-----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, BTS0+rL5mfnh0QRVD+vwPYOxPgIgxkWUOM/I81QnJmRnr43m8M0BAQ8wmJe5jZoI era03A2c6dyWntVQLilTVg== 0000950168-98-002638.txt : 19980814 0000950168-98-002638.hdr.sgml : 19980814 ACCESSION NUMBER: 0000950168-98-002638 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980813 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WACHOVIA CORP/ NC CENTRAL INDEX KEY: 0000774203 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 561473727 STATE OF INCORPORATION: NC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09021 FILM NUMBER: 98686195 BUSINESS ADDRESS: STREET 1: 100 N MAIN ST STREET 2: P O BOX 3099 CITY: WINSTON SALEM STATE: NC ZIP: 27150 BUSINESS PHONE: 9107705000 MAIL ADDRESS: STREET 1: 100 NORTH MAIN ST STREET 2: P O BOX 3099 CITY: WINSTON SALEM STATE: NC ZIP: 27150 FORMER COMPANY: FORMER CONFORMED NAME: FIRST WACHOVIA CORP DATE OF NAME CHANGE: 19910603 10-Q 1 WACHOVIA CORPORATION 10-Q - ---------------- 1998 Form 10-Q - -------------------------------------------------------------------------------- United States Securities and Exchange Commission Washington, DC 20549 Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended June 30, 1998 Commission File Number 1-9021 Wachovia Corporation - -------------------------------------------------------------------------------- Incorporated in the State of North Carolina IRS Employer Identification Number 56-1473727 Address and Telephone: 100 North Main Street, Winston-Salem, North Carolina, 27101, (336) 770-5000 191 Peachtree Street NE, Atlanta, Georgia, 30303, (404) 332-5000 Securities registered pursuant to Section 12(b) of the Act: Common Stock -- $5.00 par value, which is registered on the New York Stock Exchange. As of June 30, 1998, Wachovia Corporation had 206,622,903 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, 1998 are incorporated by reference into Parts I and II as indicated in the table below. Except for parts of the Wachovia Corporation Financial Supplement expressly incorporated herein by reference, this Financial Supplement is not to be deemed filed with the Securities and Exchange Commission (SEC). Part I Financial Information Item 1 Financial Statements (unaudited) Page Selected Period-End Data ............................... 3 Common Stock Data -- Per Share ......................... 3 Consolidated Statements of Condition ................... 26 Consolidated Statements of Income ...................... 27 Consolidated Statements of Shareholders' Equity ........ 28 Consolidated Statements of Cash Flows .................. 29 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations .......... 4-25 Item 3 Quantitative and Qualitative Disclosures About Market Risk .......................... 13-15
Part II Other Information Item 4 Submission of Matters to a Vote of Security Holders At the annual meeting of shareholders held on April 24, 1998, eight directors were elected, the articles of incorporation were amended to increase the number of authorized shares of Common Stock to be issued and the appointment of Ernst & Young LLP as independent auditors for 1998 was ratified. The distribution of shareholders' votes was as follows:
Shares Voted Shares in Favor Withheld ------------- --------- Election of Directors James F. Betts 170,511,674 1,601,548 John T. Casteen III 170,341,993 1,771,229 George R. Lewis 170,424,287 1,688,934 James S. Balloun 170,483,470 1,629,752 Peter C. Browning 170,396,817 1,716,404 Hayne Hipp 170,491,327 1,621,894 Lloyd U. Noland, III 170,521,645 1,591,576 Sherwood H. Smith, Jr. 170,509,406 1,603,815
Approval of the Amendment to the Articles of Incorporation Shares Voted in Favor 156,514,908 Shares Voted Against 14,077,799 Abstentions 1,514,951 Broker Nonvotes 5,563 Ratification of the Appointment of Independent Auditors Shares Voted in Favor 170,881,814 Shares Voted Against 339,740 Abstentions 886,103
Item 5 Other Information--None Item 6 Exhibits and Reports on Form 8-K Exhibits 2.1 Agreement and Plan of Merger, dated as of November 17, 1997, by and between Wachovia Corporation, The American Bank of Hollywood and Ameribank Bancshares, Inc. (Exhibit 2.1 to Report on Form 10-K of Wachovia Corporation for the fiscal year ended December 31, 1997, File No. 1-9021*) 3.1 Amended and Restated Articles of Incorporation of the registrant. 3.2 Bylaws of the registrant as amended (Exhibit 3.2 to Quarterly Report on Form 10-Q of Wachovia Corporation for the quarter ended September 30, 1997, File No. 1-9021*). 4 Instruments defining the rights of security holders, including indentures -- Wachovia Corporation hereby agrees to furnish to the Commission, upon request, a copy of any instruments defining the rights of security hoders that are not required to be filed. 4.1 Articles IV, VII, IX, X and XI of the registrant's Amended and Restated Articles of Incorporation (Included in Exhibit 3.1 hereto). 4.2 Article 1, Section 1.8, and Article 6 of the registrant's Bylaws (Included in Exhibit 3.2 hereto). 4.3 Indenture dated as of May 15, 1986 between South Carolina National Corporation and Morgan Guaranty Trust Company of New York, as Trustee, relating to $35,000,000 principal amount of 6 1/2% Convertible Subordinated Debentures due in 2001 (Exhibit 28 to S-3 Registration Statement of South Carolina National Corporation, File No. 33-7710*). 4.4 First Supplemental Indenture dated as of November 26, 1991 by and among South Carolina National Corporation, Wachovia Corporation and Morgan Guaranty Trust Company of New York, Trustee, amending the Indenture described in Exhibit 4.3 hereto (Exhibit 4.10 to Report on Form 10-K of Wachovia Corporation for the fiscal year ended December 31, 1991, File No. 1-9021*). 4.5 Indenture dated as of March 15, 1991 between South Carolina National Corporation and Bankers Trust Company, as Trustee, relating to certain unsecured subordinated securities (Exhibit 4(a) to S-3 Registration Statement of South Carolina National Corporation, File No. 33-39754*). 4.6 First Supplemental Indenture dated as of January 24, 1992 by and among South Carolina National Corporation, Wachovia Corporation and Bankers Trust Company, as Trustee, amending the Indenture described in Exhibit 4.5 hereto (Exhibit 4.12 to Report on Form 10-K of Wachovia Corporation for the fiscal year ended December 31, 1991, File No. 1-9021*). 4.7 Indenture dated as of March 1, 1993 between Wachovia Corporation and CoreStates Bank, National Association, as Trustee (now succeeded as trustee by Chase Manhattan Trust Company, N.A.), relating to subordinated debt securities (Exhibit 4 to S-3 (Shelf) Registration Statement of Wachovia Corporation, File No. 333-06319*). 1 4.8 Indenture dated as of August 15, 1996 between Wachovia Corporation and The Chase Manhattan Bank, as Trustee, relating to senior securities (Exhibit 4(a) of Post-Effective Amendment No. 1 to Form S-3 (Shelf) Registration Statement of Wachovia Corporation, File No. 33-6280*). 4.9 Indenture between Wachovia Corporation, Wachovia Capital Trust II and First National Bank of Chicago, as Trustee, relating to Floating Rate Junior Subordinated Deferrable Interest Debentures (Junior Subordinated Debentures). (Exhibit 4(c) of Amendment No. 1 to Form S-3 Registration Statement of Wachovia Corporation and Wachovia Capital Trust II dated January 22, 1997, File No. 333-19365.) 4.10 Amended and Restated Declaration of Trust of Wachovia Capital Trust II, relating to Preferred Securities (Exhibit 4(b)(iv) of Amendment No. 1 to Form S-3 Registration Statement of Wachovia Corporation and Wachovia Capital Trust II dated January 22, 1997, File No. 333-19365). 4.11 Preferred Securities Guarantee Agreement of Wachovia Corporation (Exhibit 4 (g) of Amendment No. 1 to Form S-3 Registration Statement of Wachovia Corporation and Wachovia Capital Trust II dated January 22, 1997, File No. 333-19365). 4.12 Indenture between Central Fidelity Banks, Inc. and Chemical Bank, as Trustee, relating to $150,000,000 principal amount of subordinated debt securities (Exhibit 4.1 to Form 8-K of Central Fidelity Banks, Inc., dated November 18, 1992, File No. 0-8829). 4.13 Indenture between Central Fidelity Banks, Inc., Central Fidelity Capital Trust I and The Bank of New York, as Trustee, relating to $100,000,000 Floating Rate Junior Subordinated Debentures (Exhibit 4.1 to Form S-3 Registration Statement of Central Fidelity Banks, Inc., dated April 23, 1997, File No. 333-28917). 4.14 Amended and Restated Declaration of Trust of Central Fidelity Capital Trust I (Exhibit 4.4 to Form S-3 Registration Statement of Central Fidelity Banks, Inc., dated April 23, 1997, File No. 333-28917). 4.15 Form of New Guarantee Agreement for the benefit of the holders of the Trust Securities (Exhibit 4.6 to Form S-3 Registration Statement of Central Fidelity Banks, Inc., dated as of April 23, 1997, File No. 333-28917). 10.1 Deferred Compensation Plan of Wachovia Bank of North Carolina, N.A. (Exhibit 10.1 to Report on Form 10-K of Wachovia Corporation for the fiscal year ended December 31,1992, File No. 1-9021*). 10.2 1983 Amendment to Deferred Compensation Plan described in Exhibit 10.1 hereto (Exhibit 10.2 to Report on Form 10-K Wachovia Corporation for the fiscal year ended December 31, 1992, File No. 1-9021*). 2 10.3 1986 Amendment to Deferred Compensation Plan described in Exhibit 10.1 hereto (Exhibit 10.9 to Report on Form 10-K of First Wachovia Corporation for the fiscal year ended December 31, 1986, File No. 1-9021*). 10.4 1986 Senior Management Stock Option Plan of Wachovia Corporation (Exhibit 10.20 to Report on Form 10-K of First Wachovia Corporation for the fiscal year ended December 31, 1986, File No. 1-9021*). 10.5 1987 Declaration of Amendment to 1986 Senior Management Stock Option Plan described in Exhibit 10.4 hereto (Exhibit 10.21 to Report on Form 10-K of First Wachovia Corporation for the fiscal year ended December 31, 1986, File No. 1-9021*). 10.6 1996 Declaration of Amendment to 1986 Senior Management Stock Option Plan as described in Exhibit 10.4 hereto (Exhibit 10.6 to Report on Form 10-K of Wachovia Corporation for the fiscal year ended December 31, 1996, File No. 1-9021*). 10.7 Senior Management Incentive Plan of Wachovia Corporation as amended through April 22, 1994 (Exhibit 10.2 to Quarterly Report on Form 10-Q of Wachovia Corporation for the quarter ended March 31, 1994, File No. 1-9021*). 10.8 Retirement Savings and Profit-Sharing Benefit Equalization Plan of Wachovia Corporation (Exhibit 10.3 to Quarterly Report on Form 10-Q of Wachovia Corporation for the quarter ended June 30, 1995, File No. 1-9021*). 10.9 Form of Employment Agreement between Wachovia Corporation an L.M. Baker, Jr., Robert S. McCoy, Jr., G. Joseph Prendergast and Walter E. Leonard, Jr. (Exhibit 10 to Quarterly Report on Form 10-Q of Wachovia Corporation for the quarter ended March 31, 1997, File No. 1-9021*). 10.10 Form of Employment Agreement between Wachovia Corporation and Hugh M. Durden (Exhibit 10.12 to Report on Form 10-K of Wachovia Corporation for the fiscal year ended December 31, 1996, File No. 1-9021*). 10.11 Agreement between Wachovia Corporation and Mr. John G. Medlin, Jr. (Exhibit 10.16 to Report on Form 10-K of Wachovia Corporation for the fiscal year ended December 31, 1993, File No. 1-9021*). 10.12 Amendment to Agreement between Wachovia Corporation and Mr. John G. Medlin, Jr. described in Exhibit 10.11 hereto (Exhibit 10.4 to Quarterly Report on Form 10-Q of Wachovia Corporation for the quarter ended June 30, 1995, File No. 1-9021*). 10.13 Consulting Agreement and Contract between Wachovia Corporation and Mr. John G. Medlin, Jr. as of April 24, 1998. 3 10.14 Executive Retirement Agreement between Wachovia Corporation and Mr. John G. Medlin, Jr. (Exhibit 10.18 to Report on Form 10-K of First Wachovia Corporation for the fiscal year ended December 31, 1987, File No. 1-9021*). 10.15 Amendment to Executive Retirement Agreement described in Exhibit 10.14 hereto (Exhibit 10.17 to Report on Form 10-K of Wachovia Corporation for the fiscal year ended December 31, 1991, File No. 1-9021*). 10.16 Amendment to Executive Retirement Agreement described in Exhibit 10.14 hereto (Exhibit 10.3 to Quarterly Report on Form 10-Q of Wachovia Corporation for the quarter ended September 30, 1993, File No. 1-9021*). 10.17 Amendment to Executive Retirement Agreement described in Exhibit 10.14 hereto (Exhibit 10.4 to Quarterly Report on Form 10-Q of Wachovia Corporation for the quarter ended September 30, 1993, File No. 1-9021*). 10.18 Form of Executive Retirement Agreements between Wachovia Corporation and Messrs. L.M. Baker, Jr., G. Joseph Prendergast, Walter E. Leonard, Jr., and Hugh M. Durden, dated as of January 27, 1995 (Exhibit 10.1 to Quarterly Report on Form 10-Q of Wachovia Corporation for the quarter ended June 30, 1995, File No. 1-9021*). 10.19 Executive Retirement Agreement between Wachovia Corporation and Mr. Robert S. McCoy, Jr. (Exhibit 10.2 to Quarterly Report on Form 10-Q of Wachovia Corporation for the quarter ended June 30, 1995, File No. 1-9021*). 10.20 Amendment to Executive Retirement Agreements described in Exhibits 10.18 and 10.19 hereto (Exhibit 10.21 to Report on Form 10-K of Wachovia Corporation for the fiscal year ended December 31, 1996, File No. 1-9021*). 10.21 Senior Management and Director Stock Plan of Wachovia Corporation (Exhibit 10 to Quarterly Report on Form 10-Q of First Wachovia Corporation for the quarter ended March 31, 1989, File No. 1-9021*). 10.22 1990 Declaration of Amendment to Senior Management and Director Stock Plan as described in Exhibit 10.21 hereto (Exhibit 10.17 to Report on Form 10-K of First Wachovia Corporation for fiscal year ended December 31, 1989, File No. 1-9021*). 10.23 1996 Declaration of Amendment to Senior Management and Director Stock Plan as described in Exhibit 10.21 hereto (Exhibit 10.24 to Report on Form 10-K of Wachovia Corporation for fiscal year ended December 31, 1996, File No. 1-9021*). 10.24 Deferred Compensation Plan dated as of January 19, 1987, as amended (Exhibit 10(c) to Report on Form 10-K of South Carolina National Corporation for the fiscal year ended December 31, 1986, File No. 0-7042*). 4 10.25 Amendment to Deferred Compensation Plan described in Exhibit 10.24 hereto (Exhibit 19(b) to Quarterly Report on Form 10-Q of South Carolina National Corporation for the quarter ended September 30, 1987, File No. 0-7042*). 10.26 Amendment to Deferred Compensation Plan described in Exhibit 10.24 hereto (Exhibit 10(d) to Report on Form 10-K of South Carolina National Corporation for the fiscal year ended December 31, 1988, File No. 0-7042*). 10.27 Amendment to Deferred Compensation Plan described in Exhibit 10.24 hereto (Exhibit 10.35 to Report on Form 10-K of Wachovia Corporation for the fiscal year ended December 31, 1993, File No. 1-9021*). 10.28 Amended and Restated Wachovia Corporation Stock Plan (Exhibit 4.1 to S-8 Registration Statement No. 033-53325*). 10.29 Wachovia Corporation Director Deferred Stock Unit Plan (Exhibit 10.37 to Report on Form 10-K of Wachovia Corporation for the fiscal year ended December 31, 1996, File No. 1-9021*). 10.30 Wachovia Corporation Incentive Plan Deferral Arrangement (Exhibit 10.35 to Report on Form 10-K of Wachovia Corporation for the fiscal year ended December 31, 1995, File No. 1-9021*). 10.31 Wachovia Corporation Executive Insurance Plan (Exhibit 10.36 to Report on Form 10-K of Wachovia Corporation for the fiscal year ended December 31, 1995, File No. 1-9021*). 10.32 Executive Long Term Disability Income Plan. (Exhibit 10.34 to Report on Form 10-K of Wachovia Corporation for the fiscal year ended December 31, 1997, File No. 1-9021*) 11 Computation of Earnings Per Common Share (Table 2 on page 6 of the second quarter 1998 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 1998 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). * Incorporated by reference. Reports on Form 8-K -- No reports on Form 8-K were filed during the three months ended June 30, 1998. Signatures - -------------------------------------------------------------------------------- Pursuant to the requirements to Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WACHOVIA CORPORATION August 12, 1998 ROBERT S. McCOY, JR. August 12, 1998 DONALD K. TRUSLOW ----------------------------- ------------------ Robert S. McCoy, Jr. Donald K. Truslow Executive Vice President Comptroller and Chief Financial Officer
5 (Wachovia Logo appears here) Financial Supplement And Form 10-Q Second Quarter 1998 - ------------------------ Directors and Officers - -------------------------------------------------------------------------------- Directors of Wachovia Corporation and Wachovia Bank, N.A. L.M. Baker, Jr. Chairman, President and Chief Executive Officer James S. Balloun Chairman, President and Chief Executive Officer National Service Industries, Inc. James F. Betts Consultant and Former President USLIFE Corporation Peter C. Browning President and Chief Executive Officer Sonoco Products Company John T. Casteen III President University of Virginia John L. Clendenin Chairman Emeritus BellSouth Corporation Lawrence M. Gressette, Jr. Chairman of the Executive Committee SCANA Corporation Thomas K. Hearn, Jr. President Wake Forest University George W. Henderson III President and Chief Executive Officer Burlington Industries, Inc. W. Hayne Hipp President and Chief Executive Officer The Liberty Corporation Robert A. Ingram Chief Executive Officer Glaxo Wellcome plc Chairman, Chief Executive Officer and President Glaxo Wellcome Inc. George R. Lewis President and Chief Executive Officer Philip Morris Capital Corporation John G. Medlin, Jr. Chairman Emeritus Lloyd U. Noland, III Chairman, President and Chief Executive Officer Noland Company Sherwood H. Smith, Jr. Chairman of the Board Carolina Power & Light Company John C. Whitaker, Jr. Chairman and Chief Executive Officer Inmar Enterprises, Inc. Principal Corporate Officers of Wachovia Corporation L.M. Baker, Jr. Chairman, President and Chief Executive Officer Mickey W. Dry Senior Executive Vice President Chief Credit Officer Walter E. Leonard, Jr. Senior Executive Vice President Operations/Technology Kenneth W. McAllister Senior Executive Vice President General Counsel/Administrative Services Robert S. McCoy, Jr. Senior Executive Vice President Chief Financial Officer G. Joseph Prendergast Senior Executive Vice President General Banking 2 - -------------------------- Selected Period-End Data - -------------------------------------------------------------------------------- June 30 June 30 1998 1997 ------- ------- Banking offices: North Carolina ............................... 199 202 Virginia ..................................... 264 243 Georgia ...................................... 132 121 South Carolina ............................... 122 128 Florida ...................................... 39 ---- ------- -------- Total ....................................... 756 694 ======= ======== Automated banking machines: North Carolina ............................... 445 386 Virginia ..................................... 308 237 Georgia ...................................... 299 246 South Carolina ............................... 282 251 Florida ...................................... 30 ---- ------- -------- Total ....................................... 1,364 1,120 ======= ======== Employees (full-time equivalent) .............. 21,146 20,509 Common stock shareholders of record ........... 54,825 47,510 Common shares outstanding (thousands) ......... 206,623 195,276
- -------------------------------- Common Stock Data -- Per Share - -------------------------------------------------------------------------------- 1998 ---------------------- Second First Quarter Quarter -------- -------- Market value: (1) Period-end ........................................................... $ 84.50 $ 84.81 High ................................................................. 90.19 85.75 Low .................................................................. 77.38 72.75 Book value at period-end (2) .......................................... 26.02 25.40 Dividend (1) .......................................................... .44 .44 Price/earnings ratio (1) (3) .......................................... 28.6x 28.9x Price/earnings ratio without nonrecurring items (1), (3), (4) ......... 20.4 21.0 1997 ---------------------------------- Fourth Third Second Quarter Quarter Quarter ---------- --------- -------- Market value: (1) Period-end ........................................................... $ 81.13 $ 72.00 $ 58.31 High ................................................................. 83.94 72.38 66.88 Low .................................................................. 71.06 58.19 53.50 Book value at period-end (2) .......................................... 25.13 23.31 23.07 Dividend (1) .......................................................... .44 .44 .40 Price/earnings ratio (1) (3) .......................................... 27.6x 17.7x 14.5x Price/earnings ratio without nonrecurring items (1), (3), (4) ......... 20.5 17.7 14.5
(1) Information before the 1997 fourth quarter represents that of Wachovia Corporation prior to merger with Central Fidelity Banks, Inc. (2) Book value per share has been restated to reflect the merger with Central Fidelity Banks, Inc., as a pooling-of-interests. (3) Based on the most recent twelve months of net income per diluted share and end of period stock price. (4) Excludes the after-tax impact of nonrecurring charges as described in notes (1), (2) and (3) of Table 1. - ----------------------- Financial Information - -------------------------------------------------------------------------------- Wachovia Shareholder Direct Shareholders and other interested individuals can access timely corporate information on Wachovia, such as earnings and dividend announcements, by calling 1-888-4WB-NEWS (1-888-492-6397).
Investor Contact Internet Address Robert S. McCoy, Jr. James C. Mabry Wachovia's Internet address is: www.wachovia.com Chief Financial Officer Senior Vice President (336) 732-5926 Investor Relations Winston-Salem, NC 27150 (336) 732-5788 Winston-Salem, NC 27150
3 Management's Discussion and Analysis of Financial Condition and Results of Operations - --------------------------- Financial Summary Table 1 - -------------------------------------------------------------------------------- Twelve 1998 1997 Months ----------------------------- ----------- Ended June 30 Second First Fourth 1998 Quarter Quarter Quarter ----------- ------------- ----------- ----------- Summary of Operations (thousands, except per share data) Interest income .................................. $4,510,125 $ 1,169,758 $ 1,147,829 $1,119,617 Interest expense ................................. 2,279,162 587,054 578,686 564,145 ----------- ------------- ----------- ------------ Net interest income .............................. 2,230,963 582,704 569,143 555,472 Provision for loan losses (1) .................... 282,238 68,441 74,126 76,915 ----------- ------------- ----------- ------------ Net interest income after provision for loan losses .......................................... 1,948,725 514,263 495,017 478,557 Other operating revenue .......................... 1,118,071 315,043 283,723 263,258 Securities gains (losses) (2) .................... 5,547 2,992 3,157 (1,693) ----------- ------------- ----------- ------------ Total other income ............................... 1,123,618 318,035 286,880 261,565 Personnel expense ................................ 996,732 262,406 259,724 244,250 Nonrecurring charges (3) ......................... 353,949 30,849 35,568 287,532 Other expense .................................... 818,281 223,739 198,957 200,636 ----------- ------------- ----------- ------------ Total other expense .............................. 2,168,962 516,994 494,249 732,418 Income before income taxes ....................... 903,381 315,304 287,648 7,704 Applicable income taxes .......................... 295,618 105,388 92,327 4,100 ----------- ------------- ----------- ------------ Net income ....................................... $ 607,763 $ 209,916 $ 195,321 $ 3,604 =========== ============= =========== ============ Net income per common share: Basic ........................................... $ 3.01 $ 1.02 $ .95 $ .02 Diluted ......................................... $ 2.95 $ 1.00 $ .93 $ .02 Cash dividends paid per common share (4).......... $ 1.76 $ .44 $ .44 $ .44 Cash dividends paid on common stock (5)........... $ 352,559 $ 90,973 $ 90,589 $ 87,045 Cash dividend payout ratio (5) ................... 58.01% 43.34% 46.38% 2,415.23% Average basic shares outstanding ................. 202,220 206,718 205,894 201,415 Average diluted shares outstanding ............... 206,294 210,662 210,158 205,934 Selected Average Balances (millions) Total assets ..................................... $ 60,997 $ 63,916 $ 63,133 $ 59,835 Loans -- net of unearned income .................. 42,293 43,974 43,749 41,770 Securities ....................................... 10,624 11,102 10,623 10,126 Other interest-earning assets .................... 1,570 1,558 1,630 1,637 Total interest-earning assets .................... 54,487 56,634 56,002 53,533 Interest-bearing deposits ........................ 31,150 32,182 32,455 30,706 Short-term borrowed funds ........................ 10,044 10,947 10,635 9,444 Long-term debt ................................... 6,041 6,092 6,107 5,935 Total interest-bearing liabilities ............... 47,235 49,221 49,197 46,085 Noninterest-bearing deposits ..................... 7,376 7,939 7,240 7,484 Total deposits ................................... 38,526 40,121 39,695 38,190 Shareholders' equity ............................. 4,897 5,211 5,109 4,884 Ratios (averages) Annualized net loan losses to loans .............. .66% .62% .68% .73% Annualized net yield on interest-earning assets .......................................... 4.19 4.21 4.21 4.21 Shareholders' equity to: Total assets .................................... 8.03 8.15 8.09 8.16 Net loans ....................................... 11.73 12.00 11.82 11.85 Annualized return on assets ...................... 1.00 1.31 1.24 .02 Annualized return on shareholders' equity......... 12.41 16.11 15.29 .30 Net Income and Ratios Excluding the After-Tax Effect of Nonrecurring Items Described in (1), (2) and (3) (thousands, except per share data) Net income ....................................... $ 858,093 $ 230,276 $ 218,168 $ 210,727 Net income per diluted share ..................... $ 4.15 $ 1.09 $ 1.04 $ 1.02 Annualized return on assets ...................... 1.41% 1.44% 1.38% 1.41% Annualized return on shareholders' equity......... 17.52 17.68 17.08 17.26 Cash dividend payout ratio (5) ................... 41.09 39.51 41.52 41.31
Six Months Ended 1997 June 30 --------------------------- ----------------------------- Third Second Quarter Quarter 1998 1997 ----------- ----------- ------------- ----------- Summary of Operations (thousands, except per share data) Interest income .................................. $ 1,072,921 $ 1,051,622 $ 2,317,587 $ 2,069,847 Interest expense ................................. 549,277 539,423 1,165,740 1,055,396 ----------- ----------- ------------- ----------- Net interest income .............................. 523,644 512,199 1,151,847 1,014,451 Provision for loan losses (1) .................... 62,756 63,047 142,567 125,278 ----------- ----------- ------------- ----------- Net interest income after provision for loan losses .......................................... 460,888 449,152 1,009,280 889,173 Other operating revenue .......................... 256,047 259,594 598,766 486,463 Securities gains (losses) (2) .................... 1,091 498 6,149 2,056 ----------- ----------- ------------- ----------- Total other income ............................... 257,138 260,092 604,915 488,519 Personnel expense ................................ 230,352 218,916 522,130 430,555 Nonrecurring charges (3) ......................... ---- ---- 66,417 ---- Other expense .................................... 194,949 201,485 422,696 378,447 ----------- ----------- ------------- ----------- Total other expense .............................. 425,301 420,401 1,011,243 809,002 Income before income taxes ....................... 292,725 288,843 602,952 568,690 Applicable income taxes .......................... 93,803 92,038 197,715 178,410 ----------- ----------- ------------- ----------- Net income ....................................... $ 198,922 $ 196,805 $ 405,237 $ 390,280 =========== =========== ============= =========== Net income per common share: Basic ........................................... $ 1.02 $ 1.00 $ 1.96 $ 1.97 Diluted ......................................... $ 1.00 $ .98 $ 1.93 $ 1.94 Cash dividends paid per common share (4).......... $ .44 $ .40 $ .88 $ .80 Cash dividends paid on common stock (5)........... $ 83,952 $ 78,001 $ 181,562 $ 156,306 Cash dividend payout ratio (5) ................... 42.20% 39.63% 44.80% 40.05% Average basic shares outstanding ................. 194,981 196,676 206,308 198,384 Average diluted shares outstanding ............... 198,555 199,819 210,412 201,553 Selected Average Balances (millions) Total assets ..................................... $ 57,183 $ 57,044 $ 63,527 $ 56,690 Loans -- net of unearned income .................. 39,731 39,100 43,862 38,664 Securities ....................................... 10,649 11,102 10,864 11,205 Other interest-earning assets .................... 1,457 1,370 1,594 1,344 Total interest-earning assets .................... 51,837 51,572 56,320 51,213 Interest-bearing deposits ........................ 29,300 29,450 32,318 29,155 Short-term borrowed funds ........................ 9,172 8,917 10,795 8,661 Long-term debt ................................... 6,031 6,063 6,100 6,263 Total interest-bearing liabilities ............... 44,503 44,430 49,213 44,079 Noninterest-bearing deposits ..................... 6,843 6,789 7,591 6,701 Total deposits ................................... 36,143 36,239 39,909 35,856 Shareholders' equity ............................. 4,391 4,376 5,160 4,427 Ratios (averages) Annualized net loan losses to loans .............. .63% .64% .65% .65% Annualized net yield on interest-earning assets .......................................... 4.12 4.10 4.21 4.12 Shareholders' equity to: Total assets .................................... 7.68 7.67 8.12 7.81 Net loans ....................................... 11.20 11.34 11.91 11.60 Annualized return on assets ...................... 1.39 1.38 1.28 1.38 Annualized return on shareholders' equity......... 18.12 17.99 15.71 17.63 Net Income and Ratios Excluding the After-Tax Effect of Nonrecurring Items Described in (1), (2) and (3) (thousands, except per share data) Net income ....................................... $ 198,922 $ 196,805 $ 448,444 $ 390,280 Net income per diluted share ..................... $ 1.00 $ .98 $ 2.13 $ 1.94 Annualized return on assets ...................... 1.39% 1.38% 1.41% 1.38% Annualized return on shareholders' equity......... 18.12 17.99 17.38 17.63 Cash dividend payout ratio (5) ................... 42.20 39.63 40.49 40.05
(1) Includes $10,845 in nonrecurring merger-related provision in the twelve months ended June 30, 1998 and in the 1997 fourth quarter. (2) Includes $4,639 of nonrecurring losses to restructure the available-for-sale portfolio in the twelve months ended June 30, 1998 and in the 1997 fourth quarter. (3) Nonrecurring charges in the twelve months ended June 30, 1998 include merger-related items of $286,747 and personal computer charges of $67,202. Nonrecurring charges in the 1998 second and first quarters include merger-related items of $30,849 and $35,568, respectively; nonrecurring charges in the 1997 fourth quarter include merger-related charges of $220,330 and personal computer impairment charge of $67,202. (4) Cash dividends per common share are those of Wachovia Corporation prior to the merger with Central Fidelity Banks, Inc. (5) Includes amounts of pooled companies. 4 -------------------------- Results of Operations ----------------------------------------------------------------- Overview The following narrative contains forward-looking statements as encouraged by the Private Securities Litigation Reform Act of 1995. All forward-looking statements involve risks and uncertainty and any number of factors could cause actual results to differ materially from statements contained in this Financial Supplement and Form 10-Q. Risks and uncertainties that may affect future results include, but are not limited to, growth of the economy, interest rate movements, timely development by Wachovia of technology enhancements for its products and operating systems, the ability of Wachovia and its customers and vendors to address effectively Year 2000 issues, the impact of competitive products, services and pricing, Congressional legislation and similar matters. Management cautions readers of this Financial Supplement and Form 10-Q not to place undue reliance on forward-looking statements which are subject to influence by the named risk factors and unanticipated future events. Wachovia Corporation ("the corporation") is a southeastern interstate bank holding company with dual headquarters in Atlanta, Georgia, and Winston-Salem, North Carolina. The corporation's principal banking subsidiaries are Wachovia Bank, N. A., which maintains operations in Georgia, North Carolina, South Carolina and Virginia, and The First National Bank of Atlanta, which provides credit card services. On April 1, 1998, Wachovia Corporation acquired Ameribank Bancshares, Inc., a $280 million asset Florida bank holding company and parent of American Bank of Hollywood, Florida. The acquisition was accounted for as a purchase transaction. Subsequent to the acquisition, American Bank was merged into 1st United Bank, a former subsidiary of Wachovia Corporation. First United Bank, which maintains operations in Florida, was merged into Wachovia Bank on July 1, 1998. Wachovia's growth strategies include using acquisitions to gain access to additional customers in attractive markets and to enhance product and service capabilities. The corporation regularly evaluates acquisition opportunities and conducts due diligence activities in connection with possible acquisitions. As a result, acquisition discussions and, in some cases, negotiations may take place and future acquisitions involving cash, debt or equity securities may occur. Acquisitions typically involve the payment of a premium over book values, and, therefore, some dilution of the corporation's book value and net income per share may occur in connection with any future transactions. The U.S. economy slowed in the second quarter of 1998 as the impact of turmoil in Asian markets widened and industrial auto production was hampered by strikes. Gross domestic product for the period, based on advance estimates, grew at a 1.4 percent annualized rate compared with a 5.5 percent growth rate in the first quarter based on revised figures. The nation's seasonally adjusted unemployment rate dropped in the period to 4.4 percent from 4.7 percent in the preceding three months. Business conditions within Wachovia's primary operating states remained generally strong during the second quarter. Seasonally adjusted unemployment for the period averaged 4.6 percent in Florida, 4 percent in Georgia, 3.3 percent in North Carolina, 3.2 percent in South Carolina and 3 percent in Virginia. Wachovia reported net income of $209.916 million or $1.00 per diluted share for the second quarter of 1998 and $405.237 million or $1.93 per diluted share for the first half of the year. Results reflected strong revenue growth masked by merger-related charges, principally for systems conversions and employee bene- fits expenses in Virginia. The net after-tax impact of the merger-related charges was $20.360 million or 5 $.09 per diluted share for the second period and $43.207 million or $.20 per diluted share year to date. Excluding merger-related expenses, operating net income totaled $230.276 million or $1.09 per diluted share for the three months and $448.444 million or $2.13 per diluted share for the first six months. Noninterest income for the first half of 1998 included branch sale gains of $17.155 million, all of which occurred in the first quarter, versus gains of $18.659 million in the second quarter of 1997. Management anticipates additional integration expenses of approximately $10 million for the remainder of 1998, with the majority of charges expected to be recognized in the third quarter. Expanded discussion of the corporation's operating results and 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 securities. References to changes in assets and liabilities represent daily average levels unless otherwise noted. Prior year financial results have been restated to reflect the corporation's pooling-of-interests merger with Central Fidelity Banks, Inc., effective December 15, 1997 but have not been restated for the corporation's purchase acquisitions of Jefferson Bankshares, Inc., and 1st United Bancorp in the fourth quarter of 1997 and of Ameribank Bancshares in the second quarter of 1998. - --------------------------------------------------- Computation of Earnings Per Common Share Table 2 - -------------------------------------------------------------------------------- (thousands, except per share) Three Months Ended Six Months Ended June 30 June 30 1998 1997 1998 1997 ----------- --------- ----------- --------- BASIC Average common shares outstanding .............................. 206,718 196,676 206,308 198,384 =========== ======= =========== ======= Net income ..................................................... $ 209,916 $ 196,805 $ 405,237 $ 390,280 =========== ========= =========== ========= Per share amount ............................................... $ 1.02 $ 1.00 $ 1.96 $ 1.97 DILUTED Average common shares outstanding .............................. 206,718 196,676 206,308 198,384 Dilutive common stock options at average market price .......... 3,684 2,964 3,835 2,990 Dilutive common stock awards at average market price ........... 248 171 260 171 Convertible long-term debt assumed converted ................... 12 8 9 8 ----------- --------- ----------- --------- Average diluted shares outstanding ............................. 210,662 199,819 210,412 201,553 =========== ========= =========== ========= Net income ..................................................... $ 209,916 $ 196,805 $ 405,237 $ 390,280 Add interest on convertible long-term debt, net of tax ......... 7 1 8 3 ----------- --------- ----------- --------- Adjusted net income ............................................ $ 209,923 $ 196,806 $ 405,245 $ 390,283 =========== ========= =========== ========= Per share amount ............................................... $ 1.00 $ .98 $ 1.93 $ 1.94
6 Net Interest Income Taxable equivalent net interest income for the second quarter of 1998 rose $67.372 million or 12.8 percent year over year and expanded $130.247 million or 12.5 percent for the first six months. Gains in both periods were driven by good loan growth and improvement in the net yield on interest-earning assets (defined as taxable equivalent net interest income as a percentage of average interest-earning assets). Compared with the first quarter of 1998, taxable equivalent net interest income was up $13.638 million or 9.4 percent annualized, reflecting modest growth in interest-earning assets and one additional accrual day. The net yield on interest-earning assets increased 11 basis points for the second period from a year earlier and 9 basis points year to date and was unchanged from the first three months of the year. Management expects taxable equivalent net interest income to rise in the third quarter of 1998 from second quarter's level and the net yield on interest-earning assets to moderate, based on business trends as of the beginning of the third quarter. Taxable equivalent interest income expanded $115.003 million or 10.8 percent and $240.591 million or 11.5 percent for the second period and first half, respectively. Increased loan volume primarily fueled the growth, with a higher average rate earned also contributing to the rise. Loans advanced $4.874 billion or 12.5 percent for the three months and $5.198 billion or 13.4 percent for the first six months, with the average rate earned up 3 basis points and 7 basis points, respectively. The loan growth was attributable partly to the purchase accounting transactions consummated in 1997 and 1998. The mix of loans to total interest- earning assets rose to 77.6 percent for the second quarter from 75.8 percent a year earlier and to 77.9 percent for the first half versus 75.5 percent in 1997. Compared with the first quarter of 1998, taxable equivalent interest income was higher by $22.006 million or 7.6 percent annualized, largely due to greater volume of interest-earning assets. Loan growth for both the quarter and first six months occurred primarily in the commercial portfolio. Commercial loans, including related real estate categories, rose $4.010 billion or 18.4 percent for the three months from a year earlier and $4.246 billion or 19.9 percent for the first six months. Taxable commercial loans, commercial mortgages and construction loans led the gains in both periods, expanding $2.642 billion or 23.5 percent, $854 million or 14.3 percent and $432 million or 30 percent, respectively, for the quarter, and $2.839 billion or 26.1 percent, $913 million or 15.5 percent and $486 million or 35.3 percent, respectively, for the first half. Good growth also occurred in foreign loans, driven, in part, by originations in the corporation's London office to companies operating in Europe, and in lease financing, which primarily consists of commercial leases and other structured corporate transactions. Based on regulatory definitions, commercial real estate loans at June 30, 1998 were $8.632 billion or 19.4 percent of total loans compared with $7.557 billion or 18.8 percent of loans one year earlier and $8.699 billion or 19.5 percent at March 31, 1998. Regulatory definitions for commercial real estate include loans which have real estate as the collateral but not the primary consideration in a credit risk evaluation. Foreign loans at June 30, 1998 were $843 million, representing 1.9 percent of total loans, versus $498 million or 1.2 percent of loans one year earlier and $548 million or 1.2 percent at the end of the first quarter of 1998. Foreign loan exposure to Asia was insignificant. Consumer loans, including residential mortgages, increased $864 million or 5 percent for the quarter and $952 million or 5.5 percent for the first half. Residential mortgages accounted for most of the growth, rising $734 million or 10.1 percent for the three months and $789 million or 11 percent for the first six months including gains in equity bank lines. Good expansion also occurred in other revolving credit, while indirect retail loans and credit cards were up modestly. Credit card outstandings decreased in the second quarter from the first quarter, primarily reflecting lower new account openings. Managed credit card outstandings at June 30, 1998 were $6.033 billion, representing 13.4 percent of total managed loans, compared with $6.173 billion or 15.1 percent of managed loans one year earlier and $6.103 billion or 13.6 percent at 7 - -------------------------------------------------- Net Interest Income and Average Balances Table 3 - -------------------------------------------------------------------------------- Twelve 1998 1997 Months ---------------------------- ------------- Ended June 30 Second First Fourth 1998 Quarter Quarter Quarter ----------- ------------- ------------ ------------- NET INTEREST INCOME -- TAXABLE EQUIVALENT (THOUSANDS) Interest income: Loans, including fees ..................$3,733,116 $ 967,461 $ 952,282 $ 930,055 Securities ............................. 740,363 191,666 185,655 179,283 Interest-bearing bank balances ......... 10,375 3,411 3,228 1,920 Federal funds sold and securities purchased under resale agreements ............................ 25,542 5,735 5,285 8,542 Trading account assets ................. 51,474 13,313 13,130 12,968 ----------- ------------- ------------ ------------- Total ................................ 4,560,870 1,181,586 1,159,580 1,132,768 Interest expense: Interest-bearing demand ................ 67,140 17,047 16,751 17,333 Savings and money market savings ............................... 432,823 110,078 111,133 108,682 Savings certificates ................... 578,934 136,782 146,030 150,959 Large denomination certificates ........ 160,179 45,426 34,117 40,830 Interest-bearing deposits in foreign offices ....................... 121,145 37,332 36,210 23,778 Short-term borrowed funds .............. 537,138 145,827 138,892 127,304 Long-term debt ......................... 381,802 94,562 95,553 95,259 ----------- ------------- ------------ ------------- Total ................................ 2,279,161 587,054 578,686 564,145 ----------- ------------- ------------ ------------- Net interest income .....................$2,281,709 $ 594,532 $ 580,894 $ 568,623 =========== ============= ============ ============= Annualized net yield on interest-earning assets ................ 4.19% 4.21% 4.21% 4.21% AVERAGE BALANCES (MILLIONS) Assets: Loans -- net of unearned income......... $ 42,293 $ 43,974 $ 43,749 $ 41,770 Securities ............................. 10,624 11,102 10,623 10,126 Interest-bearing bank balances ......... 142 139 189 116 Federal funds sold and securities purchased under resale agreements ............................ 451 411 374 594 Trading account assets ................. 977 1,008 1,067 927 ----------- ------------- ------------ ------------- Total interest-earning assets......... 54,487 56,634 56,002 53,533 Cash and due from banks ................ 3,116 3,166 3,340 3,165 Premises and equipment ................. 824 845 819 844 Other assets ........................... 3,007 3,709 3,396 2,733 Unrealized gains on securities available-for-sale .................... 96 96 114 99 Allowance for loan losses .............. (533) (534) (538) (539) ----------- ------------- ------------ ------------- Total assets ......................... $ 60,997 $ 63,916 $ 63,133 $ 59,835 =========== ============= ============ ============= Liabilities and shareholders' equity: Interest-bearing demand ................ $ 4,753 $ 4,687 $ 5,984 $ 4,368 Savings and money market savings ............................... 10,958 11,700 10,334 11,189 Savings certificates ................... 10,476 9,984 11,044 10,676 Large denomination certificates ........ 2,814 3,212 2,449 2,816 Interest-bearing deposits in foreign offices ....................... 2,149 2,599 2,644 1,657 Short-term borrowed funds .............. 10,044 10,947 10,635 9,444 Long-term debt ......................... 6,041 6,092 6,107 5,935 ----------- ------------- ------------ ------------- Total interest-bearing liabilities..... 47,235 49,221 49,197 46,085 Demand deposits ........................ 7,376 7,939 7,240 7,484 Other liabilities ...................... 1,489 1,545 1,587 1,382 Shareholders' equity ................... 4,897 5,211 5,109 4,884 ----------- ------------- ------------ ------------- Total liabilities and shareholders' equity ................ $ 60,997 $ 63,916 $ 63,133 $ 59,835 =========== ============= ============ ============= Total deposits .......................... $ 38,526 $ 40,121 $ 39,695 $ 38,190
1997 Six Months Ended --------------------------- June 30 Third Second Quarter Quarter 1998 1997 ------------ ------------ ------------- ----------- NET INTEREST INCOME -- TAXABLE EQUIVALENT (THOUSANDS) Interest income: Loans, including fees .................. $ 883,318 $ 856,656 $ 1,919,743 $ 1,678,618 Securities ............................. 183,759 191,120 377,321 386,044 Interest-bearing bank balances ......... 1,816 818 6,639 1,494 Federal funds sold and securities purchased under resale agreements ............................ 5,980 4,919 11,020 7,797 Trading account assets ................. 12,063 13,070 26,443 26,622 ------------ ------------ ------------- ----------- Total ................................ 1,086,936 1,066,583 2,341,166 2,100,575 Interest expense: Interest-bearing demand ................ 16,009 15,886 33,798 30,907 Savings and money market savings ............................... 102,930 99,671 221,211 193,832 Savings certificates ................... 145,163 143,650 282,812 286,022 Large denomination certificates ........ 39,806 43,050 79,543 83,755 Interest-bearing deposits in foreign offices ....................... 23,825 22,348 73,542 39,718 Short-term borrowed funds .............. 125,115 118,781 284,719 225,742 Long-term debt ......................... 96,428 96,037 190,115 195,420 ------------ ------------ ------------- ----------- Total ................................ 549,276 539,423 1,165,740 1,055,396 ------------ ------------ ------------- ----------- Net interest income ..................... $ 537,660 $ 527,160 $ 1,175,426 $ 1,045,179 ============ ============ ============= =========== Annualized net yield on interest-earning assets ................ 4.12% 4.10% 4.21% 4.12% AVERAGE BALANCES (MILLIONS) Assets: Loans -- net of unearned income......... $ 39,731 $ 39,100 $ 43,862 $ 38,664 Securities ............................. 10,649 11,102 10,864 11,205 Interest-bearing bank balances ......... 126 62 164 56 Federal funds sold and securities purchased under resale agreements ............................ 423 352 392 284 Trading account assets ................. 908 956 1,038 1,004 ------------ ------------ ------------- ----------- Total interest-earning assets......... 51,837 51,572 56,320 51,213 Cash and due from banks ................ 2,797 2,844 3,253 2,826 Premises and equipment ................. 790 788 832 789 Other assets ........................... 2,206 2,321 3,553 2,328 Unrealized gains on securities available-for-sale .................... 76 28 105 44 Allowance for loan losses .............. (523) (509) (536) (510) ------------ ------------ ------------- ----------- Total assets ......................... $ 57,183 $ 57,044 $ 63,527 $ 56,690 ============ ============ ============= =========== Liabilities and shareholders' equity: Interest-bearing demand ................ $ 4,000 $ 4,047 $ 5,332 $ 4,032 Savings and money market savings ............................... 10,603 10,413 11,021 10,289 Savings certificates ................... 10,207 10,258 10,511 10,287 Large denomination certificates ........ 2,776 3,099 2,832 3,064 Interest-bearing deposits in foreign offices ....................... 1,714 1,633 2,622 1,483 Short-term borrowed funds .............. 9,172 8,917 10,795 8,661 Long-term debt ......................... 6,031 6,063 6,100 6,263 ------------ ------------ ------------- ----------- Total interest-bearing liabilities..... 44,503 44,430 49,213 44,079 Demand deposits ........................ 6,843 6,789 7,591 6,701 Other liabilities ...................... 1,446 1,449 1,563 1,483 Shareholders' equity ................... 4,391 4,376 5,160 4,427 ------------ ------------ ------------- ----------- Total liabilities and shareholders' equity ................ $ 57,183 $ 57,044 $ 63,527 $ 56,690 ============ ============ ============= =========== Total deposits .......................... $ 36,143 $ 36,239 $ 39,909 $ 35,856
8 March 31, 1998. Managed credit card amounts included $500 million of securitized loans at June 30, 1998, $586 million one year earlier and $500 million at the end of the first quarter of 1998. Additional information on the corporation's managed credit card portfolio is presented on page 17. Period-end loans as of June 30, 1998 and the preceding four quarters are shown in the following table. June 30 Mar. 31 Dec. 31 Sept. 30 June 30 $ in thousands 1998 1998 1997 1997 1997 ----------- ----------- ----------- ----------- ----------- Commercial .............................. $14,162,763 $14,519,889 $13,528,344 $12,133,710 $11,838,009 Tax-exempt .............................. 1,285,639 1,379,660 1,607,159 1,695,993 1,848,958 ----------- ----------- ----------- ----------- ----------- Total commercial ........................ 15,448,402 15,899,549 15,135,503 13,829,703 13,686,967 Direct retail ........................... 1,125,885 1,160,162 1,249,612 1,161,279 1,177,404 Indirect retail ......................... 3,056,582 3,038,397 3,028,288 2,879,128 2,905,645 Credit card ............................. 5,533,435 5,603,381 5,919,098 5,693,563 5,587,343 Other revolving credit .................. 503,758 485,093 459,563 422,389 418,214 ----------- ----------- ----------- ----------- ----------- Total retail ............................ 10,219,660 10,287,033 10,656,561 10,156,359 10,088,606 Construction ............................ 1,835,906 1,873,528 1,779,522 1,553,500 1,534,364 Commercial mortgages .................... 6,796,424 6,824,990 6,790,446 6,098,647 6,022,473 Residential mortgages ................... 7,893,928 7,959,185 8,098,794 7,563,967 7,357,546 ----------- ----------- ----------- ----------- ----------- Total real estate ....................... 16,526,258 16,657,703 16,668,762 15,216,114 14,914,383 Lease financing ......................... 1,420,875 1,105,555 1,094,169 1,049,269 1,013,115 Foreign ................................. 843,353 548,441 639,387 496,164 497,905 ----------- ----------- ----------- ----------- ----------- Total loans, net of unearned income ..... $44,458,548 $44,498,281 $44,194,382 $40,747,609 $40,200,976 =========== =========== =========== =========== ===========
Securities, the second largest category of interest-earning assets, were flat with the second quarter of 1997 and moderately lower year to date. Compared with the preceding three months, securities increased $479 million or 4.5 percent in the second quarter, primarily reflecting higher levels of available-for-sale mortgage-backed securities. At June 30, 1998, securities available-for-sale were $9.524 billion and securities held-to-maturity were $1.656 billion, as detailed in the following table.
$ in thousands Securities available-for-sale at market value: U.S. Government and agency ........................... $ 4,130,559 Mortgage-backed securities ........................... 4,695,836 Other ................................................ 697,963 ----------- Total securities available-for-sale .................... 9,524,358 Securities held-to-maturity: U.S. Government and agency ........................... 554,137 Mortgage-backed securities ........................... 805,336 State and municipal .................................. 194,623 Other ................................................ 101,421 ----------- Total securities held-to-maturity ...................... 1,655,517 ----------- Total securities ....................................... $11,179,875 ===========
Securities held-to-maturity had a fair value of $1.716 billion at June 30, 1998, representing a $61 million appreciation over book value. Marking the securities available-for-sale portfolio at June 30, 1998 to fair value resulted in an unrealized gain over amortized cost of $121.947 million, pretax, and $74.990 million, net of tax. Marking the average available-for-sale portfolio to fair value resulted in unrealized gains of $95.969 million, pretax, and $62.873 million, net of tax, for the second period and $104.919 million, pretax, and $67.408 million, net of tax, year to date. Unrealized gains are included, net of tax, in shareholders' equity. Interest expense for the quarter was up $47.631 million or 8.8 percent and rose $110.344 million or 10.5 percent for the first half. Higher levels of interest-bearing liabilities, principally interest-bearing deposits and short-term borrowings, accounted for the growth, which was moderated by a lower average rate paid. Interest-bearing liabilities rose $4.791 billion or 10.8 percent for the three months and $5.134 billion or 11.6 percent for the first six months, while the average rate paid decreased 9 basis points and 5 basis points, respectively. A portion of the increase in interest-bearing liabilities is attributable to the effects of 9 purchase accounting transactions consummated during 1997 and 1998. Interest expense increased $8.368 million or 5.8 percent annualized from the first quarter of 1998, largely reflecting growth in short-term borrowings and a slightly higher average rate paid. As part of its funding strategy, the corporation is marketing traditional funding products while issuing a variety of debt instruments. Traditional funding sources are being broadened through marketing of the corporation's Premiere and Business Premiere accounts, both of which are high-yield money market deposit products; the introduction of PC Banking; and significant enhancements to the corporation's basic checking products. Wholesale funding sources include senior and subordinated debt, trust capital securities and a global bank note program. Management believes continued flexibility and innovation will be required of financial institutions to attract future funding through deposit products and alternative sources. Interest-bearing deposits increased $2.732 billion or 9.3 percent and $3.163 billion or 10.8 percent for the second quarter and first half, respectively. Savings and money market savings grew $1.287 billion or 12.4 percent for the three months and $732 million or 7.1 percent for the first six months, driven by gains in the corporation's Premiere and Business Premiere accounts, while interest-bearing demand deposits expanded $640 million or 15.8 percent and $1.300 billion or 32.2 percent, respectively. Interest-bearing deposits in foreign offices increased $966 million or 59.2 percent for the quarter and $1.139 billion or 76.8 percent for the first half, reflecting their attractiveness relative to other wholesale funding sources as well as new deposit-taking capabilities at the corporation's London office. Interest-bearing deposits were slightly lower from the first quarter of 1998, reflecting, in part, the full impact in the second quarter of the loss of deposits from branches divested in Virginia during the first three months of the year. Gross deposits averaged $40.121 billion for the three months and $39.909 billion for the first six months, up $3.882 billion or 10.7 percent and $4.053 billion or 11.3 percent, respectively, from a year earlier. Collected deposits, net of float, averaged $37.855 billion for the second period and $37.640 billion year to date, an increase of $3.550 billion or 10.3 percent and $3.712 billion or 10.9 percent, respectively, from the same periods in 1997. Short-term borrowings increased $2.030 billion or 22.8 percent for the three months and $2.134 billion or 24.6 percent for the first six months, with all categories of short-term borrowings expanding. Federal funds purchased and securities sold under repurchase agreements rose $1.343 billion or 21 percent for the quarter and $1.091 billion or 16.6 percent for the first half, while commercial paper borrowings expanded $475 million or 64.7 percent and $421 million or 59.5 percent, respectively. Other short-term borrowings, primarily consisting of short-term bank notes, were higher by $212 million or 11.9 percent for the second period and $622 million or 44.9 percent year to date. Short-term borrowings grew $312 million or 2.9 percent from the first quarter, reflecting increases in commercial paper, and in federal funds purchased and securities sold under repurchase agreements. Long-term debt for the second quarter was essentially unchanged from a year earlier and was modestly lower year to date. Other long-term debt, primarily trust capital securities, increased $300 million or 9.5 percent for the three months and $263 million or 8.7 percent for the first six months, largely offsetting declines in medium-term bank notes. Long-term debt remained essentially flat with the first quarter of 1998, as expansion in other long-term debt was moderated by declines in medium-term bank notes. At June 30, 1998, trust capital securities totaled $996 million, reflecting issuances in December 1996 and in January, April and June 1997. The corporation's trust capital securities are rated aa3 by Moody's and A+ by Standard & Poor's and qualify as part of Tier I capital under risk-based capital guidelines. On July 15, the corporation filed a registration statement with the Securities and Exchange Commission for a shelf offering of up to $2.500 billion of debt securities. The securities may consist of unsecured senior debt and/or unsecured subordinated debt. On July 29, $350 million of 10-year subordinated notes was issued as part of the debt securities. The notes are rated A1 by Moody's and AA- by Standard & Poor's. 10 - ----------------------------------------------------------------------------- Taxable Equivalent Rate/Volume Variance Analysis -- Second Quarter* Table 4 - -------------------------------------------------------------------------------- + (millions) ++ (thousands)
Average Volume+ Average Rate ----------------------- -------------------- 1998 1997 1998 1997 --------- -------- ---------- ------- Interest Income Loans: Commercial ....................................... $ 13,859 $ 11,217 7.41 7.29 Tax-exempt ....................................... 1,310 1,773 9.29 8.94 --------- -------- Total commercial ................................. 15,169 12,990 7.57 7.51 Direct retail .................................... 1,140 1,178 9.44 8.93 Indirect retail .................................. 3,027 2,939 8.36 8.58 Credit card ...................................... 5,557 5,550 13.39 12.98 Other revolving credit ........................... 493 420 11.63 12.24 --------- -------- Total retail ..................................... 10,217 10,087 11.37 11.19 Construction ..................................... 1,873 1,441 9.06 9.46 Commercial mortgages ............................. 6,809 5,955 8.54 8.33 Residential mortgages ............................ 7,967 7,233 7.97 8.06 --------- -------- Total real estate ................................ 16,649 14,629 8.32 8.31 Lease financing .................................. 1,261 899 11.17 9.12 Foreign .......................................... 678 495 6.40 6.81 --------- -------- Total loans ...................................... 43,974 39,100 8.82 8.79 Securities: Held-to-maturity: U.S. Government and agency ....................... 287 ---- 6.10 ---- Mortgage-backed securities ....................... 858 1,077 8.32 7.99 State and municipal .............................. 199 221 10.73 12.12 Other ............................................ 108 2 6.85 11.34 --------- -------- Total securities held-to-maturity ................ 1,452 1,300 8.10 8.70 Available-for-sale:** U.S. Government and agency ....................... 4,210 5,452 6.78 6.55 Mortgage-backed securities ....................... 4,731 3,175 6.71 6.89 Other ............................................ 709 1,175 6.81 6.59 --------- -------- Total securities available-for-sale .............. 9,650 9,802 6.75 6.67 --------- -------- Total securities ................................. 11,102 11,102 6.92 6.90 Interest-bearing bank balances ................... 139 62 9.83 5.30 Federal funds sold and securities purchased under resale agreements .......................... 411 352 5.60 5.60 Trading account assets ........................... 1,008 956 5.30 5.48 --------- -------- Total interest-earning assets .................... $ 56,634 $ 51,572 8.37 8.30 ========= ======== Interest Expense Interest-bearing demand .......................... $ 4,687 $ 4,047 1.46 1.57 Savings and money market savings ................. 11,700 10,413 3.77 3.84 Savings certificates ............................. 9,984 10,258 5.50 5.62 Large denomination certificates .................. 3,212 3,099 5.67 5.57 --------- -------- Total interest-bearing deposits in domestic offices ................................. 29,583 27,817 4.19 4.36 Interest-bearing deposits in foreign offices ..... 2,599 1,633 5.76 5.49 --------- -------- Total interest-bearing deposits ................. 32,182 29,450 4.32 4.42 Federal funds purchased and securities sold under repurchase agreements ................. 7,746 6,403 5.36 5.30 Commercial paper ................................. 1,209 734 5.18 5.13 Other short-term borrowed funds .................. 1,992 1,780 5.38 5.60 --------- -------- Total short-term borrowed funds .................. 10,947 8,917 5.34 5.34 Bank notes ....................................... 2,646 2,917 5.86 6.21 Other long-term debt ............................. 3,446 3,146 6.50 6.48 --------- -------- Total long-term debt ............................. 6,092 6,063 6.23 6.35 --------- -------- Total interest-bearing liabilities ............... $ 49,221 $ 44,430 4.78 4.87 ========= ======== --------- ----- Interest rate spread 3.59 3.43 Net yield on interest-earning assets ========= ===== and net interest income .......................... 4.21 4.10 ========= =====
Variance Interest++ Attributable to++ ------------------------ ------------------------- 1998 1997 Variance++ Rate Volume ---------- ---------- ---------- ---------- --------- Interest Income Loans: Commercial ....................................... $ 255,996 $ 203,793 $ 52,203 $ 3,411 $ 48,792 Tax-exempt ....................................... 30,346 39,501 (9,155) 1,496 (10,651) ---------- ---------- ---------- Total commercial ................................. 286,342 243,294 43,048 1,956 41,092 Direct retail .................................... 26,820 26,223 597 1,464 (867) Indirect retail .................................. 63,082 62,899 183 (1,655) 1,838 Credit card ...................................... 185,542 179,564 5,978 5,745 233 Other revolving credit ........................... 14,297 12,809 1,488 (663) 2,151 ---------- ---------- ---------- Total retail ..................................... 289,741 281,495 8,246 4,568 3,678 Construction ..................................... 42,289 33,994 8,295 (1,491) 9,786 Commercial mortgages ............................. 144,936 123,658 21,278 3,179 18,099 Residential mortgages ............................ 158,217 145,359 12,858 (1,650) 14,508 ---------- ---------- ---------- Total real estate ................................ 345,442 303,011 42,431 367 42,064 Lease financing .................................. 35,114 20,442 14,672 5,260 9,412 Foreign .......................................... 10,822 8,414 2,408 (532) 2,940 ---------- ---------- ---------- Total loans ...................................... 967,461 856,656 110,805 2,954 107,851 Securities: Held-to-maturity: U.S. Government and agency ....................... 4,359 ---- 4,359 ---- 4,359 Mortgage-backed securities ....................... 17,795 21,460 (3,665) 854 (4,519) State and municipal .............................. 5,318 6,675 (1,357) (725) (632) Other ............................................ 1,843 66 1,777 (37) 1,814 ---------- ---------- ---------- Total securities held-to-maturity ................ 29,315 28,201 1,114 (2,028) 3,142 Available-for-sale:** U.S. Government and agency ....................... 71,134 89,075 (17,941) 3,023 (20,964) Mortgage-backed securities ....................... 79,171 54,529 24,642 (1,458) 26,100 Other ............................................ 12,046 19,315 (7,269) 625 (7,894) ---------- ---------- ---------- Total securities available-for-sale .............. 162,351 162,919 (568) 1,954 (2,522) ---------- ---------- ---------- Total securities ................................. 191,666 191,120 546 553 (7) Interest-bearing bank balances ................... 3,411 818 2,593 1,053 1,540 Federal funds sold and securities purchased under resale agreements .......................... 5,735 4,919 816 ---- 816 Trading account assets ........................... 13,313 13,070 243 (444) 687 ---------- ---------- ---------- Total interest-earning assets .................... 1,181,586 1,066,583 115,003 9,105 105,898 Interest Expense Interest-bearing demand .......................... 17,047 15,886 1,161 (1,184) 2,345 Savings and money market savings ................. 110,078 99,671 10,407 (1,830) 12,237 Savings certificates ............................. 136,782 143,650 (6,868) (3,049) (3,819) Large denomination certificates .................. 45,426 43,050 2,376 784 1,592 ---------- ---------- ---------- Total interest-bearing deposits in domestic offices ................................. 309,333 302,257 7,076 (11,912) 18,988 Interest-bearing deposits in foreign offices ..... 37,332 22,348 14,984 1,149 13,835 ---------- ---------- ---------- Total interest-bearing deposits .................. 346,665 324,605 22,060 (7,482) 29,542 Federal funds purchased and securities sold under repurchase agreements ................. 103,464 84,550 18,914 970 17,944 Commercial paper ................................. 15,620 9,379 6,241 93 6,148 Other short-term borrowed funds .................. 26,743 24,852 1,891 (1,001) 2,892 ---------- ---------- ---------- Total short-term borrowed funds .................. 145,827 118,781 27,046 ---- 27,046 Bank notes ....................................... 38,691 45,195 (6,504) (2,456) (4,048) Other long-term debt ............................. 55,871 50,842 5,029 158 4,871 ---------- ---------- ---------- Total long-term debt ............................. 94,562 96,037 (1,475) (1,912) 437 ---------- ---------- ---------- Total interest-bearing liabilities ............... 587,054 539,423 47,631 (10,054) 57,685 ---------- ---------- ---------- Interest rate spread Net yield on interest-earning assets and net interest income .......................... $ 594,532 $ 527,160 $ 67,372 14,463 52,909 ========== ========== ==========
* Interest income and yields are presented on a fully taxable equivalent basis using the federal income tax rate and state tax rates, as applicable, reduced by the nondeductible portion of interest expense. Any variance attributable jointly to volume and rate changes is allocated to volume and rate in proportion to the relationship of the absolute dollar amount of the change in each. ** Volume amounts are reported at amortized cost; excludes pretax unrealized gains of $96 million in 1998 and $28 million in 1997. 11 - ------------------------------------------------------------------------ Taxable Equivalent Rate/Volume Variance Analysis -- Six Months* Table 5 - -------------------------------------------------------------------------------- + (millions) ++ (thousands)
Average Volume+ Average Rate ------------------------ ------------------- 1998 1997 1998 1997 Interest Income ----------- --------- -------- ------ Loans: Commercial ....................................... $13,732 $ 10,893 7.32 7.26 Tax-exempt ....................................... 1,382 1,815 8.92 8.99 ----------- --------- Total commercial ................................. 15,114 12,708 7.46 7.51 Direct retail .................................... 1,174 1,185 9.31 8.94 Indirect retail .................................. 3,030 3,002 8.47 8.65 Credit card ...................................... 5,649 5,561 13.41 12.79 Other revolving credit ........................... 479 421 10.87 12.24 ----------- --------- Total retail ..................................... 10,332 10,169 11.38 11.10 Construction ..................................... 1,862 1,376 9.11 9.49 Commercial mortgages ............................. 6,790 5,877 8.68 8.25 Residential mortgages ............................ 7,972 7,183 8.06 8.00 ----------- --------- Total real estate ................................ 16,624 14,436 8.43 8.25 Lease financing .................................. 1,178 870 10.52 9.05 Foreign .......................................... 614 481 6.85 6.85 ----------- --------- Total loans ...................................... 43,862 38,664 8.83 8.76 Securities: Held-to-maturity: U.S. Government and agency ....................... 224 ---- 6.18 ---- Mortgage-backed securities ....................... 887 1,091 8.32 8.04 State and municipal .............................. 204 228 10.77 12.27 Other ............................................ 113 2 6.76 12.07 ----------- --------- Total securities held-to-maturity ................ 1,428 1,321 8.21 8.78 Available-for-sale:** U.S. Government and agency ....................... 4,336 5,459 6.81 6.61 Mortgage-backed securities ....................... 4,379 3,253 6.80 6.90 Other ............................................ 721 1,172 7.05 6.57 ----------- --------- Total securities available-for-sale .............. 9,436 9,884 6.82 6.70 ----------- --------- Total securities ................................. 10,864 11,205 7.00 6.95 Interest-bearing bank balances ................... 164 56 8.16 5.37 Federal funds sold and securities purchased under resale agreements .......................... 392 284 5.66 5.53 Trading account assets ........................... 1,038 1,004 5.14 5.35 ----------- --------- Total interest-earning assets .................... $56,320 $ 51,213 8.38 8.27 =========== ========= Interest Expense Interest-bearing demand .......................... $ 5,332 $ 4,032 1.28 1.55 Savings and money market savings ................. 11,021 10,289 4.05 3.80 Savings certificates ............................. 10,511 10,287 5.43 5.61 Large denomination certificates .................. 2,832 3,064 5.66 5.51 ----------- --------- Total interest-bearing deposits in domestic offices ................................. 29,696 27,672 4.19 4.33 Interest-bearing deposits in foreign offices ..... 2,622 1,483 5.66 5.40 ----------- --------- Total interest-bearing deposits .................. 32,318 29,155 4.31 4.39 Federal funds purchased and securities sold under repurchase agreements ...................... 7,661 6,570 5.36 5.23 Commercial paper ................................. 1,128 707 5.16 5.01 Other short-term borrowed funds .................. 2,006 1,384 5.27 5.53 ----------- --------- Total short-term borrowed funds .................. 10,795 8,661 5.32 5.26 Bank notes ....................................... 2,810 3,236 6.16 6.11 Other long-term debt ............................. 3,290 3,027 6.39 6.48 ----------- --------- Total long-term debt ............................. 6,100 6,263 6.29 6.29 ----------- --------- Total interest-bearing liabilities ............... $49,213 $ 44,079 4.78 4.83 =========== ========= -------- ----- Interest rate spread 3.60 3.44 Net yield on interest-earning assets and net ======== ===== interest income .................................. 4.21 4.12 ======== ===== Interest++ Variance --------------------------- Attributable to++ ----------------------- 1998 1997 Variance++ Rate Volume ------------ ------------ ---------- ----------- ------ Interest Income Loans: Commercial ....................................... $ 498,304 $ 392,284 $ 106,020 $ 3,025 $ 102,995 Tax-exempt ....................................... 61,110 80,860 (19,750) (625) (19,125) ------------ ------------ ---------- Total commercial ................................. 559,414 473,144 86,270 (2,812) 89,082 Direct retail .................................... 54,181 52,548 1,633 2,123 (490) Indirect retail .................................. 127,272 128,735 (1,463) (2,650) 1,187 Credit card ...................................... 375,770 352,793 22,977 17,328 5,649 Other revolving credit ........................... 25,824 25,549 275 (3,049) 3,324 ------------ ------------ ---------- Total retail ..................................... 583,047 559,625 23,422 14,349 9,073 Construction ..................................... 84,098 64,798 19,300 (2,707) 22,007 Commercial mortgages ............................. 292,338 240,568 51,770 12,918 38,852 Residential mortgages ............................ 318,492 285,122 33,370 1,856 31,514 ------------ ------------ ---------- Total real estate ................................ 694,928 590,488 104,440 13,233 91,207 Lease financing .................................. 61,484 39,009 22,475 7,080 15,395 Foreign .......................................... 20,870 16,352 4,518 17 4,501 ------------ ------------ ---------- Total loans ...................................... 1,919,743 1,678,618 241,125 13,708 227,417 Securities: Held-to-maturity: U.S. Government and agency ....................... 6,848 ---- 6,848 ---- 6,848 Mortgage-backed securities ....................... 36,610 43,472 (6,862) 1,480 (8,342) State and municipal .............................. 10,875 13,906 (3,031) (1,607) (1,424) Other ............................................ 3,780 127 3,653 (80) 3,733 ------------ ------------ ---------- Total securities held-to-maturity ................ 58,113 57,505 608 (3,839) 4,447 Available-for-sale:** U.S. Government and agency ....................... 146,398 179,019 (32,621) 5,155 (37,776) Mortgage-backed securities ....................... 147,585 111,339 36,246 (1,748) 37,994 Other ............................................ 25,225 38,181 (12,956) 2,645 (15,601) ------------ ------------ ---------- Total securities available-for-sale .............. 319,208 328,539 (9,331) 5,730 (15,061) ------------ ------------ ---------- Total securities ................................. 377,321 386,044 (8,723) 3,116 (11,839) Interest-bearing bank balances ................... 6,639 1,494 5,145 1,091 4,054 Federal funds sold and securities purchased under resale agreements .......................... 11,020 7,797 3,223 185 3,038 Trading account assets ........................... 26,443 26,622 (179) (1,059) 880 ------------ ------------ ---------- Total interest-earning assets .................... 2,341,166 2,100,575 240,591 28,631 211,960 Interest Expense Interest-bearing demand .......................... 33,798 30,907 2,891 (5,953) 8,844 Savings and money market savings ................. 221,211 193,832 27,379 13,113 14,266 Savings certificates ............................. 282,812 286,022 (3,210) (9,349) 6,139 Large denomination certificates .................. 79,543 83,755 (4,212) 2,244 (6,456) ------------ ------------ ---------- Total interest-bearing deposits in domestic offices ................................. 617,364 594,516 22,848 (19,673) 42,521 Interest-bearing deposits in foreign offices ..... 73,542 39,718 33,824 1,979 31,845 ------------ ------------ ---------- Total interest-bearing deposits .................. 690,906 634,234 56,672 (11,108) 67,780 Federal funds purchased and securities sold under repurchase agreements ...................... 203,427 170,236 33,191 4,309 28,882 Commercial paper ................................. 28,894 17,563 11,331 560 10,771 Other short-term borrowed funds .................. 52,398 37,943 14,455 (1,864) 16,319 ------------ ------------ ---------- Total short-term borrowed funds .................. 284,719 225,742 58,977 2,717 56,260 Bank notes ....................................... 85,833 98,100 (12,267) 739 (13,006) Other long-term debt ............................. 104,282 97,320 6,962 (1,368) 8,330 ------------ ------------ ---------- Total long-term debt ............................. 190,115 195,420 (5,305) (203) (5,102) ------------ ------------ ---------- Total interest-bearing liabilities ............... 1,165,740 1,055,396 110,344 (11,368) 121,712 ------------ ------------ ---------- Interest rate spread Net yield on interest-earning assets and net interest income .................................. $ 1,175,426 $ 1,045,179 $ 130,247 24,097 106,150 ============ ============ ==========
* Interest income and yields are presented on a fully taxable equivalent basis using the federal income tax rate and state tax rates, as applicable, reduced by the nondeductible portion of interest expense. Any variance attributable jointly to volume and rate changes is allocated to volume and rate in proportion to the relationship of the absolute dollar amount of the change in each. ** Volume amounts are reported at amortized cost; excludes pretax unrealized gains of $105 million in 1998 and $44 million in 1997. 12 In July 1998, Wachovia Bank increased the amount of its global bank note program from $16 billion to $21.557 billion, which includes $3.557 billion of notes previously issued under the program. The program consists of issuances with original maturities beginning at 7 days. Bank notes with original maturities of one year or less are included in other short-term borrowed funds, and bank notes with original maturities greater than one year are classified as medium-term bank notes under long-term debt. At June 30, 1998, Wachovia Bank had short-term bank notes outstanding of $913 million with an average cost of 5.55 percent and an average maturity of 3.2 months. Medium-term bank notes were $2.461 billion and had an average cost of 5.96 percent and an average maturity of 2.8 years on the same date. Short-term issues under the global bank note program are rated P-1 by Moody's and A-1+ by Standard & Poor's, while medium-term issues are rated Aa2 by Moody's and AA+ by Standard & Poor's. Asset and Liability Management, Interest Rate Sensitivity and Liquidity Management The income stream of the corporation is subject to risk resulting from interest rate fluctuations to the extent there is a difference between the amount of interest-earning assets and the amount of interest-bearing liabilities that are prepaid, withdrawn, mature or reprice in specified periods. The goal of asset and liability management is to maintain high quality and consistent growth of net interest income with acceptable levels of risk to changes in interest rates. The corporation seeks to meet this goal by influencing the maturity and repricing characteristics of the various lending and deposit-taking lines of business, by managing discretionary balance sheet asset and liability portfolios, and by utilizing off-balance sheet financial instruments. Interest rate risk management is carried out by Funds Management which operates under the policies established by the Finance Committee of the corporation's board of directors and the guidance of the Management Finance Committee. Rate risk, liquidity, capital position and discretionary on- and off-balance sheet activity are reviewed quarterly by the Board Finance Committee. Interim oversight of the asset and liability management function is provided through regular meetings of Funds Management managers and the Chief Financial Officer. Funds Management personnel carry out day-to-day activity within approved risk management guidelines and strategies. The corporation uses a number of tools to measure interest rate risk, including simulating net interest income under various rate scenarios, monitoring the change in present value of the asset and liability portfolios under the same rate scenarios and monitoring the difference or gap between rate sensitive assets and liabilities over various time periods. Management believes that rate risk is best measured by simulation modeling which calculates expected net interest income based on projected interest-earning assets, interest-bearing liabilities, off-balance sheet financial instruments and interest rates. The model projections are based on historical trends and management's expectations of balance sheet growth patterns, spreads to market rates, and prepayment behavior for assets and liabilities. The Management Finance Committee regularly reviews the assumptions used in the model. The corporation monitors exposure to a gradual change in rates of 200 basis points up or down over a rolling 12-month period and an interest rate shock of an instantaneous change in rates of 200 basis points up or down over the same period. The corporation's 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, 1998, the model indicated that a 200 basis point gradual rise in rates over 12 months would result in approximately a .7 percent decrease in net interest income, while a 200 basis point decline in rates over the same period would result in essentially no change in net interest income as compared with an unchanged rate environment. Actual results will differ from simulated results due to timing, magnitude and frequency of interest rate changes and changes in market conditions and management strategies, among other factors. The corporation maintains trading accounts primarily to facilitate customer investment and risk management needs. The market risk inherent in these portfolios was immaterial at June 30, 1998. 13 In addition to on-balance sheet instruments such as 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, 1998, the corporation had $2.705 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 $88 million at June 30, 1998. The fair value of all asset and liability derivative positions for which counterparties were exposed to the corporation amounted to $12 million on the same date. Fair value details and additional asset and liability derivative information are included in the following tables. Estimated Fair Value of Asset and Liability Management Derivatives by Purpose ----------------------------------------------------------------- June 30, 1998 ----------------------------------------------- Net Fair Value Notional Fair Value Fair Value Gains $ in millions Value Gains (Losses) (Losses) --------- ----------- ----------- ---------- Convert floating rate liabilities to fixed: Swaps -- pay fixed/receive floating ................................. $ 451 $---- $ (2) $ (2) Convert fixed rate assets to floating: Swaps -- pay fixed/receive floating ................................. 333 ---- (10) (10) Forward starting swaps -- pay fixed/receive floating ................... 37 ---- ---- ---- Convert fixed rate liabilities to floating: Swaps -- receive fixed/pay floating ................................. 1,275 82 ---- 82 Convert term liabilities with quarterly rate resets to monthly: Swaps -- receive floating/pay floating ................................. 300 ---- ---- ---- Convert floating rate assets to fixed: Swaps -- receive fixed/pay floating ................................. 309 6 ---- 6 Index amortizing swaps -- receive fixed/pay floating ....................... ---- ---- ---- ---- --------- ----- ------- ---------- Total derivatives ........................ $ 2,705 $ 88 $ (12) $ 76 ========= ===== ======= ==========
June 30, 1997 ------------------------------------------------ Net Fair Fair Fair Value Notional Value Value Gains $ in millions Value Gains (Losses) (Losses) --------- ------ ----------- ----------- Convert floating rate liabilities to fixed: Swaps -- pay fixed/receive floating ................................. $ 263 $ ---- $ (2) $ (2) Convert fixed rate assets to floating: Swaps -- pay fixed/receive floating ................................. 366 ---- (5) (5) Forward starting swaps -- pay fixed/receive floating ................... 18 ---- (1) (1) Convert fixed rate liabilities to floating: Swaps -- receive fixed/pay floating ................................. 1,500 21 (5) 16 Convert term liabilities with quarterly rate resets to monthly: Swaps -- receive floating/pay floating ................................. 300 ---- ---- ---- Convert floating rate assets to fixed: Swaps -- receive fixed/pay floating ................................. 410 5 ---- 5 Index amortizing swaps -- receive fixed/pay floating ....................... 250 4 ---- 4 --------- ------ ----------- ----------- Total derivatives ........................ $ 3,107 $ 30 $ (13) $ 17 ========= ====== =========== ===========
14 Maturity Schedule of Asset and Liability Management Derivatives ----------------------------------------------------------------- June 30, 1998 Within One Two Three Four $ in millions Year Years Years Years ------- -------- -------- -------- Interest rate swaps: Pay fixed/receive floating: Notional amount ......................... $ 200 $ 113 $ 106 $ 4 Weighted average rates received ......... 5.11% 5.16% 5.74% 5.70% Weighted average rates paid ............. 6.69 6.80 6.15 8.71 Receive fixed/pay floating: Notional amount ......................... $ 151 $ 151 $ 103 $ 102 Weighted average rates received ......... 6.57% 6.63% 6.48% 7.12% Weighted average rates paid ............. 5.68 5.70 5.76 5.73 Receive floating/pay floating: Notional amount ......................... ---- ---- $ 300 ---- Weighted average rates received ......... ---- ---- 5.66% ---- Weighted average rates paid ............. ---- ---- 5.66 ---- Total interest rate swaps: Notional amount ......................... $ 351 $ 264 $ 509 $ 106 Weighted average rates received ......... 5.74% 6.00% 5.84% 7.06% Weighted average rates paid ............. 6.25 6.17 5.78 5.85 Forward starting interest rate swaps: Notional amount ......................... $ 26 ---- ---- ---- Weighted average rates paid ............. 5.86 ---- ---- ---- Total Derivatives (notional amount) ....................... $ 377 $ 264 $ 509 $ 106
Over Average Five Five Life $ in millions Years Years Total (Years) -------- ------- ------- --------- Interest rate swaps: Pay fixed/receive floating: Notional amount ......................... $ 104 $ 257 $ 784 2.69 Weighted average rates received ......... 5.60% 5.42% 5.37% Weighted average rates paid ............. 5.18 6.61 6.42 Receive fixed/pay floating: Notional amount ......................... $ 152 $ 925 $1,584 11.13 Weighted average rates received ......... 7.13% 7.48% 7.19% Weighted average rates paid ............. 5.72 5.89 5.82 Receive floating/pay floating: Notional amount ......................... ---- ---- $ 300 2.93 Weighted average rates received ......... ---- ---- 5.66% Weighted average rates paid ............. ---- ---- 5.66 Total interest rate swaps: Notional amount ......................... $ 256 $1,182 $2,668 7.72 Weighted average rates received ......... 6.50% 7.03% 6.48% Weighted average rates paid ............. 5.50 6.05 5.98 Forward starting interest rate swaps: Notional amount ......................... ---- $ 11 $ 37 3.02 Weighted average rates paid ............. ---- 5.87 5.86 Total Derivatives (notional amount) ....................... $ 256 $1,193 $2,705 7.66
Note -- Maturity is based upon expected average lives rather than contractual lives. Asset and liability management derivatives transactions are accounted for following existing hedge account ing rules. As discussed under New Accounting Standards, an accounting standard was issued in June 1998 that will change the existing hedge accounting rules. Under the existing hedge accounting rules, 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 securities available-for-sale, which may be sold at any time, and by loans which may be securitized or sold. Additionally, the corporation generates cash through deposit growth, the issuance of bank notes, the availability of unused lines of credit, and through other forms of debt and equity instruments. Through policy guidelines, the corporation limits net purchased funds to 50 percent of long-term assets, which include net loans and leases, 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. Nonperforming Assets Nonperforming assets totaled $152.228 million or .34 percent of loans and foreclosed property at June 30, 1998. The amount was higher by $23.640 million or 18.4 percent from one year earlier and up $4.505 million or 3 percent from March 31, 1998 due to an increase in cash-basis assets. 15 Real estate nonperforming assets, the largest category of total nonperforming assets, were $109.680 million or .66 percent of real estate loans and foreclosed real estate at June 30, 1998 versus $106.217 million or .71 percent one year earlier and $102.530 million or .61 percent at the end of the first quarter. Included in real estate nonperforming assets were real estate nonperforming loans of $89.533 million at June 30, 1998, $81.545 million one year earlier and $81.766 million at March 31, 1998. Commercial real estate nonperforming assets totaled $53.168 million or .62 percent of related loans and foreclosed real estate compared with $67.676 million or .89 percent at the end of the second quarter of 1997 and with $47.125 million or .54 percent at March 31, 1998. Commercial real estate nonperforming loans were $42.544 million at June 30, 1998, $53.111 million one year earlier and $40.981 million at the close of the first quarter of 1998. - ----------------------------------------------------------------- Nonperforming Assets and Contractually Past Due Loans Table 6 - -------------------------------------------------------------------------------- (thousands) June 30 Mar. 31 Dec. 31 Sept. 30 June 30 1998 1998 1997 1997 1997 -------- -------- ---------- -------- -------- Nonperforming assets: Cash-basis assets ............................... $127,376 $121,734 $101,156 $95,580 $97,813 Restructured loans .............................. ---- ---- ---- ---- ---- -------- -------- ---------- -------- -------- Total nonperforming loans ................... 127,376 121,734 101,156 95,580 97,813 Foreclosed property: Foreclosed real estate ......................... 33,604 35,518 38,071 33,930 35,710 Less valuation allowance ....................... 13,457 14,754 16,625 10,983 11,038 Other foreclosed assets ........................ 4,705 5,225 6,893 5,534 6,103 -------- -------- ---------- -------- -------- Total foreclosed property ................... 24,852 25,989 28,339 28,481 30,775 -------- -------- ---------- -------- -------- Total nonperforming assets .................. $152,228 $147,723 $129,495 $124,061 $128,588 ======== ======== ========== ======== ======== Nonperforming loans to period-end loans ......... .29% .27% .23% .23% .24% Nonperforming assets to period-end loans and foreclosed property ............................ .34 .33 .29 .30 .32 Period-end allowance for loan losses times nonperforming loans ............................ 4.30x 4.47x 5.38x 5.43x 5.31x Period-end allowance for loan losses times nonperforming assets ........................... 3.60 3.69 4.21 4.19 4.04 Contractually past due loans (accruing loans past due 90 days or more) ....................... $112,720 $87,569 $114,343 $81,931 $86,084 ======== ======== ========== ======== ========
Provision and Allowance for Loan Losses The provision for loan losses was $68.441 million for the second quarter and $142.567 million for the first half of the year, higher by $5.394 million or 8.6 percent and $17.289 million or 13.8 percent, respectively, from the same periods in 1997. The provision in the second quarter decreased $5.685 million or 7.7 percent from the preceding three months. The provision reflects management's assessment of the adequacy of the allowance for loan losses to absorb potential write-offs in the loan portfolio due to credit deterioration or changes in risk profile. Factors considered in this assessment include the strength and consistency of the corporation's underwriting standards and charge-off policy, current and anticipated economic conditions, historical credit loss experience, and the composition of the loan portfolio. Credit evaluations are made on a cash flow analysis basis with follow-up credit reviews consistently maintained. In addition, the corporation enforces an aggressive loan loss policy of early recognition and charge-off of troubled credits. Effective with the first quarter of 1998, management began implementing as part of its overall credit review process assessments of Year 2000 compliance among borrowers. Net loan losses for the quarter were $68.223 million or .62 percent of average loans, up $5.199 million or 8.2 percent from the same three months of 1997. Year to date, net charge-offs totaled $142.331 million or .65 percent of average loans, a rise of $17.091 million or 13.6 percent from a year earlier. Increases in both periods reflected higher credit card net losses, partially offset by lower net charge-offs in other retail loans and by a rise in real estate net recoveries. Net loan losses declined $5.885 million or 7.9 percent from the 16 first quarter of 1998 due to lower net charge-offs in credit cards and other retail loans and to higher net recoveries in real estate loans. Excluding credit cards, net loan losses totaled $5.478 million or .06 percent of average loans for the quarter and $14.464 million or .08 percent for the first half compared with $9.662 million or .12 percent and $22.834 million or .14 percent, respectively, in 1997 and $8.986 million or .09 percent in the first three months of 1998. Net loan losses are expected to increase in the third quarter of 1998 from the second quarter, reflecting higher losses anticipated in the credit card portfolio. Credit card net loan losses were $62.745 million or 4.52 percent of average credit card loans for the second period and $127.867 million or 4.53 percent year to date, higher by $9.383 million or 17.6 percent and $25.461 million or 24.9 percent, respectively, from a year earlier. Net charge-offs associated with other retail loans declined $3.544 million or 49.9 percent for the quarter and $4.443 million or 28.9 percent for the first half, largely reflecting decreased losses in automobile sales financing. Net recoveries in real estate loans previously charged-off rose to $2.944 million for the three months from $701 thousand a year earlier and to $4.272 million for the first six months of 1998 from $912 thousand in 1997. Selected data on the corporation's managed credit card portfolio, which includes securitized loans, appears in the following table. Managed Credit Card Data ----------------------------------------------------------------- 1998 1997 --------------------------- ---------- $ in thousands Second First Fourth Quarter Quarter Quarter ---------- ------ ---------- Average credit card outstandings ......... $6,056,770 $6,246,315 $6,281,488 Net loan losses .......................... 67,978 69,409 67,735 Annualized net loan losses to average loans ............................ 4.49% 4.44% 4.31% Delinquencies (30 days or more) to period-end loans ................ 2.69 2.68 2.75 1997 Six Months Ended $ in thousands -------------------------- June 30 Third Second Quarter Quarter 1998 1997 ---------- ---------- ---------- ---------- Average credit card outstandings ......... $6,221,174 $6,154,577 $6,151,018 $6,175,984 Net loan losses .......................... 59,595 58,762 137,387 113,058 Annualized net loan losses to average loans ............................ 3.83% 3.82% 4.47% 3.66% Delinquencies (30 days or more) to period-end loans ................ 2.77 2.44 2.69 2.44
At June 30, 1998, the allowance for loan losses was $547.572 million, representing 1.23 percent of loans and 430 percent of nonperforming loans. This compared with $519.335 million, representing 1.29 percent of loans and 531 percent of nonperforming loans one year earlier, and $544.741 million, representing 1.22 percent of loans and 447 percent of nonperforming loans at March 31, 1998. 17 - ----------------------------------- Allowance for Loan Losses Table 7 - -------------------------------------------------------------------------------- (thousands) 1998 1997 --------------------- ---------- Second First Fourth Quarter Quarter Quarter --------- ------- ---------- Summary of Transactions Balance at beginning of period ................ $544,741 $544,723 $ 519,356 Additions from acquisitions ................... 2,613 ---- 24,641 Provision for loan losses ..................... 68,441 74,126 76,915 Deduct net loan losses: Loans charged off: Commercial .................................. 3,252 2,662 3,801 Credit card ................................. 70,015 72,061 68,796 Other revolving credit ...................... 2,927 2,089 3,659 Other retail ................................ 6,624 10,388 9,032 Real estate ................................. 634 1,209 5,786 Lease financing ............................. 726 886 916 Foreign ..................................... ---- ---- ---- --------- -------- ----------- Total ..................................... 84,178 89,295 91,990 Recoveries: Commercial .................................. 1,271 1,900 1,184 Credit card ................................. 7,270 6,939 6,251 Other revolving credit ...................... 630 690 588 Other retail ................................ 3,070 3,015 2,577 Real estate ................................. 3,578 2,537 5,125 Lease financing ............................. 136 106 76 Foreign ..................................... ---- ---- ---- --------- -------- ----------- Total ..................................... 15,955 15,187 15,801 --------- -------- ----------- Net loan losses .............................. 68,223 74,108 76,189 --------- -------- ----------- Balance at end of period ...................... $547,572 $544,741 $ 544,723 ========= ======== =========== Net Loan Losses (Recoveries) by Category Commercial .................................... $ 1,981 $ 762 $ 2,617 Credit card ................................... 62,745 65,122 62,545 Other revolving credit ........................ 2,297 1,399 3,071 Other retail .................................. 3,554 7,373 6,455 Real estate ................................... (2,944) (1,328) 661 Lease financing ............................... 590 780 840 Foreign ....................................... ---- ---- ---- --------- -------- ----------- Total ..................................... $ 68,223 $ 74,108 $ 76,189 ========= ======== =========== Net loan losses -- excluding credit cards ..... $ 5,478 $ 8,986 $ 13,644 Annualized Net Loan Losses (Recoveries) to Average Loans by Category Commercial .................................... .05% .02% .08% Credit card ................................... 4.52 4.54 4.36 Other revolving credit ........................ 1.86 1.20 2.81 Other retail .................................. .34 .70 .61 Real estate ................................... (.07) (.03) .02 Lease financing ............................... .19 .29 .32 Foreign ....................................... ---- ---- ---- Total loans ................................... .62 .68 .73 Total loans -- excluding credit cards ......... .06 .09 .15 Period-end allowance to outstanding loans ..... 1.23% 1.22% 1.23%
1997 Six Months Ended --------------------- June 30 Third Second Quarter Quarter 1998 1997 --------- -------- -------- -------- Summary of Transactions Balance at beginning of period ................ $519,335 $519,312 $544,723 $519,297 Additions from acquisitions ................... ---- ---- 2,613 ---- Provision for loan losses ..................... 62,756 63,047 142,567 125,278 Deduct net loan losses: Loans charged off: Commercial .................................. 686 1,772 5,914 4,767 Credit card ................................. 61,277 59,935 142,076 115,935 Other revolving credit ...................... 2,520 2,259 5,016 4,385 Other retail ................................ 8,777 10,027 17,012 21,992 Real estate ................................. 1,469 1,764 1,843 4,309 Lease financing ............................. 988 1,218 1,612 2,584 Foreign ..................................... ---- ---- ---- ---- --------- -------- ---------- -------- Total ..................................... 75,717 76,975 173,473 153,972 Recoveries: Commercial .................................. 988 1,289 3,171 1,999 Credit card ................................. 6,894 6,573 14,209 13,529 Other revolving credit ...................... 575 591 1,320 1,198 Other retail ................................ 2,638 2,929 6,085 6,622 Real estate ................................. 1,787 2,465 6,115 5,221 Lease financing ............................. 100 104 242 163 Foreign ..................................... ---- ---- ---- ---- --------- -------- ---------- -------- Total ..................................... 12,982 13,951 31,142 28,732 --------- -------- ---------- -------- Net loan losses .............................. 62,735 63,024 142,331 125,240 --------- -------- ---------- -------- Balance at end of period ...................... $519,356 $519,335 $547,572 $519,335 ========= ======== ========== ======== Net Loan Losses (Recoveries) by Category Commercial .................................... $ (302) $ 483 $ 2,743 $ 2,768 Credit card ................................... 54,383 53,362 127,867 102,406 Other revolving credit ........................ 1,945 1,668 3,696 3,187 Other retail .................................. 6,139 7,098 10,927 15,370 Real estate ................................... (318) (701) (4,272) (912) Lease financing ............................... 888 1,114 1,370 2,421 Foreign ....................................... ---- ---- ---- ---- --------- -------- ---------- -------- Total ..................................... $62,735 $ 63,024 $142,331 $125,240 ========= ======== ========== ======== Net loan losses -- excluding credit cards ..... $ 8,352 $ 9,662 $ 14,464 $ 22,834 Annualized Net Loan Losses (Recoveries) to Average Loans by Category Commercial .................................... (.01%) .01% .04% .04% Credit card ................................... 3.85 3.85 4.53 3.68 Other revolving credit ........................ 1.87 1.59 1.54 1.51 Other retail .................................. .61 .69 .52 .73 Real estate ................................... (.01) (.02) (.05) (.01) Lease financing ............................... .35 .50 .23 .56 Foreign ....................................... ---- ---- ---- ---- Total loans ................................... .63 .64 .65 .65 Total loans -- excluding credit cards ......... .10 .12 .08 .14 Period-end allowance to outstanding loans ..... 1.27% 1.29% 1.23% 1.29%
Noninterest Income Total other operating revenue, which excludes securities sales, grew $55.449 million or 21.4 percent for the second quarter from a year earlier and $112.303 million or 23.1 percent for the first half. Capital markets income, deposit account service revenues, mortgage fees, fees for trust services and investment fees led the gains in both periods. Total other operating revenue included branch sale gains of $18.659 million in the second quarter of 1997 and $17.155 million in the first three months of 1998. Excluding these gains, total 18 other operating revenue rose $74.108 million or 30.8 percent for the second period and $113.807 million or 24.3 percent year to date and increased $48.475 million or 18.2 percent (72.7 percent annualized) from the first quarter. Management anticipates a slight moderation in total other operating revenue for the third quarter of 1998 from the second quarter but still expects gains in most categories, based on business trends in the initial part of the quarter. Capital markets income expanded $29.128 million or more than 250 percent for the quarter from a year earlier and increased $37.926 million or more than 200 percent for the first half of the year. Growth was driven largely by good gains in consulting services, corporate financing activities, foreign exchange transactions and derivatives activities. In June, Wachovia received Tier I powers for its Section 20 capital markets subsidiary. These powers enable the subsidiary to engage in underwriting and dealing in municipal revenue bonds, commercial paper, mortgage related securities and consumer related receivables, all of investment quality rating. Tier II powers permitting further expansion into corporate debt and equity securities without investment grade limitation are expected in 1999. Deposit account service charge revenues rose $7.889 million or 10.6 percent for the three months and $14.669 million or 9.9 percent for the first six months. Increases in both periods primarily occurred in overdraft charges and in commercial analysis fees. Mortgage fees grew $6.348 million or 123.2 percent for the second period and $8.882 million or 86 percent year to date, reflecting increased mortgage service premiums, gains on loans sold to the secondary market and higher levels of mortgage origination fees. Fees for trust services rose $5.134 million or 11.8 percent and $10.337 million or 12.2 percent for the three and six months, respectively. Growth in Personal Financial Services and in fees associated with the Wachovia Funds, the corporation's proprietary family of mutual funds, helped account for the gains. At June 30, 1998, the Wachovia Funds had assets of $6.178 billion compared with $4.886 billion one year earlier. Total trust assets under management increased approximately 25 percent from June 30, 1997. In April, Wachovia completed its acquisition of Hunt, DuPree, Rhine and Associates, Inc., a benefits consulting firm, and its affiliate, Retirement Plan Securities, Inc., a registered investment advisor. The acquisition enables the corporation to offer expanded benefit consulting services to its middle market corporate customers. Investment fees increased $3.132 million or 36.7 percent for the quarter and $5.867 million or 34.5 percent for the first half. Growth occurred primarily in fees associated with customer mutual fund trading, retirement plan commission income and brokerage commissions. Higher debit card transactions and increased foreign usage of ATMs helped push electronic banking income up $2.989 million or 19.1 percent for the second period and $4.618 million or 15.2 percent year to date. Credit card fee income declined modestly for the quarter but remained slightly higher for the first half of the year. Remaining combined categories of total other operating revenue, excluding branch sale gains, rose $20.225 million or 52.8 percent for the three months and $30.557 million or 39.3 percent year to date. Insurance premiums and commissions decreased slightly for the quarter but were moderately higher for the first half. Bankers' acceptance and letter of credit fees expanded $892 thousand or 10 percent for the second period and $2.550 million or 15.2 percent year to date. Other service charges and fees rose moderately for both the quarter and first half, while other income was up $18.865 million or 162.2 percent for the three months and $26.721 million or 102.8 percent for the first six months. Including securities sales, total noninterest income rose $57.943 million or 22.3 percent for the second period and $116.396 million or 23.8 percent year to date. Net gains on securities sales totaled $2.992 19 million for the three months and $6.149 million for the first six months versus $498 thousand and $2.056 million, respectively, in 1997. - ---------------------------- Noninterest Income Table 8 - -------------------------------------------------------------------------------- (thousands) 1998 1997 --------------------- -------- Second First Fourth Quarter Quarter Quarter -------- ------ -------- Service charges on deposit accounts ............... $ 82,465 $ 80,874 $ 80,977 Fees for trust services ........................... 48,802 46,053 47,378 Credit card income -- net of interchange payments ......................................... 43,077 38,544 38,382 Electronic banking ................................ 18,667 16,395 17,355 Capital markets income ............................ 40,304 16,110 16,040 Investment fees ................................... 11,665 11,191 9,541 Mortgage fees ..................................... 11,502 7,704 7,509 Insurance premiums and commissions ................ 8,135 7,568 7,169 Bankers' acceptance and letter of credit fees ..... 9,802 9,569 8,116 Other service charges and fees .................... 10,125 10,350 9,257 Other income ...................................... 30,499 39,365 21,534 ---------- -------- --------- Total other operating revenue ................. 315,043 283,723 263,258 Securities gains (losses) ......................... 2,992 3,157 (1,693) ---------- -------- --------- Total ......................................... $ 318,035 $286,880 $261,565 ========== ======== ========= 1997 Six Months Ended ------------------- June 30 Third Second Quarter Quarter 1998 1997 -------- ------- -------- -------- Service charges on deposit accounts ............... $ 76,584 $ 74,576 $163,339 $148,670 Fees for trust services ........................... 43,653 43,668 94,855 84,518 Credit card income -- net of interchange payments ......................................... 43,182 43,814 81,621 80,670 Electronic banking ................................ 16,841 15,678 35,062 30,444 Capital markets income ............................ 14,994 11,176 56,414 18,488 Investment fees ................................... 9,721 8,533 22,856 16,989 Mortgage fees ..................................... 5,711 5,154 19,206 10,324 Insurance premiums and commissions ................ 7,966 8,170 15,703 15,070 Bankers' acceptance and letter of credit fees ..... 9,589 8,910 19,371 16,821 Other service charges and fees .................... 9,671 9,622 20,475 19,822 Other income ...................................... 18,135 30,293 69,864 44,647 -------- -------- --------- --------- Total other operating revenue ................. 256,047 259,594 598,766 486,463 Securities gains (losses) ......................... 1,091 498 6,149 2,056 -------- -------- --------- --------- Total ......................................... $257,138 $260,092 $604,915 $488,519 ======== ======== ========= =========
Noninterest Expense Total noninterest expense increased $96.593 million or 23 percent for the second quarter and $202.241 million or 25 percent for the first half. Included in total noninterest expense for 1998 were merger-related charges of $30.849 million, pretax, for the second period and $66.417 million, pretax, year to date, related to systems conversions, signage changes and employee benefits expenses principally in Virginia. Excluding integration-related expenses, noninterest expense on a core operating basis rose $65.744 million or 15.6 percent for the second quarter and $135.824 million or 16.8 percent for the first half and was higher by $27.464 million or 6 percent from the first three months of the year. Management estimates integration charges for the remainder of 1998 will total approximately $10 million, pretax, with the majority of the charges expected to be taken in the third quarter for the corporation's new Florida operations. Excluding merger-related charges, noninterest expense in the third quarter of 1998 is expected to decrease from the second quarter based on lower anticipated incentive pay and other personnel expenses. Total personnel expense rose $43.490 million or 19.9 percent for the three months from a year earlier and $91.575 million or 21.3 percent for the first six months. Salaries expense grew $40.744 million or 22.8 percent and $81.676 million or 23.3 percent for the quarter and first half, respectively, driven principally by higher incentive pay for revenue generating businesses. Employee benefits expense was up $2.746 million or 6.9 percent for the second period and $9.899 million or 12.4 percent year to date, reflecting increases in retirement benefits costs and in payroll taxes associated with an expanded employee base. Combined net occupancy and equipment expense was up $11.958 million or 18.8 percent for the quarter and $18.401 million or 14.7 percent for the first half. Net occupancy expense rose $6.462 million or 23.4 percent for the three months and $11.751 million or 20.9 percent for the first six months, due to building maintenance and operating expenses of acquired companies. Higher depreciation, leasing and maintenance costs helped push equipment expense up $5.496 million or 15.4 percent for the second period and $6.650 million or 9.6 percent year to date. Remaining combined categories of noninterest expense, excluding merger-related charges, increased $10.296 million or 7.5 percent for the quarter and $25.848 million or 10.2 percent for the first half. Amortization of intangible assets accounted for the largest portion of the growth, rising $6.962 million for the three months and $13.815 million for the first six months, on higher levels of goodwill and deposit base 20 intangibles following the corporation's purchase acquisitions. Advertising expense grew $2.206 million or 10.8 percent for the second period and $4.370 million or 12.2 percent year to date, while outside data processing, programming and software expense declined $10.744 million or 39.8 percent for the quarter and $12.584 million or 30.3 percent for the first half due, in part, to reductions in Year 2000 spending. The corporation has been working since late 1995 to identify and remediate data recognition problems that will be caused in computer systems and software by the change in date from the year 1999 to the year 2000. Management has identified all business and operational functions that will be impacted by the date change and has been moving aggressively to convert and test its application systems for Year 2000 date recognition. Conversion of all in-house application systems was substantially completed by mid-year 1998, with in-house testing expected to be finished by the end of the year. Wachovia's schedule for Year 2000 compliance incorporates 21st century date testing as part of the conversion process and encompasses all application systems, not simply those considered critical to operations. Throughout 1999, the corporation will conduct testing with external entities, such as business partners and the Federal Reserve, as they become Year 2000 ready. The corporation also is working to assess Year 2000 readiness on the part of its current and future vendors, particularly those vendors considered critical to the ongoing operations and business of the corporation. Spending for Year 2000 testing and conversion was approximately $8 million for the second quarter and $14 million year to date. Management estimates that total Year 2000 project costs will be approximately $60 million, with $52 million having been spent through June 30, 1998. The total projected cost is up from $55 million estimated earlier due to additional internal expenditures for testing. The corporation's Year 2000 project costs are not expected to have a material impact on its results of operations, liquidity or capital resources. The impact of Year 2000 noncompliance by all outside parties with whom the corporation may transact business cannot be assessed fully at this time. - ----------------------------- Noninterest Expense Table 9 - -------------------------------------------------------------------------------- (thousands) 1998 1997 ------------------------- ----------- Second First Fourth Quarter Quarter Quarter ----------- -------- ----------- Salaries ................................ $ 219,731 $ 212,758 $ 200,859 Employee benefits ....................... 42,675 46,966 43,391 ----------- --------- ----------- Total personnel expense ............. 262,406 259,724 244,250 Net occupancy expense ................... 34,119 33,783 30,687 Equipment expense ....................... 41,288 34,687 36,619 Postage and delivery .................... 13,368 13,278 12,539 Outside data processing, programming and software ........................... 16,244 12,737 22,952 Stationery and supplies ................. 7,233 7,506 7,637 Advertising and sales promotion ......... 22,555 17,738 15,768 Professional services ................... 14,522 11,304 16,348 Travel and business promotion ........... 7,638 6,439 7,433 Regulatory agency fees and other bank services ............................... 4,075 4,485 3,523 Amortization of intangible assets ....... 9,226 9,117 6,433 Foreclosed property expense, net of income ................................. 88 130 492 Personal computer impairment charge* ---- ---- 67,202 Merger-related charges* ................. 30,849 35,568 220,330 Other expense ........................... 53,383 47,753 40,205 ----------- --------- ----------- Total ............................... $ 516,994 $ 494,249 $ 732,418 =========== ========= =========== Overhead ratio .......................... 56.8% 57.2% 88.0% Overhead ratio without nonrecurring charges ................................ 53.4 53.1 53.5 1997 Six Months Ended ----------------------- June 30 Third Second Quarter Quarter 1998 1997 --------- --------- ------------- --------- Salaries ................................ $ 190,434 $ 178,987 $ 432,489 $ 350,813 Employee benefits ....................... 39,918 39,929 89,641 79,742 --------- --------- ------------- --------- Total personnel expense ............. 230,352 218,916 522,130 430,555 Net occupancy expense ................... 29,816 27,657 67,902 56,151 Equipment expense ....................... 36,283 35,792 75,975 69,325 Postage and delivery .................... 11,883 11,899 26,646 24,235 Outside data processing, programming and software ........................... 21,980 26,988 28,981 41,565 Stationery and supplies ................. 8,415 7,676 14,739 14,908 Advertising and sales promotion ......... 20,355 20,349 40,293 35,923 Professional services ................... 14,102 14,385 25,826 23,663 Travel and business promotion ........... 6,120 6,154 14,077 11,662 Regulatory agency fees and other bank services ............................... 3,458 3,791 8,560 7,619 Amortization of intangible assets ....... 2,347 2,264 18,343 4,528 Foreclosed property expense, net of income ................................. 487 951 218 896 Personal computer impairment charge* ---- ---- ---- ---- Merger-related charges* ................. ---- ---- 66,417 ---- Other expense ........................... 39,703 43,579 101,136 87,972 --------- --------- ------------- --------- Total ............................... $ 425,301 $ 420,401 $ 1,011,243 $ 809,002 ========= ========= ============= ========= Overhead ratio .......................... 53.6% 53.4% 57.0% 52.8% Overhead ratio without nonrecurring charges ................................ 53.6 53.4 53.3 52.8
* Nonrecurring charges. 21 Income Taxes Applicable income taxes increased $13.350 million or 14.5 percent for the quarter from a year earlier and were higher by $19.305 million or 10.8 percent for the first half. Income taxes computed at the statutory rate are reduced primarily by the assumed tax effect of interest income earned on state and municipal loans and debt securities. Also, within certain limitations, one-half of the interest income earned on qualifying employee stock ownership plan loans is exempt from federal taxes. The interest earned on certain state and municipal debt instruments is exempt from federal taxes and in some cases state taxes. The tax-exempt nature of these assets provides both an attractive return for the corporation and substantial interest savings for local governments and their constituents. - ----------------------- Income Taxes Table 10 - -------------------------------------------------------------------------------- (thousands) Three Months Ended Six Months Ended June 30 June 30 1998 1997 1998 1997 --------- -------- --------- --------- Income before income taxes ........................................ $ 315,304 $ 288,843 $ 602,952 $ 568,690 ========== ========== ========== ========== Federal income taxes at statutory rate ............................ $ 110,356 $ 101,095 $ 211,033 $ 199,042 State and local income taxes -- net of federal benefit ............ 6,688 4,692 5,667 8,401 Effect of tax-exempt securities interest and other income ......... (13,144) (12,119) (25,526) (24,533) Other items ....................................................... 1,488 (1,630) 6,541 (4,500) ---------- ---------- ---------- ---------- Total tax expense ............................................ $ 105,388 $ 92,038 $ 197,715 $ 178,410 ========== ========== ========== ========== Current: Federal .......................................................... $ 27,652 $ 58,713 $ 96,416 $ 125,595 Foreign .......................................................... 246 106 361 165 State and local .................................................. 2,069 2,727 5,798 4,605 ---------- ---------- ---------- ---------- Total ........................................................ 29,967 61,546 102,575 130,365 Deferred: Federal .......................................................... 67,200 25,997 92,220 39,726 State and local .................................................. 8,221 4,495 2,920 8,319 ---------- ---------- ---------- ---------- Total ........................................................ 75,421 30,492 95,140 48,045 ---------- ---------- ---------- ---------- Total tax expense ............................................ $ 105,388 $ 92,038 $ 197,715 $ 178,410 ========== ========== ========== ==========
22 New Accounting Standards In December 1996, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 127, "Deferral of the Effective Date of Certain Provisions of FASB Statement No. 125, an amendment of FASB Statement No. 125" (FASB 127). FASB 127 delayed until 1998 certain provisions of FASB 125 that deal with repurchase agreements, securities lending and other similar transactions and pledged collateral. Adoption of FASB 127 was not material. In June 1997, Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (FASB 130), was issued and establishes standards for reporting and displaying comprehensive income and its components. FASB 130 requires comprehensive income and its components, as recognized under the accounting standards, to be displayed in a financial statement with the same prominence as other financial statements. The disclosure requirements of FASB 130 have been included in the corporation's consolidated statements of shareholders' equity. Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" (FASB 131), also issued in June 1997, establishes new standards for reporting information about operating segments in annual and interim financial statements. The standard also requires descriptive information about the way the operating segments are determined, the products and services provided by the segments and the nature of differences between reportable segment measurements and those used for the consolidated enterprise. This standard is effective for years beginning after December 15, 1997. Adoption in interim financial statements is not required until the year after initial adoption, however comparative prior period information is required. FASB 131 will be adopted, as required, beginning with year-end 1998. The disclosure requirements will have no impact on the corporation's financial position or results of operations. In March 1998, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" (SOP 98-1), which provides guidance as to when it is or is not appropriate to capitalize the cost of software developed or obtained for internal use. The corporation elected early adoption of SOP 98-1. The effect of the adoption was not material. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (FASB 133). FASB 133 establishes new accounting and reporting requirements for derivative instruments, including certain derivative instruments embedded in other contracts and hedging activities. The standard requires all derivatives to be measured at fair value and recognized as either assets or liabilities in the statement of condition. Under certain conditions, a derivative may be specifically designated as a hedge. Accounting for the changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. Adoption of the standard is required for the corporation's December 31, 2000 financial statements with early adoption allowed as of the beginning of any quarter after June 30, 1998. Management is in the process of assessing the impact and period of adoption of the standard. Adoption is not expected to result in a material financial impact. 23 --------------------------------------------- Financial Condition and Capital Ratios ----------------------------------------------------------------- Assets at June 30, 1998 were $64.727 billion, with $57.303 billion of interest-earning assets and $44.459 billion of loans. Comparable amounts one year earlier were $59.178 billion of assets, $52.654 billion of interest-earning assets and $40.201 billion of loans. At March 31, 1998, assets totaled $65.125 billion, interest-earning assets were $57.464 billion and loans were $44.498 billion. Deposits were $39.915 billion at June 30, 1998, including $31.841 billion of interest-bearing deposits, representing 79.8 percent of the total. Deposits one year earlier were $37.015 billion, with interest-bearing deposits of $28.726 billion or 77.6 percent of the total, and at March 31, 1998, deposits were $39.857 billion, including $31.331 billion of interest-bearing deposits or 78.6 percent of the total. During the first quarter of 1998, the corporation sold selected branches primarily for regulatory purposes in connection with its Virginia mergers, impacting deposit levels at the close of both the first and second quarters. Shareholders' equity at the end of the second quarter of 1998 totaled $5.376 billion, an increase of $892.333 million or 19.9 percent from $4.483 billion one year earlier. Included in shareholders' equity at June 30, 1998 was $747.744 million from common stock issued in connection with the corporation's fourth quarter 1997 purchase acquisitions of Jefferson Bankshares and 1st United Bancorp. Purchase transactions consummated during the second quarter of 1998 resulted in the issuance of 1.099 million shares of common stock with a corresponding increase in shareholders' equity of $83.313 million. Shareholders' equity at June 30, 1998 also included unrealized gains of $74.990 million, net of tax, on securities available-for-sale marked to fair market value compared with $44.329 million, net of tax, one year earlier. On June 23, the corporation's board of directors authorized the repurchase of up to 12 million shares of the corporation's common stock. The board's action to repurchase shares is effective through January 28, 2000. During the second quarter of 1998, the corporation repurchased a total of 1,245,800 shares of its common stock, including 320,800 shares under the June 23 authorization. The shares were repurchased at an average price of $83.694 per share for a total cost of $104.266 million. At its meeting on July 24, 1998, the corporation's board of directors declared a third quarter dividend of $.49 per share, payable September 1 to shareholders of record on August 6. The dividend is higher by 11.4 percent from $.44 per share paid in the same quarter of 1997. For the year to date, the dividend will total $1.37 per share, an increase of 10.5 percent from $1.24 per share in 1997. Intangible assets at June 30, 1998 totaled $657.891 million, consisting of $543.057 million of goodwill, $100.729 million of deposit base intangibles, $12.683 million of mortgage servicing rights and $1.422 million of other intangibles, principally purchased credit card premiums. Intangible assets one year earlier were $113.707 million, with $46.464 million of goodwill, $53.052 million of deposit base intangibles, $13.343 million of mortgage servicing rights and $848 thousand of other intangibles. The increase in goodwill and deposit base intangibles from the end of the second quarter of 1997 resulted from the corporation's purchase acquisitions of Jefferson Bankshares and 1st United Bancorp in the fourth quarter of 1997 and of Ameribank Bancshares in the second quarter of 1998. 24 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 fair value. In addition to these capital ratios, regulatory agencies have established a Tier I leverage ratio which measures Tier I capital to average assets less ineligible intangible assets. Regulatory guidelines require a minimum of total capital to risk-adjusted assets ratio of 8 percent with at least one-half consisting of tangible common shareholders' equity and a minimum Tier I leverage ratio of 3 percent. Banks which meet or exceed a Tier I ratio of 6 percent, a total capital ratio of 10 percent and a Tier I leverage ratio of 5 percent are considered well capitalized by regulatory standards. It is the policy of the corporation that it and its banking subsidiaries be well capitalized at all times. At June 30, 1998, the corporation's Tier I to risk-adjusted assets ratio was 8.81 percent and total capital to risk-adjusted assets was 11.44 percent. The Tier I leverage ratio was 8.91 percent. Included in the capital ratios at June 30, 1998 was $996.180 million of trust capital securities versus $995.804 million one year earlier. - ---------------------------------------- Capital Components and Ratios Table 11 - -------------------------------------------------------------------------------- (thousands) 1998 ----------------------------- Second First Quarter Quarter ------------- ---------- Tier I capital: Common shareholders' equity ....................................... $ 5,375,793 $ 5,236,700 Trust capital securities .......................................... 996,180 996,087 Less ineligible intangible assets ................................. 669,448 604,325 Unrealized gains on securities available-for-sale, net of tax ..... (74,990) (63,849) ------------- ----------- Total Tier I capital ........................................... 5,627,535 5,564,613 Tier II capital: Allowable allowance for loan losses ............................... 547,572 544,741 Allowable long-term debt .......................................... 1,138,711 1,193,533 ------------- ----------- Tier II capital additions ...................................... 1,686,283 1,738,274 ------------- ----------- Total capital .................................................. $ 7,313,818 $ 7,302,887 ============= =========== Risk-adjusted assets ............................................... $63,906,411 $62,747,353 Quarterly average assets * ......................................... $63,184,419 $62,457,463 Risk-based capital ratios: Tier I capital .................................................... 8.81% 8.87% Total capital ..................................................... 11.44 11.64 Tier I leverage ratio .............................................. 8.91 8.91
1997 ---------------------------------------------- Fourth Third Second Quarter Quarter Quarter ------------- --------- --------- Tier I capital: Common shareholders' equity ....................................... $ 5,174,301 $ 4,517,021 $ 4,483,461 Trust capital securities .......................................... 995,993 995,899 995,804 Less ineligible intangible assets ................................. 634,052 93,101 94,767 Unrealized gains on securities available-for-sale, net of tax ..... (71,098) (68,657) (44,329) ------------- ----------- ----------- Total Tier I capital ........................................... 5,465,144 5,351,162 5,340,169 Tier II capital: Allowable allowance for loan losses ............................... 544,723 519,356 519,335 Allowable long-term debt .......................................... 1,193,451 1,283,165 1,283,093 ------------- ----------- ----------- Tier II capital additions ...................................... 1,738,174 1,802,521 1,802,428 ------------- ----------- ----------- Total capital .................................................. $ 7,203,318 $ 7,153,683 $ 7,142,597 ============= =========== =========== Risk-adjusted assets ............................................... $59,543,254 $56,481,076 $52,408,490 Quarterly average assets * ......................................... $59,139,712 $57,042,701 $56,931,778 Risk-based capital ratios: Tier I capital .................................................... 9.18% 9.47% 10.19% Total capital ..................................................... 12.10 12.67 13.63 Tier I leverage ratio .............................................. 9.24 9.38 9.38
* Excludes ineligible intangible assets and average unrealized gains on securities available-for-sale, net of tax. 25 Wachovia Corporation and Subsidiaries - -------------------------------------- Consolidated Statements of Condition - -------------------------------------------------------------------------------- $ in thousands June 30 December 31 June 30 1998 1997 1997 ASSETS Cash and due from banks ..................................................... $3,425,987 $ 4,221,818 $3,707,049 Interest-bearing bank balances .............................................. 204,751 133,191 83,620 Federal funds sold and securities purchased under resale agreements ......... 326,075 1,589,234 320,519 Trading account assets ...................................................... 1,133,339 999,122 845,752 Securities available-for-sale ............................................... 9,524,358 8,909,537 9,932,421 Securities held-to-maturity (fair value of $1,716,374, $1,578,464 and $1,333,211, respectively)................................................... 1,655,517 1,509,339 1,271,149 Loans, net of unearned income ............................................... 44,458,548 44,194,382 40,200,976 Less allowance for loan losses .............................................. 547,572 544,723 519,335 ------------ ----------- ------------ Net loans ................................................................. 43,910,976 43,649,659 39,681,641 Premises and equipment ...................................................... 865,864 810,155 779,604 Due from customers on acceptances ........................................... 613,154 628,398 866,489 Other assets ................................................................ 3,066,621 2,946,616 1,689,614 ------------ ----------- ------------ Total assets .............................................................. $ 64,726,642 $65,397,069 $ 59,177,858 ============ =========== ============ LIABILITIES Deposits in domestic offices: Demand ..................................................................... $ 8,074,904 $ 8,598,055 $ 8,289,369 Interest-bearing demand .................................................... 4,684,288 4,654,172 4,051,071 Savings and money market savings ........................................... 11,639,530 11,679,432 10,397,600 Savings certificates ....................................................... 9,628,631 10,934,720 10,245,049 Large denomination certificates ............................................ 2,989,187 2,284,068 2,870,152 ------------ ----------- ------------ Total deposits in domestic offices ........................................ 37,016,540 38,150,447 35,853,241 Interest-bearing deposits in foreign offices ................................ 2,898,888 4,503,396 1,161,690 ------------ ----------- ------------ Total deposits ............................................................ 39,915,428 42,653,843 37,014,931 Federal funds purchased and securities sold under repurchase agreements ..... 8,354,912 8,322,716 7,319,154 Commercial paper ............................................................ 1,355,117 1,034,024 762,800 Other short-term borrowed funds ............................................. 2,472,728 752,874 1,791,268 Long-term debt: Bank notes ................................................................. 2,460,872 2,939,952 3,014,233 Other long-term debt ....................................................... 3,445,931 2,994,181 3,330,779 ------------ ----------- ------------ Total long-term debt ...................................................... 5,906,803 5,934,133 6,345,012 Acceptances outstanding ..................................................... 613,154 628,398 866,489 Other liabilities ........................................................... 732,706 896,780 594,743 ------------ ----------- ------------ Total liabilities ......................................................... 59,350,848 60,222,768 54,694,397 SHAREHOLDERS' EQUITY Preferred stock, par value $5 per share: Authorized 50,000,000 shares; none outstanding ............................. ---- ---- ---- Common stock, par value $5 per share: Authorized 1,000,000,000, 500,000,000 and 500,000,000 shares; issued and outstanding 206,622,903, 205,926,632 and 195,276,111 shares, respectively .............................................................. 1,033,115 1,029,633 976,381 Capital surplus ............................................................. 970,584 974,803 398,924 Retained earnings ........................................................... 3,297,105 3,098,767 3,063,827 Accumulated other comprehensive income ...................................... 74,990 71,098 44,329 ------------ ----------- ------------ Total shareholders' equity ................................................ 5,375,794 5,174,301 4,483,461 ------------ ----------- ------------ Total liabilities and shareholders' equity ................................ $64,726,642 $65,397,069 $59,177,858 ============ =========== ============
26 Wachovia Corporation and Subsidiaries - ------------------------------------ Consolidated Statements of Income - -------------------------------------------------------------------------------- thousands, except per share Three Months Ended Six Months Ended June 30 June 30 1998 1997 1998 1997 INTEREST INCOME Loans, including fees ....................................... $ 960,769 $ 847,175 $ 1,906,206 $ 1,659,092 Securities avaliable-for-sale ............................... 159,283 160,223 313,221 323,111 Securities held-to-maturity: State and municipal ........................................ 3,739 4,150 7,675 8,646 Other investments .......................................... 23,925 21,625 47,166 43,795 Interest-bearing bank balances .............................. 3,411 818 6,639 1,494 Federal funds sold and securities purchased under resale agreements ................................................. 5,735 4,919 11,020 7,797 Trading account assets ...................................... 12,896 12,712 25,660 25,912 ------------ ----------- ------------- ----------- Total interest income ..................................... 1,169,758 1,051,622 2,317,587 2,069,847 INTEREST EXPENSE Deposits: Domestic offices ........................................... 309,333 302,257 617,364 594,516 Foreign offices ............................................ 37,332 22,348 73,542 39,718 ------------ ----------- ------------- ----------- Total interest on deposits ................................ 346,665 324,605 690,906 634,234 Short-term borrowed funds ................................... 145,827 118,781 284,719 225,742 Long-term debt .............................................. 94,562 96,037 190,115 195,420 ------------ ----------- ------------- ----------- Total interest expense .................................... 587,054 539,423 1,165,740 1,055,396 NET INTEREST INCOME ......................................... 582,704 512,199 1,151,847 1,014,451 Provision for loan losses ................................... 68,441 63,047 142,567 125,278 ------------ ----------- ------------- ----------- Net interest income after provision for loan losses ......... 514,263 449,152 1,009,280 889,173 OTHER INCOME Service charges on deposit accounts ......................... 82,465 74,576 163,339 148,670 Fees for trust services ..................................... 48,802 43,668 94,855 84,518 Credit card income .......................................... 43,077 43,814 81,621 80,670 Electronic banking .......................................... 18,667 15,678 35,062 30,444 Capital markets income ...................................... 40,304 11,176 56,414 18,488 Investment fees ............................................. 11,665 8,533 22,856 16,989 Mortgage fees ............................................... 11,502 5,154 19,206 10,324 Other operating income ...................................... 58,561 56,995 125,413 96,360 ------------ ----------- ------------- ----------- Total other operating revenue ............................. 315,043 259,594 598,766 486,463 Securities gains ............................................ 2,992 498 6,149 2,056 ------------ ----------- ------------- ----------- Total other income ........................................ 318,035 260,092 604,915 488,519 OTHER EXPENSE Salaries .................................................... 219,731 178,987 432,489 350,813 Employee benefits ........................................... 42,675 39,929 89,641 79,742 ------------ ----------- ------------- ----------- Total personnel expense ................................... 262,406 218,916 522,130 430,555 Net occupancy expense ....................................... 34,119 27,657 67,902 56,151 Equipment expense ........................................... 41,288 35,792 75,975 69,325 Merger-related charges ...................................... 30,849 ---- 66,417 ---- Other operating expense ..................................... 148,332 138,036 278,819 252,971 ------------ ----------- ------------- ----------- Total other expense ....................................... 516,994 420,401 1,011,243 809,002 Income before income taxes .................................. 315,304 288,843 602,952 568,690 Applicable income taxes ..................................... 105,388 92,038 197,715 178,410 ------------ ----------- ------------- ----------- NET INCOME .................................................. $ 209,916 $ 196,805 $ 405,237 $ 390,280 ============ =========== ============= =========== Net income per common share: Basic ...................................................... $ 1.02 $ 1.00 $ 1.96 $ 1.97 Diluted .................................................... $ 1.00 $ .98 $ 1.93 $ 1.94 Average shares outstanding: Basic ...................................................... 206,718 196,676 206,308 198,384 Diluted .................................................... 210,662 199,819 210,412 201,553
27 Wachovia Corporation and Subsidiaries - -------------------------------------------------- Consolidated Statements of Shareholders' Equity - -------------------------------------------------------------------------------- $ in thousands, except per share Common Stock Capital Shares Amount Surplus PERIOD ENDED JUNE 30, 1997 Balance at beginning of year ..................... 201,252,539 $1,006,263 $ 706,649 Net income ....................................... Change in unrealized gains on securities available-for-sale, net of tax and reclassification adjustment ..................... Comprehensive income* ........................ Cash dividends declared by pooled companies: Wachovia Corporation -- $.80 a share............. Central Fidelity Banks, Inc. -- $.46 a share..... Common stock issued pursuant to: Stock option and employee benefit plans ......... 758,410 3,792 33,541 Dividend reinvestment plan ...................... 117,544 588 6,480 Conversion of debentures ........................ 1,036 5 15 Common stock acquired ............................ (6,853,418) (34,267) (348,438) Miscellaneous .................................... 677 ------------- ---------- ----------- Balance at end of period ......................... 195,276,111 $ 976,381 $ 398,924 ============= ========== =========== PERIOD ENDED JUNE 30, 1998 Balance at beginning of year ..................... 205,926,632 $1,029,633 $ 974,803 Net income ....................................... Change in unrealized gains on securities available-for-sale, net of tax and reclassification adjustment ..................... Comprehensive income* ........................ Cash dividends declared on common stock -- $.88 a share............................ Common stock issued pursuant to: Stock option and employee benefit plans ......... 1,672,232 8,361 77,314 Dividend reinvestment plan ...................... 153,501 768 11,528 Common stock acquired ............................ (2,228,912) (11,145) (170,285) Acquisitions ..................................... 1,099,450 5,498 77,815 Miscellaneous .................................... (591) ------------- ---------- ----------- Balance at end of period ......................... 206,622,903 $1,033,115 $ 970,584 ============= ========== ===========
Accumulated Other Total Retained Comprehensive Shareholders' Earnings Income Equity PERIOD ENDED JUNE 30, 1997 Balance at beginning of year ..................... $2,843,803 $ 51,686 $ 4,608,401 Net income ....................................... 390,280 390,280 Change in unrealized gains on securities available-for-sale, net of tax and reclassification adjustment ..................... (7,357) (7,357) ------------- Comprehensive income* ........................ 382,923 Cash dividends declared by pooled companies: Wachovia Corporation -- $.80 a share............. (129,800) (129,800) Central Fidelity Banks, Inc. -- $.46 a share..... (26,506) (26,506) Common stock issued pursuant to: Stock option and employee benefit plans ......... 37,333 Dividend reinvestment plan ...................... 7,068 Conversion of debentures ........................ 20 Common stock acquired ............................ (382,705) Miscellaneous .................................... (13,950) (13,273) ---------- ------------- ------------- Balance at end of period ......................... $3,063,827 $ 44,329 $ 4,483,461 ========== ============= ============= PERIOD ENDED JUNE 30, 1998 Balance at beginning of year ..................... $3,098,767 $ 71,098 $ 5,174,301 Net income ....................................... 405,237 405,237 Change in unrealized gains on securities available-for-sale, net of tax and reclassification adjustment ..................... 3,892 3,892 ------------- Comprehensive income* ........................ 409,129 Cash dividends declared on common stock -- $.88 a share............................ (181,562) (181,562) Common stock issued pursuant to: Stock option and employee benefit plans ......... 85,675 Dividend reinvestment plan ...................... 12,296 Common stock acquired ............................ (181,430) Acquisitions ..................................... 83,313 Miscellaneous .................................... (25,337) (25,928) ---------- ------------- ------------- Balance at end of period ......................... $3,297,105 $ 74,990 $ 5,375,794 ========== ============= =============
* Comprehensive income for the second quarters of 1998 and 1997 was $221,057 and $241,138, respectively. 28 Wachovia Corporation and Subsidiaries - ----------------------------------------- Consolidated Statements of Cash Flows - -------------------------------------------------------------------------------- $ in thousands Six Months Ended June 30 1998 1997 OPERATING ACTIVITIES Net income ............................................................... $ 405,237 $ 390,280 Adjustments to reconcile net income to net cash provided by operations: Provision for loan losses ............................................... 142,567 125,278 Depreciation and amortization ........................................... 71,395 59,438 Deferred income taxes ................................................... 95,140 48,045 Securities gains ........................................................ (6,149) (2,056) Gain on sale of noninterest-earning assets .............................. (2,677) (1,374) Decrease in accrued income taxes ........................................ (40,864) (8,635) Decrease (increase) in accrued interest receivable ...................... 2,558 (16,327) (Decrease) increase in accrued interest payable ......................... (8,594) 48,450 Net change in other accrued and deferred income and expense ............. (177,677) (86,613) Net trading account activities .......................................... (134,217) 344,061 Net loans held for resale ............................................... (140,786) (95,043) ------------- ------------- Net cash provided by operating activities .............................. 205,933 805,504 INVESTING ACTIVITIES Net increase in interest-bearing bank balances ........................... (71,560) (5,749) Net decrease (increase) in federal funds sold and securities purchased under resale agreements ....................................... 1,296,459 (44,578) Purchases of securities available-for-sale ............................... (2,697,525) (1,837,035) Purchases of securities held-to-maturity ................................. (393,114) (35,573) Sales of securities available-for-sale ................................... 101,258 491,518 Calls, maturities and prepayments of securities available-for-sale ....... 2,073,536 1,225,267 Calls, maturities and prepayments of securities held-to-maturity ......... 255,017 117,922 Net increase in loans made to customers .................................. (134,021) (2,233,821) Capital expenditures ..................................................... (146,289) (61,844) Proceeds from sales of premises and equipment ............................ 29,124 3,390 Net (increase) decrease in other assets .................................. (167,993) 199,471 Business combinations .................................................... 16,108 (947) ------------- ------------- Net cash provided (used) by investing activities ....................... 161,000 (2,181,979) FINANCING ACTIVITIES Net (decrease) increase in demand, savings and money market accounts ..... (690,913) 1,162,151 Net (decrease) increase in certificates of deposit ....................... (2,279,420) 530,953 Net increase in federal funds purchased and securities sold under repurchase agreements ............................................. 21,445 113,150 Net increase in commercial paper ......................................... 321,093 48,485 Net increase in other short-term borrowings .............................. 1,719,854 759,986 Proceeds from issuance of bank notes ..................................... 100,000 748,372 Maturities of bank notes ................................................. (579,568) (2,040,693) Proceeds from issuance of other long-term debt ........................... 455,764 730,525 Payments on other long-term debt ......................................... (4,580) (124,880) Common stock issued ...................................................... 52,291 21,735 Dividend payments ........................................................ (181,562) (155,757) Common stock repurchased ................................................. (174,196) (377,980) Net increase (decrease) in other liabilities ............................. 77,028 (6,715) ------------- ------------- Net cash (used) provided by financing activities ....................... (1,162,764) 1,409,332 (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ......................... (795,831) 32,857 Cash and cash equivalents at beginning of year ........................... 4,221,818 3,674,192 ------------- ------------- Cash and cash equivalents at end of period ............................... $ 3,425,987 $ 3,707,049 ============= ============= SUPPLEMENTAL DISCLOSURES Unrealized losses on securities available-for-sale: Increase (decrease) in securities available-for-sale .................... $ 7,087 $ (14,685) (Decrease) increase in deferred taxes ................................... (3,167) 5,868 Increase (decrease) in shareholders' equity ............................. 3,892 (7,357)
29 EX-3 2 EXHIBIT 3.1 EXHIBIT 3.1 AMENDED AND RESTATED ARTICLES OF INCORPORATION OF WACHOVIA CORPORATION Pursuant to Section 55-10-07 of the General Statutes of North Carolina, Wachovia Corporation hereby submits the following for the purpose of amending and restating its articles of incorporation. I. The name of the corporation is Wachovia Corporation. II. The period of duration of the corporation shall be perpetual. III. The purpose or purposes for which the corporation is organized are: (1) To exercise all of the powers of a general business corporation under the laws of North Carolina, including but not limited to the powers specifically described in (2) and (3) below. (2) To operate as a one bank or multi-bank holding company and in general to act as a holding company and to acquire and own stock or other interests in other businesses of any lawful character and, as shareholder or as owner of other interests in such businesses, to exercise all rights incident thereto. (3) In furtherance of any of these purposes, the corporation shall have power to execute contracts of guaranty and to issue bonds or other evidences of indebtedness which may be secured or unsecured and which may be convertible into Common Stock of the corporation. IV. The corporation shall have authority to issue One Billion (1,000,000,000) shares of Common Stock with par value of Five Dollars ($5.00) per share and Fifty Million (50,000,000) shares of Preferred Stock with par value of Five Dollars ($5.00) per share. The Board of Directors of the corporation shall have authority to fix the preferences, limitations and relative rights of the Preferred Stock with par value of Five Dollars ($5.00) per share, and to establish series of such Preferred Stock and determine the variations between series. V. The address of the registered office of the corporation is Wachovia Building, 301 North Main Street, Winston-Salem, Forsyth County, North Carolina 27101, and the name of its registered agent at such address is Kenneth W. McAllister. VI. The name and address of the incorporator is John G. Medlin, Jr., 301 North Main Street, Winston-Salem, North Carolina 27101. VII. The number of the directors of the corporation may be fixed by the bylaws but shall not be less than nine (9). The Board of Directors shall be divided into three classes as equal in number as may be feasible, with the term of office of one class expiring each year. The members of the initial Board of Directors shall be divided into three classes as hereinafter provided in Article VIII, with directors of the first class to hold office for a term expiring at the first annual meeting -2- of shareholders, directors of the second class to hold office for a term expiring at the second annual meeting of shareholders and directors of the third class to hold office for the term expiring at the third annual meeting of shareholders. At each annual meeting of shareholders, successors to the directors whose terms shall then expire shall be elected to hold office for terms expiring at the third succeeding annual meeting. In case of any vacancies, by reason of an increase in the number of directors or otherwise, each additional director may be elected by the Board of Directors to hold office until the end of the term he is elected to fill and until his successor shall have been elected and qualified in the class to which such director is assigned and for the term or remainder of the term of such class. Directors shall continue in office until others are chosen and qualified in their stead. When the number of directors is changed, any newly created directorships or any decrease in directorships shall be so assigned among the classes by a majority of the directors then in office, though less than a quorum, as to make all classes as equal in number as may be feasible. No decrease in the number of directors shall shorten the term of any incumbent director. Any director may be removed from office as a director, but only for cause, by the affirmative vote, at a meeting called as provided in the bylaws for that purpose, of at least 66-2/3% in interest of the holders of voting stock of the corporation issued and outstanding, including a majority in interest of the holders of issued and outstanding voting stock of the corporation held by persons other than any person who is an Interested Shareholder (as defined in paragraph (3) of Section D of Article X hereof). Notwithstanding the foregoing, whenever the holders of any one or more classes or series of Preferred Stock issued by the corporation may have the right, voting separately by -3- class or series, to elect directors at an annual or special meeting of shareholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the terms of such Preferred Stock applicable thereto, and such directors so elected shall not be divided into classes pursuant to this Article unless expressly provided by such terms. VIII. The number of directors constituting the initial Board of Directors shall be thirteen (13) and the names and addresses of the persons who are to serve as directors until the first, second, and third annual meetings of shareholders or until their successors are elected and qualified are: First Class: Terms Expiring At First Annual Meeting Albert L. Butler, Jr. Sherwood H. Smith, Jr. 2850 Galsworthy Drive 408 Drummond Drive Winston-Salem, NC 27106 Raleigh, NC 27609 Donald R. Hughes Charles McKenzie Taylor 105 Kimberly Terrace 19 Muscogee Avenue, NW Greensboro, NC 27408 Atlanta, GA 30305 Second Class: Term Expiring At Second Annual Meeting John M. Belk J. Tylee Wilson 435 Hempstead Place 2585 Club Park Road Charlotte, NC 28027 Winston-Salem, NC 27104 James K. Glenn Erwin Zaban 2403 Reynolda Drive 3374 Old Plantation Road, NW Winston-Salem, NC 27104 Atlanta, GA 30327 J. Mack Robinson 3500 Tuxedo Road, NW Atlanta, GA 30305 Third Class: Term Expiring At Third Annual Meeting -4- John L. Clendenin John G. Medlin, Jr. 5290 North Powers Ferry Road 1056 Kenleigh Circle Atlanta, GA 30327 Winston-Salem, NC 27106 Thomas H. Davis Thomas R. Williams 1190 Arbor Road 3200 Arden Road, NW Winston-Salem, NC 27104 Atlanta, GA 30305 IX. No holder of stock of the corporation shall be entitled as of right to subscribe for or purchase any additional or increased stock of the corporation of any class, whether now or hereafter authorized, including obligations convertible into any class of stock, or stock of any class convertible into stock of any other class, or obligations, stock or other securities carrying warrants or rights to subscribe to stock of the corporation of any class, whether now or hereafter authorized, but any and all shares of stock, bonds, debentures or other securities or obligations, whether or not convertible into stock or carrying warrants entitling the holders thereof to subscribe to stock, may be issued, sold or disposed of from time to time by authority of the Board of Directors of the corporation to such persons, firms or corporations and for such consideration, as far as it may be permitted by law, as the Board of Directors shall from time to time determine. X. A. Any Business Combination (as defined in paragraph (1) of Section D of this Article) shall require only such affirmative vote as is required by law and any other provision of these Articles if either all of the conditions set forth in clauses (i), (ii) and (iii) have been satisfied or if the conditions set forth in clause (iv) have been satisfied: -5- (i) The consideration to be received by holders of Common Stock shall be cash or in the same form as previously has been paid by or on behalf of any Interested Shareholder (as defined in paragraph (3) of Section D of this Article) in connection with its direct or indirect acquisition of beneficial ownership of any shares of Common Stock. If the consideration paid by or on behalf of the Interested Shareholder for shares of Common Stock varied as to form, the form of consideration to be received by holders of Common Stock shall be either cash or the form used to acquire beneficial ownership of the largest number of shares of Common Stock previously acquired by the Interested Shareholder; (ii) The aggregate amount of the cash and the Fair Market Value (as defined in paragraph (9) of Section D of this Article) of consideration other than cash to be received per share by holders of Common Stock in any Business Combination shall be at least equal to the greater of (a) the Fair Market Value per share of Common Stock on the date of the first public announcement of the proposal of a Business Combination (the "Announcement Date") or on the date on which the Interested Shareholder became an Interested Shareholder, whichever is higher, multiplied by the ratio of (1) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by the Interested Shareholder for any shares of Common Stock acquired by it within the two-year period immediately prior to the Announcement Date to (2) the Fair Market Value per share of Common Stock on the first day in such two-year period on which the Interested Shareholder acquired any shares of Common Stock -6- or (b) the highest per share price (including brokerage commissions, transfer taxes and soliciting dealers' fees) paid by such Interested Shareholder in acquiring any of the corporation's Common Stock; (iii) After becoming an Interested Shareholder and prior to the consummation of any Business Combination, (A) such Interested Shareholder shall not have acquired any newly issued shares of capital stock, directly or indirectly, from the corporation (except upon conversion of convertible securities acquired by it prior to becoming an Interested Shareholder or upon compliance with the provisions of this Article or as a result of a pro rata stock dividend or stock split) and (B) such Interested Shareholder shall not have received the benefit, directly or indirectly (except proportionately as a shareholder), of any loans, advances, guarantees, pledges or other financial assistance or tax credits provided by the corporation, or made any major changes in the corporation's business or equity capital structure; (iv) The Business Combination shall have been approved by at least 66-2/3% of the Continuing Directors (as defined in paragraph (8) of Section D of this Article) and, if deemed advisable by a majority of the Continuing Directors, the Board of Directors shall have obtained an opinion of a reputable investment banking firm to the effect that the financial terms of such Business Combination are fair from the point of view of the holders of Voting Shares (as defined in paragraph (5) of Section D of this Article) other than the Interested Shareholder (such investment banking firm to be selected by a majority -7- of the Continuing Directors, to be furnished with all information it reasonably requests, and to be paid a reasonable fee for its services upon receipt by the corporation of such opinion). B. If the provisions of Section A of this Article have not been satisfied, any Business Combination shall require the affirmative vote, in person or by proxy, at any meeting called as provided in the bylaws, of the holders of at least 66-2/3% in interest of the Voting Shares of the corporation issued and outstanding, including a majority in interest of the holders of issued and outstanding Voting Shares of the corporation held by persons other than an Interested Shareholder or any Affiliate or Associate of any Interested Shareholder. Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that some lesser percentage may be specified by law or in any agreement with any national securities exchange or otherwise. C. The provisions of Sections A and B of this Article shall not be applicable to any particular Business Combination, and such Business Combination shall require only such affirmative vote, if any, as is required by law and any other provision of these Articles, if such Business Combination constitutes a merger or consolidation of the corporation with, or any sale or lease to the corporation or any Subsidiary (as defined in paragraph (7) of Section D of this Article) of any assets of, or any sale or lease by the corporation or any Subsidiary of any of its assets to, any corporation of which a majority of the outstanding shares of all classes of stock entitled to vote in elections of directors is owned of record or beneficially by the corporation or its Subsidiaries, provided that this Section C shall not apply to any transaction to which any -8- Affiliate (as defined in paragraph (6) of Section D of this Article) of any Interested Shareholder is a party. D. For the purposes of this Article: (1) The term "Business Combination" as used in this Article shall mean any transaction which is referred to in any one or more of clauses (a) through (f) of this paragraph (1); (a) Any merger or consolidation of the corporation or any Subsidiary with or into (A) any Interested Shareholder or (B) any other corporation (whether or not itself an Interested Shareholder) which immediately before is, or after such merger or consolidation would be, an Affiliate of an Interested Shareholder, or (b) Any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of related transactions) to or with any Interested Shareholder or any Affiliate of any Interested Shareholder of any assets of the corporation or any subsidiary when such assets have an aggregate fair market value of $25,000,000 or more, or (c) The issuance or transfer to any Interested Shareholder or any Affiliate of any Interested Shareholder by the corporation or any Subsidiary (in one transaction or a series of related transactions) of any equity securities of the corporation or any Subsidiary where such equity securities have an aggregate fair market value of $10,000,000 or more, or (d) The adoption of any plan or proposal for the liquidation or dissolution of the corporation, or -9- (e) Any reclassification of securities (including any reverse stock split), or recapitalization of the corporation, or any merger or consolidation of the corporation with any of its Subsidiaries or any similar transaction (whether or not with or into or otherwise involving an Interested Shareholder) which has the effect, directly or indirectly, of increasing the percentage of the outstanding shares of any class of equity or convertible securities of the corporation or any Subsidiary which is directly or indirectly owned by any Interested Shareholder or any Affiliate of any Interested Shareholder, or (f) Any agreement, contract or other arrangement providing for any of the transactions described in this definition of "Business Combination." (2) A "person" shall mean any individual, firm, corporation or other entity. (3) "Interested Shareholder" shall mean any person (other than the corporation or any Subsidiary) who or which, along with its Affiliates and Associates (as defined in paragraph (6) of this Section D) as of the record date for the determination of shareholders entitled to notice of and to vote on any Business Combination or any proposed amendment, alteration or repeal of any provision of these Articles or any bylaw of the corporation, or immediately prior to the consummation of any such Business Combination: (i) Is the beneficial owner (as defined in paragraph (4) of this Section D), directly or indirectly, of more than 10% of the Voting Shares of the corporation or a Subsidiary, or -10- (ii) Is an assignee of or has otherwise succeeded to any share of capital stock of the corporation or a Subsidiary which was at any time within two years prior thereto beneficially owed by any Interested Shareholder, and such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. (4) A person shall be the "beneficial owner" of any Voting Shares: (a) Which such person or any of its Affiliates and Associates beneficially own, directly or indirectly, or (b) Which such person or any of its Affiliates or Associates has (A) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise or (B) the right to vote pursuant to any agreement, arrangement or understanding, or (c) Which are beneficially owned, directly or indirectly, by any other person with which such first-mentioned person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of capital stock of the corporation or a Subsidiary, as the case may be. (5) "Voting Shares" when used with respect to the corporation or a Subsidiary shall mean shares of such corporation having general voting power. For the purpose of -11- determining whether a person is an Interested Shareholder pursuant to paragraph (3) of this Section D, the outstanding Voting Shares shall include shares deemed owned by a beneficial owner through application of paragraph (4) of this Section D but shall not include any other Voting Shares which may be issuable to any other person pursuant to any agreement, or upon exercise of conversion rights, warrants or options, or otherwise. (6) "Affiliate" and "Associate" shall have the respective meanings given those terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on December 31, 1984. (7) "Subsidiary" shall mean any corporation of which a majority of any class of equity security (as defined in Rule 3a11-1 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on December 31, 1984) is owned, directly or indirectly, by the corporation; provided, however, that for the purposes of the definition of Interested Shareholder set forth in paragraph (3) of this Section D, the term "Subsidiary" shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by the corporation. (8) "Continuing Director" shall mean a person who was a member of the Board of Directors of the corporation elected by the shareholders prior to the date as of which an Interested Shareholder acquired in excess of 10% of the Voting Shares of the corporation or a Subsidiary, or a director who has been recommended to directly succeed a Continuing Director or to join the Board of Directors by a majority of the remaining Continuing Directors. -12- (9) "Fair Market Value" shall mean (i) in the case of stock, the highest closing sales price during the 30-day period immediately preceding the date in question of a share of such stock on the Composite Tape for New York Stock Exchange -- Listed Stocks, or, if such stock is not quoted on the Composite Tape, on the New York Stock Exchange, or, if such stock is not listed on such Exchange, on the principal United States securities exchange registered under the Securities Exchange Act of 1934 on which such stock is listed, or, if such stock is not listed on any such exchange, the highest closing bid quotation with respect to a share of such stock during the 30-day period preceding the date in question on the National Association of Securities Dealers, Inc. Automated Quotations Systems or any system then in use, or, if such quotations are not available, the fair market value on the date in question of a share of such stock as determined in good faith by a majority of Continuing Directors, and (ii) in the case of property other than cash or stock, the fair market value of such property on the date in question as determined in good faith by a majority of Continuing Directors. E. The Continuing Directors, by a majority vote, shall have the power and duty to determine for the purposes of this Article on the basis of information known to them (a) the number of Voting Shares beneficially owned by any person, (b) whether a person is an Affiliate or Associate of another, (c) whether a person has an agreement, arrangement or understanding with another as to the matters referred to in paragraph (4) of Section D of this Article, (d) whether the assets of the corporation or any Subsidiary have an aggregate fair market value of $25,000,000 or more, or (e) whether the consideration received for the issuance or -13- transfer of securities by the corporation or any Subsidiary has an aggregate fair market value of $10,000,000 or more. F. Nothing contained in this Article shall be construed to relieve any Interested Shareholder from any fiduciary obligation imposed by law. XI. Except as otherwise provided herein (and in addition to any other vote that may be required by law, these Articles or the bylaws of the corporation), the affirmative vote, in person or by proxy, at any meeting called as provided in the bylaws, of the holders of at least 66-2/3% in interest of the voting stock of the corporation issued and outstanding, including a majority in interest of the holders of the issued and outstanding voting stock of the corporation held by persons other than an Interested Shareholder, shall be required to amend, alter or repeal Articles II, IV, VII, IX, X or XI or to adopt any new provision inconsistent with such Articles, provided, however, that if at the time of any such proposed amendment, alteration, repeal or adoption, (a) there shall exist one or more Interested Shareholders and at least 66-2/3% of the Continuing Directors approve such proposed amendment, alteration, repeal or adoption, or (b) no such Interested Shareholder exists, and a majority of the members of the Board of Directors approve such proposed amendment, alteration, repeal or adoption, then the affirmative vote, in person or by proxy, at any meeting called as provided in the bylaws, of the holders of a majority in interest of the issued and outstanding voting stock of the corporation shall be required to approve such amendment, alteration, repeal or adoption. XII. -14- To the full extent from time to time permitted by law, no person who is serving or who has served as a director of the corporation shall be personally liable in any action for monetary damages for breach of his or her duty as a director, whether such action is brought by or in the right of the corporation or otherwise. Neither the amendment or repeal of this Article, nor the adoption of any provision of these Articles inconsistent with this Article, shall eliminate or reduce the protection afforded by this Article to a director of the corporation with respect to any matter which occurred, or any cause of action, suit or claim which but for this Article would have accrued or arisen, prior to such amendment, repeal or adoption. -15- EX-10 3 EXHIBIT 10.13 STATE OF NORTH CAROLINA EXHIBIT 10.13 COUNTY OF FORSYTH CONSULTING AGREEMENT AND CONTRACT THIS AGREEMENT, made and entered into this 24th day of April, 1998, by and between Wachovia Corporation ("Wachovia") and John G. Medlin, Jr. of Forsyth County, North Carolina (the "Consultant"). RECITALS: The Consultant is a former Chief Executive Officer and Chairman of the Board of Wachovia who acquired special competency in and an intimate knowledge of Wachovia's financial service activities, lines of business, markets and customers. Consultant is one of the most highly regarded bankers in the United States and has received national recognition on many occasions for his management, professional, and financial skills. Wachovia desires to engage the Consultant to render advisory consulting services to Wachovia, and such other subsidiaries and affiliates of Wachovia as may be engaged from time to time in the financial services business, as an independent businessman and professional from April 24, 1998 through November 23, 2003. Wachovia and the Consultant deem it in their best interests to execute this Agreement. NOW, THEREFORE, in consideration of the mutual promises and covenants hereinafter set forth, the Consultant and Wachovia mutually agree as follows: ARTICLE 1. CONSULTATION SERVICES Wachovia hereby engages the Consultant as an independent contractor to render, as requested by Wachovia, and the Consultant hereby agrees to render when so requested, consulting and advisory services for Wachovia during the term of this Agreement. Such services shall be rendered by the Consultant with regard to matters which are in the special competence, knowledge and experience of the Consultant gained during the period of his former employment with Wachovia and based upon his independent knowledge and expertise in the general area of public policy and financial services. Wachovia and the Consultant mutually understand and agree that such services shall not require the Consultant to be active in the day-to-day operations of Wachovia, and that he shall be free to render said services in such manner as he shall deem advisable; provided, however, that the Consultant will be expected to render consulting and other professional services for which he is uniquely qualified to Wachovia on an as-needed basis. ARTICLE 2. NATURE OF CONSULTING SERVICES AND NON-COMPETITION The Consultant will perform consulting and advisory services on behalf of and as may reasonably be requested by Wachovia with respect to matters relating to new business, general banking matters, public policy, economics, and issues related to the financial services industry. It is anticipated that the specific projects or problems with regard to which such advisory or consulting services are to be rendered by the Consultant shall be determined by Wachovia, and that the Consultant shall devote reasonable time to rendering such services for Wachovia and shall render such services in a reasonably diligent and timely manner. Notwithstanding the immediately preceding sentence, such services are to be rendered on a part-time basis at such time or times as shall be convenient to the Consultant. In carrying out the foregoing provisions of this Article 2, the following specific rules shall apply: (A) The Consultant is being engaged as an independent professional for his knowledge, talents, and specialized skills. Wachovia shall not issue any formal or structured schedule of services to be rendered by the Consultant, or of assignments for the Consultant; (B) The Consultant shall be free to render services in such manner and form as he shall deem advisable, and Wachovia shall not exert or attempt to exert any control, direction, or supervision over the Consultant with regard to the manner, details, or means through which he renders such services, nor shall Wachovia issue detailed work orders or instruction with regard to the services to be rendered; (C) Wachovia shall not establish or attempt to establish any work schedule for the Consultant, or otherwise prescribe or attempt to prescribe the number of hours which the Consultant must work during any given period or with regard to any project or problem referred to him; (D) The Consultant cannot be discharged by Wachovia except in accordance with the terms of this contract; (E) In providing the independent professional services set forth herein, Consultant shall have the sole responsibility for determining the personnel resources required by him to provide the services set forth herein. He may hire or employ the services of others at his discretion, but he shall be solely responsible for assigning work to those individuals and compensating them, and Wachovia shall not have any responsibility or control over these individuals. Funds paid to the Consultant under the terms of this Agreement may be utilized in any lawful manner he determines to provide and fund the services required. (F) Wachovia acknowledges that the Consultant may serve clients other than Wachovia, and hold himself out to the public as generally available to provide similar consulting services. Provided, however, that Consultant shall not provide consulting services to any other financial institution or engage in any business that competes with Wachovia as an officer, employee, advisor, consultant, partner, or principal shareholder. Any work performed under the terms of this Agreement by the Consultant for Wachovia may involve confidential, sensitive and proprietary information, and it shall be treated as such by the Consultant. The Consultant agrees that all such confidential, sensitive and proprietary information will not be disclosed by the Consultant to any third person or entity, or utilized in any other manner by the Consultant except in the performance of the obligations under this Agreement. (G) The Consultant shall in no way be considered or act in such a manner so that he might be considered to be an employee or an agent of Wachovia, nor shall the Consultant have any direct or indirect or ostensible authority to bind Wachovia in any legal relationship or matter. ARTICLE 3. TERM The term of this Agreement shall begin on April 24, 1998 and end on November 23, 2003. This Agreement shall terminate on November 23, 2003, or in the event of the death or disability of the Consultant prior to that date, on the date of such death or disability. The term "disability" shall mean the permanent and total inability of the Consultant, by reason of physical or mental infirmity, or both, to render the advisory and consulting services specified herein. ARTICLE 4. CONSULTING FEE Wachovia shall pay the Consultant for the services rendered pursuant to this Contract on the following basis. From April 24, 1998 through and including April 23, 2000, Wachovia shall pay to Consultant the sum of seventeen thousand five hundred dollars ($17,500.) per month. From April 24, 2000 through and including November 23, 2003, Wachovia shall pay to Consultant the sum of ten thousand dollars ($10,000.) per month. All such monthly payments are payable at the end of each calendar month during which this Agreement is in effect. In addition, the Consultant will be reimbursed for all reasonable out-of-pocket traveling and other expenses incurred by the Consultant in performing his obligations under this Agreement upon presentation by him, from time to time, of an itemized account of such expenditures. This itemized account shall be in such form as is satisfactory to the Control Department of Wachovia. Such reimbursable expenses shall be subject to approval of the Chief Executive Officer of Wachovia Corporation. ARTICLE 5. BENEFITS The Consultant shall not be entitled to participate as an employee in any retirement plans or other benefit plans provided by Wachovia for its employees, except to the extent that such participation results from the Consultant's prior services as an employee or as a former chief executive officer of Wachovia. The Consultant will not be considered an employee of Wachovia for any purpose. ARTICLE 6. INCOME TAX WITHHOLDING Wachovia shall not withhold federal or state income taxes or employment taxes for payments made to the Consultant on account of the services to be rendered hereunder. ARTICLE 7. GENERAL PROVISIONS (a) Nonassignability. Neither this Agreement nor any right or interest hereunder shall be assignable by the Consultant, his beneficiaries, or legal representatives. However, the Consultant shall have the right to assign certain work to his employees or agents as previously set forth herein. (b) No Attachment. Except as required by law, no right to receive payments under this Agreement shall be subject to alienation, sale, assignment, encumbrance, charge, pledge or hypothecation or to execution, attachment, levy or similar process or assignment by operation of law, and an attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect. (c) Binding Agreement. This Agreement shall be binding upon, and inure to the benefit of, the Consultant and Wachovia and their respective permitted successors and assigns. This Agreement shall be binding upon any acquiror of Wachovia. ARTICLE 8. MODIFICATION AND WAIVER (a) Amendment of Agreement. This Agreement may not be modified or amended except by an instrument in writing signed by the parties hereto. (b) Waiver. No term or condition of this Agreement shall be deemed to have been waived, nor shall there be any estoppel against the enforcement of any provisions of this Agreement, except by written instrument of the party charged with such waiver, and each such waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future or as to any act other than that specifically waived. ARTICLE 9. SEVERABILITY If, for any reason, any provision of this Agreement is held invalid, such invalidity shall not affect any other provision of this Agreement not held so invalid, and each such other provision shall to the full extent consistent with law continue in full force and effect. If any provision of this Agreement shall be held invalid in part, such invalidity shall in no way affect the rest of such provision not held so invalid, and the rest of such provision, together with all other provisions of this Agreement, shall to the full extent consistent with law continue in full force and effect. ARTICLE 10. HEADINGS The headings of Articles herein are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. ARTICLE 11. GOVERNING LAW This Agreement has been executed and delivered in the State of North Carolina and its validity, interpretation, performance and enforcement shall be governed by the laws of said state. IN WITNESS WHEREOF, Wachovia has caused this Agreement to be executed and its seal to be affixed hereunto by its officers thereunto duly authorized, and the Consultant has signed and sealed this Agreement, all on the day and year first above written. WACHOVIA CORPORATION By ______________________________________ L. M. Baker, Jr. , Chairman of the Board President, and Chief Executive Officer Attest: _____________________ Kenneth W. McAllister Assistant Secretary CONSULTANT ______________________________(SEAL) John G. Medlin, Jr. EX-12 4 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 1998 1997 ------------ ------------- Earnings: Income before income taxes $602,952 $869,119 Less capitalized interest (436) (167) Fixed charges 486,214 884,806 ------------ ----------- Earnings as adjusted $1,088,730 $1,753,758 ============ =========== Fixed charges: Interest on purchased and other short term borrowed funds $284,719 $478,162 Interest on long-term debt 190,115 387,107 Portion of rents representative of the interest factor (1/3) of rental expense 11,380 19,537 ------------ ----------- Fixed charges $486,214 $884,806 ============ =========== Ratio of earnings to fixed charges 2.24X 1.98X (B) INCLUDING INTEREST ON DEPOSITS: Adjusted earnings from (A) above $1,088,730 $1,753,758 Add interest on deposits 690,906 1,303,549 ------------ ----------- Earnings as adjusted $1,779,636 $3,057,307 ============ =========== Fixed charges: Fixed charges from (A) above $486,214 $884,806 Interest on deposits 690,906 1,303,549 ------------ ----------- Adjusted fixed charges $1,177,120 $2,188,355 ============ =========== Adjusted earnings to adjusted fixed 1.51X 1.40X charges
EX-27 5 FDS
9 1,000 6-MOS DEC-31-1998 JUN-30-1998 3,425,987 204,751 326,075 1,133,339 9,524,358 1,655,517 1,716,374 44,458,548 547,572 64,726,642 39,915,428 12,182,757 1,345,860 5,906,803 0 0 1,033,115 4,342,679 64,726,642 1,906,206 368,062 43,319 2,317,587 690,906 1,165,740 1,157,847 142,567 6,149 1,011,243 602,952 405,237 0 0 405,237 1.96 1.93 4.21 127,376 112,720 0 0 544,723 173,473 31,142 547,572 0 0 0
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