Section 1.4. Special Meetings................................................................ 1 Section 1.5. Notice of Meetings.............................................................. 1 Section 1.6. Quorum.......................................................................... 2 Section 1.7. Shareholders' List.............................................................. 2 Section 1.8. Voting of Shares................................................................ 2 Section 1.9. Conduct of Meeting and Order of Business........................................ 2 ARTICLE 2 BOARD OF DIRECTORS.............................................................................................. 3 Section 2.1. General Powers.................................................................. 3 Section 2.2. Number, Term, Qualification and Nomination...................................... 3 Section 2.3. Removal......................................................................... 4 Section 2.4. Vacancies....................................................................... 4 Section 2.5. Compensation.................................................................... 4 Section 2.6. Directors Emeritus.............................................................. 5 ARTICLE 3 MEETINGS OF DIRECTORS........................................................................................... 5 Section 3.1. Regular Meetings................................................................ 5 Section 3.2. Special Meetings................................................................ 5 Section 3.3. Notice of Meetings.............................................................. 5 Section 3.4. Quorum.......................................................................... 5 Section 3.5. Manner of Acting................................................................ 5 Section 3.6. Presumption of Assent........................................................... 6 Section 3.7. Action Without Meeting.......................................................... 6 Section 3.8. Meeting by Communications Device................................................ 6 ARTICLE 4 COMMITTEES...................................................................................................... 6 Section 4.1. Election and Powers............................................................. 6 Section 4.2. Removal; Vacancies.............................................................. 7 Section 4.3. Meetings........................................................................ 7 Section 4.4. Minutes......................................................................... 7 Section 4.5. Standing Committees............................................................. 7 i ARTICLE 5 OFFICERS........................................................................................................ 7 Section 5.1. Titles.......................................................................... 7 Section 5.2. Election; Appointment........................................................... 8 Section 5.3. Removal......................................................................... 8 Section 5.4. Vacancies....................................................................... 8 Section 5.5. Compensation.................................................................... 8 Section 5.6. Chief Executive Officer......................................................... 8 Section 5.7. Chairman of the Board of Directors.............................................. 9 Section 5.8. President....................................................................... 9 Section 5.9. Vice Chairmen.................................................................... 9 Section 5.10. Vice Presidents.................................................................. 9 Section 5.11. Secretary........................................................................ 9 Section 5.12. Assistant Secretaries............................................................ 9 Section 5.13. Voting Upon Stocks............................................................... 9 ARTICLE 6 CAPITAL STOCK................................................................................................... 10 Section 6.1. Certificates.................................................................... 10 Section 6.2. Transfer of Shares.............................................................. 10 Section 6.3. Transfer Agent and Registrar.................................................... 10 Section 6.4. Regulations..................................................................... 10 Section 6.5. Fixing Record Date.............................................................. 10 Section 6.6. Lost Certificates............................................................... 10 ARTICLE 7 INDEMNIFICATION OF DIRECTORS AND OFFICERS....................................................................... 11 Section 7.1. Indemnification Provisions...................................................... 11 Section 7.2. Definitions..................................................................... 11 Section 7.3. Settlements..................................................................... 11 Section 7.4. Litigation Expense Advances..................................................... 11 Section 7.5. Approval of Indemnification Payments............................................ 12 Section 7.6. Suits by Claimant............................................................... 13 Section 7.7. Consideration; Personal Representatives and Other Remedies...................... 13 Section 7.8. Scope of Indemnification Rights................................................. 13 ARTICLE 8 GENERAL PROVISIONS.............................................................................................. 13 Section 8.1. Dividends and other Distributions............................................... 14 Section 8.2. Seal............................................................................ 14 Section 8.3. Waiver of Notice................................................................ 14 Section 8.4. Checks.......................................................................... 14 Section 8.5. Fiscal Year..................................................................... 14 Section 8.6. Amendments...................................................................... 14 Section 8.7. Applicability of Antitakeover Statutes.......................................... 14
ii BYLAWS OF WACHOVIA CORPORATION ARTICLE 1 MEETINGS OF SHAREHOLDERS Section 1.1. Place of Meeting. Meetings of shareholders shall be held at the principal office of the corporation in Winston-Salem, North Carolina or Atlanta, Georgia, or at such other place, either within or without the States of Georgia, North Carolina and South Carolina, as shall be fixed by the board of directors or the chief executive officer and designated in the notice of the meeting. Section 1.2. Annual Meeting. The annual meeting of shareholders shall be held at 10:30 a.m. on the fourth Friday in April of each year, if not a legal holiday, but if a legal holiday, then on the preceding business day which is not a legal holiday, or at such other hour and date as the board of directors, the chief executive officer or secretary may designate, for the purpose of electing directors of the corporation and the transaction of such other business as may be properly brought before the meeting. Section 1.3. Substitute Annual Meeting. If the annual meeting is not held on the day designated or provided for in these bylaws, a substitute annual meeting may be called in accordance with Section 1.4. A meeting so called shall be designated and treated for all purposes as the annual meeting. Section 1.4. Special Meetings. Special meetings of the shareholders may be called at any time by the chief executive officer or the board of directors. Section 1.5. Notice of Meetings. At least 10 and no more than 60 days prior to any annual or special meeting of shareholders, the corporation shall notify shareholders of the date, time and place of the meeting and, in the case of a special or substitute annual meeting or where otherwise required by law, shall briefly describe the purpose or purposes of the meeting. Only business within the purpose or purposes described in the notice may be conducted at a special meeting. Unless otherwise required by law or by the articles of incorporation (including, but not limited to, in the event of a meeting to consider the adoption of a plan of merger or share exchange, a sale of assets other than in the ordinary course of business or a voluntary dissolution), the corporation shall be required to give notice only to shareholders entitled to vote at the meeting. If an annual or special shareholders' meeting is adjourned to a different date, time or place, notice thereof need not be given if the new date, time or place is announced at the meeting before adjournment. If a new record date for the adjourned meeting is fixed pursuant to Section 6.5 hereof, notice of the adjourned meeting shall be given to persons who are shareholders as of the new record date. It shall be the primary responsibility of the secretary to give the notice, but notice may be given by or at the direction of the chief executive officer or other person or persons calling the meeting. If mailed, such notice shall be deemed to be effective when deposited in the United States mail with postage thereon prepaid, correctly addressed to the shareholder's address shown in the corporation's current record of shareholders. Section 1.6. Quorum. A majority of the votes entitled to be cast by a voting group on a matter, represented in person or by proxy at a meeting of shareholders, shall constitute a quorum for that voting group for any action on that matter, unless the articles of incorporation provide otherwise or other quorum requirements are fixed by law, including by a court of competent jurisdiction acting pursuant to Section 55-7-03 of the General Statutes of North Carolina. Once a share is represented for any purpose at a meeting, it is deemed present for quorum purposes for the remainder of the meeting and any adjournment thereof, unless a new record date is or must be set for the adjournment. Action may be taken by a voting group at any meeting at which a quorum of that voting group is represented, regardless of whether action is taken at that meeting by any other voting group. In the absence of a quorum at the opening of any meeting of shareholders, such meeting may be adjourned from time to time, subject to Section 6.5, by a vote of the majority of the shares voting on the motion to adjourn. Section 1.7. Shareholders' List. After a record date is fixed for a meeting, the secretary of the corporation shall prepare an alphabetical list of the names of all its shareholders who are entitled to notice of the shareholders' meeting. Such list shall be arranged by voting group (and within each voting group by class or series of shares) and shall show the address of and number of shares held by each shareholder. The shareholders' list shall be made available for inspection by any shareholder beginning two business days after notice of the meeting is given for which the list was prepared and continuing through the meeting, at the corporation's principal office or at such other place identified in the meeting notice in the city where the meeting will be held. The corporation shall make the shareholders' list available at the meeting, and any shareholder or his agent or attorney is entitled to inspect the list at any time during the meeting or any adjournment. Section 1.8. Voting of Shares. Except as otherwise provided by the articles of incorporation or by law, each outstanding share of voting capital stock of the corporation shall be entitled to one vote on each matter submitted to a vote at a meeting of the shareholders. Unless otherwise provided in the articles of incorporation, cumulative voting for directors shall not be allowed. Action on a matter by a voting group for which a quorum is present is approved if the votes cast within the voting group favoring the action exceed the votes cast opposing the action, unless the vote of a greater number is required by law or by the articles of incorporation. Absent special circumstances, the shares of the corporation are not entitled to vote if they are owned, directly or indirectly, by a second corporation, domestic or foreign, and the corporation owns, directly or indirectly, a majority of the shares entitled to vote for directors of the second corporation, except that this provision shall not limit the power of the corporation to vote shares held by it in a fiduciary capacity. Section 1.9. Conduct of Meeting and Order of Business. The chairman of the board of directors shall act as chairman at all meetings of shareholders and the secretary of the corporation or, in his absence, an assistant secretary, shall act as secretary at all meetings of shareholders. The chairman shall have the right and authority to determine and maintain the rules, regulations and procedures for the proper conduct of the meeting, including but not limited to restricting entry to the meeting after it has commenced, maintaining order and the safety of those in attendance, opening and closing the polls for voting, dismissing business not properly submitted, and limiting time allowed for discussion of the business of the meeting. Business to be conducted at meetings of shareholders shall be limited to that properly submitted to the meeting either by or at the direction of the board of directors or by any holder of voting securities of the corporation who shall be entitled to vote at such meeting and who complies with the -2- notice requirements of applicable law or as otherwise set forth in the articles of incorporation or the bylaws of the corporation. If the chairman of the meeting shall determine that any business was not properly submitted, he shall declare to the meeting that such business was not properly submitted and would not be transacted at that meeting. ARTICLE 2 BOARD OF DIRECTORS Section 2.1. General Powers. All corporate powers shall be exercised by or under the authority of, and the business and affairs of the corporation shall be managed under the direction of, the board of directors. Section 2.2. Number, Term, Qualification and Nomination. The number of directors constituting the board of directors shall be not less than nine nor more than 25 as may be fixed by resolution duly adopted by the board of directors prior to the annual meeting at which such directors are to be elected or by the shareholders, but in the absence of such resolution, the number of directors elected at the meeting shall constitute the number of directors of the corporation until the next annual meeting of shareholders. The board of directors shall be divided into three classes as equal in number as may be feasible, with the term of office of one class expiring each year. The members of the initial board of directors shall be divided into three classes as hereinafter provided, with directors of the first class to hold office for a term expiring at the first annual meeting of shareholders, directors of the second class to hold office for a term expiring at the second annual meeting of shareholders and directors of the third class to hold office for a term expiring at the third annual meeting of shareholders. At each annual meeting of shareholders, successors to the directors whose terms shall then expire shall be elected to hold office for terms expiring at the third succeeding annual meeting. In case of any vacancies, by reason of an increase in the number of directors or otherwise, each additional director may be elected by the board of directors to hold office until the end of the term he is elected to fill and until his successor shall have been elected and qualified in the class to which such director is assigned and for the term or remainder of the term of such class. Directors shall continue in office until others are chosen and qualified in their stead. When the number of directors is changed, any newly created directorships or any decrease in directorships shall be so assigned among the classes by a majority of the directors then in office, though less than a quorum, as to make all classes as equal in number as may be feasible. No decrease in the number of directors shall shorten the term of any incumbent director. No person shall be elected a director nor shall continue to serve an unexpired term as a director past the annual meeting of the corporation if such person has, as of the date of the annual meeting, reached the age of 67 years. No person shall be elected as a director who has retired from active participation in the person's principal business or from the active practice of the person's principal profession; however, a director who retires from active participation in his or her principal business or profession during the course of an unexpired term as director may complete such unexpired term subject to the above age 67 limitation. Notwithstanding the foregoing, a person who has served for five or more years as Chief Executive Officer of the corporation may complete, after retirement as an employee -3- of the corporation, an unexpired term and may be elected and serve thereafter as a director, provided, however, that such person's service as a director shall not extend beyond the annual meeting of the corporation immediately following the date on which he or she reaches 66 years of age. Each director nominee must be the owner in his or her own right of shares of stock of the corporation having a par value of not less than $1,000. Other qualifications which shall be considered in the selection of director nominees are the extent of experience in business, finance or management; the extent of knowledge in regional, national or international business and finance; and the overall capacity to advise and govern the corporation in fulfilling its mission and meeting its responsibilities to shareholders, customers, employees and the public. Nominations for election as a director by the board of directors in connection with any annual meeting or substitute annual meeting of shareholders shall include the chairman and the president if such person is not then a director or if his term as a director will expire at such meeting. Nominations for election as a director by a holder of any outstanding class of shares of the corporation entitled to vote for the election of directors shall specify the class of directors to which each person is nominated, be made in writing and be delivered or mailed to the chief executive officer of the corporation not less than 14 days or more than 50 days prior to any meeting of shareholders called for the election of directors; provided, if less than 21 days' notice of the meeting is given to shareholders, such notification of nomination shall be mailed or delivered to the chief executive officer of the corporation not later than the close of business on the seventh day following the day on which the notice of meeting was mailed. Such notification shall contain the following information to the extent known by the notifying shareholder: (a) the name, age and address of each proposed nominee; (b) the principal occupation of each proposed nominee; (c) the total number of shares that will be voted for each proposed nominee; (d) the name and residence address of the notifying shareholder; (e) the number of shares owned by the notifying shareholder; and (f) a biographical profile of the individual with a statement of his or her qualifications. Nominations not made in accordance herewith may be disregarded by the chairman of the meeting in his discretion, and upon his instructions the voting inspectors or tabulators may disregard all votes cast for each such nominee. Section 2.3. Removal. Any director may be removed from office as a director, but only for cause, by the affirmative vote at a meeting called as provided herein for that purpose, of at least 66- 2/3% in interest of the holders of voting stock of the corporation issued and outstanding, including a majority in interest of the holders of issued and outstanding voting stock of the corporation held by persons other than any person who is an "Interested Shareholder" as defined in paragraph (3) of Article X.D of the corporation's articles of incorporation; provided, the notice of the shareholders' meeting at which such action is to be taken states that a purpose of the meeting is removal of the director and the number of votes cast to remove the director exceeds the number of votes cast not to remove him. Section 2.4. Vacancies. Except as otherwise provided in the articles of incorporation or these bylaws, a vacancy occurring in the board of directors, including, without limitation, a vacancy resulting from an increase in the number of directors or from the failure by the shareholders to elect the full authorized number of directors, may be filled by a majority of the remaining directors or by the sole director remaining in office. The shareholders may elect a director at any time to fill a vacancy not filled by the directors. A director elected to fill a vacancy shall be elected for the unexpired term of his predecessor in office. -4- Section 2.5. Compensation. The directors shall have authority to vote themselves reasonable compensation for their services as directors. The directors may provide for their own indemnification and for the indemnification of others, in accordance with these bylaws or as otherwise authorized by law, and the directors may authorize the purchase of insurance in connection therewith. Any director may serve the corporation in any other capacity and receive compensation therefor. Section 2.6. Directors Emeritus. Upon retiring from the board of directors, a director may be elected a director emeritus by the board of directors. A director emeritus shall not have the right to vote and shall not be charged with the responsibilities or be subject to the liabilities of directors. A director emeritus may attend meetings of the board only upon invitation of the directors. ARTICLE 3 MEETINGS OF DIRECTORS Section 3.1. Regular Meetings. Regular meetings of the board of directors shall be held on the fourth Friday of January, April, July and October of each year at the principal offices of the Company in Winston-Salem, North Carolina or Atlanta, Georgia, unless the board of directors fixes some other place or time for the holding of such meetings. If any date for which a regular meeting is scheduled shall be a legal holiday, the meeting shall be held on such other date as is designated in a notice of the meeting. If possible, the directors, including directors-elect, shall meet following each annual meeting of shareholders for the purpose of organizing the board and electing officers for the succeeding year; provided, in any event the new board shall be organized and officers elected no later than at the next regular meeting of the directors. Section 3.2. Special Meetings. Special meetings of the board of directors may be called by or at the request of the chief executive officer or any three directors. Such meetings may be held at the time and place designated in the notice of the meeting. Section 3.3. Notice of Meetings. Unless the articles of incorporation provide otherwise, regular meetings of the board of directors held on a date specified in or pursuant to the first sentence of Section 3.1 may be held without notice of the date, time, place or purpose of the meeting. The secretary giving notice of a regular meeting to be held on a date other than a date specified in or pursuant to the first sentence of Section 3.1, and the secretary or other person calling a special meeting, shall give notice by any usual means of communication to be sent at least 24 hours before the meeting if notice is sent by means of telephone, telecopy or personal delivery and at least five days before the meeting if notice is sent by mail. Section 3.4. Quorum. Except as otherwise provided in the articles of incorporation, a majority of the directors in office shall constitute a quorum for the transaction of business at a meeting of the board of directors, provided a majority of the directors present are not also officers of the corporation. Less than a quorum may adjourn any meeting from time to time, and the meeting as adjourned may be held without further notice. In the event of the death, disability or other absence of -5- directors due to war or other catastrophe, reducing the number of directors able to attend a meeting to less than that required for a quorum, a majority of the remaining directors shall constitute a quorum. Section 3.5. Manner of Acting. Except as otherwise provided in the articles of incorporation, the affirmative vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the board of directors. Section 3.6. Presumption of Assent. A director of the corporation who is present at a meeting of the board of directors at which action on any corporate matter is taken is deemed to have assented to the action taken unless he objects at the beginning of the meeting (or promptly upon arrival) to holding, or transacting business at, the meeting, or unless his dissent or abstention is entered in the minutes of the meeting or unless he shall file written notice of his dissent or abstention to such action with the presiding officer of the meeting before its adjournment or with the corporation immediately after adjournment of the meeting. The right of dissent or abstention shall not apply to a director who voted in favor of such action. Section 3.7. Action Without Meeting. Unless otherwise provided in the articles of incorporation, action required or permitted to be taken at a meeting of the board of directors may be taken without a meeting if the action is taken by all members of the board. The action must be evidenced by one or more written consents signed by each director before or after such action, describing the action taken, and included in the minutes or filed with the corporate records. Action taken without a meeting is effective when the last director signs the consent, unless the consent specifies a different effective date. Section 3.8. Meeting by Communications Device. Unless otherwise provided in the articles of incorporation, the board of directors may permit any or all directors to participate in a regular or special meeting by, or conduct the meeting through the use of, any means of communication by which all directors participating may simultaneously hear each other during the meeting. A director participating in a meeting by this means is deemed to be present in person at the meeting. ARTICLE 4 COMMITTEES Section 4.1. Election and Powers. Unless otherwise provided by the articles of incorporation, a majority of the board of directors may create one or more committees and appoint two or more directors to serve at the pleasure of the board on each such committee. To the extent specified by the board of directors or in the articles of incorporation or the bylaws, each committee shall have and may exercise the powers of the board in the management of the business and affairs of the corporation, except that no committee shall have authority to do the following: (a) Authorize distributions. (b) Approve or propose to shareholders action required to be approved by shareholders. -6- (c) Fill vacancies on the board of directors or on any of its committees. (d) Amend the articles of incorporation. (e) Adopt, amend or repeal the bylaws. (f) Approve a plan of merger not requiring shareholder approval. (g) Authorize or approve the reacquisition of shares, except according to a formula or method prescribed by the board of directors. (h) Authorize or approve the issuance, sale or contract for sale of shares, or determine the designation and relative rights, preferences and limitations of a class or series of shares, except that the board of directors may authorize the executive committee (or a senior executive officer of the corporation) to do so within limits specifically prescribed by the board of directors. The board of directors or the chief executive officer may establish nonboard committees composed of directors, employees or others to deal with corporate powers not required to be exercised by the board of directors. Section 4.2. Removal; Vacancies. Any member of a committee may be removed at any time with or without cause, and vacancies in the membership of a committee by means of death, resignation, disqualification or removal shall be filled by a majority of the whole board of directors. Section 4.3. Meetings. The provisions of Article 3 governing meetings of the board of directors, action without meeting, notice, waiver of notice and quorum and voting requirements shall apply to the committees of the board and its members. Section 4.4. Minutes. Each committee shall keep minutes of its proceedings and shall report thereon to the board of directors at or before the next meeting of the board. Section 4.5. Standing Committees. The directors annually shall appoint the chairman and members of and establish the charter, responsibilities and authority of the following standing committees: Audit, Compliance, Corporate Governance and Nominating, Credit, Executive, Finance, and Management Resources and Compensation. Each committee shall consist entirely of directors. No active or former officer or employee of the corporation shall serve on the Audit, Compliance, Corporate Governance and Nominating, or Management Resources and Compensation Committee. -7- ARTICLE 5 OFFICERS Section 5.1. Titles. The officers of the corporation shall be a chief executive officer, a chairman of the board of directors, a president, one or more vice presidents and a secretary and may include one or more vice chairmen of the board of directors, one or more executive vice presidents, a treasurer, a controller, a general auditor, one or more assistant secretaries, one or more assistant treasurers, one or more assistant controllers, and such other officers as shall be deemed necessary. The officers shall have the authority and perform the duties as set forth herein or as from time to time may be prescribed by the board of directors or by the chief executive officer (to the extent that the chief executive officer is authorized by the board of directors to prescribe the authority and duties of officers). Any two or more offices may be held by the same individual, but no officer may act in more than one capacity where action of two or more officers is required. Section 5.2. Election; Appointment. The officers of the corporation shall be elected from time to time by the board of directors or appointed from time to time by the chief executive officer to the extent that the chief executive officer is authorized by the board to appoint officers; provided, the chief executive officer may from time to time elect one or more assistant secretaries notwithstanding the absence of such authorization. Section 5.3. Removal. Any officer may be removed by the board at any time with or without cause whenever in its judgment the best interests of the corporation will be served, but removal shall not itself affect the officer's contract rights, if any, with the corporation. Section 5.4. Vacancies. Vacancies among the officers may be filled and new offices may be created and filled by the board of directors, or by the chief executive officer to the extent authorized by the board. Section 5.5. Compensation. Except as provided by Section 5.6, the compensation of the officers shall be fixed by, or under the direction of, the Compensation, Nominating and Organization Committee or by such person or persons to whom authority to fix compensation has been delegated by the board or such Committee. Section 5.6. Chief Executive Officer. The chief executive officer of the corporation shall be elected annually by the directors and may hold either or both of the titles of chairman and president. The chief executive officer shall have overall responsibility and authority for administering the affairs of the corporation and of all its subsidiary banks and companies. He shall exercise all of the powers customarily exercised by a chief executive officer of any corporation by whatever name called unless expressly limited by the directors. All officers of the corporation shall report to him to the extent he may require. In the interim between meetings of the directors or meetings of the Executive Committee, the chief executive officer may make appointments pro tem to any office below the level of executive vice president, either for the purpose of filling a vacancy or increasing the number of officers, such appointees pro tem to hold office until the next succeeding regular or special meeting of the directors, who may in their discretion approve, confirm or revoke any such appointments. The compensation of -8- all agents and employees of the corporation other than senior officers shall be fixed by the chief executive officer or by senior officers or committees appointed by the chief executive officer. The compensation of all committee members shall also be fixed by the chief executive officer. He shall have the power to execute in the name and on behalf of the corporation, or to delegate such power to others, all contracts or instruments of every character relating to real or personal property without express authority of the directors unless such authority is expressly limited by the directors. It shall be the duty of the chief executive officer or his designee to make a report of the corporation's performance and condition to the shareholders at their annual meeting and to the directors at their regular meetings including therein such recommendations as to the policy and conduct of the business of the corporation as he may deem advisable. He shall be ex officio a member of all committees of the board and shall preside at meetings of shareholders; provided, that if the chief executive officer also has the title of president, he may designate the chairman of the board to preside at meetings of shareholders. Section 5.7. Chairman of the Board of Directors. The chairman of the board of directors shall preside at all meetings of the board of directors. The chairman of the board may but need not be an employee of the corporation. If not elected chief executive officer, the chairman shall have such other authority and shall perform such other duties as may from time to time be conferred upon him herein or by the directors or by the chief executive officer, and in the event of the disability or death of the chief executive officer or president, he shall perform the duties of the chief executive officer or president unless and until a new chief executive officer or president is elected by the directors. Section 5.8. President. If not elected chief executive officer, the president shall have such authority and shall perform such duties as may from time to time be conferred upon him by the directors or by the chief executive officer, and in the event of disability of the chief executive officer or chairman, he shall perform the duties of the chief executive officer or chairman unless and until the Compensation, Nominating and Organization Committee shall appoint an acting chief executive officer or chairman or until a new chief executive officer or chairman is elected by the directors. Section 5.9. Vice Chairmen. Vice chairmen shall have such authority and shall perform such duties as may from time to time be conferred upon them by the directors or by the chief executive officer. Section 5.10. Vice Presidents. Vice presidents may be designated as senior executive vice presidents, executive vice presidents, regional vice presidents, group vice presidents, senior vice presidents, first vice presidents, vice presidents and assistant vice presidents. The board of directors shall annually elect such number of each designation as it may deem proper. Each category of vice presidents shall have such responsibilities and duties as shall be specifically assigned to them by the directors or by the chief executive officer. Section 5.11. Secretary. The secretary shall act as secretary at all meetings of the shareholders and at all meetings of the directors. He shall issue notices for such meetings in accordance with the requirements of the bylaws. He shall have custody of the corporate seal and, upon request of an officer authorized by the board of directors to execute on behalf of the corporation an instrument relating to real or personal property, shall attest any such instrument and shall perform such other duties as from time to time shall be assigned to him by the directors or by the chief executive officer. -9- Section 5.12. Assistant Secretaries. Each assistant secretary, if such officer is elected, shall have such powers and perform such duties as may be assigned by the board of directors or the chief executive officer (notwithstanding the absence of any authorization by the board of directors to prescribe the authority and duties of officers), and the assistant secretaries shall exercise the powers of the secretary during that officer's absence or inability to act. Section 5.13. Voting Upon Stocks. Unless otherwise ordered by the board of directors, the chief executive officer (or such officer as the chief executive officer shall designate) shall have full power and authority on behalf of the corporation to attend, act and vote at meetings of the shareholders of any corporation in which this corporation may hold stock, and at such meetings shall possess and may exercise any and all rights and powers incident to the ownership of such stock and which, as the owner, the corporation might have possessed and exercised if present. The board of directors may by resolution from time to time confer such power and authority upon any other person or persons. ARTICLE 6 CAPITAL STOCK Section 6.1. Certificates. Shares of the capital stock of the corporation shall be represented by certificates. The name and address of the persons to whom shares of capital stock of the corporation are issued, with the number of shares and date of issue, shall be entered on the stock transfer records of the corporation. Certificates for shares of the capital stock of the corporation shall be in such form not inconsistent with the articles of incorporation of the corporation as shall be approved by the board of directors. Each certificate shall be signed (either manually or by facsimile) by the chief executive officer, the chairman or the president and by the secretary or an assistant secretary. Each certificate may be sealed with the seal of the corporation or a facsimile thereof. Section 6.2. Transfer of Shares. Transfer of shares shall be made on the stock transfer records of the corporation, and transfers shall be made only upon surrender of the certificate for the shares sought to be transferred by the recordholder or by a duly authorized agent, transferee or legal representative. All certificates surrendered for transfer or reissue shall be cancelled before new certificates for the shares shall be issued. Section 6.3. Transfer Agent and Registrar. The board of directors may appoint one or more transfer agents and one or more registrars of transfers and may require all stock certificates to be signed or countersigned by the transfer agent and registered by the registrar of transfers. Section 6.4. Regulations. The board of directors may make rules and regulations as it deems expedient concerning the issue, transfer and registration of shares of capital stock of the corporation. Section 6.5. Fixing Record Date. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders, or entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other purpose, the board of directors or the chief executive officer may fix in advance a date as the record date for the determination of -10- shareholders. The record date shall be not more than 70 days before the meeting or action requiring a determination of shareholders. A determination of shareholders entitled to notice of or to vote at a shareholders' meeting shall be effective for any adjournment of the meeting unless the board of directors fixes a new record date, which it shall do if the meeting is adjourned to a date more than 120 days after the date fixed for the original meeting. If no record date is fixed for the determination of shareholders, the record date shall be the day the notice of the meeting is mailed or the day the action requiring a determination of shareholders is taken. Section 6.6. Lost Certificates. The corporation must authorize the issuance of a new certificate in place of a certificate claimed to have been lost, destroyed or wrongfully taken, upon receipt of (a) an affidavit from the person explaining the loss, destruction or wrongful taking, and (b) a bond from the claimant in such sum and with such surety or other security and in such form acceptable to the corporation as the corporation may reasonably direct to indemnify the corporation against loss from any claim with respect to the certificate claimed to have been lost, destroyed or wrongfully taken. The corporation may, in its discretion, waive the affidavit and bond and authorize the issuance of a new certificate in place of a certificate claimed to have been lost, destroyed or wrongfully taken. ARTICLE 7 INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 7.1. Indemnification Provisions. Any person who at any time serves or has served as a director, officer or employee of the corporation or of any wholly owned subsidiary or affiliate of the corporation, or in such capacity at the request of the corporation for any other foreign or domestic corporation, partnership, joint venture, trust or other enterprise, or as a trustee or administrator under any employee benefit plan of the corporation or of any wholly owned subsidiary thereof (a "Claimant"), shall have the right to be indemnified and held harmless by the corporation to the fullest extent from time to time permitted by law against all liabilities and litigation expenses (as hereinafter defined) in the event a claim shall be made or threatened against that person in, or that person is made or threatened to be made a party to, any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, and whether or not brought by or on behalf of the corporation, including all appeals therefrom (a "proceeding"), seeking to hold the Claimant liable by reason of the fact that he or she is or was serving in such capacity (whether the basis of such proceeding is alleged action in such official capacity or in any other capacity while serving in such official capacity); provided, such indemnification shall not be effective with respect to (a) that portion of any liabilities or litigation expenses with respect to which the Claimant is entitled to receive payment under any insurance policy other than a directors' and officers' insurance policy maintained by the Company or (b) any liabilities or litigation expenses incurred on account of any of the Claimant's activities which were at the time taken known or believed by the Claimant to be clearly in conflict with the best interests of the corporation. Section 7.2. Definitions. As used in this Article, (a) "liabilities" shall include, without limitation, (1) payments in satisfaction of any judgment, money decree, excise tax, fine or penalty for which the Claimant had become liable in any proceeding and (2) payments in settlement of any such proceeding subject, however, to Section 7.3; (b) "litigation expenses" shall include, without limitation, (1) reasonable costs and expenses and attorneys' fees and expenses actually and necessarily incurred by -11- the Claimant in connection with any proceeding and (2) reasonable costs and expenses and attorneys' fees and expenses in connection with the enforcement of rights to the indemnification granted hereby or by applicable law, if such enforcement is successful in whole or in part; and (c) "disinterested directors" shall mean directors who are not party to the proceeding in question. Section 7.3. Settlements. The corporation shall not be liable to indemnify the Claimant for any amounts paid in settlement of any proceeding effected without the corporation's written consent. The corporation will not unreasonably withhold its consent to any proposed settlement. Section 7.4. Litigation Expense Advances. (a) Subject to the provisions of subsections (b) and (c) below, any litigation expenses shall be advanced to any Claimant within 60 days of receipt by the General Counsel or secretary of the corporation of a demand therefor, together with an undertaking (in such form as the corporation may prescribe from time to time) by or on behalf of the Claimant to repay to the corporation such amount unless it is ultimately determined that the Claimant is entitled to be indemnified by the corporation against such expenses. The Claimant shall also forward to the General Counsel or secretary a statement as to any insurance in effect of the type described in Section 7.1, together with any information which the Claimant wishes to have considered in determining whether the standards set forth below have been met. The General Counsel or secretary shall promptly forward notice of the demand and undertaking immediately to all directors of the corporation. (b) In the event a demand for an advance of litigation expenses is received from a Claimant who is or was a director or the chief executive of the corporation, the General Counsel or secretary shall call a meeting of a special committee (the "Special Committee"), the membership of which shall include only disinterested directors, and such Special Committee shall determine within 30 days thereafter, based upon the facts and information then available to them, whether the Claimant's activities were at the time taken known or believed by the Claimant to be clearly in conflict with the best interests of the corporation. In making such determination, the Special Committee shall consult with representatives of any insurance carrier having a directors' and officers' liability policy in effect which covers the Claimant, where such insurance has been purchased by the corporation. No such advance shall be made if a majority of the Special Committee determines that the litigation expenses have been incurred on account of activities which at the time taken by such Claimant were known or believed by him to be clearly in conflict with the best interests of the corporation. To the extent that any Claimant shall be entitled to an advance under this Section, it shall be a further condition to such advance that counsel selected by a Claimant be approved by the corporation and to the extent deemed necessary by the corporation the selection of such counsel shall also be approved by the carrier of any directors' and officer's liability insurance then in effect. The corporation also reserves the right, in the instance of multiple Claimants, to require, if appropriate, the consolidation of the defense of Claimants with counsel chosen by the corporation. No such advance of any particular items of litigation expenses shall be made if a majority of the Special Committee affirmatively determines that such particular items are unreasonable and/or excessive. In any such case, the Special Committee must determine the unreasonable or excessive amount, and the Company shall withhold advances of expenses only in the dollar amount so determined as excessive and/or unreasonable. (c) In the discretion of the chief executive officer or his designee, the Special Committee procedures set forth in Section 7.4(b) may be deemed to apply to a demand for an advance -12- of litigation expenses received from a Claimant not referred to in the first sentence of Section 7.4(b) (including but not limited to a Claimant who is or was an officer (other than the chief executive officer) or employee of the corporation or a director, officer or employee of a subsidiary of the corporation). Alternatively, the chief executive officer or his designee may cause the Special Committee procedures set forth in subsection (b) to be waived and, in lieu thereof, the chief executive officer or his designee may determine whether the applicable standard of conduct required by Section 7.4(b) has been met, whether the amount of such expenses is reasonable and the amount of such expenses, if any, that are unreasonable or excessive and consequently are to be withheld. Section 7.5. Approval of Indemnification Payments. Except as may be determined in an action brought pursuant to Section 7.6 below, indemnification payments by the corporation for liabilities and litigation expenses (or a termination of the undertaking required under Section 7.4 above with respect to advanced expenses) may be made only following a determination that the activities of the Claimant (if the Claimant is or was a director of the corporation) were not of the kind described in Section 7.4(b), which determination shall be made (a) by a majority of the disinterested directors (if there are at least two such directors), or (b) if there are not two such directors, or if a majority of the disinterested directors so directs, by independent legal counsel in a written opinion, or (c) by a majority of the shareholders or (d) in accordance with any other reasonable procedures prescribed by the board of directors prior to the assertion of the claim for which indemnification is sought. The reasonableness of amounts of settlements and litigation expenses may be approved by a majority of the disinterested members of the board of directors. If the Claimant is an officer or employee of the corporation, the determination required by this paragraph may be made by the chief executive officer of the corporation or his designee. Section 7.6. Suits by Claimant. If a claim under Section 7.1 is not paid in full by the corporation within 60 days after a written claim has been received by the corporation, or a demand for advances is not paid within 60 days of receipt by the corporation of such demand accompanied by an undertaking as described in Section 7.4, the Claimant may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim or demand. It shall be a defense to any such action that the Claimant's liabilities or litigation expenses were incurred on account of activities which were at the time taken known or believed by the Claimant to be clearly in conflict with the best interests of the corporation, or were unreasonable, but the burden of proving such defense shall be on the corporation. Neither the failure of the corporation (including its disinterested directors, independent legal counsel, shareholders or the chief executive officer or his designee, if applicable) to have made a determination prior to the commencement of such action that indemnification of the Claimant is proper in the circumstances, nor an actual determination by the corporation (including its disinterested directors, independent legal counsel, shareholders or the chief executive officer or his designee, if applicable) that the Claimant had not met such applicable standard of conduct shall be a defense to the action or create a presumption that Claimant has not met the applicable standard of conduct. Section 7.7. Consideration; Personal Representatives and Other Remedies. Any Claimant who during such time as this Article or corresponding provisions of predecessor bylaws is or has been in effect serves or has served in any of the capacities described in Section 7.1 shall be deemed to be doing so or to have done so in reliance upon, and as consideration for, the right of indemnification provided herein or therein. The right of indemnification provided herein or therein shall inure to the benefit of the legal representatives of any Claimant hereunder, and the right shall not be exclusive of any other rights to which the Claimant or legal representative may be entitled apart from this Article. -13- Section 7.8. Scope of Indemnification Rights. The rights granted herein shall not be limited by the provisions of Section 55-8-51 of the General Statutes of North Carolina or any successor statute. ARTICLE 8 GENERAL PROVISIONS Section 8.1. Dividends and other Distributions. The board of directors may from time to time declare and the corporation may pay dividends or make other distributions with respect to its outstanding shares in the manner and upon the terms and conditions provided by law. If the board of directors does not fix the record date for determining shareholders entitled to a distribution, the record date shall be the date the board of directors authorizes the distribution (other than a distribution involving a purchase, redemption or other acquisition of the corporation's shares, for which no record date is required to be fixed). Section 8.2. Seal. The seal of the corporation shall be any form approved from time to time or at any time by the board of directors. Section 8.3. Waiver of Notice. Whenever notice is required to be given to a shareholder, director or other person under the provisions of these bylaws, the articles of incorporation or applicable law, a waiver in writing signed by the person or persons entitled to the notice, whether before or after the date and time stated in the notice, and delivered to the corporation shall be equivalent to giving the notice. Section 8.4. Checks. All checks, drafts or orders for the payment of money shall be signed by the officer or officers or other individuals that the board of directors or chief executive officer may from time to time authorize. Section 8.5. Fiscal Year. The fiscal year of the corporation shall be the calendar year or such other period fixed by the board of directors. Section 8.6. Amendments. Unless otherwise provided in the articles of incorporation or a bylaw adopted by the shareholders or by law, these bylaws may be amended or repealed by the board of directors, except that a bylaw adopted, amended or repealed by the shareholders may not be readopted, amended or repealed by the board of directors if neither the articles of incorporation nor a bylaw adopted by the shareholders authorizes the board of directors to adopt, amend or repeal that particular bylaw or the bylaws generally. These bylaws may be amended or repealed by the shareholders even though the bylaws may also be amended or repealed by the board of directors. A bylaw that fixes a greater quorum or voting requirement for the board of directors may be amended or repealed (a) if originally adopted by the shareholders, only by the shareholders, unless such bylaw as originally adopted by the shareholders provides that such bylaw may be amended or repealed by the board of directors or (b) if originally adopted by the board of directors, either by the shareholders or by the board of directors. A bylaw that fixes a greater quorum or voting requirement may not be adopted by the board of directors by a vote less than a majority of the directors then in office and may not itself be amended by a quorum or vote of the directors less than the quorum or vote prescribed in such bylaw or prescribed by the shareholders. -14- Section 8.7. Applicability of Antitakeover Statutes. The provisions of Article 9 of the North Carolina Business Corporation Act, entitled "Shareholder Protection Act," shall not be applicable to the corporation. -15- EX-10 3 EXHIBIT 10 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT, made as of the 24th day of January, 1997, by and between WACHOVIA CORPORATION (the "Corporation") and ______________________ (the "Executive"); R E C I T A L S: The Corporation desires to secure the services of the Executive in its behalf or in behalf of one or more of its subsidiaries for which the Executive may render services hereunder from time to time, in accordance with the terms and conditions set forth herein. In addition, the Corporation desires to provide the Executive with an incentive to remain in the service of the Corporation or one or more of its subsidiaries by granting to the Executive compensation security as set forth herein should his employment be terminated by the Corporation without cause during the term of this Agreement. NOW, THEREFORE, the Corporation and the Executive hereby mutually agree as follows: 1. Employment. The Executive shall devote his working time exclusively to the performance of such services for the Corporation or one or more of its subsidiaries as may be assigned to him by the Corporation from time to time, and shall perform such services faithfully and to the best of his ability. Such services shall be rendered in a senior management or executive capacity and shall be of a type for which the Executive is suited by background and training. In no event shall the nature of the services require the Executive to relocate his residence from Winston-Salem, North Carolina, unless the Executive shall agree to such relocation. References herein to services rendered for the Corporation and compensation and benefits payable or provided by the Corporation shall include services rendered for and compensation and benefits payable or provided by any subsidiary of the Corporation. 2. Term of Agreement. The term of this Agreement shall commence on the date hereof and shall continue in effect until December 31, 1999; provided, however, that commencing on the first anniversary of this Agreement, and each anniversary thereafter, the term of this Agreement shall automatically be extended for one additional year unless at least 90 days prior to any such anniversary date either party shall notify the other in writing that it does not wish to extend the term of this Agreement beyond the then applicable expiration date. In no event, however, may the term of this Agreement extend beyond the Executive's sixtieth birthday. References herein to the "term" of this Agreement shall mean the original term plus any continuation as provided in this Section 2. The "term" shall not be deemed to refer to the Compensation Period described in Section 4. 3. Termination of Employment by the Corporation. The Corporation may terminate the employment of the Executive at any time for any reason; provided, that except as set forth in Sections 6 and 7, the Corporation will provide the Executive with Compensation Continuance to the extent described in Section 4 if the Executive's employment is involuntarily terminated. The Executive's employment shall be deemed to be involuntarily terminated if he is terminated by the Corporation for any reason other than for "cause" as defined in Section 6, or if he voluntarily terminates employment within six months after: (a) his base salary is reduced below its level in effect on the date hereof without the Executive's consent, or (b) the Corporation amends the Executive Retirement Agreement between the Corporation and the Executive dated January 27, 1995 (the "Retirement Agreement"), without the Executive's consent, and such amendment reduces benefits to which the Executive would have been entitled had such amendment not been made, or (c) the duties assigned to the Executive are not of the status and type described in Section 1 and the Executive has not consented thereto. The Executive shall be deemed to have consented to any reduction described in (a) or (b), or assignment described in (c), unless he shall object thereto in writing within thirty days after he receives notice thereof. 4. Compensation Continuance. If the Executive's employment hereunder is involuntarily terminated as described in Section 3, he will be entitled to receive the cash compensation and benefits described in (a), (b) and (c) below (herein, "Compensation Continuance") for the period beginning with the date of such involuntary termination and ending with the earlier of (i) the third anniversary of the date of such termination, or (ii) the Normal Retirement Date of the Executive as defined in the Retirement Agreement (such period is referred to herein as the "Compensation Period"). The duration of the Compensation Period shall not be affected by the fact that the term of this Agreement otherwise would end before such Period expires. The cash compensation and benefits are as follows: (a) Cash Compensation. The amount of cash compensation to be received monthly during the Compensation Period shall equal one-twelfth of the sum of (i) the Executive's highest annual rate of salary from the Corporation in effect during the 12-month period prior to his involuntary termination, plus (ii) an amount equal to the average of the annual amounts, if any, awarded to the Executive under the Corporation's Senior Management Incentive Plan for the three consecutive calendar years next preceding the year of such termination, plus (iii) the average of any annual contributions by the Corporation (excluding participant contributions) in behalf of the Executive under the Retirement Savings and Profit-Sharing Plan of Wachovia Corporation and the Wachovia Corporation Retirement Savings and Profit-Sharing Benefit Equalization Plan for the three consecutive calendar years preceding the year of such termination. Each monthly payment of such cash compensation shall have deducted therefrom all payroll taxes and withholdings required by law. -2- (b) Employee Benefits. During the Compensation Period the Executive shall be carried on the payroll of the Corporation, and shall be deemed to be continuing in the employment of the Corporation for the purpose of applying and administering employee benefit plans of the Corporation (other than any tax-qualified retirement plans) and individual contracts between the Corporation and the Executive providing supplemental or equalization payments or benefits with respect to the Executive. The Executive shall participate in any changes during the Compensation Period in benefit plans or programs applicable generally to employees of the Corporation, or to a class of employees which includes senior executives of the Corporation, but shall not have any right or option to participate in any such plan or program in which he was not a participant immediately prior to his involuntary termination of employment. Any individual contract between the Corporation and the Executive in effect at the time of his involuntary termination of employment may be terminated or amended by the Corporation to the extent permitted by the terms of such contract; provided, that during the Compensation Period the Corporation shall not, without the written consent of the Executive or except to the extent required by law, make any amendment to or terminate any one or more of the following individual contracts or plans as applied to the Executive: (i) the Retirement Agreement; (ii) the Wachovia Corporation Retirement Savings and Profit-Sharing Benefit Equalization Plan; and (iii) the Wachovia Corporation Retirement Income Benefit Enhancement Plan. The Corporation shall have no obligation to the Executive to make any change or improvement in any such contract during the Compensation Period even if the Corporation shall make changes or improvements during such period in similar contracts, if any, with other senior executives of the Corporation. (c) Acceleration of Stock Options and Restricted Awards. Immediately upon termination of the Executive's employment, all options previously granted to the Executive and outstanding on the date of termination to acquire shares of common stock of the Corporation shall become fully vested and exercisable (or subject to surrender) in full and all restricted awards shall be deemed to be earned in full; provided, that restricted awards based upon performance criteria or a combination of performance criteria and continued service shall be deemed to be earned in accordance with the terms, conditions and procedures of the plan or plans pursuant to which any such restricted awards were granted. In the event that the Executive shall engage in full-time employment permitted hereunder for another employer or on a self-employed basis during the Compensation Period, his employment with the Corporation shall be deemed to have terminated for purposes of Section 4(b) as of the date he begins such full-time employment, but the payments in Section 4(a) shall continue for the remainder of the Compensation Period and the rights under Section 4(c) shall be applicable, in each case subject to the provisions of Section 7. -3- 5. Voluntary Termination of Employment by the Executive. The Executive reserves the right to terminate his employment voluntarily at any time for any reason following at least six months' notice to the Corporation. If such notice shall be given, this Agreement shall terminate as of the effective date of termination as set forth in such notice (or the date six months from the date of receipt by the Corporation of such notice, if no effective date shall be set forth therein), unless sooner terminated as provided in Section 3, 6 or 8. The Executive shall not be entitled to any form of Compensation Continuance as a result of such voluntary termination. 6. Termination for Cause. This Agreement shall immediately be terminated and neither party shall have any obligation hereunder (including but not limited to any obligation on the part of the Corporation to provide Compensation Continuance) if the Executive's employment is terminated for "cause." Termination for cause shall occur when termination results from the Executive's (a) criminal dishonesty, (b) refusal to perform his duties hereunder on substantially a full-time basis, (c) refusal to act in accordance with any specific substantive instructions of the Board of Directors of the Corporation, or (d) engaging in conduct which could be materially damaging to the Corporation without a reasonable good faith belief that such conduct was in the best interests of the Corporation. The determination of whether a termination is for cause shall be made by the Management Resources and Compensation Committee of the Board of Directors of the Corporation (the "Committee"), and such determination shall be final and conclusive on the Executive and all other persons affected thereby. 7. Executive's Obligations; Early Termination of Compensation Period. (a) During the Compensation Period, the Executive shall provide consulting services to the Corporation at such time or times as the Corporation shall reasonably request, subject to appropriate notice and to reimbursement by the Corporation of all reasonable travel and other expenses incurred and paid by the Executive. In the event the Executive shall engage in full-time employment permitted hereunder during the Compensation Period for another employer or on a self-employed basis, his obligation to provide the consulting services hereunder shall be limited by the requirements of such employment. (b) The Executive shall not disclose to any other person any material information or trade secrets concerning the Corporation or any of its subsidiaries at any time during or after the Compensation Period. The Executive will at all times refrain from taking any action or making any statements, written or oral, which are intended to and do disparage the business, goodwill or reputation of the Corporation or any of its subsidiaries, or their respective directors, officers, executives or other employees, or which could adversely affect the morale of employees of the Corporation or any subsidiaries. -4- (c) The Executive shall not, without the Corporation's written consent, engage in competitive employment at any time during the Compensation Period. The Executive shall be deemed to engage in competitive employment if he shall render services as an employee, officer, director, consultant or otherwise, for any employer which conducts a principal business or enterprise that competes directly with the Corporation or affiliate of the Corporation. (d) In the event that the Executive shall refuse to provide consulting services in accordance with paragraph (a), or shall materially violate the terms and conditions of paragraph (b) or (c), the Corporation may, at its election, terminate the Compensation Period and Compensation Continuance to the Executive. The Corporation may also initiate any form of legal action it may deem appropriate seeking damages or injunctive relief with respect to any material violations of paragraph (a), (b) or (c). (e) The Committee shall be responsible for determining whether the Executive shall have violated this Section 7, and all such determinations shall be final and conclusive. Upon the request of the Executive, the Committee will provide an advance opinion as to whether a proposed activity would violate the provisions of paragraph (c). 8. Death and Disability. In the event that, during the term of this Agreement or during the Compensation Period, the Executive shall die or shall become entitled to benefits under the Corporation's Long-Term Disability Plan, this Agreement shall thereupon terminate and neither the Executive nor any other person shall have any further rights or benefits hereunder (including any rights to Compensation Continuance). 9. Other Severance Benefits. Except as otherwise provided in this Agreement, the Executive shall not be entitled to any form of severance benefits, including benefits otherwise payable under any of the Corporation's regular severance plans or policies, irrespective of the circumstances of his termination of employment. The Executive agrees that the payments and benefit provided hereunder, subject to the terms and conditions hereof, shall be in full satisfaction of any rights which he might otherwise have or claim by operation of law, by implied contract or otherwise, except for rights which he may have under employee benefit plans of the Corporation or individual written contracts with the Corporation. 10. Change of Control. (a) Notwithstanding any other provision of this Agreement, the Executive will be entitled to receive the Compensation Continuance described in Section 4 in the event the Executive voluntarily terminates his employment during -5- the period beginning on the date of a Change of Control (as defined in Section 10(b) herein) and ending on the third anniversary of such date. (b) For the purposes herein, a "Change of Control" shall be deemed to have occurred on the earliest of the following dates: (i) The date any entity or person shall have become the beneficial owner of, or shall have obtained voting control over, twenty-five percent or more of the outstanding Common Stock of the Corporation; (ii) The date the shareholders of the Corporation approve a definitive agreement (A) to merge or consolidate the Corporation with or into another corporation, in which the Corporation is not the continuing or surviving corporation or pursuant to which any shares of Common Stock of the Corporation would be converted into cash, securities or other property of another corporation, other than a merger of the Corporation in which holders of Common Stock immediately prior to the merger have the same proportionate ownership of Common Stock of the surviving corporation immediately after the merger as immediately before, or (B) to sell or otherwise dispose of substantially all the assets of the Corporation; or (iii) The date there shall have been a change in a majority of the Board of Directors of the Corporation within a twelve month period unless the nomination for election by the Corporation's shareholders of each new director was approved by the vote of two-thirds of the directors then still in office who were in office at the beginning of the twelve month period. For the purposes herein, the term "person" shall mean any individual, corporation, partnership, group, association or other person, as such term is defined in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, other than the Corporation, a subsidiary of the Corporation or any employee benefit plan(s) sponsored or maintained by the Corporation or any subsidiary thereof, and the term "beneficial owner" shall have the meaning given the term in Rule 13d-3 under the Exchange Act. (c) (i) In the event it shall be determined that any payment, benefit or distribution (or combination thereof) by the Corporation or one or more trusts established by the Corporation for the benefit of its employees, to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement, or otherwise) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1996, as amended (the "Code"), or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, hereinafter collectively referred to as the "Excise Tax"), the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such -6- that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and the Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (ii) Subject to the provisions of Section 10(c)(iii), all determinations required to be made under this Section 10, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by a nationally recognized certified public accounting firm designated by the Executive (the "Accounting Firm") which shall provide detailed supporting calculations both to the Corporation and the Executive within fifteen business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Corporation. In the event that the Accounting Firm is serving as accountant or auditor for an individual, entity or group effecting the change in ownership or effective control (within the meaning of Section 280G of the Code), the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Corporation. Any Gross-Up Payment, as determined pursuant to this Section 10, shall be paid by the Corporation to the Executive within five days after the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall so indicate to the Executive in writing. Any determination by the Accounting Firm shall be binding upon the Corporation and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Corporation should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Corporation exhausts its remedies pursuant to Section 10(c)(iii) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Corporation to or for the benefit of the Executive. (iii) The Executive shall notify the Corporation in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Corporation of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten -7- business days after the Executive is informed in writing of such claim and shall apprise the Corporation of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Corporation (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Corporation notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (A) give the Corporation any information reasonably requested by the Corporation relating to such claim; (B) take such action in connection with contesting such claim as the Corporation shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Corporation; (C) cooperate with the Corporation in good faith in order to effectively contest such claim; and (D) permit the Corporation to participate in any proceedings relating to such claim; provided, however, that the Corporation shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 10(c)(iii), the Corporation shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Corporation shall determine; provided, however, that if the Corporation directs the Executive to pay such claim and sue for a refund, the Corporation shall advance the amount of such payment to the Executive, on an interest-free basis, and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; -8- and provided, further, that if the Executive is required to extend the statute of limitations to enable the Corporation to contest such claim, the Executive may limit this extension solely to such contested amount. The Corporation's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (iv) If, after the receipt by the Executive of an amount advanced by the Corporation pursuant to Section 10(c)(iii), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Corporation's complying with the requirements of Section 10(c)(iii)) promptly pay to the Corporation the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by Company pursuant to Section 10(c)(iii), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Corporation does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 11. Waiver of Claims. In consideration of the obligations of the Corporation hereunder, the Executive unconditionally releases the Corporation, its directors, officers, employees and shareholders, from any and all claims, liabilities and obligations of any nature pertaining to termination of the Executive's employment by the Corporation, including but not limited to (a) any claims under federal, state or local laws prohibiting discrimination, including without limitation the Age Discrimination in Employment Act of 1967, as amended, or (b) any claims growing out of any alleged legal restrictions on the Corporation's right to terminate the Executive's employment, such as any alleged implied contract of employment or termination contrary to public policy. The Executive acknowledges that he has been advised to consult with an attorney prior to signing this Agreement, that he has had no less than twenty-one days to consider this Agreement prior to the execution hereof, and that he may revoke this Agreement at any time within seven days following the execution hereof. 12. Notices. All notices hereunder shall be in writing and deemed properly given if delivered by hand and receipted or if mailed by registered mail, return receipt requested. Notices to the Corporation shall be directed to the Secretary of the Corporation with a copy directed to the Chairman of the Board of Directors of the Corporation. Notices to the Executive shall be directed to his last known address. -9- 13. Miscellaneous. (a) The waiver, whether express or implied, by either party of a violation of any of the provisions of this Agreement shall not operate or be construed as a waiver of any subsequent violation of any such provision. (b) No right, benefit or interest hereunder shall be subject to assignment, encumbrance, charge, pledge, hypothecation or set off in respect of any claim, debt or obligation, or similar process. (c) This Agreement may not be amended, modified or canceled except by written agreement of the parties. (d) In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions of this Agreement shall remain in full force and effect to the fullest extent permitted by law. (e) This Agreement shall be binding upon and inure to the benefit of the Executive and the Corporation, and their respective heirs, successors and assigns. (f) No benefit or promise hereunder shall be secured by any specific assets of the Corporation. The Executive shall have only the rights of an unsecured general creditor of the Corporation in seeking satisfaction of such benefits or promises. (g) This Agreement shall be governed by the construed in accordance with the laws of the State of North Carolina. (h) This Agreement sets forth the entire agreement and understanding of the parties hereto with respect to the matters covered hereby, and amends and supersedes any predecessor Employment Agreement between the parties hereto. -10 IN WITNESS WHEREOF, this Agreement has been executed by or in behalf of the parties hereto as of the date first above written. WACHOVIA CORPORATION By: Donald R. Hughes Chairman, Management Resources and Compensation Committee Attest: Secretary [Corporate Seal] EXECUTIVE (Seal) -11- EX-12 4 EXHIBIT 12 WACHOVIA CORPORATION RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12
Three Months Year Ended Ended March 31 December 31 (A) EXCLUDING INTEREST ON DEPOSITS 1997 1996 ----------------- ---------------- Earnings: Income before income taxes $234,835 $934,902 Less capitalized interest - - Fixed charges 189,193 804,019 ----------------- ---------------- Earnings as adjusted $424,028 $1,738,921 ================= ================ Fixed charges: Interest on purchased and other short term borrowed funds $95,069 $431,094 Interest on long-term debt 90,766 359,946 Portion of rents representative of the interest factor (1/3) of rental expense 3,358 12,979 ----------------- ---------------- Fixed charges $189,193 $804,019 ================= ================ Ratio of earnings to fixed charges 2.24X 2.16X (B) INCLUDING INTEREST ON DEPOSITS: Adjusted earnings from (A) above $424,028 $1,738,921 Add interest on deposits 232,120 881,562 ----------------- ---------------- Earnings as adjusted $656,148 $2,620,483 ================= ================ Fixed charges: Fixed charges from (A) above $189,193 $804,019 Interest on deposits 232,120 881,562 ----------------- ---------------- Adjusted fixed charges $421,313 $1,685,581 ================= ================ Adjusted earnings to adjusted fixed 1.56X 1.55X charges
EX-27 5 FINANCIAL DATA SCHEDULE
9 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 3,001,027 36,581 126,055 1,056,922 7,144,175 1,325,556 1,377,812 32,570,256 409,312 47,491,149 28,831,726 8,260,257 1,212,111 5,510,975 0 0 807,794 2,868,286 47,491,149 665,577 141,649 15,698 822,924 232,120 417,955 404,969 47,998 335 324,136 234,835 163,082 0 0 163,082 .99 .99 4.14 57,934 54,717 0 0 409,297 58,502 10,519 409,312 0 0 0 Available at year end only.
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