-----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, L4Q5PNARtcNbmJmLtahdvZp5TYZjcrGkQLd6ET6AoWC4EiPi3rAYgX6aYzoSiUN8 kMG6M67h4qSeEycZVNb7tw== 0000950168-97-002219.txt : 19970814 0000950168-97-002219.hdr.sgml : 19970814 ACCESSION NUMBER: 0000950168-97-002219 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970813 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WACHOVIA CORP/ NC CENTRAL INDEX KEY: 0000774203 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 561473727 STATE OF INCORPORATION: NC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09021 FILM NUMBER: 97658667 BUSINESS ADDRESS: STREET 1: 100 N MAIN ST CITY: WINSTON SALEM STATE: NC ZIP: 27101 BUSINESS PHONE: 9107325801 MAIL ADDRESS: STREET 1: 100 NORTH MAIN ST CITY: WINSTON SALEM STATE: NC ZIP: 27101 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 June 30, 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 June 30, 1997, Wachovia Corporation had 159,539,560 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 June 30, 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............25 Consolidated Statements of Income...............26 Consolidated Statements of Shareholders' Equity.........................27 Consolidated Statements of Cash Flows...........28 Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................................4-24
1997 FORM 10-Q-CONTINUED PART II OTHER INFORMATION Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the annual meeting of shareholders held on April 25, 1997, four directors were elected, the Wachovia Corporation Stock Plan was amended and restated and the appointment of Ernst & Young LLP as independent auditors for 1997 was ratified. The distribution of shareholders' votes was as follows:
Shares Voted Shares in Favor Withheld ELECTION OF DIRECTORS John L. Clendenin 134,098,935 2,067,538 George W. Henderson, III 134,124,246 2,042,227 Robert A. Ingram 134,057,591 2,108,882 John G. Medlin, Jr. 134,076,808 2,089,665 APPROVAL OF THE AMENDED AND RESTATED STOCK PLAN Shares Voted in Favor 99,107,948 Shares Voted Against 21,678,626 Abstentions 1,307,506 Broker Nonvotes 14,072,393
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS Shares Voted in Favor 135,019,694 Shares Voted Against 604,604 Abstentions 542,175
1997 FORM 10-Q-CONTINUED
Item 6 EXHIBITS AND REPORTS ON FORM 8-K a) 2.1 Agreement and Plan of Merger, dated as of June 9, 1997, by and between Wachovia Corporation and Jefferson Bankshares, Inc. (included as Exhibit 2 to Wachovia Corporation's Form 13D dated June 19, 1997 and incorporated by reference herein). 2.2 Agreement and Plan of Merger, dated as of June 23, 1997, by and between Wachovia Corporation and Central Fidelity Banks, Inc. (included as Exhibit 2 to Wachovia Corporation's Form 13D dated July 3, 1997 and incorporated by reference herein). 4 Instruments defining the rights of security holders, including indentures.* 11 "Computation of Earnings per Common Share" is presented as Table 3 on page 6 of the second 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 second 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: A Current Report on Form 8-K dated June 9, 1997 was filed with the Securities and Exchange Commission relating to the Agreement and Plan of Merger by and between Wachovia Corporation and Jefferson Bankshares, Inc. A Current Report on Form 8-K dated June 23, 1997 was filed with the Securities and Exchange Commission relating to the Agreement and Plan of Merger by and between Wachovia Corporation and Central Fidelity Banks, Inc.
* 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 August 12, 1997 ROBERT S. McCOY, JR. Robert S. McCoy, Jr. Executive Vice President and Chief Financial Officer August 12, 1997 DONALD K. TRUSLOW Donald K. Truslow Comptroller (WACHOVIA LOGO APPEARS HERE) FINANCIAL SUPPLEMENT AND FORM 10-Q SECOND 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 PETER C. BROWNING President and Chief Operating Officer Sonoco Products Company 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
June 30 June 30 1997 1996 Banking offices: North Carolina....................................................................................... 202 219 Georgia.............................................................................................. 121 126 South Carolina....................................................................................... 128 143 Total............................................................................................. 451 488 Automated banking machines: North Carolina....................................................................................... 386 342 Georgia.............................................................................................. 246 215 South Carolina....................................................................................... 251 196 Total............................................................................................. 883 753 Employees (full-time equivalent)....................................................................... 16,577 16,150 Common stock shareholders of record.................................................................... 32,112 28,058 Common shares outstanding (thousands).................................................................. 159,540 166,798
COMMON STOCK DATA -- PER SHARE
1997 1996 Second First Fourth Third Second Quarter Quarter Quarter Quarter Quarter Market value: Period-end............................................................ $58 5/16 $54 1/2 $56 1/2 $49 1/2 $43 3/4 High.................................................................. 66 7/8 64 5/8 60 1/4 49 7/8 46 1/4 Low................................................................... 53 1/2 54 1/2 48 3/4 39 5/8 40 7/8 Book value at period-end................................................ 23.07 22.75 22.96 22.57 22.18 Dividend................................................................ .40 .40 .40 .40 .36 Price/earnings ratio*................................................... 14.6 X 13.9 x 14.8 x 13.6 x 12.4 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 Six Months Ended 1997 1996 Ended June 30 Second First Fourth Third Second June 30 1997 Quarter Quarter Quarter Quarter Quarter 1997 SUMMARY OF OPERATIONS (thousands, except per share data) Interest income -- taxable equivalent ..................... $3,386,900 $865,416 $837,010 $842,365 $842,109 $810,637 $1,702,426 Interest expense.................. 1,704,116 438,359 417,955 421,079 426,723 411,472 856,314 Net interest income -- taxable equivalent...................... 1,682,784 427,057 419,055 421,286 415,386 399,165 846,112 Taxable equivalent adjustment..... 60,527 13,315 14,086 16,246 16,880 17,914 27,401 Net interest income............... 1,622,257 413,742 404,969 405,040 398,506 381,251 818,711 Provision for loan losses......... 185,886 49,715 47,998 47,443 40,730 34,404 97,713 Net interest income after provision for loan losses....... 1,436,371 364,027 356,971 357,597 357,776 346,847 720,998 Other operating revenue........... 835,784 232,905 201,665 203,436 197,778 198,595 434,570 Investment securities gains (losses)........................ 3,918 326 335 2,864 393 (219) 661 Total other income................ 839,702 233,231 202,000 206,300 198,171 198,376 435,231 Personnel expense................. 688,499 181,650 174,104 167,236 165,509 160,162 355,754 Other expense..................... 629,548 173,044 150,032 155,502 150,970 149,925 323,076 Total other expense............... 1,318,047 354,694 324,136 322,738 316,479 310,087 678,830 Income before income taxes........ 958,026 242,564 234,835 241,159 239,468 235,136 477,399 Applicable income taxes*.......... 293,997 76,941 71,753 70,431 74,872 75,773 148,694 Net income........................ $ 664,029 $165,623 $163,082 $170,728 $164,596 $159,363 $ 328,705 Net income per common share: Primary......................... $ 4.00 $ 1.01 $ .99 $ 1.02 $ .98 $ .94 $ 2.00 Fully diluted................... $ 3.99 $ 1.01 $ .99 $ 1.02 $ .97 $ .94 $ 2.00 Cash dividends paid per common share........................... $ 1.60 $ .40 $ .40 $ .40 $ .40 $ .36 $ .80 Cash dividends paid on common stock........................... $ 262,485 $ 64,392 $ 65,408 $ 66,016 $ 66,669 $ 60,684 $ 129,800 Cash dividend payout ratio........ 39.5% 38.9% 40.1% 38.7% 40.5% 38.1% 39.5% Average primary shares outstanding..................... 165,857 162,872 165,432 167,118 167,966 169,861 164,145 Average fully diluted shares outstanding..................... 166,003 162,888 165,441 167,281 168,354 169,972 164,158 SELECTED AVERAGE BALANCES (millions) Total assets...................... $ 46,028 $ 46,619 $ 45,984 $ 45,737 $ 45,778 $ 44,956 $ 46,303 Loans -- net of unearned income... 31,370 32,249 31,481 31,101 30,660 30,004 31,867 Investment securities**........... 8,377 8,193 8,327 8,251 8,734 8,668 8,259 Other interest-earning assets..... 1,386 1,278 1,242 1,409 1,611 1,519 1,261 Total interest-earning assets..... 41,133 41,720 41,050 40,761 41,005 40,191 41,387 Interest-bearing deposits......... 21,685 22,641 22,034 21,211 20,873 20,335 22,339 Short-term borrowed funds......... 7,790 7,943 7,444 7,668 8,099 8,216 7,695 Long-term debt.................... 6,007 5,450 5,910 6,206 6,454 6,129 5,679 Total interest-bearing liabilities..................... 35,482 36,034 35,388 35,085 35,426 34,680 35,713 Noninterest-bearing deposits...... 5,540 5,631 5,518 5,604 5,408 5,426 5,575 Total deposits.................... 27,225 28,272 27,552 26,815 26,281 25,761 27,914 Shareholders' equity.............. 3,637 3,593 3,653 3,671 3,631 3,644 3,623 RATIOS (averages) Annualized net loan losses to loans........................... .59% .62% .61% .61% .53% .46% .61% Annualized net yield on interest-earning assets......... 4.09 4.11 4.14 4.11 4.03 3.99 4.12 Shareholders' equity to: Total assets.................... 7.90 7.71 7.94 8.03 7.93 8.11 7.82 Net loans....................... 11.74 11.28 11.75 11.96 12.00 12.31 11.51 Annualized return on assets....... 1.44 1.42 1.42 1.49 1.44 1.42 1.42 Annualized return on shareholders' equity............ 18.26 18.44 17.86 18.60 18.13 17.49 18.15 Six Months Ended June 30, 1996 SUMMARY OF OPERATIONS (thousands, except per share data) Interest income -- taxable equivalent...................... $1,612,757 Interest expense.................. 824,800 Net interest income -- taxable equivalent...................... 787,957 Taxable equivalent adjustment..... 36,791 Net interest income............... 751,166 Provision for loan losses......... 61,738 Net interest income after provision for loan losses....... 689,428 Other operating revenue........... 382,700 Investment securities gains (losses)........................ 479 Total other income................ 383,179 Personnel expense................. 321,780 Other expense..................... 296,552 Total other expense............... 618,332 Income before income taxes........ 454,275 Applicable income taxes*.......... 145,042 Net income........................ $ 309,233 Net income per common share: Primary......................... $ 1.81 Fully diluted................... $ 1.81 Cash dividends paid per common share........................... $ .72 Cash dividends paid on common stock........................... $ 121,773 Cash dividend payout ratio........ 39.4% Average primary shares outstanding..................... 170,664 Average fully diluted shares outstanding..................... 170,808 SELECTED AVERAGE BALANCES (millions) Total assets...................... $ 44,696 Loans -- net of unearned income... 29,611 Investment securities**........... 8,732 Other interest-earning assets..... 1,556 Total interest-earning assets..... 39,899 Interest-bearing deposits......... 20,500 Short-term borrowed funds......... 8,136 Long-term debt.................... 5,808 Total interest-bearing liabilities..................... 34,444 Noninterest-bearing deposits...... 5,399 Total deposits.................... 25,899 Shareholders' equity.............. 3,666 RATIOS (averages) Annualized net loan losses to loans........................... .42% Annualized net yield on interest-earning assets......... 3.97 Shareholders' equity to: Total assets.................... 8.20 Net loans....................... 12.55 Annualized return on assets....... 1.38 Annualized return on shareholders' equity............ 16.87
*Income taxes applicable to securities transactions were $1,582, $118, $134, $1,181, $149, ($86), $252 and $192, respectively **Reported at amortized cost; excludes pretax unrealized gains on securities available-for-sale of $50, $27, $60, $74, $40, $74, $44 and $131, 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. The corporation's principal banking subsidiary is Wachovia Bank, N.A., which maintains operations in Georgia, North Carolina and South Carolina. Credit card services are provided through The First National Bank of Atlanta. In June, the corporation announced separate merger agreements with Jefferson Bankshares, Inc., of Charlottesville, Virginia, and Central Fidelity Banks, Inc., of Richmond, Virginia. The merger with Jefferson Bankshares is expected to be accounted for as a purchase transaction, and the merger with Central Fidelity is anticipated to be accounted for as a pooling-of-interests transaction. At June 30, 1997, Jefferson Bankshares and Central Fidelity had total assets of $2.2 billion and $10.7 billion, respectively. Both mergers are subject to approval by shareholders and appropriate regulatory agencies and are expected to close in the fourth quarter of 1997. Wachovia regularly evaluates acquisition opportunities and conducts due diligence activities in connection with possible acquisitions. As a result, acquisition discussions and, in some cases, negotiations may take place and future acquisitions involving cash, debt or equity securities may occur. Acquisitions typically involve the payment of a premium over book and market values, and, therefore, some dilution of Wachovia's book value and net income per common share may occur in connection with any future transactions. Economic growth continued during the second quarter of 1997 but at a more moderate pace than the first three months of the year. The economy expanded at an annualized rate of 2.2 percent from the preceding three-month period versus a revised 4.9 percent in the first quarter. Economic conditions within Wachovia's primary operating states of Georgia, North Carolina and South Carolina remained generally favorable, with seasonally adjusted unemployment for the quarter averaging 4.4 percent, 3.4 percent and 4.8 percent, respectively, versus 4.9 percent nationwide. Wachovia's net income for the second quarter of 1997 was $165.623 million or $1.01 per fully diluted share compared with $159.363 million or $.94 per fully diluted share a year earlier. For the first six months, net income totaled $328.705 million or $2.00 per fully diluted share versus $309.233 million or $1.81 per fully diluted share in the same period of 1996. Gains for the quarter and first half reflected good revenue growth moderated by increased provisions for loan losses and higher spending for growth initiatives and Year 2000 conversion costs. Total revenues, excluding securities transactions, grew $62.202 million or 10.4 percent for the quarter and $110.025 million or 9.4 percent year to date. Net income represented annualized returns of 18.44 percent on shareholders' equity and 1.42 percent on assets for the quarter and annualized returns of 18.15 percent on equity and 1.42 percent on assets for the first half of 1997. 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
Three Months Ended Six Months Ended June 30 June 30 1997 1996 Change 1997 Interest income -- taxable equivalent.......................... $5.31 $4.77 $.54 $10.37 Interest expense............................................... 2.69 2.42 .27 5.22 Net interest income -- taxable equivalent...................... 2.62 2.35 .27 5.15 Taxable equivalent adjustment.................................. .08 .11 (.03) .16 Net interest income............................................ 2.54 2.24 .30 4.99 Provision for loan losses...................................... .31 .20 .11 .60 Net interest income after provision for loan losses............ 2.23 2.04 .19 4.39 Other operating revenue........................................ 1.43 1.17 .26 2.65 Investment securities gains.................................... -- -- -- -- Total other income............................................. 1.43 1.17 .26 2.65 Personnel expense.............................................. 1.11 .94 .17 2.16 Other expense.................................................. 1.06 .88 .18 1.97 Total other expense............................................ 2.17 1.82 .35 4.13 Income before income taxes..................................... 1.49 1.39 .10 2.91 Applicable income taxes........................................ .48 .45 .03 .91 Net income..................................................... $1.01 $.94 $.07 $ 2.00 Six Months Ended June 30 1996 Change Interest income -- taxable equivalent.......................... $9.45 $ .92 Interest expense............................................... 4.83 .39 Net interest income -- taxable equivalent...................... 4.62 .53 Taxable equivalent adjustment.................................. .22 (.06) Net interest income............................................ 4.40 .59 Provision for loan losses...................................... .36 .24 Net interest income after provision for loan losses............ 4.04 .35 Other operating revenue........................................ 2.24 .41 Investment securities gains.................................... -- -- Total other income............................................. 2.24 .41 Personnel expense.............................................. 1.88 .28 Other expense.................................................. 1.74 .23 Total other expense............................................ 3.62 .51 Income before income taxes..................................... 2.66 .25 Applicable income taxes........................................ .85 .06 Net income..................................................... $1.81 $.19
TABLE 3 COMPUTATION OF EARNINGS PER COMMON SHARE (thousands, except per share)
Three Months Ended Six Months Ended June 30 June 30 1997 1996 1997 1996 PRIMARY Average common shares outstanding........................................ 160,589 168,298 161,801 169,004 Dilutive common stock options -- based on treasury stock method using average market price................................ 2,120 1,462 2,178 1,556 Dilutive common stock awards -- based on treasury stock method using average market price................................ 163 101 166 104 Average primary shares outstanding....................................... 162,872 169,861 164,145 170,664 Net income............................................................... $165,623 $159,363 $328,705 $309,233 Net income per common share -- primary................................... $ 1.01 $ .94 $ 2.00 $ 1.81 FULLY DILUTED Average common shares outstanding........................................ 160,589 168,298 161,801 169,004 Dilutive common stock options -- based on treasury stock method using higher of period-end market price or average market price................................... 2,120 1,473 2,178 1,556 Dilutive common stock awards -- based on treasury stock method using higher of period-end market price or average market price................................... 171 108 171 108 Convertible notes assumed converted...................................... 8 93 8 140 Average fully diluted shares outstanding................................. 162,888 169,972 164,158 170,808 Net income............................................................... $165,623 $159,363 $328,705 $309,233 Add interest on convertible notes after taxes............................ 1 20 3 43 Adjusted net income...................................................... $165,624 $159,383 $328,708 $309,276 Net income per common share -- fully diluted............................. $ 1.01 $ .94 $ 2.00 $ 1.81
6 NET INTEREST INCOME Taxable equivalent net interest income for the second quarter increased $27.892 million or 7 percent year over year and was up $58.155 million or 7.4 percent for the first six months. Gains in both periods reflected good loan growth, a higher average earning yield and a more favorable funding mix, with time deposits increasing while short-term borrowings and long-term debt declined. Compared with the first quarter, taxable equivalent net interest income rose $8.002 million or 1.9 percent due primarily to higher loan volume. The net yield on interest-earning assets (taxable equivalent net interest income as a percentage of average interest-earning assets) improved 12 basis points for the second period versus a year earlier and 15 basis points year to date but was modestly lower by 3 basis points from the preceding three months. Taxable equivalent interest income rose $54.779 million or 6.8 percent for the quarter and $89.669 million or 5.6 percent for the first half, fueled by good loan growth including gains in the higher-yielding consumer portfolio. Loans expanded $2.245 billion or 7.5 percent for the three months and $2.256 billion or 7.6 percent year to date with the average rate earned increasing 29 basis points and 23 basis points, respectively. Total interest-earning assets grew a more moderate $1.529 billion or 3.8 percent for the quarter and $1.488 billion or 3.7 percent for the first six months with the average yield up 21 basis points and 16 basis points, respectively. Taxable equivalent interest income was higher by $28.406 million or 3.4 percent from the first quarter, primarily reflecting continued good loan demand. Loans advanced $768 million or an annualized 9.8 percent from the preceding three months with the average yield rising 8 basis points. Commercial loans, including related real estate categories, lease financing and foreign loans, grew $1.359 billion or 7.6 percent for the quarter versus a year earlier and were higher by $1.217 billion or 6.9 percent for the first half of 1997. All categories expanded except tax-exempt loans, which decreased due to paydowns in the ESOP portfolio, and the reduced availability of tax-exempt borrowing and lending at acceptable yields. Gains were led by taxable commercial loans and the real estate portfolio. Taxable commercial loans rose $553 million or 5.6 percent for the second period and $407 million or 4.2 percent year to date. Commercial mortgages were higher by $490 million or 12 percent for the quarter and $486 million or 12.1 percent for the first half, while construction loans grew $397 million or 52.7 percent and $370 million or 51.2 percent, respectively. At June 30, 1997, commercial real estate loans, based on regulatory definitions, were $5.849 billion or 17.6 percent of total loans compared with $4.939 billion or 16.1 percent one year earlier and $5.550 billion or 17 percent at March 31, 1997. 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. Lease financing receivables consist largely of corporate leases and other structured tax-advantaged transactions as well as some consumer automobile leasing. Growth in lease financing, both year over year and from the first quarter, reflected gains in corporate leases and other structured tax-advantaged transactions as automobile leasing declined. Consumer loans, including residential mortgages, increased $886 million or 7.3 percent for the three months and $1.039 billion or 8.7 percent year to date. Substantially all the growth occurred in credit cards and residential mortgages, offsetting softness in indirect retail loans which consist primarily of automobile sales financing. Credit card loans rose $732 million or 18.1 percent for the quarter and $784 million or 19.6 percent for the first half. Residential mortgages were higher by $365 million or 8.4 percent for the second period and $398 million or 9.3 percent year to date, reflecting increases principally in bank equity loans and adjustable rate mortgages. At June 30, 1997, managed credit card outstandings, which include securitized loans, totaled $5.404 billion versus $4.805 billion one year earlier and $5.428 billion at March 31, 1997. Managed credit cards at June 30, 1997 included $586 million of net securitized loans. 7 NET INTEREST INCOME AND AVERAGE BALANCES TABLE 4
Twelve Months Six Months Ended 1997 1996 Ended June 30 Second First Fourth Third Second June 30 1997 Quarter Quarter Quarter Quarter Quarter 1997 NET INTEREST INCOME -- TAXABLE EQUIVALENT (thousands) Interest income: Loans.......................... $2,715,634 $705,179 $674,907 $674,328 $661,220 $632,389 $1,380,086 Investment securities.......... 591,359 142,794 146,060 147,020 155,485 154,395 288,854 Interest-bearing bank balances..................... 15,635 445 360 5,501 9,329 9,258 805 Federal funds sold and securities purchased under resale agreements................... 11,372 4,001 2,203 1,893 3,275 3,155 6,204 Trading account assets......... 52,900 12,997 13,480 13,623 12,800 11,440 26,477 Total....................... 3,386,900 865,416 837,010 842,365 842,109 810,637 1,702,426 Interest expense: Interest-bearing demand........ 47,246 12,233 11,432 12,044 11,537 10,916 23,665 Savings and money market savings...................... 307,752 84,481 79,351 75,359 68,561 64,932 163,832 Savings certificates........... 366,426 90,602 89,091 92,584 94,149 91,685 179,693 Large denomination certificates................. 134,699 36,570 34,889 29,470 33,770 32,863 71,459 Time deposits in foreign offices...................... 70,526 22,361 17,357 17,132 13,676 11,033 39,718 Short-term borrowed funds...... 411,632 105,889 95,069 100,949 109,725 110,030 200,958 Long-term debt................. 365,835 86,223 90,766 93,541 95,305 90,013 176,989 Total....................... 1,704,116 438,359 417,955 421,079 426,723 411,472 856,314 Net interest income.............. $1,682,784 $427,057 $419,055 $421,286 $415,386 $399,165 $ 846,112 Annualized net yield on interest-earning assets........ 4.09% 4.11% 4.14% 4.11% 4.03% 3.99% 4.12% AVERAGE BALANCES (millions) Assets: Loans -- net of unearned income....................... $ 31,370 $ 32,249 $ 31,481 $ 31,101 $ 30,660 $ 30,004 $ 31,867 Investment securities.......... 8,377 8,193 8,327 8,251 8,734 8,668 8,259 Interest-bearing bank balances..................... 206 37 28 276 478 462 33 Federal funds sold and securities purchased under resale agreements................... 207 285 164 138 240 232 225 Trading account assets......... 973 956 1,050 995 893 825 1,003 Total interest-earning assets...................... 41,133 41,720 41,050 40,761 41,005 40,191 41,387 Cash and due from banks........ 2,536 2,576 2,558 2,576 2,434 2,521 2,567 Premises and equipment......... 637 633 639 632 642 643 636 Other assets................... 2,073 2,062 2,079 2,095 2,059 1,931 2,070 Unrealized gains on securities available-for-sale........... 50 27 60 74 40 74 44 Allowance for loan losses...... (401) (399) (402) (401) (402) (404) (401) Total assets................ $ 46,028 $ 46,619 $ 45,984 $ 45,737 $ 45,778 $ 44,956 $ 46,303 Liabilities and shareholders' equity: Interest-bearing demand........ $ 3,307 $ 3,324 $ 3,297 $ 3,354 $ 3,253 $ 3,272 $ 3,310 Savings and money market savings..................... 8,205 8,632 8,394 8,072 7,733 7,505 8,514 Savings certificates........... 6,492 6,431 6,426 6,510 6,598 6,487 6,429 Large denomination certificates................. 2,361 2,621 2,586 1,989 2,256 2,222 2,603 Time deposits in foreign offices...................... 1,320 1,633 1,331 1,286 1,033 849 1,483 Short-term borrowed funds...... 7,790 7,943 7,444 7,668 8,099 8,216 7,695 Long-term debt................. 6,007 5,450 5,910 6,206 6,454 6,129 5,679 Total interest-bearing liabilities................. 35,482 36,034 35,388 35,085 35,426 34,680 35,713 Demand deposits in domestic offices........................ 5,536 5,626 5,515 5,599 5,402 5,419 5,571 Demand deposits in foreign offices........................ -- -- -- -- 1 2 -- Noninterest-bearing time deposits in domestic offices............ 4 5 3 5 5 5 4 Other liabilities................ 1,369 1,361 1,425 1,377 1,313 1,206 1,392 Shareholders' equity............. 3,637 3,593 3,653 3,671 3,631 3,644 3,623 Total liabilities and shareholders' equity...... $ 46,028 $ 46,619 $ 45,984 $ 45,737 $ 45,778 $ 44,956 $ 46,303 Total deposits................... $ 27,225 $ 28,272 $ 27,552 $ 26,815 $ 26,281 $ 25,761 $ 27,914 Six Months Ended June 30, 1996 NET INTEREST INCOME -- TAXABLE EQUIVALENT (thousands) Interest income: Loans.......................... $1,252,111 Investment securities.......... 312,026 Interest-bearing bank balances..................... 18,276 Federal funds sold and securities purchased under resale agreements................... 6,405 Trading account assets......... 23,939 Total....................... 1,612,757 Interest expense: Interest-bearing demand........ 23,585 Savings and money market savings...................... 129,912 Savings certificates........... 183,152 Large denomination certificates................. 72,497 Time deposits in foreign offices...................... 24,134 Short-term borrowed funds...... 220,420 Long-term debt................. 171,100 Total....................... 824,800 Net interest income.............. $ 787,957 Annualized net yield on interest-earning assets........ 3.97% AVERAGE BALANCES (millions) Assets: Loans -- net of unearned income....................... $ 29,611 Investment securities.......... 8,732 Interest-bearing bank balances..................... 459 Federal funds sold and securities purchased under resale agreements................... 236 Trading account assets......... 861 Total interest-earning assets...................... 39,899 Cash and due from banks........ 2,567 Premises and equipment......... 638 Other assets................... 1,866 Unrealized gains on securities available-for-sale........... 131 Allowance for loan losses...... (405) Total assets................ $ 44,696 Liabilities and shareholders' equity: Interest-bearing demand........ $ 3,293 Savings and money market savings...................... 7,395 Savings certificates........... 6,444 Large denomination certificates................. 2,448 Time deposits in foreign offices...................... 920 Short-term borrowed funds...... 8,136 Long-term debt................. 5,808 Total interest-bearing liabilities................. 34,444 Demand deposits in domestic offices........................ 5,392 Demand deposits in foreign offices........................ 3 Noninterest-bearing time deposits in domestic offices............ 4 Other liabilities................ 1,187 Shareholders' equity............. 3,666 Total liabilities and shareholders' equity...... $ 44,696 Total deposits................... $ 25,899
8 Loans outstanding as of June 30, 1997 and the preceding four quarters are shown below.
June 30 March 31 Dec. 31 Sept. 30 $ THOUSANDS 1997 1997 1996 1996 Commercial..................... $11,097,920 $10,903,268 $ 9,661,757 $10,517,396 Tax-exempt..................... 1,772,799 1,752,655 1,936,785 1,998,718 Total commercial.......... 12,870,719 12,655,923 11,598,542 12,516,114 Direct retail.................. 757,401 752,091 782,478 772,947 Indirect retail................ 2,345,428 2,438,554 2,491,029 2,562,665 Credit card.................... 4,818,185 4,802,836 4,819,197 4,377,293 Other revolving credit......... 355,129 355,699 359,594 355,254 Total retail.............. 8,276,143 8,349,180 8,452,298 8,068,159 Construction................... 1,234,002 1,075,005 979,649 874,928 Commercial mortgages........... 4,614,698 4,474,620 4,349,438 4,296,306 Residential mortgages.......... 4,759,201 4,657,805 4,644,858 4,546,274 Total real estate......... 10,607,901 10,207,430 9,973,945 9,717,508 Lease financing................ 1,002,957 840,833 822,703 745,673 Foreign........................ 497,905 516,890 435,704 501,349 Total loans............... $33,255,625 $32,570,256 $31,283,192 $31,548,803 June 30 $ THOUSANDS 1996 Commercial..................... $10,280,931 Tax-exempt..................... 2,047,475 Total commercial.......... 12,328,406 Direct retail.................. 767,154 Indirect retail................ 2,582,142 Credit card.................... 4,180,440 Other revolving credit......... 358,636 Total retail.............. 7,888,372 Construction................... 808,866 Commercial mortgages........... 4,130,537 Residential mortgages.......... 4,405,219 Total real estate......... 9,344,622 Lease financing................ 644,087 Foreign........................ 467,154 Total loans............... $30,672,641
Investment securities, the second largest category of interest-earning assets, were lower by $475 million or 5.5 percent for the quarter and $473 million or 5.4 percent for the first six months. Decreases in both periods resulted from continued good loan demand and ongoing balance sheet management planning. Held-to-maturity securities declined $201 million or 13.4 percent for the three months and $219 million or 14.2 percent year to date, while available-for-sale securities were lower by $274 million or 3.8 percent and $254 million or 3.5 percent, respectively. Investment securities were down $134 million or 1.6 percent from the first three months of 1997, reflecting modest decreases in both the held-to-maturity and available-for-sale portfolios. At June 30, 1997, securities available-for-sale totaled $6.983 billion and securities held-to-maturity were $1.271 billion as presented in the following table. $ IN THOUSANDS Securities available-for-sale at market value: U.S. Government and agency.......................................................................$5,162,544 Mortgage-backed securities....................................................................... 1,404,817 Other............................................................................................ 416,028 ---------- Total securities available-for-sale........................................................... 6,983,389 Securities held-to-maturity: Mortgage-backed securities....................................................................... 1,052,962 State and municipal.............................................................................. 216,289 Other............................................................................................ 1,898 ---------- Total securities held-to-maturity............................................................. 1,271,149 Total investment securities...................................................................$8,254,538 ==========
Securities held-to-maturity had a market value of $1.333 billion at June 30, 1997, representing a $62 million appreciation over book value. Securities available-for-sale marked to fair market value had an unrealized gain of $57.242 million, pretax, and $35.715 million, net of tax, on the same date. Average securities available-for-sale had an unrealized gain of $27.505 million, pretax, and $17.239 million, net of tax, for the second quarter. For the first six months, average securities available-for-sale had an unrealized gain of $43.984 million, pretax, and $27.239 million, net of tax. Interest expense was up $26.887 million or 6.5 percent for the quarter and $31.514 million or 3.8 percent year to date. Increases were driven primarily by expanded levels of interest-bearing liabilities to support loan growth with a higher average rate paid also contributing to the rise, principally for the second quarter. Interest-bearing liabilities rose $1.354 billion or 3.9 percent for the three months and $1.269 billion or 3.7 percent for the first six months, with time deposits accounting for all the growth in both periods. The average rate paid on interest-bearing liabilities increased 11 basis points for the quarter but was up only 2 basis points year to date. Interest expense rose $20.404 million or 9 4.9 percent from the first quarter due to a greater volume of interest-bearing liabilities and a higher average rate paid. The corporation is issuing a variety of debt instruments to further broaden its funding base 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 $2.306 billion or 11.3 percent for the quarter and $1.839 billion or 9 percent for the first half. The mix of time deposits to total interest-bearing liabilities increased to 62.8 percent for the second period from 58.6 percent a year earlier and was 62.6 percent for the first six months versus 59.5 percent in the same period of 1996. Savings and money market savings, foreign time deposits and large denomination certificates paced the gains in both periods. Growth in savings and money market savings, up $1.127 billion or 15 percent for the three months and $1.119 billion or 15.1 percent year to date, was driven principally by the corporation's Premiere account, a federally insured savings account for individuals and businesses offering interest rates competitive with money market rates. Compared with the first three months of 1997, time deposits increased $607 million or 2.8 percent led by foreign time deposits and savings and money market savings. Short-term borrowings declined $273 million or 3.3 percent for the quarter and $441 million or 5.4 percent for the first half. Federal funds purchased and securities sold under repurchase agreements were down $979 million or 15.1 percent for the three months and $550 million or 8.9 percent year to date, accounting for substantially all the decreases in both periods. Commercial paper borrowings expanded for both the quarter and first six months, while other short-term borrowings, consisting primarily of short-term bank notes, increased $528 million or 44.2 percent for the three months but were modestly lower year to date. Short-term borrowings were up $499 million or 6.7 percent from the first quarter, reflecting growth principally in other short-term borrowings. 10 TAXABLE EQUIVALENT RATE / VOLUME VARIANCE ANALYSIS -- SECOND QUARTER* TABLE 5
Variance Attributable Average Volume Average Rate Interest to 1997 1996 1997 1996 1997 1996 Variance Rate (Millions) INTEREST INCOME (Thousands) Loans: $10,488 $ 9,935 7.22 6.97 Commercial..................... $188,734 $172,156 $16,578 $ 6,464 1,696 2,080 8.86 8.95 Tax-exempt..................... 37,475 46,281 (8,806) (452) 12,184 12,015 7.45 7.31 Total commercial............... 226,209 218,437 7,772 4,459 757 759 9.48 9.43 Direct retail.................. 17,886 17,786 100 128 2,371 2,583 8.44 8.15 Indirect retail................ 49,901 52,322 (2,421) 1,853 4,777 4,045 13.04 11.72 Credit card.................... 155,305 117,902 37,403 14,273 357 354 12.17 12.13 Other revolving credit......... 10,822 10,688 134 46 8,262 7,741 11.36 10.32 Total retail................... 233,914 198,698 35,216 21,046 1,150 753 9.10 9.44 Construction................... 26,080 17,655 8,425 (648) 4,563 4,073 8.34 8.33 Commercial mortgages........... 94,904 84,366 10,538 103 4,704 4,339 8.14 8.45 Residential mortgages.......... 95,401 91,124 4,277 (3,338) 10,417 9,165 8.33 8.48 Total real estate.............. 216,385 193,145 23,240 (3,363) 890 616 9.13 9.12 Lease financing................ 20,257 13,974 6,283 15 496 467 6.81 7.01 Foreign........................ 8,414 8,135 279 (226) 32,249 30,004 8.77 8.48 Total loans.................... 705,179 632,389 72,790 22,708 Investment securities: Held-to-maturity: -- -- -- -- U.S. Government and agency..... -- -- -- -- 1,077 1,215 7.99 8.13 Mortgage-backed securities..... 21,460 24,555 (3,095) (403) 221 284 10.90 11.32 State and municipal............ 6,005 7,979 (1,974) (282) 2 2 11.34 7.28 Other.......................... 67 42 25 25 Total securities 1,300 1,501 8.49 8.73 held-to-maturity....... 27,532 32,576 (5,044) (853) Available-for-sale:** 5,068 5,417 6.61 6.80 U.S. Government and agency..... 83,514 91,596 (8,082) (2,429) 1,425 1,627 7.09 7.03 Mortgage-backed securities..... 25,191 28,426 (3,235) 244 400 123 6.58 5.87 Other.......................... 6,557 1,797 4,760 241 Total securities 6,893 7,167 6.71 6.84 available-for-sale..... 115,262 121,819 (6,557) (2,164) 8,193 8,668 6.99 7.16 Total investment securities.... 142,794 154,395 (11,601) (3,482) Interest-bearing bank 37 462 4.80 8.06 balances....................... 445 9,258 (8,813) (2,677) Federal funds sold and securities purchased under 285 232 5.62 5.47 resale agreements............ 4,001 3,155 846 89 956 825 5.45 5.58 Trading account assets......... 12,997 11,440 1,557 (264) Total interest-earning $41,720 $40,191 8.32 8.11 assets......................... 865,416 810,637 54,779 22,070 INTEREST EXPENSE $ 3,324 $ 3,272 1.48 1.34 Interest-bearing demand........ 12,233 10,916 1,317 1,153 Savings and money market 8,632 7,505 3.93 3.48 savings........................ 84,481 64,932 19,549 9,004 6,431 6,487 5.65 5.68 Savings certificates........... 90,602 91,685 (1,083) (405) Large denomination 2,621 2,222 5.60 5.95 certificates................... 36,570 32,863 3,707 (1,986) Total time deposits 21,008 19,486 4.27 4.14 in domestic offices.... 223,886 200,396 23,490 6,705 Time deposits in foreign 1,633 849 5.49 5.23 offices........................ 22,361 11,033 11,328 573 22,641 20,335 4.36 4.18 Total time deposits...... 246,247 211,429 34,818 9,522 Federal funds purchased and securities sold under 5,486 6,465 5.30 5.40 repurchase agreements........ 72,429 86,863 (14,434) (1,560) 734 556 5.13 4.87 Commercial paper............... 9,379 6,737 2,642 374 Other short-term borrowed 1,723 1,195 5.61 5.53 funds.......................... 24,081 16,430 7,651 241 Total short-term borrowed 7,943 8,216 5.35 5.39 funds.................. 105,889 110,030 (4,141) (750) 2,917 4,799 6.21 5.72 Bank notes..................... 45,195 68,258 (23,063) 5,424 2,533 1,330 6.50 6.58 Other long-term debt........... 41,028 21,755 19,273 (264) 5,450 6,129 6.35 5.91 Total long-term debt..... 86,223 90,013 (3,790) 6,459 Total interest-bearing $36,034 $34,680 4.88 4.77 liabilities............ 438,359 411,472 26,887 9,929 3.44 3.34 INTEREST RATE SPREAD NET YIELD ON INTEREST-EARNING ASSETS AND NET INTEREST 4.11 3.99 INCOME....................... $427,057 $399,165 $27,892 12,249 Volume Commercial..................... $10,114 Tax-exempt..................... (8,354) Total commercial............... 3,313 Direct retail.................. (28) Indirect retail................ (4,274) Credit card.................... 23,130 Other revolving credit......... 88 Total retail................... 14,170 Construction................... 9,073 Commercial mortgages........... 10,435 Residential mortgages.......... 7,615 Total real estate.............. 26,603 Lease financing................ 6,268 Foreign........................ 505 Total loans.................... 50,082 Investment securities: Held-to-maturity: U.S. Government and agency..... -- Mortgage-backed securities..... (2,692) State and municipal............ (1,692) Other.......................... -- Total securities held-to-maturity....... (4,191) Available-for-sale:** U.S. Government and agency..... (5,653) Mortgage-backed securities..... (3,479) Other.......................... 4,519 Total securities available-for-sale..... (4,393) Total investment securities.... (8,119) Interest-bearing bank balances..................... (6,136) Federal funds sold and securities purchased under resale agreements............ 757 Trading account assets......... 1,821 Total interest-earning assets................. 32,709 INTEREST EXPENSE Interest-bearing demand........ 164 Savings and money market savings........................ 10,545 Savings certificates........... (678) Large denomination certificates................... 5,693 Total time deposits in domestic offices.... 16,785 Time deposits in foreign offices................ 10,755 Total time deposits...... 25,296 Federal funds purchased and securities sold under repurchase agreements........ (12,874) Commercial paper............... 2,268 Other short-term borrowed funds........................ 7,410 Total short-term borrowed funds.................. (3,391) Bank notes..................... (28,487) Other long-term debt........... 19,537 Total long-term debt..... (10,249) Total interest-bearing liabilities............ 16,958 INTEREST RATE SPREAD NET YIELD ON INTEREST-EARNING ASSETS AND NET INTEREST INCOME....................... $15,643
*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 $27 million in 1997 and $74 million in 1996 11 TAXABLE EQUIVALENT RATE / VOLUME VARIANCE ANALYSIS -- SIX MONTHS* TABLE 6
Variance Attributable Average Volume Average Rate Interest to 1997 1996 1997 1996 1997 1996 Variance Rate (Millions) INTEREST INCOME (Thousands) Loans: $10,179 $ 9,772 7.20 7.05 Commercial.................... $ 363,243 $ 342,373 $ 20,870 $ 6,430 1,737 2,114 8.91 8.95 Tax-exempt.................... 76,793 94,110 (17,317) (645) 11,916 11,886 7.45 7.38 Total commercial.............. 440,036 436,483 3,553 2,454 760 746 9.44 9.39 Direct retail................. 35,565 34,854 711 68 2,425 2,585 8.50 8.21 Indirect retail............... 102,255 105,515 (3,260) 3,427 4,786 4,002 12.82 11.65 Credit card................... 304,170 231,758 72,412 24,023 357 354 12.17 12.25 Other revolving credit........ 21,552 21,545 7 (200) 8,328 7,687 11.22 10.30 Total retail.................. 463,542 393,672 69,870 35,633 1,093 723 9.16 9.32 Construction.................. 49,655 33,503 16,152 (690) 4,504 4,018 8.27 8.32 Commercial mortgages.......... 184,688 166,173 18,515 (1,413) 4,683 4,285 8.06 8.46 Residential mortgages......... 187,150 180,328 6,822 (9,389) 10,280 9,026 8.27 8.47 Total real estate............. 421,493 380,004 41,489 (10,164) 861 573 9.06 9.33 Lease financing............... 38,663 26,588 12,075 (867) 482 439 6.85 7.05 Foreign....................... 16,352 15,364 988 (487) 31,867 29,611 8.73 8.50 Total loans................... 1,380,086 1,252,111 127,975 30,815 Investment securities: Held-to-maturity: -- -- -- -- U.S. Government and agency.... -- -- -- -- 1,091 1,242 8.04 8.09 Mortgage-backed securities.... 43,472 49,997 (6,525) (480) 228 296 11.06 11.23 State and municipal........... 12,534 16,517 (3,983) (283) 2 2 12.07 8.58 Other......................... 127 99 28 37 Total securities 1,321 1,540 8.57 8.70 held-to-maturity...... 56,133 66,613 (10,480) (1,153) Available-for-sale:** 5,082 5,485 6.67 6.83 U.S. Government and agency.... 168,131 186,386 (18,255) (4,807) 1,459 1,563 7.15 7.05 Mortgage-backed securities.... 51,689 54,766 (3,077) 596 397 144 6.55 5.96 Other......................... 12,901 4,261 8,640 441 Total securities 6,938 7,192 6.76 6.86 available-for-sale.... 232,721 245,413 (12,692) (4,134) 8,259 8,732 7.05 7.19 Total investment securities... 288,854 312,026 (23,172) (6,534) Interest-bearing bank 33 459 4.96 8.00 balances...................... 805 18,276 (17,471) (5,090) Federal funds sold and securities purchased under 225 236 5.55 5.45 resale agreements........... 6,204 6,405 (201) 95 1,003 861 5.32 5.59 Trading account assets........ 26,477 23,939 2,538 (1,249) Total interest-earning $41,387 $39,899 8.29 8.13 assets........................ 1,702,426 1,612,757 89,669 28,806 INTEREST EXPENSE $ 3,310 $ 3,293 1.44 1.44 Interest-bearing demand....... 23,665 23,585 80 (42) Savings and money market 8,514 7,395 3.88 3.53 savings....................... 163,832 129,912 33,920 13,116 6,429 6,444 5.64 5.72 Savings certificates.......... 179,693 183,152 (3,459) (3,013) Large denomination 2,603 2,448 5.53 5.96 certificates.................. 71,459 72,497 (1,038) (5,482) Total time deposits in 20,856 19,580 4.24 4.20 domestic offices...... 438,649 409,146 29,503 2,695 Time deposits in foreign 1,483 920 5.40 5.28 offices....................... 39,718 24,134 15,584 508 22,339 20,500 4.32 4.25 Total time deposits..... 478,367 433,280 45,087 5,777 Federal funds purchased and securities sold under 5,663 6,213 5.23 5.48 repurchase agreements....... 146,982 169,164 (22,182) (7,652) 707 555 5.01 4.90 Commercial paper.............. 17,562 13,527 4,035 263 Other short-term 1,325 1,368 5.54 5.55 borrowed funds.............. 36,414 37,729 (1,315) (143) Total short-term 7,695 8,136 5.27 5.45 borrowed funds........ 200,958 220,420 (19,462) (7,773) 3,236 4,477 6.11 5.72 Bank notes.................... 98,100 127,416 (29,316) 7,869 2,443 1,331 6.51 6.60 Other long-term debt.......... 78,889 43,684 35,205 (711) 5,679 5,808 6.28 5.92 Total long-term debt.... 176,989 171,100 5,889 9,748 Total interest-bearing $35,713 $34,444 4.84 4.82 liabilities........... 856,314 824,800 31,514 1,092 3.45 3.31 INTEREST RATE SPREAD NET YIELD ON INTEREST-EARNING ASSETS AND NET INTEREST 4.12 3.97 INCOME........................ $ 846,112 $ 787,957 $ 58,155 28,237
Volume Commercial.................... $ 14,440 Tax-exempt.................... (16,672) Total commercial.............. 1,099 Direct retail................. 643 Indirect retail............... (6,687) Credit card................... 48,389 Other revolving credit........ 207 Total retail.................. 34,237 Construction.................. 16,842 Commercial mortgages.......... 19,928 Residential mortgages......... 16,211 Total real estate............. 51,653 Lease financing............... 12,942 Foreign....................... 1,475 Total loans................... 97,160 Investment securities: Held-to-maturity: U.S. Government and agency.... -- Mortgage-backed securities.... (6,045) State and municipal........... (3,700) Other......................... (9) Total securities held-to-maturity...... (9,327) Available-for-sale:** U.S. Government and agency.... (13,448) Mortgage-backed securities.... (3,673) Other......................... 8,199 Total securities available-for-sale.... (8,558) Total investment securities... (16,638) Interest-bearing bank balances...................... (12,381) Federal funds sold and securities purchased under resale agreements........... (296) Trading account assets........ 3,787 Total interest-earning assets........................ 60,863 INTEREST EXPENSE Interest-bearing demand....... 122 Savings and money market savings....................... 20,804 Savings certificates.......... (446) Large denomination certificates.................. 4,444 Total time deposits in domestic offices...... 26,808 Time deposits in foreign offices....................... 15,076 Total time deposits..... 39,310 Federal funds purchased and securities sold under repurchase agreements....... (14,530) Commercial paper.............. 3,772) Other short-term borrowed funds.............. (1,172) Total short-term borrowed funds........ (11,689) Bank notes.................... (37,185) Other long-term debt.......... 35,916 Total long-term debt.... (3,859) Total interest-bearing liabilities........... 30,422 INTEREST RATE SPREAD NET YIELD ON INTEREST-EARNING ASSETS AND NET INTEREST INCOME........................ $ 29,918
*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 $44 million in 1997 and $131 million in 1996 12 Long-term debt decreased $679 million or 11.1 percent for the second period and $129 million or 2.2 percent year to date. Compared with the first three months of 1997, long-term debt was lower by $460 million or 7.8 percent. Declines both from year-earlier periods and from the preceding quarter reflected reductions in medium-term bank notes offset partially by increases in other long-term debt. At June 30, 1997, other long-term debt included $250 million of 30-year subordinated debt with a 10-year put option issued in the fourth quarter of 1995; $200 million of 10-year senior debt fixed rate notes issued in November 1996; and a total of $900 million of trust capital securities issued in December 1996, January 1997 and June 1997. The January issuance of trust capital securities was made by Wachovia Capital Trust II (WCT II), a consolidated subsidiary, for $300 million of floating rate capital securities due in 2027. WCT II invested the proceeds of the capital securities, together with $9.280 million paid by the corporation for WCT II'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. WCT II's sole asset is the junior subordinated deferrable interest debentures which mature in 2027. The corporation has fully and unconditionally guaranteed all of WCT II's obligations under the capital securities. The June issuance was for $300 million of fixed-rate capital securities made by Wachovia Capital Trust V, a consolidated subsidiary, and are due in 2027. All of the capital securities are rated Aa3 by Moody's and A+ by Standard & Poor's and qualify for inclusion in Tier I capital under risk-based capital guidelines. Wachovia Bank has an ongoing $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. At June 30, 1997, short-term bank notes totaled $1.227 billion and had an average cost of 5.65 percent and an average maturity of 2 months versus $698 million in outstandings with an average cost of 5.32 percent and an average maturity of 10 days one year earlier. Medium-term bank notes were $3.014 billion with an average cost of 6.11 percent and an average maturity of 3.3 years on the same date compared with $4.963 billion, 5.62 percent and 1.2 years, respectively, at the end of the second quarter of 1996. Included in medium-term bank notes at June 30, 1997 were $500 million of five-year floating rate notes issued in May 1996; $100 million of two-year fixed-rate notes issued in August 1996; $250 million of 12-year fixed-rate notes issued in October 1996; and $350 million of five-year floating rate notes issued in May 1997. All of the medium-term bank notes were issued in Europe and are rated Aa2 by Moody's and AA+ by Standard & Poor's. Gross deposits averaged $28.272 billion for the quarter, up $2.511 billion or 9.7 percent from a year earlier, and were $27.914 billion for the first half, an increase of $2.015 billion or 7.8 percent from the same six months in 1996. Collected deposits, net of float, averaged $26.395 billion for the three months and $26.037 billion year to date, higher by $2.442 billion or 10.2 percent and $1.962 billion or 8.1 percent, respectively, from the same periods in 1996. 13 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 June 30, 1997, the model indicated the impact of a 200 basis point gradual rise in rates over 12 months would approximate a .7 percent decrease in net interest income, while a 200 basis point decline in rates over the same period would approximate a .6 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 June 30, 1997, the corporation had $2.957 billion notional amount of derivatives outstanding for asset and liability management purposes. Credit risk of off-balance sheet derivative financial instruments is equal to the fair value gain of the instrument if a counterparty fails to perform. The credit risk is normally a small percentage of the notional amount and fluctuates as interest rates move up or down. The corporation mitigates this risk by subjecting the transactions to the same rigorous approval and monitoring process as is used for on-balance sheet credit transactions, by dealing in the national market with highly rated counterparties, by executing transactions under International Swaps and Derivatives Association Master Agreements and by using collateral instruments to reduce exposure where appropriate. Collateral is delivered by either party when the fair value of a particular transaction or group of transactions with the same counterparty on a net basis exceeds an acceptable threshold of exposure. The threshold level is determined based on the strength of the individual counterparty. The fair value of all asset and liability derivative positions for which the corporation was exposed to counterparties totaled $27 million at June 30, 1997. The fair value of all asset and liability derivative positions for which counterparties were exposed to the corporation amounted to $13 million on the same date. Fair value details and additional asset and liability derivative information are included in the following tables. 14 Estimated Fair Value of Asset and Liability Management Derivatives by Purpose
June 30, 1997 June 30, 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.... $ 263 $ -- $ (2) $ (2) $ 109 $ (1) Convert fixed rate assets to floating: Swaps-pay fixed/receive floating.... 366 -- (5) (5) 384 (4) Forward starting swaps-pay fixed/receive floating............ 18 -- (1) (1) 39 (2) Convert fixed rate liabilities to floating: Swaps-receive fixed/pay floating.... 1,350 18 (5) 13 300 (10) Convert term liabilities with quarterly rate resets to monthly: Swaps-receive floating/pay floating.......................... 300 -- -- -- 300 -- Convert floating rate assets to fixed: Swaps-receive fixed/pay floating.... 410 5 -- 5 116 -- Index amortizing swaps-receive fixed/pay floating................ 250 4 -- 4 275 9 Total derivatives............... $2,957 $ 27 ($13) $ 14 $1,523 $ (8)
Maturity Schedule of Asset and Liability Management Derivatives June 30, 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......................... $301 $ 217 $ 39 $ 5 $ 3 $ 64 $ 629 1.84 Weighted average rates received......... 4.63% 5.72% 5.79 % 6.14% 6.52% 5.81% 5.22% Weighted average rates paid............. 7.22 6.27 6.47 9.10 8.87 7.87 6.93 Receive fixed/pay floating: Notional amount......................... $ 1 $ 252 $251 $ 103 $ 101 $1,052 $1,760 12.55 Weighted average rates received......... 9.88% 7.04% 6.81 % 6.48% 7.11% 7.42% 7.21% Weighted average rates paid............. 8.49 5.72 5.83 5.76 6.04 5.81 5.81 Receive floating/pay floating: Notional amount......................... -- -- -- $ 300 -- -- $ 300 3.93 Weighted average rates received......... -- -- -- 5.79% -- -- 5.79% Weighted average rates paid............. -- -- -- 5.69 -- -- 5.69 Index amortizing swaps:* Receive fixed/pay floating: Notional amount......................... $250 -- -- -- -- -- $ 250 .49 Weighted average rates received......... 8.22% -- -- -- -- -- 8.22% Weighted average rates paid............. 5.70 -- -- -- -- -- 5.70 Total interest rate swaps: Notional amount........................... $552 $ 469 $290 $ 408 $ 104 $1,116 $2,939 8.35 Weighted average rates received........... 6.26% 6.43% 6.67 % 5.96% 7.10% 7.33% 6.72% Weighted average rates paid............... 6.53 5.97 5.92 5.75 6.09 5.93 6.03 Forward starting interest rate swaps: Notional amount........................... -- -- -- -- -- $ 18 $ 18 8.61 Weighted average rates paid............... -- -- -- -- -- 8.04% 8.04% Total derivatives (notional amount)... $552 $ 469 $290 $ 408 $ 104 $1,134 $2,957 8.36
* Maturity is based upon expected average lives rather than contractual lives. 15 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 by 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. 16 NONPERFORMING ASSETS Nonperforming assets at June 30, 1997 were $68.831 million or .21 percent of period-end loans and foreclosed property. The total decreased $3.814 million or 5.3 percent from one year earlier and was down $4.600 million or 6.3 percent from March 31, 1997, reflecting lower levels both of cash-basis assets and foreclosed property. Real estate nonperforming assets, the largest category of total nonperforming assets, were $53.007 million or .50 percent of real estate loans and foreclosed real estate at June 30, 1997. Comparable amounts one year earlier and at March 31, 1997 were $57.897 million or .62 percent and $55.966 million or .55 percent, respectively. Real estate nonperforming loans were $43.009 million at June 30, 1997, $45.391 million one year earlier and $45.752 million at the end of the first quarter. Commercial real estate nonperforming assets were $26.627 million or .46 percent of related loans and foreclosed real estate versus $34.498 million or .70 percent at June 30, 1996 and $29.766 million or .54 percent at March 31, 1997. Included in these totals were commercial real estate nonperforming loans of $23.632 million at June 30, 1997, $27.392 million one year earlier and $26.525 million at first quarter close. NONPERFORMING ASSETS AND CONTRACTUALLY PAST DUE LOANS TABLE 7 (thousands)
Sept. June 30 Mar. 31 Dec. 31 30 June 30 1997 1997 1996 1996 1996 NONPERFORMING ASSETS Cash-basis assets -- domestic borrowers........................ $54,837* $57,934 $60,066 $61,283 $55,219 Restructured loans -- domestic................................. --** -- -- -- -- Total nonperforming loans................................ 54,837 57,934 60,066 61,283 55,219 Foreclosed property: Foreclosed real estate....................................... 12,037 12,189 11,326 12,852 15,162 Less valuation allowance..................................... 2,039 1,975 2,115 2,165 2,656 Other foreclosed assets...................................... 3,996 5,283 8,213 6,180 4,920 Total foreclosed property................................ 13,994 15,497 17,424 16,867 17,426 Total nonperforming assets............................... $68,831*** $73,431 $77,490 $78,150 $72,645 Nonperforming loans to period-end loans........................ .16% .18% .19% .19% .18% Nonperforming assets to period-end loans and foreclosed property..................................................... .21 .23 .25 .25 .24 Period-end allowance for loan losses times nonperforming loans........................................................ 7.46X 7.07x 6.81x 6.68x 7.41x Period-end allowance for loan losses times nonperforming assets....................................................... 5.95 5.57 5.28 5.24 5.63 CONTRACTUALLY PAST DUE LOANS (accruing loans past due 90 days or more) Domestic borrowers............................................. $60,649 $54,717 $58,842 $53,304 $63,317
*Includes $6,418 of loans which have been defined as impaired per FASB Statement No. 114, Accounting for Impairment of a Loan **Excludes $199 of loans which have been renegotiated at market rates and have been reclassified to performing status ***Net of cumulative corporate and commercial real estate charge-offs and foreclosed real estate write-downs totaling $13,323; includes $3,618 of nonperforming assets on which interest and principal are paid current PROVISION AND ALLOWANCE FOR LOAN LOSSES The provision for loan losses was $49.715 million for the second quarter and $97.713 million for the first half, modestly exceeding net loan losses and higher by $15.311 million or 44.5 percent and $35.975 million or 58.3 percent, respectively, from year-earlier periods. Compared with the first three months of 1997, the provision was up $1.717 million or 3.6 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. 17 Net loan losses for the second period were $49.692 million or .62 percent annualized of average loans, up $15.365 million or 44.8 percent from $34.327 million or .46 percent of average loans a year earlier. For the first six months, net loan losses totaled $97.675 million or .61 percent annualized of average loans, a rise of $36.134 million or 58.7 percent from $61.541 million or .42 percent of loans in the same period of 1996. Compared with the first quarter, net loan losses were up $1.709 million or 3.6 percent. Increases in net charge-offs both from year-earlier periods and from the preceding three ALLOWANCE FOR LOAN LOSSES TABLE 8 (thousands)
Six Months Ended 1997 1996 June Second First Fourth Third Second 30 Quarter Quarter Quarter Quarter Quarter 1997 SUMMARY OF TRANSACTIONS Balance at beginning of period............ $409,312 $409,297 $409,271 $409,205 $408,928 $409,297 Additions from acquisitions............... -- -- -- -- 200 -- Provision for loan losses................. 49,715 47,998 47,443 40,730 34,404 97,713 Deduct net loan losses: Loans charged off: Commercial............................ 518 268 451 2,748 324 786 Credit card........................... 49,117 46,101 44,640 38,783 36,343 95,218 Other revolving credit................ 1,769 1,637 2,834 1,790 1,346 3,406 Other retail.......................... 6,430 7,675 7,057 5,556 4,840 14,105 Real estate........................... 436 1,455 814 191 1,371 1,891 Lease financing....................... 1,218 1,366 675 348 235 2,584 Foreign............................... -- -- -- -- -- -- Total............................... 59,488 58,502 56,471 49,416 44,459 117,990 Recoveries: Commercial............................ 685 476 1,689 666 1,198 1,161 Credit card........................... 5,730 6,019 4,982 4,579 4,599 11,749 Other revolving credit................ 534 532 384 495 290 1,066 Other retail.......................... 1,544 1,701 1,336 1,379 1,138 3,245 Real estate........................... 1,199 1,732 633 1,575 2,866 2,931 Lease financing....................... 104 59 30 58 41 163 Foreign............................... -- -- -- -- -- -- Total............................... 9,796 10,519 9,054 8,752 10,132 20,315 Net loan losses......................... 49,692 47,983 47,417 40,664 34,327 97,675 Balance at end of period*................. $409,335 $409,312 $409,297 $409,271 $409,205 $409,335 NET LOAN LOSSES (RECOVERIES) BY CATEGORY Commercial................................ $ (167) $ (208) $ (1,238) $ 2,082 $ (874) $ (375) Credit card............................... 43,387 40,082 39,658 34,204 31,744 83,469 Other revolving credit.................... 1,235 1,105 2,450 1,295 1,056 2,340 Other retail.............................. 4,886 5,974 5,721 4,177 3,702 10,860 Real estate............................... (763) (277) 181 (1,384) (1,495) (1,040) Lease financing........................... 1,114 1,307 645 290 194 2,421 Foreign................................... -- -- -- -- -- -- Total............................... $ 49,692 $ 47,983 $ 47,417 $ 40,664 $ 34,327 $ 97,675 Net loan losses -- excluding credit cards................................... $ 6,305 $ 7,901 $ 7,759 $ 6,460 $ 2,583 $ 14,206 ANNUALIZED NET LOAN LOSSES (RECOVERIES) TO AVERAGE LOANS BY CATEGORY Commercial................................ (.01%) (.01%) (.04%) .07% (.03%) (.01%) Credit card............................... 3.63 3.34 3.49 3.20 3.14 3.49 Other revolving credit.................... 1.39 1.24 2.76 1.46 1.19 1.31 Other retail.............................. .62 .74 .69 .50 .44 .68 Real estate............................... (.03) (.01) .01 (.06) (.07) (.02) Lease financing........................... .50 .63 .34 .17 .13 .56 Foreign................................... -- -- -- -- -- -- Total loans............................... .62 .61 .61 .53 .46 .61 Total loans -- excluding credit cards..... .09 .12 .12 .10 .04 .10 Period-end allowance to outstanding loans................................... 1.23 1.26 1.31 1.30 1.33 1.23 1996 SUMMARY OF TRANSACTIONS Balance at beginning of period............ $408,808 Additions from acquisitions............... 200 Provision for loan losses................. 61,738 Deduct net loan losses: Loans charged off: Commercial............................ 389 Credit card........................... 68,245 Other revolving credit................ 2,438 Other retail.......................... 10,335 Real estate........................... 1,505 Lease financing....................... 612 Foreign............................... -- Total............................... 83,524 Recoveries: Commercial............................ 2,058 Credit card........................... 8,623 Other revolving credit................ 573 Other retail.......................... 2,190 Real estate........................... 8,444 Lease financing....................... 95 Foreign............................... -- Total............................... 21,983 Net loan losses......................... 61,541 Balance at end of period*................. $409,205 NET LOAN LOSSES (RECOVERIES) BY CATEGORY Commercial................................ $ (1,669) Credit card............................... 59,622 Other revolving credit.................... 1,865 Other retail.............................. 8,145 Real estate............................... (6,939) Lease financing........................... 517 Foreign................................... -- Total............................... $ 61,541 Net loan losses -- excluding credit cards................................... $ 1,919 ANNUALIZED NET LOAN LOSSES (RECOVERIES) TO AVERAGE LOANS BY CATEGORY Commercial................................ (.03%) Credit card............................... 2.98 Other revolving credit.................... 1.05 Other retail.............................. .49 Real estate............................... (.15) Lease financing........................... .18 Foreign................................... -- Total loans............................... .42 Total loans -- excluding credit cards..... .01 Period-end allowance to outstanding loans................................... 1.33
*Includes the related allowance for credit losses for impaired loans as defined in FASB 114, "Accounting by Creditors for Impairment of a Loan," of $790, $792, $1,960, $1,453, $791, $790 and $791, respectively 18 months reflected higher losses in consumer loans, principally credit cards, and lower recoveries, primarily in real estate loans. Excluding credit cards, net loan losses were $6.305 million or .09 percent of average loans for the quarter and $14.206 million or .10 percent year to date versus $2.583 million or .04 percent and $1.919 million or .01 percent in the same respective periods of 1996 and $7.901 million or .12 percent in the first three months of 1997. Credit card net charge-offs for the quarter were $43.387 million or 3.63 percent annualized of average credit card loans, a rise of $11.643 million or 36.7 percent from $31.744 million or 3.14 percent of average receivables a year earlier. For the first six months, credit card net loan losses totaled $83.469 million or 3.49 percent of receivables, up $23.847 million or 40 percent from $59.622 million or 2.98 percent of loans in the same period of 1996. Other retail net charge-offs, associated with direct and indirect retail loans, increased $1.184 million or 32 percent for the three months and $2.715 million or 33.3 percent year to date. Real estate loans had net recoveries of $763 thousand or .03 percent of average real estate loans for the quarter and $1.040 million or .02 percent for the first half versus $1.495 million or .07 percent and $6.939 million or .15 percent in the same respective periods of 1996. Selected data on the corporation's managed credit card portfolio, consisting of balance sheet and securitized loans, is presented in the following table. Managed Credit Card Data
Six Months 1997 1996 Ended Second First Fourth Third Second June 30 $ IN THOUSANDS Quarter Quarter Quarter Quarter Quarter 1997 Average credit card outstandings........... $5,382,000 $5,420,000 $5,167,000 $4,895,000 $4,670,000 $5,401,000 Net loan losses.......... 48,787 45,444 45,162 39,370 36,733 94,122 Annualized net loan losses to average loans.................. 3.63% 3.35% 3.50% 3.22% 3.15% 3.49% Delinquencies (30 days or more) to period-end loans.................. 2.26 2.27 2.14 2.26 2.01 2.26 $ IN THOUSANDS 1996 Average credit card outstandings........... $4,627,000 Net loan losses.......... 69,092 Annualized net loan losses to average loans.................. 2.99% Delinquencies (30 days or more) to period-end loans.................. 2.01
At June 30, 1997, the allowance for loan losses was $409.335 million, representing 1.23 percent of period-end loans and 746 percent of nonperforming loans. This compared with $409.205 million, 1.33 percent and 741 percent, respectively, one year earlier and with $409.312 million, 1.26 percent and 707 percent, respectively, at March 31, 1997. NONINTEREST INCOME Total other operating revenue, which excludes investment securities sales, grew $34.310 million or 17.3 percent for the second quarter from a year earlier and was up $51.870 million or 13.6 percent year to date. Increases in both periods were broad based, with all categories advancing except mortgage fee income. Included in total other operating revenue for the quarter was a gain of approximately $18 million from the sale of branch offices identified during 1996 from the corporation's Market Network Strategy. Total other operating revenue for the previous year's quarter included a gain of $9.575 million from the sale of the corporation's bond trustee business. Excluding both these gains, total other operating revenue rose $25.226 million or 13.3 percent for the second quarter versus a year earlier and $42.786 million or 11.5 percent year to date and was higher by $12.581 million or 6.2 percent from the first three months of 1997. Credit card income advanced $8.804 million or 26 percent for the quarter and $11.976 million or 18 percent for the first half. Growth primarily reflected higher net revenues received from cardholder income on securitized loans, greater overlimit charges and increased interchange income. Results for both periods were impacted favorably by upward pricing in the corporation's managed credit card portfolio following the rise in March of short-term interest rates. 19 Trust fees grew $4.364 million or 12.6 percent for the three months and $6.373 million or 9.3 percent for the first six months. Gains in both periods were fueled by increased sales, greater market values for trust assets and higher fee schedules, with advances occurring in personal trust services, asset management and the corporation's proprietary Wachovia mutual funds. Deposit account service charge revenues were up $2.694 million or 4.4 percent and $10.038 million or 8.5 percent for the quarter and first half, respectively. Increases in commercial account analy- sis fees, insufficient fund charges and overdraft fees primarily accounted for the rise in both periods. Electronic banking revenues, consisting of fees from debit card and ATM usage, were higher by $602 thousand or 4.8 percent for the second period and $3.772 million or 17.2 percent year to date. Increases reflected growth in debit card interchange income as well as the assessment of ATM foreign access fees which were implemented throughout Georgia, North Carolina and South Carolina effective with the second quarter of 1996. Trading account profits rose $471 thousand or 8.3 percent for the three months and $1.299 million or 14.2 percent for the first six months. Improved bond market conditions from year-earlier periods accounted for the increases. 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 was up modestly for the quarter and first half, expanding $245 thousand or 2.3 percent and $836 thousand or 4 percent, respectively. Increases occurred in variable rate demand bond placements and in public finance fees, but were largely offset by slower mutual fund sales in the first part of the second quarter and by reduced loan syndication activity. Mortgage fee income remained largely flat for the second period but was lower by $907 thousand or 10.4 percent year to date. Improved pricing on the corporation's mortgage loan products helped moderate the impact of reduced loan volume from year-earlier periods. Remaining combined categories of total other operating revenue increased $17.121 million or 47.7 percent for the quarter and $18.483 million or 26.7 percent year to date. Insurance premiums and commissions were up $2.566 million or 63.6 percent for the three months and $4.410 million or 56.7 percent for the first six months, while bankers' acceptance and letter of credit fees expanded NONINTEREST INCOME TABLE 9 (thousands)
Six Months 1997 1996 Ended Second First Fourth Third Second June 30 Quarter Quarter Quarter Quarter Quarter 1997 Service charges on deposit accounts........ $ 63,622 $ 63,942 $ 62,564 $ 62,278 $ 60,928 $127,564 Fees for trust services.................... 38,872 36,354 35,116 33,872 34,508 75,226 Credit card income -- net of interchange payments................................. 42,652 35,694 35,679 37,089 33,848 78,346 Electronic banking......................... 13,184 12,510 13,274 12,910 12,582 25,694 Investment fee income...................... 11,087 10,820 11,262 10,145 10,842 21,907 Mortgage fee income........................ 4,298 3,485 4,195 4,099 4,289 7,783 Trading account profits -- excluding interest................................. 6,169 4,280 7,593 6,076 5,698 10,449 Insurance premiums and commissions......... 6,598 5,592 4,584 4,666 4,032 12,190 Bankers' acceptance and letter of credit fees..................................... 8,015 7,171 6,656 6,684 6,109 15,186 Other service charges and fees............. 8,157 8,502 7,641 8,373 7,985 16,659 Other income............................... 30,251 13,315 14,872 11,586 17,774 43,566 Total other operating revenue........ 232,905 201,665 203,436 197,778 198,595 434,570 Investment securities gains (losses)....... 326 335 2,864 393 (219) 661 Total................................ $233,231 $202,000 $206,300 $198,171 $198,376 $435,231 1996 Service charges on deposit accounts........ $117,526 Fees for trust services.................... 68,853 Credit card income -- net of interchange payments................................. 66,370 Electronic banking......................... 21,922 Investment fee income...................... 21,071 Mortgage fee income........................ 8,690 Trading account profits -- excluding interest................................. 9,150 Insurance premiums and commissions......... 7,780 Bankers' acceptance and letter of credit fees..................................... 12,007 Other service charges and fees............. 16,575 Other income............................... 32,756 Total other operating revenue........ 382,700 Investment securities gains (losses)....... 479 Total................................ $383,179
20 $1.906 million or 31.2 percent for the second period and $3.179 million or 26.5 percent year to date. Other service charges and fees remained largely unchanged for both the quarter and first half. Other income rose $12.477 million or 70.2 percent for the three months and $10.810 million or 33 percent for the first six months and included the gain on the sale of branch offices. Including investment securities sales, total noninterest income was up $34.855 million or 17.6 percent for the second quarter and $52.052 million or 13.6 percent year to date. Investment securities sales resulted in net gains of $326 thousand for the second quarter of 1997 versus net losses of $219 thousand a year earlier. For the first six months, investment securities sales had net gains of $661 thousand in 1997 compared with $479 thousand in 1996. NONINTEREST EXPENSE Total noninterest expense rose $44.607 million or 14.4 percent for the second quarter and $60.498 million or 9.8 percent for the first half. Increases were driven by a higher salary base and project costs for growth initiatives as well as approximately $16 million in expenditures associated with Year 2000 computer system conversions, which were incurred in the second quarter. Excluding Year 2000 compliance costs, total noninterest expense was up approximately $29 million or 9 percent for the second period and $44 million or 7 percent year to date and was higher by approximately $15 million or 4 percent from the preceding 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) was 53.7 percent for the second quarter and 53 percent for the first half of 1997. Total personnel expense grew $21.488 million or 13.4 percent for the three months and $33.974 million or 10.6 percent for the first six months. Salaries expense rose $16.722 million or 12.6 percent and $27.157 million or 10.3 percent for the quarter and first half, respectively. Increases were driven by higher core salaries and by greater incentive pay, reflecting shifts in the corporation's workforce composition toward higher skilled and more revenue generating personnel. Employee benefits expense was up $4.766 million or 17.2 percent for the second period and $6.817 million or 11.9 percent year to date due to increases in flexible benefits costs and payroll taxes generated by a larger personnel base. At June 30, 1997, full-time equivalent employees totaled 16,577 versus 16,150 one year earlier. Combined net occupancy and equipment expense was up modestly for the quarter and first half, rising $1.671 million or 3.3 percent and $1.128 million or 1.1 percent, respectively. Increased equip- ment expense, associated primarily with higher depreciation and externally maintained equipment costs, was largely offset by lower net occupancy expense for building maintenance and renovation. Remaining combined categories of noninterest expense rose $21.448 million or 21.5 percent for the second period and $25.396 million or 13 percent year to date and included the $16 million in expenses associated with Year 2000 conversion issues. The majority of Year 2000 compliance costs to date are for contract programming expenses. These costs are reflected in outside data processing, pro- gramming and software expense, which grew $13.968 million or 124.9 percent for the three months and $16.154 million or 73.8 percent for the first six months. Costs for consulting assistance with Year 2000 compliance are included in professional services expense, which increased $2.952 million or 27.5 percent for the quarter but was up a more moderate $1.799 million or 8.8 percent year to date. Management continues to anticipate spending a total of $40 million to $50 million for issues related to Year 2000 compliance. During the quarter, the corporation moved forward with its brand name advertising campaign launched in April. Advertising expense for the quarter was up $3.345 million or 21.6 percent from the previous year's period but remained essentially unchanged year to date. 21 NONINTEREST EXPENSE TABLE 10 (thousands)
Six Months 1997 1996 Ended Second First Fourth Third Second June 30 Quarter Quarter Quarter Quarter Quarter 1997 Salaries................................... $149,160 $142,255 $141,342 $137,627 $132,438 $291,415 Employee benefits.......................... 32,490 31,849 25,894 27,882 27,724 64,339 Total personnel expense.............. 181,650 174,104 167,236 165,509 160,162 355,754 Net occupancy expense...................... 21,126 22,193 21,559 23,161 22,184 43,319 Equipment expense.......................... 30,783 28,873 29,032 28,844 28,054 59,656 Postage and delivery....................... 9,993 10,483 9,813 9,973 9,780 20,476 Outside data processing, programming and software................................. 25,147 12,890 11,477 11,339 11,179 38,037 Stationery and supplies.................... 6,618 6,203 6,131 6,012 6,951 12,821 Advertising and sales promotion............ 18,847 13,648 13,289 14,442 15,502 32,495 Professional services...................... 13,695 8,554 9,662 8,173 10,743 22,249 Travel and business promotion.............. 5,905 5,321 5,959 4,929 5,335 11,226 Regulatory agency fees and other bank services................................. 3,002 2,988 2,576 3,781 1,320 5,990 Amortization of intangible assets.......... 1,064 1,063 1,091 1,095 1,098 2,127 Foreclosed property expense................ 500 (235) 225 (370) 175 265 Other expense.............................. 36,364 38,051 44,688 39,591 37,604 74,415 Total................................ $354,694 $324,136 $322,738 $316,479 $310,087 $678,830 Overhead ratio............................. 53.7% 52.2% 51.7% 51.6% 51.9% 53.0% 1996 Salaries................................... $264,258 Employee benefits.......................... 57,522 Total personnel expense.............. 321,780 Net occupancy expense...................... 44,862 Equipment expense.......................... 56,985 Postage and delivery....................... 20,232 Outside data processing, programming and software................................. 21,883 Stationery and supplies.................... 13,957 Advertising and sales promotion............ 32,573 Professional services...................... 20,450 Travel and business promotion.............. 9,572 Regulatory agency fees and other bank services................................. 2,373 Amortization of intangible assets.......... 2,176 Foreclosed property expense................ 49 Other expense.............................. 71,440 Total................................ $618,332 Overhead ratio............................. 52.8%
INCOME TAXES Applicable income taxes increased $1.168 million or 1.5 percent for the quarter and $3.652 million or 2.5 percent for the first half of 1997. 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 provide both an attractive return for the corporation and substantial interest savings for local governments and their constituents. INCOME TAXES TABLE 11 (thousands)
Three Months Ended Six Months Ended June 30 June 30 1997 1996 1997 1996 Income before income taxes............................... $242,564 $235,136 $477,399 $454,275 Federal income taxes at statutory rate................... $ 84,898 $ 82,297 $167,090 $158,996 State and local income taxes -- net of federal benefit... 4,692 3,365 8,401 6,255 Effect of tax-exempt securities interest and other income................................................. (11,048) (10,204) (22,370) (20,596) Other items.............................................. (1,601) 315 (4,427) 387 Total tax expense................................... $ 76,941 $ 75,773 $148,694 $145,042 Currently payable: Federal................................................ $ 44,468 $ 63,227 $ 97,266 $113,405 Foreign................................................ 106 168 165 264 State and local........................................ 2,727 3,524 4,605 5,729 Total............................................... 47,301 66,919 102,036 119,398 Deferred: Federal................................................ 25,145 7,545 38,339 22,111 State and local........................................ 4,495 1,309 8,319 3,533 Total............................................... 29,640 8,854 46,658 25,644 Total tax expense................................... $ 76,941 $ 75,773 $148,694 $145,042
22 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. In June 1997, Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (FASB 130), was issued and establishes standards for reporting and displaying comprehensive income and its components. FASB 130 requires comprehensive income and its components, as recognized under the accounting standards, to be displayed in a financial statement with the same prominence as other financial statements. The corporation plans to adopt the standard, as required, beginning in 1998; adoption is not expected to have a material impact on the corporation. Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" (FASB 131), also issued in June 1997, establishes new standards for reporting information about operating segments in annual and interim financial statements. The standard also requires descriptive information about the way the operating segments are determined, the products and services provided by the segments and the nature of differences between reportable segment measurements and those used for the consolidated enterprise. This standard is effective for years beginning after December 15, 1997. Adoption in interim financial statements is not required until the year after initial adoption, however comparative prior period information is required. The corporation is evaluating the standard and plans adoption as required in 1998; adoption is not expected to have a significant financial impact on the corporation. FINANCIAL CONDITION AND CAPITAL RATIOS Assets at June 30, 1997 totaled $48.512 billion, including $42.610 billion of interest-earning assets and $33.256 billion of loans. Comparable amounts one year earlier were $46.049 billion of assets, $41.140 billion of interest-earning assets and $30.673 billion of loans. At March 31, 1997, total assets were $47.491 billion, with $42.260 billion of interest-earning assets and $32.570 billion of loans. Deposits at the end of the second quarter were $28.938 billion, including $21.942 billion of time deposits, representing 75.8 percent of the total. Deposits one year earlier were $25.973 billion, with time deposits of $20.515 billion or 79 percent of the total, and at March 31, 1997, deposits were $28.832 billion, including $22.340 billion of time deposits or 77.5 percent of the total. Shareholders' equity was $3.680 billion at June 30, 1997 compared with $3.700 billion one year earlier. Included in the $3.680 billion of shareholders' equity was $35.715 million, net of tax, of unrealized gains on securities available-for-sale marked to fair value compared with $24.066 million one year earlier. The reduction in equity at June 30, 1997 from a year earlier reflected the impact of the corporation's share repurchase activity at higher share prices. During the second quarter of 1997, the corporation repurchased a total of 2,216,600 shares of its common stock at an average price of $60.124 per share for a total cost of $133.271 million compared with 2,577,400 shares repurchased in the same period of 1996 at an average price of $43.521 per share for a cost of $112.172 million. The corporation's share repurchase authorization was rescinded by the board of directors effective with announcement on June 24, 1997 of the corporation's merger agreement with Central Fidelity Banks. At its meeting on July 25, 1997, the board of directors declared a third quarter dividend of $.44 per 23 common share, payable September 2, 1997 to shareholders of record as of August 6. The dividend is higher by 10 percent from $.40 per share paid in the same three months of 1996. For the year to date, the dividend will total $1.24 per share, an increase of 10.7 percent from $1.12 paid in 1996. Intangible assets totaled $43.729 million at June 30, 1997, consisting of $38.133 million in goodwill, $4.749 million in deposit base intangibles, $207 thousand in purchased credit card intangibles and $640 thousand in other intangibles. Comparable amounts one year earlier were $41.546 million of total intangible assets, with $33.312 million in goodwill, $6.186 million in deposit base intangibles, $990 thousand in purchased credit card intangibles and $1.058 million in other intangible assets. The increase in goodwill from a year earlier reflected the corporation's purchase in June of MACRO*WORLD Research Corporation, a leading Internet provider of financial information, news and stock and mutual fund ratings. 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. 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 per- cent and a Tier I leverage ratio of 5 percent are considered well-capitalized by regulatory standards. At June 30, 1997, the corporation's Tier I to risk-adjusted assets ratio was 10.13 percent and total capital to risk-adjusted assets was 13.61 percent. The Tier I leverage ratio was 9.67 percent. The capital ratios at the end of the second quarter of 1997 included a total of $900 million of trust capital securities. CAPITAL COMPONENTS AND RATIOS TABLE 12 (thousands)
1997 1996 Second First Fourth Third Quarter Quarter Quarter Quarter Tier I capital: Common shareholders' equity........................ $ 3,679,827 $ 3,676,080 $ 3,761,832 $ 3,729,194 Trust capital securities*.......................... 896,665 596,578 300,000 -- Less ineligible intangible assets.................. 38,133 32,056 32,474 32,893 Unrealized gains on securities available-for-sale, net of tax................... (35,715) (8,170) (42,462) (32,924) Total Tier I capital........................... 4,502,644 4,232,432 3,986,896 3,663,377 Tier II capital: Allowable allowance for loan losses................ 409,335 409,312 409,297 409,271 Allowable long-term debt........................... 1,133,093 1,138,138 1,138,041 1,198,177 Tier II capital additions...................... 1,542,428 1,547,450 1,547,338 1,607,448 Total capital.................................. $ 6,045,072 $ 5,779,882 $ 5,534,234 $ 5,270,825 Risk-adjusted assets................................. $44,431,023 $43,126,886 $42,669,628 $41,047,310 Quarterly average assets............................. $46,619,077 $45,983,826 $45,737,397 $45,777,699 Risk-based capital ratios: Tier I capital..................................... 10.13% 9.81% 9.34% 8.92% Total capital...................................... 13.61 13.40 12.97 12.84 Tier I leverage ratio**.............................. 9.67 9.22 8.73 8.01 Shareholders' equity to total assets................. 7.59 7.74 8.02 7.85 Second Quarter Tier I capital: Common shareholders' equity........................ $ 3,699,612 Trust capital securities*.......................... -- Less ineligible intangible assets.................. 33,312 Unrealized gains on securities available-for-sale, net of tax................... (24,066) Total Tier I capital........................... 3,642,234 Tier II capital: Allowable allowance for loan losses................ 409,205 Allowable long-term debt........................... 1,198,837 Tier II capital additions...................... 1,608,042 Total capital.................................. $ 5,250,276 Risk-adjusted assets................................. $40,249,143 Quarterly average assets............................. $44,956,032 Risk-based capital ratios: Tier I capital..................................... 9.05% Total capital...................................... 13.04 Tier I leverage ratio**.............................. 8.12 Shareholders' equity to total assets................. 8.03
*Trust capital securities are reported in "Other long-term debt" in the Consolidated Statements of Condition **Ratio excludes the average unrealized gains on securities available-for-sale, net of tax, of $17,239, $37,350, $45,135, $24,358 and $44,957, respectively 24 WACHOVIA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CONDITION
June 30 December 31 June 30 $ IN THOUSANDS 1997 1996 1996 ASSETS Cash and due from banks..................................................... $ 3,392,418 $3,367,673 $ 2,606,453 Interest-bearing bank balances.............................................. 33,620 27,871 473,037 Federal funds sold and securities purchased under resale agreements......................................... 224,150 179,426 301,561 Trading account assets...................................................... 842,197 1,185,688 1,039,284 Securities available-for-sale............................................... 6,983,389 6,760,486 7,171,252 Securities held-to-maturity (fair value of $1,333,211, $1,423,555 and $1,539,624, respectively).................................. 1,271,149 1,352,091 1,482,031 Loans and net leases........................................................ 33,259,607 31,290,905 30,680,028 Less unearned income on loans............................................... 3,982 7,713 7,387 Total loans........................................................... 33,255,625 31,283,192 30,672,641 Less allowance for loan losses.............................................. 409,335 409,297 409,205 Net loans............................................................. 32,846,290 30,873,895 30,263,436 Premises and equipment...................................................... 622,925 644,000 648,948 Due from customers on acceptances........................................... 858,463 957,109 685,389 Other assets................................................................ 1,437,495 1,556,276 1,377,705 Total assets.......................................................... $48,512,096 $46,904,515 $46,049,096 LIABILITIES Deposits in domestic offices: Demand.................................................................... $ 6,995,799 $6,115,540 $ 5,457,626 Interest-bearing demand................................................... 3,349,609 3,462,952 3,273,053 Savings and money market savings.......................................... 8,620,223 8,337,329 7,575,143 Savings certificates...................................................... 6,438,815 6,436,437 6,545,807 Large denomination certificates........................................... 2,367,267 1,710,061 2,234,372 Noninterest-bearing time.................................................. 4,657 2,974 4,768 Total deposits in domestic offices.................................... 27,776,370 26,065,293 25,090,769 Deposits in foreign offices: Demand.................................................................... -- -- 241 Time...................................................................... 1,161,690 1,184,829 882,339 Total deposits in foreign offices..................................... 1,161,690 1,184,829 882,580 Total deposits........................................................ 28,938,060 27,250,122 25,973,349 Federal funds purchased and securities sold under repurchase agreements.......................................... 6,253,688 6,298,130 7,358,020 Commercial paper............................................................ 762,801 706,226 541,978 Other short-term borrowed funds............................................. 1,723,035 967,097 1,054,813 Long-term debt: Bank notes................................................................ 3,014,233 4,307,802 4,963,154 Other long-term debt...................................................... 2,757,257 2,159,099 1,330,383 Total long-term debt.................................................. 5,771,490 6,466,901 6,293,537 Acceptances outstanding..................................................... 858,463 957,109 685,389 Other liabilities........................................................... 524,732 497,098 442,398 Total liabilities..................................................... 44,832,269 43,142,683 42,349,484 SHAREHOLDERS' EQUITY Preferred stock, par value $5 per share: Authorized 50,000,000 shares; none outstanding............................ -- -- -- Common stock, par value $5 per share: Issued 159,539,560, 163,844,198 and 166,797,672, respectively............. 797,698 819,221 833,988 Capital surplus............................................................. 185,500 424,873 570,724 Retained earnings........................................................... 2,660,914 2,475,276 2,270,834 Unrealized gains on securities available-for-sale, net of tax............... 35,715 42,462 24,066 Total shareholders' equity............................................ 3,679,827 3,761,832 3,699,612 Total liabilities and shareholders' equity............................ $48,512,096 $46,904,515 $46,049,096
25 WACHOVIA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Six Months Ended June 30 June 30 $ IN THOUSANDS, EXCEPT PER SHARE 1997 1996 1997 1996 INTEREST INCOME Loans.................................................................. $696,408 $621,346 $1,361,985 $1,229,631 Securities available-for-sale: Other investments.................................................... 112,924 117,861 228,005 237,135 Securities held-to-maturity: State and municipal.................................................. 4,150 5,531 8,646 11,414 Other investments.................................................... 21,527 24,597 43,599 50,096 Interest-bearing bank balances......................................... 445 9,258 805 18,276 Federal funds sold and securities purchased under resale agreements.................................... 4,001 3,155 6,204 6,405 Trading account assets................................................. 12,646 10,975 25,781 23,009 Total interest income........................................... 852,101 792,723 1,675,025 1,575,966 INTEREST EXPENSE Deposits: Domestic offices..................................................... 223,886 200,396 438,649 409,146 Foreign offices...................................................... 22,361 11,033 39,718 24,134 Total interest on deposits...................................... 246,247 211,429 478,367 433,280 Short-term borrowed funds.............................................. 105,889 110,030 200,958 220,420 Long-term debt......................................................... 86,223 90,013 176,989 171,100 Total interest expense.......................................... 438,359 411,472 856,314 824,800 NET INTEREST INCOME.................................................... 413,742 381,251 818,711 751,166 Provision for loan losses.............................................. 49,715 34,404 97,713 61,738 Net interest income after provision for loan losses.................... 364,027 346,847 720,998 689,428 OTHER INCOME Service charges on deposit accounts.................................... 63,622 60,928 127,564 117,526 Fees for trust services................................................ 38,872 34,508 75,226 68,853 Credit card income..................................................... 42,652 33,848 78,346 66,370 Electronic banking..................................................... 13,184 12,582 25,694 21,922 Investment fee income.................................................. 11,087 10,842 21,907 21,071 Mortgage fee income.................................................... 4,298 4,289 7,783 8,690 Trading account profits................................................ 6,169 5,698 10,449 9,150 Other operating income................................................. 53,021 35,900 87,601 69,118 Total other operating revenue................................... 232,905 198,595 434,570 382,700 Investment securities gains (losses)................................... 326 (219) 661 479 Total other income.............................................. 233,231 198,376 435,231 383,179 OTHER EXPENSE Salaries............................................................... 149,160 132,438 291,415 264,258 Employee benefits...................................................... 32,490 27,724 64,339 57,522 Total personnel expense......................................... 181,650 160,162 355,754 321,780 Net occupancy expense.................................................. 21,126 22,184 43,319 44,862 Equipment expense...................................................... 30,783 28,054 59,656 56,985 Other operating expense................................................ 121,135 99,687 220,101 194,705 Total other expense............................................. 354,694 310,087 678,830 618,332 Income before income taxes............................................. 242,564 235,136 477,399 454,275 Applicable income taxes................................................ 76,941 75,773 148,694 145,042 NET INCOME............................................................. $165,623 $159,363 $ 328,705 $ 309,233 Net income per common share: Primary.............................................................. $ 1.01 $ .94 $ 2.00 $ 1.81 Fully diluted........................................................ $ 1.01 $ .94 $ 2.00 $ 1.81 Average shares outstanding: Primary.............................................................. 162,872 169,861 164,145 170,664 Fully diluted........................................................ 162,888 169,972 164,158 170,808
26 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 JUNE 30, 1996 Balance at beginning of year....................... 170,358,504 $851,793 $713,120 $2,092,731 $116,113 Net income......................................... 309,233 Cash dividends declared on common stock -- $.72 a share............................ (121,773) Common stock issued pursuant to: Stock option and employee benefit plans.......... 450,412 2,252 19,426 Dividend reinvestment plan....................... 158,637 793 6,318 Conversion of debentures......................... 228,614 1,143 3,251 Acquisition of bank.............................. 208,207 1,041 9,003 Common stock acquired.............................. (4,606,702) (23,034) (180,393) Unrealized losses on securities available-for-sale, net of tax................... (92,047) Miscellaneous...................................... (1) (9,357) Balance at end of period........................... 166,797,672 $833,988 $570,724 $2,270,834 $ 24,066 PERIOD ENDED JUNE 30, 1997 Balance at beginning of year....................... 163,844,198 $819,221 $424,873 $2,475,276 $ 42,462 Net income......................................... 328,705 Cash dividends declared on common stock -- $.80 a share............................ (129,800) Common stock issued pursuant to: Stock option and employee benefit plans.......... 547,004 2,735 27,755 Dividend reinvestment plan....................... 117,544 588 6,480 Conversion of debentures......................... 1,036 5 15 Common stock acquired.............................. (4,970,222) (24,851) (274,300) Unrealized losses on securities available-for-sale, net of tax................... (6,747) Miscellaneous...................................... 677 (13,267) Balance at end of period........................... 159,539,560 $797,698 $185,500 $2,660,914 $ 35,715
27 WACHOVIA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30 $ IN THOUSANDS 1997 1996 OPERATING ACTIVITIES Net income...................................................................................... $ 328,705 $ 309,233 Adjustments to reconcile net income to net cash provided by operations: Provision for loan losses..................................................................... 97,713 61,738 Depreciation and amortization................................................................. 47,590 45,193 Deferred income taxes......................................................................... 46,658 25,644 Investment securities gains................................................................... (661) (479) Gain on sale of noninterest-earning assets.................................................... (246) (661) (Decrease) increase in accrued income taxes................................................... (6,405) 16,871 Increase in accrued interest receivable....................................................... (15,488) (4,082) Increase (decrease) in accrued interest payable............................................... 46,211 (19,878) Net change in other accrued and deferred income and expense................................... (81,997) (35,581) Net trading account activities................................................................ 343,491 75,642 Net loans held for resale..................................................................... (108,056) 141,684 Net cash provided by operating activities................................................. 697,515 615,324 INVESTING ACTIVITIES Net increase in interest-bearing bank balances.................................................. (5,749) (21,758) Net increase in federal funds sold and securities purchased under resale agreements............................................................. (44,724) (152,956) Purchases of securities available-for-sale...................................................... (1,397,168) (595,924) Purchases of securities held-to-maturity........................................................ (35,573) (45,679) Sales of securities available-for-sale.......................................................... 269,745 133,921 Calls, maturities and prepayments of securities available-for-sale.............................. 890,623 554,070 Calls, maturities and prepayments of securities held-to-maturity................................ 117,922 185,916 Net increase in loans made to customers......................................................... (1,965,661) (1,598,300) Capital expenditures............................................................................ (45,640) (68,726) Proceeds from sales of premises and equipment................................................... 3,183 7,756 Net decrease (increase) in other assets......................................................... 200,705 (143,860) Business combinations........................................................................... (947) 2,814 Net cash used by investing activities..................................................... (2,013,284) (1,742,726) FINANCING ACTIVITIES Net increase (decrease) in demand, savings and money market accounts............................ 1,051,493 (23,726) Net increase (decrease) in certificates of deposit.............................................. 636,445 (400,856) Net (decrease) increase in federal funds purchased and securities sold under repurchase agreements.............................................................. (44,442) 1,507,480 Net increase in commercial paper................................................................ 56,575 39,842 Net increase (decrease) in other short-term borrowings.......................................... 755,938 (665,779) Proceeds from issuance of bank notes............................................................ 748,372 2,047,429 Maturities of bank notes........................................................................ (2,040,693) (1,172,552) Proceeds from issuance of other long-term debt.................................................. 590,185 -- Payments on other long-term debt................................................................ (242) (211) Common stock issued............................................................................. 15,710 13,464 Dividend payments............................................................................... (129,800) (121,773) Common stock repurchased........................................................................ (294,426) (200,745) Net (decrease) increase in other liabilities.................................................... (4,601) 18,964 Net cash provided by financing activities................................................. 1,340,514 1,041,537 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................................................ 24,745 (85,865) Cash and cash equivalents at beginning of year.................................................. 3,367,673 2,692,318 Cash and cash equivalents at end of period...................................................... $3,392,418 $2,606,453 SUPPLEMENTAL DISCLOSURES Unrealized losses on securities available-for-sale: Decrease in securities available-for-sale..................................................... $ (12,072) $ (150,460) Increase in deferred taxes.................................................................... 5,539 58,413 Decrease in shareholders' equity.............................................................. (6,747) (92,047)
28 BULK RATE U.S. POSTAGE PAID WACHOVIA CORPORATION
Wachovia logo appears here Wachovia Corporation
P. O. Box 3099 Winston-Salem, NC 27150 #11-38 EX-12 2 EXHIBIT 12 WACHOVIA CORPORATION RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12
Six Months Year Ended Ended June 30 December 31 (A) EXCLUDING INTEREST ON DEPOSITS 1997 1996 ------------- ------------- Earnings: Income before income taxes $477,399 $934,902 Less capitalized interest (13) - Fixed charges 384,630 804,019 ------------- ------------- Earnings as adjusted $862,016 $1,738,921 ============= ============= Fixed charges: Interest on purchased and other short term borrowed funds $200,958 $431,094 Interest on long-term debt 176,989 359,946 Portion of rents representative of the interest factor (1/3) of rental expense 6,683 12,979 ------------- ------------- Fixed charges $384,630 $804,019 ============= ============= Ratio of earnings to fixed charges 2.24 X 2.16 X (B) INCLUDING INTEREST ON DEPOSITS: Adjusted earnings from (A) above $862,016 $1,738,921 Add interest on deposits 478,367 881,562 ------------- ------------- Earnings as adjusted $1,340,383 $2,620,483 ============= ============= Fixed charges: Fixed charges from (A) above $384,630 $804,019 Interest on deposits 478,367 881,562 ------------- ------------- Adjusted fixed charges $862,997 $1,685,581 ============= ============= Adjusted earnings to adjusted fixed 1.55 X 1.55 X charges
EX-27 3 FINANCIAL DATA SCHEDULE
9 1,000 U.S. 6-MOS 1 DEC-31-1997 JAN-01-1997 JUN-30-1997 3,392,418 33,620 224,150 842,197 6,983,389 1,271,149 1,333,211 33,255,625 409,335 48,512,096 28,938,060 8,739,524 1,383,195 5,771,490 0 0 797,698 2,882,129 48,512,096 1,361,985 280,250 32,790 1,675,025 478,367 856,314 818,711 97,713 661 678,830 477,399 328,705 0 0 328,705 2.00 2.00 4.11 54,837 60,649 0 0 409,312 59,488 9,796 409,335 0 0 0 Available at year end only.
-----END PRIVACY-ENHANCED MESSAGE-----