-----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, JWsn9K7g1pF26xSY29SXKdCWvwyRlzKhLvuwE2/UHYBxatyDUgMXwc8cTZKa3BdC 1Myng4PB6TRGVrw9bS12fw== 0000950168-99-001510.txt : 19990514 0000950168-99-001510.hdr.sgml : 19990514 ACCESSION NUMBER: 0000950168-99-001510 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990513 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: 99620818 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 1999 FORM 10-Q United States Securities and Exchange Commission Washington, DC 20549 Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended March 31, 1999 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 As of March 31, 1999, Wachovia Corporation had 202,898,450 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 Financial information for the quarter ended March 31, 1999 is incorporated by reference to the Wachovia Corporation Financial Supplement (the "Financial Supplement") in Exhibit 19 as indicated in the table below. Except for parts of the Financial Supplement expressly incorporated herein by reference, the Financial Supplement is not to be deemed filed with the Securities and Exchange Commission. PART I Item 1. Financial Statements The information required by this item is incorporated by reference to the tables titled "Selected Period-End Data" and "Common Stock Data--Per Share" on page 1 of the Financial Supplement and to the following consolidated financial statements on pages 26 through 29 of the Financial Supplement: Consolidated Statements of Condition Consolidated Statements of Income Consolidated Statements of Shareholders' Equity Consolidated Statements of Cash Flows The above referenced financial statements do not include all information and footnotes required under generally accepted accounting principles. However, in the opinion of management, the profit and loss information presented in the interim financial statements reflects all adjustments necessary to present fairly the results of operations for the periods presented. Adjustments reflected in the first quarter of 1999 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. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The information required by this item is incorporated by reference to the information appearing under the heading "Forward-Looking Statements" on page 1 and "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 2 through 25 of the Financial Supplement. Item 3 Quantitative and Qualitative Disclosures About Market Risk The information required by this item is incorporated by reference to the information appearing under the subheading "Market Risk and Asset/Liability Management" on pages 13 through 15 of the Financial Supplement. PART II Item 1. Legal Proceedings None Item 2. Changes in Securities and Use of Proceeds None Item 3. Defaults Upon Senior Securities None Item 4. Submissions of Matters to a Vote of Security Holders None Item 5. Other Information Item 6 Exhibits and Reports on Form 8-K (a)Exhibits The exhibits listed on the accompanying Index to Exhibits, immediately following the signature page are filed as part of, or incorporated by reference into, this report. (b) Reports on Form 8-K Reports on Form 8-K: A Current Report on Form 8-K dated January 14, 1999 was filed with the Securities and Exchange Commission to announce earnings for the quarter ended December 31, 1998. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. May 13, 1999 WACHOVIA CORPORATION By: Robert S. McCoy, Jr. Vice Chairman Senior Executive Vice President and Chief Financial Officer And By: Donald K. Truslow Senior Executive Vice President, Treasurer/Comptroller PART II Item 6. Exhibits - ------- -------- 2.1 Agreement and Plan of Merger, dated as of October 27, 1998 by and between Wachovia Corporation and Interstate/Johnson Lane, Inc. (Exhibit 2.1 to Form S-4 Registration Statement of Wachovia Corporation, dated December 14, 1998, File No. 333-68823*). 3.1 Amended and Restated Articles of Incorporation of the registrant. (Exhibit 3.1 to Report on Form 10-Q of Wachovia Corporation for the quarter ended June 30, 1998, File No. 1-9021*). 3.2 Bylaws of the registrant as amended (Exhibit 3.2 to Form S-4 Registration Statement of Wachovia Corporation dated December 14, 1998, File No. 333-68823*). 4 Instruments defining the rights of security holders, including indentures - Wachovia Corporation hereby agrees to furnish to the Commission, upon request, a copy of any instruments defining the rights of security holders that are not required to be filed. 4.1 Articles IV, VII, IX, X and XI of the registrant's Amended and Restated Articles of Incorporation (Included in Exhibit 3.1 hereto). 4.2 Article 1, Section 1.8, and Article 6 of the registrant's Bylaws (Included in Exhibit 3.2 hereto). 4.3 Indenture dated as of May 15, 1986 between South Carolina National Corporation and Morgan Guaranty Trust Company of New York, as Trustee, relating to $35,000,000 principal amount of 6 1/2% Convertible Subordinated Debentures due in 2001 (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 July 15, 1998 between The Chase Manhattan Bank, as trustee, and Wachovia Corporation relating to subordinated debt securities (Exhibit 4 (b) to Form S-3 Registration Statement of Wachovia Corporation, File No. 333-59165*). 4.8 Indenture dated as of August 15, 1996 between Wachovia Corporation and The Chase Manhattan Bank, as Trustee, relating to senior securities (Exhibit 4(a) of Post-Effective Amendment No. 1 to Form S-3 (Shelf) Registration Statement of Wachovia Corporation, File No. 33-6280*). 1 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*). 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 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*). 10.5 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*). 2 10.6 Form of Employment Agreement between Wachovia Corporation and 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*). 10.7 Employment Agreement between Wachovia Corporation and Mickey W. Dry, dated as of January 24, 1997. 10.8 Agreement between Wachovia Corporation and Mr. John G. Medlin, Jr. (Exhibit 10.13 to Report on Form 10-Q of Wachovia Corporation for the quarter ended June 30, 1998, File No. 1-9021*) 10.9 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*). 10.10 Amendment to Executive Retirement Agreement described in Exhibit 10.9 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*). 10.11 Amendment to Executive Retirement Agreement described in Exhibit 10.9 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*). 10.12 Amendment to Executive Retirement Agreement described in Exhibit 10.9 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*). 10.13 Form of Executive Retirement Agreements between Wachovia Corporation and Messrs. L.M. Baker, Jr., G. Joseph Prendergast, and Walter E. Leonard, Jr., 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*). 10.14 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*). 10.15 Amendment to Executive Retirement Agreements described in Exhibits 10.13 and 10.14 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*). 10.16 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*). 10.17 1990 Declaration of Amendment to Senior Management and Director Stock Plan as described in Exhibit 10.16 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*). 10.18 1996 Declaration of Amendment to Senior Management and Director Stock Plan as described in Exhibit 10.16 hereto (Exhibit 10.24 to Report on Form 10-K of Wachovia Corporation for fiscal year ended December 31, 1996, File No. 1-9021*). 3 10.19 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*). 10.20 Amendment to Deferred Compensation Plan described in Exhibit 10.19 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*). 10.21 Amendment to Deferred Compensation Plan described in Exhibit 10.19 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*). 10.22 Amendment to Deferred Compensation Plan described in Exhibit 10.19 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*). 10.23 Amended and Restated Wachovia Corporation Stock Plan (Exhibit 4.1 to S-8 Registration Statement No. 033-53325*). 10.24 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*). 10.25 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*). 10.26 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*). 10.27 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*) 10.28 Executive Retirement Agreement between Wachovia Corporation and Mickey W. Dry, dated as of October 25, 1996. 11 Computation of Earnings Per Share (Table 4 on page 3 of the first quarter 1999 financial supplement*). 12 Statement setting forth computation of ratio of earnings to fixed charges. 19 Financial Supplement for the First Quarter 1999. 27 Financial Data Schedule (for SEC purposes only). * Incorporated by reference. 4 EX-10 2 EXHIBIT-10.7 EXHIBIT 10.7 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT, made as of the 24th day of January, 1997, by and between WACHOVIA CORPORATION (the "Corporation") and MICKEY W. DRY (the "Executive"); R E C I T A L S: The Corporation desires to secure the services of the Executive in its behalf or in behalf of one or more of its subsidiaries for which the Executive may render services hereunder from time to time, in accordance with the terms and conditions set forth herein. In addition, the Corporation desires to provide the Executive with an incentive to remain in the service of the Corporation or one or more of its subsidiaries by granting to the Executive compensation security as set forth herein should his employment be terminated by the Corporation without cause during the term of this Agreement. NOW, THEREFORE, the Corporation and the Executive hereby mutually agree as follows: 1. Employment. The Executive shall devote his working time exclusively to the performance of such services for the Corporation or one or more of its subsidiaries as may be assigned to him by the Corporation from time to time, and shall perform such services faithfully and to the best of his ability. Such services shall be rendered in a senior management or executive capacity and shall be of a type for which the Executive is suited by background and training. In no event shall the nature of the services require the Executive to relocate his residence from Winston-Salem, North Carolina, unless the Executive shall agree to such relocation. References herein to services rendered for the Corporation and compensation and benefits payable or provided by the Corporation shall include services rendered for and compensation and benefits payable or provided by any subsidiary of the Corporation. 2. Term of Agreement. The term of this Agreement shall commence on the date hereof and shall continue in effect until December 31, 1999; provided, however, that commencing on the first anniversary of this Agreement, and each anniversary thereafter, the term of this Agreement shall automatically be extended for one additional year unless at least 90 days prior to any such anniversary date either party shall notify the other in writing that it does not wish to extend the term of this Agreement beyond the then applicable expiration date. In no event, however, may the term of this Agreement extend beyond the Executive's sixtieth birthday. References herein to the "term" of this Agreement shall mean the original term plus any continuation as provided in this Section 2. The "term" shall not be deemed to refer to the Compensation Period described in Section 4. 3. Termination of Employment by the Corporation. The Corporation may terminate the employment of the Executive at any time for any reason; provided, that except as set forth in Sections 6 and 7, the Corporation will provide the Executive with Compensation Continuance to the extent described in Section 4 if the Executive's employment is involuntarily terminated. The Executive's employment shall be deemed to be involuntarily terminated if he is terminated by the Corporation for any reason other than for "cause" as defined in Section 6, or if he voluntarily terminates employment within six months after: (a) his base salary is reduced below its level in effect on the date hereof wihtout the Executive's consent, or (b) the Corporation amends the Executive Retirement Agreement between the Corporation and the Executive dated January 27, 1995 (the "Retirement Agreement "), without the Executive's consent, and such amendment reduces benefits to which the Executive would have been entitled had such amendment not been made, or (c) the duties asssigned to the Executive are not of the status and type described in Section 1 and the Executive has not consented thereto. The Executive shall be deemed to have consented to any reduction described in (a) or (b), or assignment described in (c), unless he shall object thereto in writing within thirty days after he receives notice thereof. 4. Compensation Continuance. If the Executive's employment hereunder is involuntarily terminated as described in Section 3, he will be entitled to receive the cash compensation and benefits described in (a), (b) and (c) below (herein, "Compensation Continuance") for the period beginning with the date of such involuntary termination and ending with the earlier of (i) the third anniversary of the date of such termination, or (ii) the Normal Retirement Date of the Executive as defined in the Retirement Agreement (such period is referred to herein as the "Compensation Period"). The duration of the Compensation Period shall not be affected by the fact that the term of this Agreement otherwise would end before such Period expires. The cash compensation and benefits are as follows: (a) Cash Compensation. The amount of cash compensation to be received monthly during the Compensation Period shall equal one-twelfth of the sum of (i) the Executive's highest annual rate of salary from the Corporation in effect during the 12-month period prior to his involuntary termination, plus (ii) an amount equal to the average of the annual amounts, if any, awarded to the Executive under the Corporation's Senior Management Incentive Plan for the three consecutive calendar years next preceding the year of such termination, plus (iii) the average of any annual contributions by the Corporation (excluding participant contributions) in behalf of the Executive under the Retirement Savings and Profit-Sharing Plan of Wachovia Corporation and the Wachovia Corporation Retirement Savings and Profit-Sharing Benefit Equalization Plan for the three consecutive calendar years preceding the year of such termination. Each monthly payment of such cash compensation shall have deducted therefrom all payroll taxes and withholdings required by law. (b) Employee Benefits. During the Compensation Period the Executive shall be carried on the payroll of the Corporation, and shall be deemed to be continuing in the employment of the Corporation for the purpose of applying and administering employee benefit plans of the Corporation (other than any tax- 2 qualified retirement plans) and individual contracts between the Corporation and the Executive providing supplemental or equalization payments or benefits with respect to the Executive. The Executive shall participate in any changes during the Compensation Period in benefit plans or programs applicable generally to employees of the Corporation, or to a class of employees which includes senior executives of the Corporation, but shall not have any right or option to participate in any such plan or program in which he was not a participant immediately prior to his involuntary termination of employment. Any individual contract between the Corporation and the Executive in effect at the time of his involuntary termination of employment may be terminated or amended by the Corporation to the extent permitted by the terms of such contract; provided, that during the Compensation Period the Corporation shall not, without the written consent of the Executive or except to the extent required by law, make any amendment to or terminate any one or more of the following individual contracts or plans as applied to the Executive: (i) the Retirement Agreement; (ii) the Wachovia Corporation Retirement Savings and Profit-Sharing Benefit Equalization Plan; and (iii) the Wachovia Corporation Retirement Income Benefit Enhancement Plan. The Corporation shall have no obligation to the Executive to make any change or improvement in any such contract during the Compensation Period even if the Corporation shall make changes or improvements during such period in similar contracts, if any, with other senior executives of the Corporation. (c) Acceleration of Stock Options and Restricted Awards. Immediately upon termination of the Executive's employment, all options previously granted to the Executive and outstanding on the date of termination to acquire shares of common stock of the Corporation shall become fully vested and exercisable (or subject to surrender) in full and all restricted awards shall be deemed to be earned in full; provided, that restricted awards based upon performance criteria or a combination of performance criteria and continued service shall be deemed to be earned in accordance with the terms, conditions and procedures of the plan or plans pursuant to which any such restricted awards were granted. In the event that the Executive shall engage in full-time employment permitted hereunder for another employer or on a self-employed basis during the Compensation Period, his employment with the Corporation shall be deemed to have terminated for purposes of Section 4(b) as of the date he begins such full-time employment, but the payments in Section 4(a) shall continue for the remainder of the Compensation Period and the rights under Section 4(c) shall be applicable, in each case subject to the provisions of Section 7. 5. Voluntary Termination of Employment by the Executive. The Executive reserves the right to terminate his employment voluntarily at any time for any reason following at least six months' notice to the Corporation. If such notice shall be given, this Agreement shall terminate as of the effective date of termination as set forth in such notice (or the date six months from the date of receipt by the Corporation of such notice, if no effective date shall be set forth therein), unless 3 sooner terminated as provided in Section 3, 6 or 8. The Executive shall not be entitled to any force of Compensation Continuance as a result of such voluntary termination. 6. Termination for Cause. This Agreement shall immediately be terminated and neither party shall have any obligation hereunder (including but not limited to any obligation on the part of the Corporation to provide Compensation Continuance) if the Executive's employment is terminated for "cause." Termination for cause shall occur when termination results from the Executive's (a) criminal dishonesty, (b) refusal to perform his duties hereunder on substantially a full-time basis, (c) refusal to act in accordance with any specific substantive instructions of the Chief Executive Officer or the Board of Directors of the Corporation, or (d) engaging in conduct which could be materially damaging to the Corporation without a reasonable good faith belief that such conduct was in the best interests of the Corporation. The determination of whether a termination is for cause shall be made by the Management Resources and Compensation Committee of the Board of Directors of the Corporation (the "Committee"), and such determination shall be final and conclusive on the Executive and all other persons affected thereby. 7. Executive's Obligations: Early Termination of Compensation Period. (a) During the Compensation Period, the Executive shall provide consulting services to the Corporation at such time or times as the Corporation shall reasonably request, subject to appropriate notice and to reimbursement by the Corporation of all reasonable travel and other expenses incurred and paid by the Executive. In the event the Executive shall engage in full-time employment permitted hereunder during the Compensation Period for another employer or on a self-employed basis, his obligation to provide the consulting services hereunder shall be limited by the requirements of such employment. (b) The Executive shall not disclose to any other person any material information or trade secrets concerning the Corporation or any of its subsidiaries at any time during or after the Compensation Period. The Executive will at all times refrain from taking any action or making any statements, written or oral, which are intended to and do disparage the business, goodwill or reputation of the Corporation or any of its subsidiaries, or their respective directors, officers, executives or other employees, or which could adversely affect the morale of employees of the Corporation or any subsidiaries. (c) The Executive shall not, without the Corporation's written consent, engage in competitive employment at any time during the Compensation Period. The Executive shall be deemed to engage in competitive employment if he shall render services as an employee, officer, director, consultant or otherwise, for any employer which conducts a principal business or enterprise that competes directly with the Corporation or affiliate of the Corporation. 4 (d) In the event that the Executive shall refuse to provide consulting services in accordance with paragraph (a), or shall materially violate the terms and conditions of paragraph (b) or (c), the Corporation may, at its election, terminate the Compensation Period and Compensation Continuance to the Executive. The Corporation may also initiate any form of legal action it may deem appropriate seeking damages or injunctive relief with respect to any material violations of paragraph (a), (b) or (c). (e) The Committee shall be responsible for determining whether the Executive shall have violated this Section 7, and all such determinations shall be final and conclusive. Upon the request of the Executive, the Committee will provide an advance opinion as to whether a proposed activity would violate the provisions of paragraph (c). 8. Death and Disability. In the event that, during the term of this Agreement or during the Compensation Period, the Executive shall die or shall become entitled to benefits under the Corporation's Long-Term Disability Plan, this Agreement shall thereupon terminate and neither the Executive nor any other person shall have any further rights or benefits hereunder (including any rights to Compensation Continuance). 9. Other Severance Benefits. Except as otherwise provided in this Agreement, the Executive shall not be entitled to any form of severance benefits, including benefits otherwise payable under any of the Corporation's regular severance plans or policies, irrespective of the circumstances of his termination of employment. The Executive agrees that the payments and benefit provided hereunder, subject to the terms and conditions hereof, shall be in full satisfaction of any rights which he might otherwise have or claim by operation of law, by implied contract or otherwise, except for rights which he may have under employee benefit plans of the Corporation or individual written contracts with the Corporation. 10. Change of Control. (a) Notwithstanding any other provision of this Agreement, the Executive will be entitled to receive the Compensation Continuance described in Section 4 in the event the Executive voluntarily terminates his employment during the period beginning on the date of a Change of Control (as defined in Section 1O(b) herein) and ending on the third anniversary of such date. (b) For the purposes herein, a "Change of Control" shall be deemed to have occurred on the earliest of the following dates: (i) The date any entity or person shall have become the beneficial owner of, or shall have obtained voting control over, twenty-five percent or more of the outstanding Common Stock of the Corporation; 5 (ii) The date the shareholders of the Corporation approve a definitive agreement (A) to merge or consolidate the Corporation with or into another corporation, in which the Corporation is not the continuing or surviving corporation or pursuant to which any shares of Common Stock of the Corporation would be converted into cash, securities or other property of another corporation, other than a merger of the Corporation in which holders of Common Stock immediately prior to the merger have the same proportionate ownership of Common Stock of the surviving corporation immediately after the merger as immediately before, or (B) to sell or otherwise dispose of substantially all the assets of the Corporation; or (iii) The date there shall have been a change in a majority of the Board of Directors of the Corporation within a twelve month period unless the nomination for election by the Corporation's shareholders of each new director was approved by the vote of two-thirds of the directors then still in offfice who were in office at the beginning of the twelve month period. For the purposes herein, the term "person" shall mean any individual, corporation, partnership, group, association or other person, as such term is defined in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, other than the Corporation, a subsidiary of the Corporation or any employee benefit plan(s) sponsored or maintained by the Corporation or any subsidiary thereof, and the term "beneficial owner" shall have the meaning given the term in Rule 13d-3 under the Exchange Act. (c) (i) In the event it shall be determined that any payment, benefit or distribution (or combination thereof) by the Corporation or one or more trusts established by the Corporation for the benefit of its employees, to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement, or otherwise) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1996, as amended (the "Code"), or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, hereinafter collectively referred to as the "Excise Tax"), the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and the Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (ii) Subject to the provisions of Section lO(c)(iii), all determinations required to be made under this Section 10, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up 6 Payment and the assumptions to be utilized in arriving at such determination, shall be made by a nationally recognized certified public accounting firm designated by the Executive (the "Accounting Firm") which shall provide detailed supporting calculations both to the Corporation and the Executive within fifteen business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Corporation. In the event that the Accounting Firm is serving as accountant or auditor for an individual, entity or group effecting the change in ownership or effective control (within the meaning of Section 280G of the Code), the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Corporation. Any Gross-Up Payment, as determined pursuant to this Section 10, shall be paid by the Corporation to the Executive within five days after the receipt of the Accounting Firm's determination. If the Accounting Firm detemines that no Excise Tax is payable by the Executive, it shall so indicate to the Executive in writing. Any determination by the Accounting Firm shall be binding upon the Corporation and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Corporation should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Corporation exhausts its remedies pursuant to Section lO(c)(iii) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Corporation to or for the benefit of the Executive. (iii) The Executive shall notify the Corporation in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Corporation of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Corporation of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Corporation (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Corporation notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (A) give the Corporation any information reasonably requested by the Corporation relating to such claim; 7 (B) take such action in connection with contesting such claim as the Corporation shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Corporation; (C) cooperate with the Corporation in good faith in order to effectively contest such claim; and (D) permit the Corporation to participate in any proceedings relating to such claim; Provided, however, that the Corporation shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section lO(c)(iii), the Corporation shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Corporation shall determine; PROVIDED, HOWEVER, that if the Corporation directs the Executive to pay such claim and sue for a refund, the Corporation shall advance the amount of such payment to the Executive, on an interest-free basis, and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and PROVIDED, FURTHER, that if the Executive is required to extend the statute of limitations to enable the Corporation to contest such claim, the Executive may limit this extension solely to such contested amount. The Corporation's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (iv) If, after the receipt by the Executive of an amount advanced by the Corporation pursuant to Section lO(c)(iii), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Corporation's complying with the requirements of Section lO(c)(iii)) promptly pay to the Corporation the amount of such refund (together with any interest paid or credited thereon 8 after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by Company pursuant to Section 10(c)(iii), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Corporation does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. ll. Waiver of Claims. In consideration of the obligations of the Corporation hereunder, the Executive unconditionally releases the Corporation, its directors, officers, employees and shareholders, from any and all claims, liabilities and obligations of any nature pertaining to termination of the Executive's employment by the Corporation, including but not limited to (a) any claims under federal, state or local laws prohibiting discrimination, including without limitation the Age Discrimination in Employment Act of 1967, as amended, or (b) any claims growing out of any alleged legal restrictions on the Corporation's right to terminate the Executive's employment, such as any alleged implied contract of employment or termination contrary to public policy. The Executive acknowledges that he has been advised to consult with an attorney prior to signing this Agreement, that he has had no less than twenty-one days to consider this Agreement prior to the execution hereof, and that he may revoke this Agreement at any time within seven days following the execution hereof. 12. Notices. All notices hereunder shall be in writing and deemed properly given if delivered by hand and receipted or if mailed by registered mail, return receipt requested. Notices to the Corporation shall be directed to the Secretary of the Corporation with a copy directed to the Chief Executive Officer. Notices to the Executive shall be directed to his last known address. 13. Miscellaneous. (a) The waiver, whether express or implied, by either party of a violation of any of the provisions of this Agreement shall not operate or be construed as a waiver of any subsequent violation of any such provision. (b) No right, benefit or interest hereunder shall be subject to assignment, encumbrance, charge, pledge, hypothecation or set off in respect of any claim, debt or obligation, or similar process. (c) This Agreement may not be amended, modified or canceled except by written agreement of the parties. (d) In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining 9 provisions of this Agreement shall remain in full force and effect to the fullest extent permitted by law. (e) This Agreement shall be binding upon and inure to the benefit of the Executive and the Corporation, and their respective heirs, successors and assigns. (f) No benefit or promise hereunder shall be secured by any specific assets of the Corporation. The Executive shall have only the rights of an unsecured general creditor of the Corporation in seeking satisfaction of such benefits or promises. (g) This Agreement shall be governed by the construed in accordance with the laws of the State of North Carolina. (h) This Agreement sets forth the entire agreement and understanding of the parties hereto with respect to the matters covered hereby, and amends and supersedes any predecessor Employment Agreement between the parties hereto. IN WITNESS WHEREOF, this Agreement has been executed by or in behalf of the parties hereto as of the date first above written. WACHOVIA CORPORATION By: L.M. BAKER JR. ------------------------------ Chief Executive Officer Attest: ALICE WASHINGTON JOYCE - ------------------------- Secretary [Corporate Seal] MICKEY W. DRY (Seal) -------------------------------- Executive 10 EX-10 3 EXHIBIT-10.28 Exhibit 10.28 EXECUTIVE RETIREMENT AGREEMENT THIS EXECUTIVE RETIREMENT AGREEMENT, made and entered into as of the 25th day of October, 1996, by and between WACHOVIA CORPORATION (the "Corporation"), a North Carolina corporation, and MICKEY W. DRY (the "Executive"), a senior management employee of the Corporation; R E C I T A L S The Executive is a senior management employee of the Corporation, and as such has rendered and is expected to continue to render valuable services in behalf of the Corporation. The Management Resources and Compensation Committee (the "Committee") of the Corporation desires for the Corporation to provide the Executive with supplemental retirement benefits partially in recognition of such services. In addition, the Committee has determined that providing such benefits will make the Corporation's benefits package more competitive with packages offered by many other employers and will facilitate management succession planning for the Corporation. NOW, THEREFORE, the Corporation and the Executive hereby mutually agree as follows: Section 1. Definitions. When used herein, the words and phrases below shall have the meanings set forth, unless a different meaning is clearly required by the context. Terms used but not defined herein, and which are defined in the Retirement Plan, shall have the meaning assigned to them in the Retirement Plan. Masculine pronouns include feminine pronouns wherever used and vice versa. 1.1 "Board of-Directors" means the Board of Directors of the Corporation. 1.2 "Code" means the Internal Revenue Code of 1986, as it may be amended from time to time. 1.3 "Effective Date" means October 25, 1996. 1.4 "Final Average Compensation" means the average of the annual compensation of the Executive for the three full calendar years within the final five full calendar years of his employment which will produce the highest average. For this purpose, the compensation of the Executive shall mean his total cash remuneration from the Corporation, including bonuses paid for each year under the Corporation's Senior Management Incentive Plan, plus the sum of: (a) any salary reduction amounts which the Executive elects to have contributed with respect to him to a qualified cash or deferred arrangement under Section 401(k) of the Code, to a benefit enhancement plan in lieu of contributions to such a qualified cash or deferred arrangement, to a cafeteria plan under Section 125 of the Code, or to any similar plan or arrangement, and (b) any amounts deferred under any deferred compensation plan or contract. Amounts described in (a) and (b) shall be deemed received at the time the Executive would have received them but for the programs described in (a) and (b): 1.5 "Normal Retirement Date" means the first day of the month coincident with or next following the date the Executive attains age sixty. 1.6 "Other Pension Plan" means any defined benefit pension plan, other than the Retirement Plan, in which the Executive is a participant and which is qualified under Section 401(a) of the Code and is maintained by the Corporation or a subsidiary of the Corporation. 1.7 "Retirement Date" means the date the Executive retires under this on account of early or normal retirement. 1.8 "Retirement Plan" means the Retirement Income Plan of Wachovia Corporation and any successor thereto. 1.9 "Supplemental Benefit" means the monthly benefit payable to the Executive under this Agreement. Section 2. Normal Retirement. At his Normal Retirement Date, the Executive will retire and wil1 be entitled to receive the Supplemental Benefit, computed in the form of a single life annuity for his life. The monthly amount of the Supplemental Benefit shall equal one-twelfth of the product of two and one-half percent of the Executive's Final Average Compensation times the number of years of his creditable service determined under the provisions of the Retirement Plan (subject to a maximum of 62.5%), reduced by the monthly amount payable under the Retirement Plan and any Other Pension Plan. The offset shall equal the monthly amounts actually payable under the Retirement Plan and any Other Pension Plan, based on the payment option elected by the Executive. Section 3. Early Retirement. If the Executive has attained his fifty-fifth birthday but has not attained his Normal Retirement Date, and has ten or more years of service, he may elect early retirement as of the first day of any calendar month following written notice of at least ninety days to the Corporation and the Committee. The Supplemental Benefit of the Executive who elects early retirement shall equal the benefit determined under Section 2 as of such date, reduced by five percent for each year (with proportionate allowance for complete months) by which the starting date of the benefit precedes attainment of his sixtieth birthday. With the consent of the Committee, the Supplemental Benefit shall be payable to the Executive pursuant to Section 2 commencing as of the first day of any calendar month on or after his early retirement and before his Normal Retirement Date. The request for benefit payment must be filed by the Executive in writing with the Committee at least thirty days prior to the date payments are requested to commence. Section 4. Spouse's Supplemental Benefit. If the Executive shall be married on his Retirement Date, and shall die thereafter survived by such spouse, or if the Executive shall die prior to his Retirement Date and shall be married on the date of his death, such spouse shall be entitled to a monthly supplemental benefit (herein the "Spouse's Supplemental Benefit") payable for life and equal to 60% of the monthly amount of the Supplemental Benefit payable to the Executive (assuming, for an Executive who shall die prior to his Retirement Date, that the Executive had retired on the date immediately preceding the date of his death and that the years of his creditable service included the years and fractions thereof from the date of death to his Normal Retirement Date), before applying the reduction for the monthly amount payable to the Executive under the Retirement Plan and any Other Pension Plan, but reduced by the monthly amount, if any, payable to the spouse under the Retirement Plan and any Other Pension Plan in the calendar month next following the death of the Executive. 2 Notwithstanding the provisions of this Section 4 or Section 7(k), in no event shall the Spouse's Supplemental Benefit be less than the amount payable with respect to the Executive under the Enhancement Plan discussed in Section 7(k). The monthly amount of the Spouse's Supplemental Benefit shall be payable on the first day of each calendar month following the death of the Executive and preceding the death of such spouse. Section 5. Optional Forms of Payment. Notwithstanding the provisions of Sections 2 through 4, the present value of the sum of the Supplemental Benefit and the Spouse's Supplemental Benefit (if any) may, at the request of the Executive and with the consent of the Executive's spouse (if any) and the Committee, be payable in cash in a lump sum within thirty days following the Retirement Date of the Executive. Such present value shall be the actuarial equivalent (as defined in the Retirement Plan) of the Supplemental Benefit and Spouse's Supplemental Benefit (if any). The request for a lump sum distribution, and the consent of the Executive's spouse, must be filed by the Executive with the Committee at least sixty days prior to the Retirement Date. Such consent shall be in writing on a form provided by the Committee. Section 6. Disability. In the event the Executive suffers a disability (as defined in the Retirement Plan) prior to the Retirement Date, the Executive shall continue to accrue a Supplemental Benefit under this Agreement based upon the Final Average Compensation of the Executive as of the 1ast date the Executive was paid by the Corporation (including sick pay) and taking into account the period from the disability of the Executive to the Normal Retirement Date as creditable service for purposes of this Agreement. The Supplemental Benefit of the Executive who is disabled shall be determined and payable as of the Normal Retirement Date of the Executive. Section 7. Miscellaneous. (a) The Executive shall forfeit any right to the Supplemental Benefit or any other rights hereunder (including the Spouse's Supplemental Benefit) if he (i) declines to retire at his Normal Retirement Date, (ii) terminates employment with the Corporation prior to his Retirement Date without written consent of the Committee, or (iii) is terminated for "cause." Termination for cause shall arise if the Executive's employment by the Corporation is terminated because of or arising out of: (A) criminal dishonesty, (B) refusal to perform his employment duties for the Corporation on substantially a full-time basis, (C) refusal to act in accordance with any specific substantive instructions of the Corporation's Chief Executive Officer or Board of Directors, or (D) engaging in conduct which could be materially damaging to the Corporation without a reasonable good faith belief by the Executive that such conduct was in the best interest of the Corporation. Notwithstanding the foregoing provisions of this Section 7(a), in the event of a change of control of the Corporation, the Executive shall be vested in the right to receive payment of the Supplemental Benefit under this Agreement, which right shall not be forfeited upon the termination of the Executive for any reason other than for cause as defined in this Section 7(a). In the event the employment of the Executive is terminated at any time following a change in control of the Corporation, the Supplemental Benefit and Spouse's Supplemental Benefit (if any) shall be paid commencing as of the later of the date of the termination 3 of the Executive or the date the Executive attains (or would have attained but for death) the age of fifty-five. For the purposes herein, the term "change of control" shall have the meaning given such term in the Wachovia Corporation Stock Plan, as it may be hereafter amended. (b) The Supplemental Benefit shall cease to be paid to the Executive (and rights to the Spouse's Supplemental Benefit shall terminate) if he shall disclose materia1 confidential information or trade secrets concerning the Corporation or any of its subsidiaries without the Corporation's consent, or shall engage in any activity that is materially damaging to the Corporation including, but not limited to, engaging in competitive employment at any time. The Executive shall be deemed to engage in competitive employment if he shall render services as a employee, officer, director, consultant or otherwise, for any employer which conducts a principal business or enterprise that competes directly with the Corporation or any subsidiary or affiliate of the Corporation. The Committee shall have authority to cease payments under this paragraph (b), and the determination of the Committee shall be final and conclusive. Upon the request of the Executive, the Committee may grant an advance opinion as to whether a proposed activity would violate the provisions of this paragraph (b). (c) The Executive acknowledges that he has entered into this Agreement of his own free will and without duress. In consideration of the mutual obligations and covenants hereunder, the Executive unconditionally releases the Corporation and its subsidiaries, and their respective directors, officers, employees and shareholders, from any and all claims, liabilities and obligations of any nature pertaining to termination of the Executive's employment by the Corporation or any of its subsidiaries, including but not limited to (i) any claims under federal, state or local laws prohibiting discrimination including without limitation the Age Discrimination in Employment Act of 1967, as amended, or (ii) any claims growing out of any alleged legal restrictions on the Corporation's right to terminate the Executive's employment, such as any alleged implied contract of employment or termination contrary to public policy. The Executive acknowledges that he has been advised to consult with an attorney prior to signing this Agreement, that he has had no less than twenty-one days to consider this Agreement prior to the execution hereof, and that he may revoke this Agreement at any time within seven days following execution hereof. (d) This Agreement shall be administered and interpreted by the Committee or its duly authorized designee, whose decisions shall be final. Wherever applicable, interpretation of this Agreement shall be consistent with the terms of the Retirement Plan. (e) Nothing in this Agreement shall be construed as giving the Executive the right to be retained in the employ of the Corporation or any subsidiary of the Corporation at all or for any specified period in any particular position, or any right to any payment whatsoever except to the extent provided for by this Agreement. 4 (f) Notwithstanding any other provisions hereof, if any person entitled to receive payments hereunder (the "recipient") shall be physically or mentally or legally incapable of receiving or acknowledging receipt of such payment, the Corporation, upon the receipt of satisfactory evidence that another person or institution is maintaining the recipient and that no guardian or committee has been appointed for the recipient, may cause such payment to be made to such person or institution so maintaining the recipient. (g) Nothing in this Agreement and no action taken pursuant to the provisions of this Agreement shall create or shall be construed as creating a trust of any kind, or a fiduciary relationship between the Corporation and the Executive or any other person. Any amounts which are or may be set aside hereunder shall continue for all purposes to be a part of the general funds of the Corporation, and no person other than the Corporation shall, by virtue of the provisions of this Agreement, have any interest in such funds. To the extent that any person acquires a right to receive payments from the Corporation hereunder, such right shall be no greater than the right of any unsecured general creditor of the Corporation. (h) The benefits payable under this Agreement may not be assigned by the Executive or any other person nor anticipated in any way. (i) The Committee may, in its sole discretion, terminate, suspend or amend this Agreement at any time or from time to time, in whole or in part; provided, that except as otherwise specifically provided herein no such termination, suspension or amendment made following the date that payments commence hereunder will affect the right of any person to receive benefits earned hereunder. Upon a change of control of the Corporation as defined in Section 7(a), this Agreement may not be amended or terminated without the express written consent of the Executive. (j) This Agreement shall be governed by and construed in accordance with the laws of the State of North Carolina. (k) In the event the Executive shall qualify to receive payments under this Agreement and under the Wachovia Corporation Retirement Income Benefit Enhancement Plan (the "Enhancement Plan"), payments shall be made hereunder rather than and in lieu of payments under the Enhancement Plan, and neither the Executive nor any other person claiming under or through him shall thereupon have any further rights or be entitled to any benefits under the Enhancement Plan. The execution of this Agreement by the Executive constitutes a release by the Executive of all rights and benefits under the Enhancement Plan. (1) This Agreement amends, replaces and supersedes the prior Executive Retirement Agreement between the Executive and the Corporation dated October 27, 1989, as amended October 25, 1991, July 23, 1993 and January 27, 1995. 5 IN WITNESS WHEREOF, this Agreement has been executed in behalf of the Corporation by its duly authorized officers and by the Executive as of the day and year first above stated. WACHOVIA CORPORATION By: L.M. Baker Jr. ________________________ Chief Executive Officer Attest: ALICE WASHINGTON JOYCE - ----------------------------- Secretary [Corporate Seal] MICKEY W. DRY (SEAL) ------------------------------- Mickey W. Dry 6 EX-12 4 WACHOVIA CORP. RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12 WACHOVIA CORPORATION RATIO OF EARNINGS TO FIXED CHARGES Three Months Year Ended Ended March 31, December 31, (A) EXCLUDING INTEREST ON DEPOSITS 1999 1998 -------------- ------------- Earnings: Income before income taxes $368,745 $1,303,781 Less capitalized interest (43) (593) Fixed charges 220,610 976,201 -------------- ------------- Earnings as adjusted $589,312 $2,279,389 ============== ============= Fixed charges: Interest on purchased and other short term borrowed funds $103,170 $563,846 Interest on long-term debt 111,773 390,662 Portion of rents representative of the interest factor (1/3) of rental expense 5,667 21,693 -------------- ------------- Fixed charges $220,610 $976,201 ============== ============= Ratio of earnings to fixed charges 2.67 X 2.33 X (B) INCLUDING INTEREST ON DEPOSITS: Adjusted earnings from (A) above $589,312 $2,279,389 Add interest on deposits 307,367 1,359,705 -------------- ------------- Earnings as adjusted $896,679 $3,639,094 ============== ============= Fixed charges: Fixed charges from (A) above $220,610 $976,201 Interest on deposits 307,367 1,359,705 -------------- ------------- Adjusted fixed charges $527,977 $2,335,906 ============== ============= Adjusted earnings to adjusted fixed 1.70 X 1.56 X charges EX-19 5 FINANCIAL SUPPLEMENT AND FORM 10-Q EXHIBIT 19 [WACHOVIA LOGO APPEARS HERE] Financial Supplement And Form 10-Q First Quarter 1999 Selected Period-End Data Table 1 - -------------------------------------------------------------------------------- March 31 March 31 1999 1998 -------- -------- Banking offices: North Carolina ............................... 198 203 Virginia ..................................... 264 263 Georgia ...................................... 131 131 South Carolina ............................... 120 125 Florida ...................................... 40 34 ------- ------- Total ..................................... 753 756 ======= ======= Automated banking machines: North Carolina ............................... 445 437 Virginia ..................................... 305 302 Georgia ...................................... 300 288 South Carolina ............................... 294 276 Florida ...................................... 37 6 ------- ------- Total ..................................... 1,381 1,309 ======= ======= Employees (full-time equivalent) .............. 20,704 21,512 Common stock shareholders of record ........... 53,363 55,111 Common shares outstanding (thousands) ......... 202,898 206,131
Common Stock Data -- Per Share Table 2 - -------------------------------------------------------------------------------- 1999 1998 ---- --------------------------------------------- First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter ------- ------- ------- ------- -------- Market value: Period-end ............................................. $ 81.19 $ 87.44 $ 85.25 $ 84.50 $ 84.81 High ................................................... 91.00 96.81 90.94 90.19 85.75 Low .................................................... 79.00 80.88 72.88 77.38 72.75 Book value at period-end ................................ 26.77 26.30 25.79 26.02 25.40 Dividend ................................................ .49 .49 .49 .44 .44 Price/earnings ratio (1) ................................ 18.3x 20.9x 28.0x 28.6x 28.9x Price/earnings ratio without nonrecurring items (1), (2) 17.7 19.6 19.9 20.4 21.0
(1) Based on the most recent four quarters of net income per diluted share and end of period stock price. (2) Excludes the after-tax impact of nonrecurring merger-related charges. Forward-Looking Statements - -------------------------------------------------------------------------------- The Financial Supplement and Form 10-Q of Wachovia Corporation ("the corporation") contains forward-looking statements as encouraged by the Private Securities Litigation Reform Act of 1995. All forward-looking statements involve risks and uncertainty and any number of factors could cause actual results to differ materially from the anticipated results or other expectations expressed in the corporation's forward-looking statements. Risks and uncertainties that may affect future results include, but are not limited to, changes in the economy, interest rate movements, timely development by Wachovia of technology enhancements for its products and operating systems, the 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 not to place undue reliance on forward-looking statements, which are subject to influence by the named risk factors and unanticipated future events. 1 Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Summary Table 3 - -------------------------------------------------------------------------------- Twelve 1999 Months ---- Ended March 31 First 1999 Quarter ----------- --------- Summary of Operations (thousands, except per share data) Interest income ......................................... $4,647,802 $ 1,130,386 Interest expense ........................................ 2,257,837 522,310 ----------- ----------- Net interest income ..................................... 2,389,965 608,076 Provision for loan losses ............................... 305,990 80,636 ----------- ----------- Net interest income after provision for loan losses ..... 2,083,975 527,440 Other operating revenue ................................. 1,277,665 333,269 Securities gains ........................................ 17,519 234 ----------- ----------- Total other income ...................................... 1,295,184 333,503 Personnel expense ....................................... 1,066,815 271,186 Nonrecurring merger-related charges ..................... 49,744 ---- Other expense ........................................... 877,722 221,012 ----------- ----------- Total other expense ..................................... 1,994,281 492,198 Income before income taxes .............................. 1,384,878 368,745 Applicable income taxes ................................. 462,793 125,509 ----------- ----------- Net income .............................................. $ 922,085 $ 243,236 =========== =========== Net income per common share: Basic .................................................. $ 4.52 $ 1.20 Diluted ................................................ $ 4.44 $ 1.18 Cash dividends paid per common share .................... $ 1.91 $ .49 Cash dividends paid on common stock ..................... $ 390,871 $ 99,662 Cash dividend payout ratio .............................. 42.39% 40.97% Average basic shares outstanding ........................ 204,374 203,119 Average diluted shares outstanding ...................... 208,364 206,959 Selected Average Balances (millions) Total assets ............................................ $ 64,263 $ 64,408 Loans -- net of unearned income ......................... 45,020 46,261 Securities .............................................. 10,238 9,221 Other interest-earning assets ........................... 1,502 1,313 Total interest-earning assets ........................... 56,760 56,795 Interest-bearing deposits ............................... 31,861 31,846 Short-term borrowed funds ............................... 10,564 9,292 Long-term debt .......................................... 6,653 7,627 Total interest-bearing liabilities ...................... 49,078 48,765 Noninterest-bearing deposits ............................ 8,006 8,062 Total deposits .......................................... 39,867 39,908 Shareholders' equity .................................... 5,219 5,314 Ratios (averages) Annualized net loan losses to loans ..................... .68% .69% Annualized net yield on interest-earning assets ......... 4.29 4.41 Shareholders' equity to: Total assets ........................................... 8.12 8.25 Net loans .............................................. 11.73 11.62 Annualized return on assets ............................. 1.43 1.51 Annualized return on shareholders' equity ............... 17.67 18.31 Operating Performance Excluding Nonrecurring Items (thousands, except per share data) Net income .............................................. $ 954,915 $ 243,236 Net income per diluted share ............................ $ 4.59 $ 1.18 Annualized return on assets ............................. 1.49% 1.51% Annualized return on shareholders' equity ............... 18.30 18.31 Cash dividend payout ratio .............................. 40.93 40.97 1998 ------------------------------------------------------------- Fourth Third Second First Quarter Quarter Quarter Quarter ------------ ----------- ----------- ----------- Summary of Operations (thousands, except per share data) Interest income ......................................... $ 1,176,192 $ 1,171,466 $ 1,169,758 $ 1,147,829 Interest expense ........................................ 566,443 582,030 587,054 578,686 ------------- ----------- ----------- ----------- Net interest income ..................................... 609,749 589,436 582,704 569,143 Provision for loan losses ............................... 84,104 72,809 68,441 74,126 ------------- ----------- ----------- ----------- Net interest income after provision for loan losses ..... 525,645 516,627 514,263 495,017 Other operating revenue ................................. 318,812 310,541 315,043 283,723 Securities gains ........................................ 7,407 6,886 2,992 3,157 ------------- ----------- ----------- ----------- Total other income ...................................... 326,219 317,427 318,035 286,880 Personnel expense ....................................... 269,941 263,282 262,406 259,724 Nonrecurring merger-related charges ..................... 6,961 11,934 30,849 35,568 Other expense ........................................... 215,784 217,187 223,739 198,957 ------------- ----------- ----------- ----------- Total other expense ..................................... 492,686 492,403 516,994 494,249 Income before income taxes .............................. 359,178 341,651 315,304 287,648 Applicable income taxes ................................. 117,612 114,284 105,388 92,327 ------------- ----------- ----------- ----------- Net income .............................................. $ 241,566 $ 227,367 $ 209,916 $ 195,321 ============= =========== =========== =========== Net income per common share: Basic .................................................. $ 1.19 $ 1.11 $ 1.02 $ .95 Diluted ................................................ $ 1.17 $ 1.09 $ 1.00 $ .93 Cash dividends paid per common share .................... $ .49 $ .49 $ .44 $ .44 Cash dividends paid on common stock ..................... $ 99,452 $ 100,784 $ 90,973 $ 90,589 Cash dividend payout ratio .............................. 41.17% 44.33% 43.34% 46.38% Average basic shares outstanding ........................ 202,824 204,832 206,718 205,894 Average diluted shares outstanding ...................... 206,991 208,837 210,662 210,158 Selected Average Balances (millions) Total assets ............................................ $ 65,298 $ 63,429 $ 63,916 $ 63,133 Loans -- net of unearned income ......................... 45,966 43,894 43,974 43,749 Securities .............................................. 9,952 10,664 11,102 10,623 Other interest-earning assets ........................... 1,622 1,508 1,558 1,630 Total interest-earning assets ........................... 57,540 56,066 56,634 56,002 Interest-bearing deposits ............................... 31,766 31,654 32,182 32,455 Short-term borrowed funds ............................... 11,135 10,858 10,947 10,635 Long-term debt .......................................... 6,830 6,080 6,092 6,107 Total interest-bearing liabilities ...................... 49,731 48,592 49,221 49,197 Noninterest-bearing deposits ............................ 8,148 7,874 7,939 7,240 Total deposits .......................................... 39,914 39,528 40,121 39,695 Shareholders' equity .................................... 5,178 5,173 5,211 5,109 Ratios (averages) Annualized net loan losses to loans ..................... .73% .66% .62% .68% Annualized net yield on interest-earning assets ......... 4.28 4.26 4.21 4.21 Shareholders' equity to: Total assets ........................................... 7.93 8.16 8.15 8.09 Net loans .............................................. 11.40 11.93 12.00 11.82 Annualized return on assets ............................. 1.48 1.43 1.31 1.24 Annualized return on shareholders' equity ............... 18.66 17.58 16.11 15.29 Operating Performance Excluding Nonrecurring Items (thousands, except per share data) Net income .............................................. $ 246,160 $ 235,243 $ 230,276 $ 218,168 Net income per diluted share ............................ $ 1.19 $ 1.13 $ 1.09 $ 1.04 Annualized return on assets ............................. 1.51% 1.48% 1.44% 1.38% Annualized return on shareholders' equity ............... 19.02 18.19 17.68 17.08 Cash dividend payout ratio .............................. 40.40 42.84 39.51 41.52
2 Results of Operations Overview Wachovia Corporation ("Wachovia") is a major interstate bank holding company with dual headquarters in Winston-Salem, North Carolina, and Atlanta, Georgia. The corporation's principal banking subsidiaries are Wachovia Bank, N.A., which operates in Georgia, North Carolina, South Carolina, Virginia and Florida, and The First National Bank of Atlanta, which provides credit card services. The economy expanded briskly in the first three months of 1999, with gross domestic product increasing at an annualized rate of 4.5 percent from the fourth quarter of 1998, based on advance estimates. Seasonally adjusted unemployment dropped to an average of 4.3 percent for the quarter from 4.4 percent three months earlier. Within Wachovia's primary operating states, economic growth remained favorable, with seasonally adjusted unemployment for the first quarter of 1999 averaging 4.2 percent in Florida, 4.1 percent in Georgia, 3.1 percent in North Carolina, 3.9 percent in South Carolina and 2.7 percent in Virginia. The corporation seeks to broaden its competitive position by gaining access to new customers and by enhancing its products and services through internal development and through selective partnerships and acquisitions. On April 1, 1999, Wachovia Corporation completed its acquisition of Interstate/ Johnson Lane Inc., a major regional investment advisor and brokerage firm with offices primarily in North Carolina, Georgia, South Carolina and Virginia. The acquisition was accounted for as a purchase transaction. Because Wachovia's growth strategy includes the use of acquisitions, the corporation regularly evaluates opportunities and conducts due diligence activities in connection with possible acquisitions. As a result, 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. Wachovia's net income for the first quarter of 1999 was $243.236 million or $1.18 per diluted share compared with $195.321 million or $.93 per diluted share a year earlier. Results for the 1998 period include after-tax merger expenses of $22.847 million or $.11 per diluted share related to the corporation's Virginia and Florida bank acquisitions. Excluding the merger expenses, operating net income for the first three months of 1998 was $218.168 million or $1.04 per diluted share. Computation of Earnings Per Common Share Table 4 - -------------------------------------------------------------------------------- (thousands, except per share) Three Months Ended March 31 ----------------------------- 1999 1998 ----------- --------- Basic Average common shares outstanding .......................... 203,119 205,894 =========== ======= Net income ................................................. $ 243,236 $ 195,321 =========== ========= Per share amount ........................................... $ 1.20 $ .95 Diluted Average common shares outstanding .......................... 203,119 205,894 Dilutive common stock options at average market price ...... 3,417 3,987 Dilutive common stock awards at average market price ....... 397 272 Convertible long-term debt assumed converted ............... 26 5 ----------- --------- Average diluted shares outstanding ......................... 206,959 210,158 =========== ========= Net income ................................................. $ 243,236 $ 195,321 Add interest on convertible long-term debt, net of tax ..... 20 1 ----------- --------- Adjusted net income ........................................ $ 243,256 $ 195,322 =========== ========= Per share amount ........................................... $ 1.18 $ .93
3 The corporation's earnings results for the quarter reflected solid gains in revenue and moderation in expense growth. Total revenues expanded $86.880 million or 10 percent year over year, led by a $49.546 million or 17.5 percent increase in fee-based income, while noninterest expense rose $33.517 million or 7.3 percent, excluding merger-related charges in 1998. Results for the first three months of 1999 included a gain of $17.025 million from the sale of credit card receivables in a securitization transaction versus a gain of $17.155 million a year earlier from branch divestiture sales. The gain from the credit card securitization in the first quarter of 1999 will be mitigated throughout the year by a reduction in the margin from higher funding costs compared with alternative wholesale funding sources. Additionally, the first quarter of 1999 included increased expenses for equipment, software and technology investments. Expanded discussion of the corporation's results of operations and financial condition follows. Interest income is stated on a taxable equivalent basis, which is adjusted for the tax-favored status of earnings from certain loans and securities. References to changes in assets and liabilities represent daily average levels unless otherwise noted. Business The corporation has four reportable business segments: Consumer, Segments Corporate, Card, and Treasury & Administration. The Consumer segment provides individuals and small businesses with products and services ranging from traditional loans and deposits, mortgages, trust services, brokerage and mutual fund investments, including the corporation's proprietary Wachovia Funds, to insurance, private banking and other financial advisory services. Customers are served in the corporation's primary operating states of Georgia, North Carolina, South Carolina, Virginia and Florida through a wide variety of delivery channels, including ATMs, traditional branches, work-site banking facilities, in-store banking centers, PC Access, Wachovia On-Call telephone banking and automated Phone Access. Major initiatives for the division include PRO (Profitable Relationship Optimization), which is the corporation's strategy for profitable customer selling and retention; Financial Integration, an affluent customer strategy utilizing teams of financial advisors and specialists; and the Market Network Model, used for determining the mix of local retail delivery channels based on location needs and opportunities. Corporate offers credit, specialized finance, investment and processing services. Customers range from businesses with annual sales of $2 million and above to major multinational corporations. The division is a leading provider of treasury services and certain corporate and charitable trust products. Significantly broadened capabilities have been added in capital markets, including merchant banking and financial advisory services, commercial real estate corporate finance, asset securitization and equipment leasing. The Corporate Division also is enhancing service and product offerings through its global services area. Recent initiatives include conversion of the corporation's London office to branch bank status, enabling Wachovia to provide credit and deposit services for European-based companies, and acquisition of a Sao Paulo, Brazil, bank to facilitate trade capabilities for customers conducting business in Latin America. 4 The Card division represents the corporation's credit card business. The division generates revenues from interest on unpaid card balances and from fees primarily on interchange, cash advances, overlimit advances, late payments and servicing securitized receivables. The division employs modeling techniques and other credit evaluation measures to target above-average credit risk customers who carry monthly balances and seek low interest rates. Products offered include prime rate plus and Prime Rate for Life(R) Visa and MasterCard credit cards. The Treasury & Administration segment principally reflects asset and liability management for interest rate sensitivity risk; management of the securities portfolio; internal compensation for deposits and other funding sources, and charges for funds loaned; and other corporate costs such as Year 2000 and nonrecurring expenses. Business segment results are reported on a management accounting basis. Management accounting practices are internally driven, reflecting evolving information needs specific to the decision-making activities of a company's business managers, and may differ by company due to wide discretion in application. As a consequence, the corporation's business segment results are not necessarily comparable with those of other financial institutions with similar segments or with those of other companies which compete directly in one or more of the corporation's lines of business. In addition, business segment results may be restated in the future as the corporation's management structure, information needs, measurement methodologies, and reporting systems evolve. During 1999, certain changes to the management accounting structure were implemented which have been reflected for all periods presented. The primary change is the presentation of the Card segment on a managed basis, with the funding impact and the gain on the sale of the securitized portfolio reflected in Treasury & Administration. Other changes have been implemented with an immaterial impact. The provision for loan losses for each business segment is determined based on the credit risk of each segment's loan portfolio. Overhead expense is allocated based on the proportion of each segment's direct expenses to total direct expenses of the combined segments. Income tax expense is calculated for each business segment using a blended corporate-wide tax rate based on taxable equivalent adjusted net income. Financial results by business segment are discussed below. Consumer. Net income for Consumer was lower by $5.296 million or 5.7 percent from the first quarter of 1998. Higher levels of noninterest expense and provision for loan losses accounted for the decrease, offsetting gains in both noninterest income and taxable equivalent net interest income. For the quarter, noninterest income rose $5.968 million or 4.2 percent, reflecting gains largely in trust services, mortgage fees and deposit account service charges, while taxable equivalent net interest income edged up $1.658 million. The increase in noninterest expense was driven primarily by equipment costs for new computer systems, net occupancy costs for new facilities and higher incentive compensation. Included in the 1998 results was a gain of $17.155 million on branch divestitures. 5 Corporate. Corporate's net income grew $33.192 million or 44 percent year over year, fueled by strong gains in both taxable equivalent net interest income and noninterest income. Taxable equivalent net interest income increased $46.675 million or 28.7 percent, driven by loan and lease growth and improved pricing. Noninterest income advanced $26.901 million or 31.2 percent, led by capital markets and deposit account service charges. The provision for loan losses increased $1.522 million, while noninterest expense was up $18.611 million or 14 percent, primarily due to higher staff incentive expense. Card. Net income for the Card division expanded $6.667 million or 28.5 percent from the same quarter in 1998. Taxable equivalent net interest income rose $11.520 million or 9.5 percent and noninterest income gained $3.323 million or 9.9 percent, primarily due to increases in cardholder income. The provision for loan losses was flat with a year earlier, while noninterest expense increased $3.914 million or 7.9 percent, partly driven by growth in active accounts. Treasury & Administration. Treasury & Administration's net income grew $13.351 million to $17.524 million in the first quarter of 1999 over the comparable period a year earlier. The net interest margin declined $22.254 million, reflecting reductions of $1.611 billion in earning assets and $1.603 billion in interest-bearing liabilities, as well as changes in the mix of internal funds sources and uses. Other income rose $10.431 million or 43.8 percent, due in most part to the bankcard securitization transaction completed in the first quarter of 1999. Other expense declined $37.286 million or 76.4 percent period to period, reflecting significant reductions in both business integration expenses and Year 2000 costs attributable to this segment. Business Segments Table 5 - -------------------------------------------------------------------------------- (three months ended March 31) Consumer Corporate Card --------------------- --------------- --------------------- 1999 1998 1999 1998 1999 1998 ---- ---- ---- ---- ------ ---- Operations Summary (millions) External net interest margin ......... $ 75 $ 72 $ 410 $ 369 $ 209 $ 207 Internal funding (charge) credit .............................. 213 214 (200) (207) (76) (85) --------- --------- -------- -------- -------- -------- Net interest income* ................. 288 286 210 162 133 122 Total other income ................... 149 143 113 86 37 34 --------- --------- -------- -------- -------- -------- Total revenues ....................... 437 429 323 248 170 156 Provision for loan losses ............ 11 10 2 ---- 69 69 Total other expense .................. 290 278 151 133 54 50 --------- --------- -------- -------- -------- -------- Pretax profit ........................ 136 141 170 115 47 37 Income taxes (benefit) ............... 49 49 61 40 17 13 --------- --------- -------- -------- -------- -------- Net income ........................... $ 87 $ 92 $ 109 $ 75 $ 30 $ 24 ========= ========= ======== ======== ======== ======== Percentage contribution to total revenues** .......................... 45.19% 48.64% 33.40% 28.12% 17.58% 17.69% Percentage contribution to net income .............................. 35.80 47.18 44.86 38.46 12.35 12.31 Average Balances (billions) Total assets ......................... $ 17 $ 17 $ 28 $ 25 $ 8 $ 7 Treasury & Administration Eliminations Total Corporation -------------------- ----------------- ----------------- 1999 1998 1999 1998 1999 1998 -------- ----- ----- ----- ---- ---- Operations Summary (millions) External net interest margin ......... $ (76) $ (67) $ (10) $ (12) $ 608 $ 569 Internal funding (charge) credit .............................. 78 93 (15) (15) ---- ---- -------- ------ ------- ------- ------ ------ Net interest income* ................. 2 26 (25) (27) 608 569 Total other income ................... 35 23 ---- ---- 334 286 -------- ------ ------- ------ - ------ ------ Total revenues ....................... 37 49 (25) (27) 942 855 Provision for loan losses ............ (1) (5) ---- ---- 81 74 Total other expense .................. 12 48 (15) (15) 492 494 --------- ------- ------- ------- ------ ------ Pretax profit ........................ 26 6 (10) (12) 369 287 Income taxes (benefit) ............... 9 2 (10) (12) 126 92 --------- ------- ------- ------- ------ ------ Net income ........................... $ 17 $ 4 $---- $---- $ 243 $ 195 ========= ======= ======= ======= ====== ====== Percentage contribution to total revenues** .......................... 3.83% 5.56% Percentage contribution to net income .............................. 7.00 2.05 Average Balances (billions) Total assets ......................... $ 11 $ 14 $ 64 $ 63
* Net interest income is reported on a taxable equivalent basis by segment and on a nontaxable equivalent basis for the corporation, reflecting segment eliminations. ** Percentage contribution to total revenues is based on the proportion of each segment's revenues to the combined revenues of all segments. Revenues for the total corporation are presented based on nontaxable equivalent net interest income and total other income, including securities transactions. 6 Consolidated Financial Results Net Interest Taxable equivalent net interest income for the first quarter of 1999 increased $37.334 million or 6.4 percent from a year earlier Income to $618.228 million. Higher loan volume and a wider interest rate spread drove the growth as increased loan demand, lower funding rates and a modest reduction in interest-bearing liabilities offset a decline in the average yield on interest-earning assets. Compared with the fourth quarter of 1998, taxable equivalent net interest income decreased a moderate $2.626 million or less than 1 percent, reflecting the impact of a reduction in earning assets, declining loan rates and two fewer accrual days in the period. The effect of declining loan rates was more than offset by a drop in the average cost of funds. The net yield on interest-earning assets (defined as taxable equivalent net interest income as a percentage of average interest-earning assets) rose 20 basis points year over year to 4.41 percent and was up 13 basis points from the fourth quarter. For the full year of 1999, management anticipates growth of approximately 5 percent in taxable equivalent net interest income, excluding the impact of the credit card securitization. The estimate is based on expectations for steady loan demand and a continued favorable interest rate spread. Taxable equivalent interest income decreased $19.042 million or 1.6 percent year over year, the result of a 26 basis point drop in the average rate earned on interest-earning assets. The impact of a lower average earning asset yield was offset partially by solid loan growth, with loans expanding $2.512 billion or 5.7 percent, driven by the commercial portfolio. Taxable equivalent interest income was lower by $46.759 million or 3.9 percent from the fourth quarter, reflecting a 9 basis point decline in the average loan yield, modest to flat loan growth off of a strong fourth quarter, reduction of the securities portfolio and the impact of a shorter accrual period. Commercial loans, including related real estate categories, increased $2.822 billion or 11.1 percent from the year-earlier quarter, with all categories except tax-exempt loans expanding. Taxable commercial loans rose $1.252 billion or 9.2 percent, lease financing was higher by $846 million or 77.3 percent and foreign loans were up $724 million or 131.9 percent, reflecting credits extended largely in the corporation's London office to European-headquartered companies. The lease financing portfolio primarily consists of leveraged leases and other commercial leases. Commercial mortgages grew $282 million or 4.2 percent and construction loans increased $242 million or 13.1 percent. Tax-exempt loans continued to decrease due to paydowns in employee stock ownership plan loans and the reduced availability of tax-exempt financing under current tax laws. 7 Net Interest Income and Average Balances Table 6 - -------------------------------------------------------------------------------- Twelve 1999 Months ---- Ended March 31 First 1999 Quarter ----------- ---------- Net Interest Income -- Taxable Equivalent (thousands) Interest income: Loans, including fees ........................... $3,923,771 $ 975,011 Securities ...................................... 693,078 151,879 Interest-bearing bank balances .................. 11,952 2,193 Federal funds sold and securities purchased under resale agreements .............. 26,320 5,802 Trading account assets .......................... 37,956 5,653 ----------- ------------ Total ........................................ 4,693,077 1,140,538 Interest expense: Interest-bearing demand ......................... 60,504 12,725 Savings and money market savings ................ 454,069 113,547 Savings certificates ............................ 509,896 113,449 Large denomination certificates ................. 174,993 43,726 Interest-bearing deposits in foreign offices..... 123,369 23,920 Short-term borrowed funds ....................... 528,124 103,170 Long-term debt .................................. 406,882 111,773 ----------- ------------ Total ........................................ 2,257,837 522,310 ----------- ------------ Net interest income .............................. $2,435,240 $ 618,228 =========== ============ Annualized net yield on interest-earning assets ......................... 4.29% 4.41% Average Balances (millions) Assets: Loans -- net of unearned income ................. $ 45,020 $ 46,261 Securities ...................................... 10,238 9,221 Interest-bearing bank balances .................. 143 130 Federal funds sold and securities purchased under resale agreements .............. 494 483 Trading account assets .......................... 865 700 ----------- ------------ Total interest-earning assets ................ 56,760 56,795 Cash and due from banks ......................... 3,144 3,071 Premises and equipment .......................... 879 911 Other assets .................................... 3,884 4,047 Unrealized gains on securities available- for-sale ....................................... 131 119 Allowance for loan losses ....................... (535) (535) ----------- ------------ Total assets ................................. $ 64,263 $ 64,408 =========== ============ Liabilities and shareholders' equity: Interest-bearing demand ......................... $ 4,659 $ 4,665 Savings and money market savings ................ 12,234 12,889 Savings certificates ............................ 9,401 8,846 Large denomination certificates ................. 3,280 3,377 Interest-bearing deposits in foreign offices..... 2,287 2,069 Short-term borrowed funds ....................... 10,564 9,292 Long-term debt .................................. 6,653 7,627 ----------- ------------ Total interest-bearing liabilities ........... 49,078 48,765 Demand deposits ................................. 8,006 8,062 Other liabilities ............................... 1,960 2,267 Shareholders' equity ............................ 5,219 5,314 ----------- ------------ Total liabilities and shareholders' equity ...................................... $ 64,263 $ 64,408 =========== ============ Total deposits ................................... $ 39,867 $ 39,908 1998 --------------------------------------------------------- Fourth Third Second First Quarter Quarter Quarter Quarter ---------- ------------ ------------ ------------ Net Interest Income -- Taxable Equivalent (thousands) Interest income: Loans, including fees ........................... $ 1,000,663 $ 980,636 $ 967,461 $ 952,282 Securities ...................................... 167,680 181,853 191,666 185,655 Interest-bearing bank balances .................. 3,166 3,182 3,411 3,228 Federal funds sold and securities purchased under resale agreements .............. 8,615 6,168 5,735 5,285 Trading account assets .......................... 7,173 11,817 13,313 13,130 ------------- ------------ ------------ ------------ Total ........................................ 1,187,297 1,183,656 1,181,586 1,159,580 Interest expense: Interest-bearing demand ......................... 15,206 15,526 17,047 16,751 Savings and money market savings ................ 115,367 115,077 110,078 111,133 Savings certificates ............................ 123,203 136,462 136,782 146,030 Large denomination certificates ................. 45,359 40,482 45,426 34,117 Interest-bearing deposits in foreign offices..... 28,112 34,005 37,332 36,210 Short-term borrowed funds ....................... 134,246 144,881 145,827 138,892 Long-term debt .................................. 104,950 95,597 94,562 95,553 ------------- ------------ ------------ ------------ Total ........................................ 566,443 582,030 587,054 578,686 ------------- ------------ ------------ ------------ Net interest income .............................. $ 620,854 $ 601,626 $ 594,532 $ 580,894 ============= ============ ============ ============ Annualized net yield on interest-earning assets ......................... 4.28% 4.26% 4.21% 4.21% Average Balances (millions) Assets: Loans -- net of unearned income ................. $ 45,966 $ 43,894 $ 43,974 $ 43,749 Securities ...................................... 9,952 10,664 11,102 10,623 Interest-bearing bank balances .................. 163 138 139 189 Federal funds sold and securities purchased under resale agreements .............. 641 440 411 374 Trading account assets .......................... 818 930 1,008 1,067 ------------- ------------ ------------ ------------ Total interest-earning assets ................ 57,540 56,066 56,634 56,002 Cash and due from banks ......................... 3,271 3,068 3,166 3,340 Premises and equipment .......................... 888 874 845 819 Other assets .................................... 3,959 3,822 3,709 3,396 Unrealized gains on securities available- for-sale ....................................... 177 133 96 114 Allowance for loan losses ....................... (537) (534) (534) (538) ------------- ------------ ------------ ------------ Total assets ................................. $ 65,298 $ 63,429 $ 63,916 $ 63,133 ============= ============ ============ ============ Liabilities and shareholders' equity: Interest-bearing demand ......................... $ 4,639 $ 4,646 $ 4,687 $ 5,984 Savings and money market savings ................ 12,481 11,873 11,700 10,334 Savings certificates ............................ 9,128 9,642 9,984 11,044 Large denomination certificates ................. 3,387 3,146 3,212 2,449 Interest-bearing deposits in foreign offices..... 2,131 2,347 2,599 2,644 Short-term borrowed funds ....................... 11,135 10,858 10,947 10,635 Long-term debt .................................. 6,830 6,080 6,092 6,107 ------------- ------------ ------------ ------------ Total interest-bearing liabilities ........... 49,731 48,592 49,221 49,197 Demand deposits ................................. 8,148 7,874 7,939 7,240 Other liabilities ............................... 2,241 1,790 1,545 1,587 Shareholders' equity ............................ 5,178 5,173 5,211 5,109 ------------- ------------ ------------ ------------ Total liabilities and shareholders' equity ...................................... $ 65,298 $ 63,429 $ 63,916 $ 63,133 ============= ============ ============ ============ Total deposits ................................... $ 39,914 $ 39,528 $ 40,121 $ 39,695
8 Foreign credit exposure consists of loans and lease financing. Foreign loans were $1.347 billion or 2.9 percent of total loans at March 31, 1999 versus $548 million or 1.2 percent one year earlier and $1.093 billion or 2.4 percent at year-end 1998. Because foreign loans are reported based on the address of the borrower and not on the country where security for the credit resides, foreign loans as reported do not necessarily indicate the corporation's country risk exposure. The corporation's country of risk profile for its $1.347 billion of foreign loans outstanding as of March 31, 1999 has not materially changed from the previous quarter. There were no extensions of credit in Russia at March 31, 1999 and extensions of credit in Asia were not significant. Foreign lease financing was $1.109 billion at the end of the first quarter of 1999, all in Western European countries. Based on regulatory definitions, commercial real estate loans were $9.164 billion or 19.8 percent of total loans at March 31, 1999 compared with $8.699 billion or 19.5 percent one year earlier and $9.032 billion or 19.8 percent at December 31, 1998. Regulatory definitions for commercial real estate loans include loans that have real estate as the collateral but not the primary consideration in a credit risk evaluation. There were no significant concentrations of loans in any one industry at March 31, 1999, one year earlier or at year-end 1998. Consumer loans, including residential mortgages, decreased $310 million or less than 2 percent year over year on lower levels of residential mortgages and direct retail loans. Because the corporation's residential mortgage portfolio principally consists of adjustable rate mortgages, some erosion in the portfolio occurred as the yield curve continued to flatten and borrowers increasingly migrated to fixed-rate financing. Residential mortgages declined $640 million or 8 percent from the same three months in 1998, while direct retail loans were lower by $136 million or 11.2 percent. Partially offsetting these decreases were gains in credit cards, other revolving credit and indirect retail loans, which primarily consists of automobile sales financing. In March, the corporation securitized $896 million of credit card receivables from its portfolio, principally to further broaden funding sources and to remain active in the securitization market. The transaction also provided some regulatory capital relief for the assets securitized. Previously, the corporation securitized $500 million of credit card loans in late 1995. Securitization involves the transfer of a pool of assets from the balance sheet to a master trust which then issues and sells to investors certificates representing a pro rata interest in the underlying assets. The transaction reduces net interest income and the provision for loan losses associated with the transferred receivables while increasing credit card noninterest income in the form of gains on card sales, servicing fees and other excess revenue earned on the securitized loans. While securitizations are a beneficial source of funding, they are a somewhat more expensive source than other wholesale funding sources. At March 31, 1999, the corporation's managed credit card portfolio, which includes securitized loans, was $6.351 billion or 13.3 percent of total managed loans versus $6.103 billion or 13.6 percent one year earlier and $6.549 billion or 14.2 percent at year-end 1998. Securitized credit card loans were $1.396 billion at March 31, 1999 compared with $500 million both one year earlier and at December 31, 1998. Additional information on the corporation's securitized loans appears on page 17. 9 Period-End Loans by Category Table 7 - -------------------------------------------------------------------------------- (thousands) March 31 Dec. 31 Sept. 30 June 30 March 31 1999 1998 1998 1998 1998 ----------- ----------- ----------- ----------- ----------- Commercial ..................... $15,639,116 $14,328,152 $15,040,796 $14,162,763 $14,519,889 Tax-exempt ..................... 871,271 972,603 1,024,855 1,285,639 1,379,660 ----------- ----------- ----------- ----------- ----------- Total commercial ........... 16,510,387 15,300,755 16,065,651 15,448,402 15,899,549 Direct retail .................. 1,066,011 1,097,574 1,111,654 1,125,885 1,160,162 Indirect retail ................ 3,324,238 3,239,532 3,143,670 3,056,582 3,038,397 Credit card .................... 4,954,671 6,049,350 5,773,009 5,533,435 5,603,381 Other revolving credit ......... 552,908 536,887 517,047 503,758 485,093 ----------- ----------- ----------- ----------- ----------- Total retail ............... 9,897,828 10,923,343 10,545,380 10,219,660 10,287,033 Construction ................... 2,087,886 2,044,437 1,865,675 1,835,906 1,873,528 Commercial mortgages ........... 7,076,217 6,988,050 6,826,459 6,796,424 6,824,990 Residential mortgages .......... 7,301,984 7,490,086 7,652,614 7,893,928 7,959,185 ----------- ----------- ----------- ----------- ----------- Total real estate .......... 16,466,087 16,522,573 16,344,748 16,526,258 16,657,703 Lease financing ................ 2,172,158 1,879,123 1,688,053 1,420,875 1,105,555 Foreign ........................ 1,346,672 1,093,428 984,884 843,353 548,441 ----------- ----------- ----------- ----------- ----------- Total loans ................ $46,393,132 $45,719,222 $45,628,716 $44,458,548 $44,498,281 =========== =========== =========== =========== ===========
Securities, the second largest category of interest-earning assets, decreased $1.402 billion or 13.2 per cent year over year and was lower by $731 million or 7.3 percent from the fourth quarter of 1998. Declines from both periods resulted from planned runoff principally in the available- for-sale portfolio. The securities portfolio is expected to remain largely constant with existing levels for the rest of 1999. At March 31, 1999, securities available-for-sale were $8.399 billion and securities held-to-maturity were $1.373 billion. Securities Table 8 - -------------------------------------------------------------------------------- (thousands) Securities available-for-sale at fair value: U.S. Government and agency ..................... $3,477,714 Mortgage-backed securities ..................... 4,333,600 Other .......................................... 587,982 ---------- Total securities available-for-sale ......... 8,399,296 Securities held-to-maturity: U.S. Government and agency ..................... 606,014 Mortgage-backed securities ..................... 538,724 State and municipal ............................ 162,976 Other .......................................... 65,739 ---------- Total securities held-to-maturity ........... 1,373,453 ---------- Total securities ............................ $9,772,749 ==========
Interest expense for the first quarter declined $56.376 million or 9.7 percent from a year earlier and was down $44.133 million or 7.8 percent from the final three months of 1998. The decrease from both periods principally reflected a reduction in the average borrowing rate paid, with some moderation in the overall level of interest-bearing liabilities. The average rate paid for funding sources declined 43 basis points from the same three months of 1998 to 4.34 percent and was lower by 18 basis points from the fourth quarter. At the same time, average interest-bearing liabilities decreased $432 million or less than 1 percent year over year and were lower by $966 million or a modest 1.9 percent from the fourth quarter as management reduced short-term borrowings. The corporation utilizes a diverse funding base and believes flexibility and ongoing innovation will be required by financial institutions to attract future funding sources. As part of its funding strategy, the corporation markets traditional funding products while issuing a variety of wholesale funding instruments. Broadened traditional funding sources include the corporation's Premiere and Business Premiere accounts, both of which are high-yield money market deposit products; the addition of PC 10 Banking; and enhancements to basic checking products, including the addition of the Wachovia Access Nowsm account. Wholesale funding sources include senior and subordinated debt, a global bank note program, capital securities and asset-backed securitization. Interest-bearing deposits decreased $609 million or a modest 1.9 percent from the first quarter of 1998, primarily due to lower levels of savings certificates and demand accounts. The reduction was offset in large part by growth in savings and money market savings, reflecting gains in the corporation's Premiere and Business Premiere accounts, and by higher levels of large denomination certificates. For the quarter, savings certificates declined $2.198 billion or 19.9 percent year over year and interest-bearing demand deposits were lower by $1.319 billion or 22 percent. Savings and money market savings grew $2.555 billion or 24.7 percent and management increased large denomination certificate levels by $928 million or 37.9 percent. Interest-bearing deposits were slightly higher from the fourth quarter of 1998, with gains in savings and money market savings moderated by runoff largely in savings certificates. Gross deposits for the first three months of 1999 averaged $39.908 billion, up $213 million or less than 1 percent from $39.695 billion one year earlier. Collected deposits, net of float, averaged $37.708 billion for the period, an increase of $285 million or less than 1 percent from $37.423 billion in the same three months of 1998. Short-term borrowed funds declined $1.343 billion or 12.6 percent from the year-earlier quarter. Federal funds purchased and securities sold under repurchase agreements decreased $1.558 billion or 20.6 percent and other short-term borrowed funds, primarily consisting of short-term bank notes, declined $159 million or 7.9 percent. Commercial paper expanded $374 million or 35.8 percent. Compared with the fourth quarter of 1998, short-term borrowed funds were lower by $1.843 billion or 16.6 percent with all categories decreasing. Long-term debt rose $1.520 billion or 24.9 percent year over year. Growth was driven by other long-term debt, which increased $1.747 billion or 55.8 percent and consists of senior and subordinated debt and capital securities. In March 1999, the corporation issued $400 million of 10-year subordinated fixed-rate notes following the issuance of a total of $1.300 billion of senior and subordinated unsecured notes in the second half of 1998. The notes are part of a $2.500 billion debt shelf offering registered with the Securities and Exchange Commission in July 1998, with the senior notes rated Aa3 by Moody's and AA- by Standard & Poor's and the subordinated notes rated A1 by Moody's and A+ by Standard & Poor's. There were no new issuances of capital securities, which totaled $996 million at March 31, 1999. The capital securities are rated aa3 by Moody's and A by Standard & Poor's and qualify as Tier I capital under risk-based capital guidelines. Long-term debt was higher by $797 million or 11.7 percent from the fourth quarter of 1998 with increases occurring in both bank notes and other long-term debt. Through its global bank note program, Wachovia Bank is authorized to issue up to $21.557 billion of bank notes, with the authorization including $3.557 billion of notes issued prior to the program's expansion in July 1998. The global bank note program consists of issuances with original maturities beginning at seven days. Bank notes with original maturities of one year or less are included in other short-term borrowed funds, and bank notes with original maturities greater than one year are considered medium-term in nature and are classified as bank notes under long-term debt. Short-term bank notes outstanding as of March 31, 1999 were $1.227 billion with an average cost of 4.91 percent and an average maturity of 4.0 months. Medium-term bank notes were $2.648 billion on the same date, with an average cost of 5.44 percent and an average maturity of 3.7 years. Short-term issues under the global bank note program are rated P-1 by Moody's and A-1+ by Standard & Poor's, while medium-term issues are rated Aa2 by Moody's and AA by Standard & Poor's. 11 Taxable Equivalent Rate/Volume Variance Analysis -- First Quarter* Table 9 - -------------------------------------------------------------------------------- Average Volume Average Rate - --------------------- ------------------- 1999 1998 1999 1998 - ------- ------- ------- ---- (Millions) Interest Income Loans: $14,854 $13,602 6.96 7.22 Commercial ....................................... 931 1,455 9.29 8.57 Tax-exempt ....................................... - -------- -------- 15,785 15,057 7.10 7.35 Total commercial ............................. 1,073 1,209 8.90 9.18 Direct retail .................................... 3,310 3,033 7.96 8.58 Indirect retail .................................. 5,851 5,743 13.26 13.43 Credit card ...................................... 546 465 10.95 10.05 Other revolving credit ........................... - -------- -------- 10,780 10,450 11.08 11.38 Total retail ................................. 2,093 1,851 8.56 9.16 Construction ..................................... 7,053 6,771 8.07 8.83 Commercial mortgages ............................. 7,336 7,976 7.83 8.15 Residential mortgages ............................ - -------- -------- 16,482 16,598 8.03 8.54 Total real estate ............................ 1,941 1,095 12.13 9.77 Lease financing .................................. 1,273 549 6.32 7.42 Foreign .......................................... - -------- -------- 46,261 43,749 8.55 8.83 Total loans .................................. Securities: Held-to-maturity: 570 160 6.22 6.33 U.S. Government and agency ..................... 576 917 8.42 8.32 Mortgage-backed securities ..................... 168 208 9.74 10.81 State and municipal securities ................. 72 118 6.73 6.68 Other .......................................... - -------- -------- 1,386 1,403 7.59 8.32 Total securities held-to-maturity ............ Available-for-sale:** 3,173 4,464 6.42 6.84 U.S. Government and agency ..................... 4,086 4,023 6.46 6.90 Mortgage-backed securities ..................... 576 733 7.48 7.29 Other .......................................... - -------- -------- 7,835 9,220 6.52 6.90 Total securities available-for-sale .......... - -------- -------- 9,221 10,623 6.68 7.09 Total securities ............................. 130 189 6.82 6.92 Interest-bearing bank balances ................... Federal funds sold and securities purchased 483 374 4.87 5.74 under resale agreements ........................ 700 1,067 3.28 4.99 Trading account assets ........................... - -------- -------- $56,795 $56,002 8.14 8.40 Total interest-earning assets ................ ======== ======== Interest Expense $ 4,665 $ 5,984 1.11 1.14 Interest-bearing demand .......................... 12,889 10,334 3.57 4.36 Savings and money market savings ................. 8,846 11,044 5.20 5.36 Savings certificates ............................. 3,377 2,449 5.25 5.65 Large denomination certificates .................. - -------- -------- Total interest-bearing deposits in 29,777 29,811 3.86 4.19 domestic offices ........................... 2,069 2,644 4.69 5.55 Interest-bearing deposits in foreign offices ..... - -------- -------- 31,846 32,455 3.91 4.30 Total interest-bearing deposits ............. Federal funds purchased and securities sold 6,017 7,575 4.34 5.35 under repurchase agreements .................... 1,420 1,046 4.48 5.14 Commercial paper ................................. 1,855 2,014 5.03 5.17 Other short-term borrowed funds .................. - -------- -------- 9,292 10,635 4.50 5.30 Total short-term borrowed funds ............ 2,748 2,975 5.69 6.43 Bank notes ....................................... 4,879 3,132 6.08 6.27 Other long-term debt ............................. - -------- -------- 7,627 6,107 5.94 6.35 Total long-term debt ....................... - -------- -------- $48,765 $49,197 4.34 4.77 Total interest-bearing liabilities ......... ======== ======== -------- ----- 3.80 3.63 Interest rate spread ======== ===== Net yield on interest-earning assets and 4.41 4.21 net interest income ............................ ======== ===== Variance Interest Attributable to -------------------------- ---------------------------- 1999 1998 Variance Rate Volume ------------ ------------ ------------- ----------- ----------- Interest Income (Thousands) Loans: Commercial ....................................... $ 254,955 $ 242,308 $ 12,647 $ (9,068) $ 21,715 Tax-exempt ....................................... 21,328 30,764 (9,436) 2,389 (11,825) ------------ ------------ ------------- Total commercial ................................. 276,283 273,072 3,211 (9,721) 12,932 Direct retail .................................... 23,553 27,361 (3,808) (810) (2,998) Indirect retail .................................. 64,982 64,190 792 (4,818) 5,610 Credit card ...................................... 191,334 190,228 1,106 (2,452) 3,558 Other revolving credit ........................... 14,747 11,527 3,220 1,086 2,134 ------------ ------------ ------------- Total retail ..................................... 294,616 293,306 1,310 (7,822) 9,132 Construction ..................................... 44,189 41,809 2,380 (2,849) 5,229 Commercial mortgages ............................. 140,322 147,402 (7,080) (13,048) 5,968 Residential mortgages ............................ 141,677 160,275 (18,598) (6,076) (12,522) ------------ ------------ ------------- Total real estate ................................ 326,188 349,486 (23,298) (20,874) (2,424) Lease financing .................................. 58,073 26,370 31,703 7,560 24,143 Foreign .......................................... 19,851 10,048 9,803 (1,676) 11,479 ------------ ------------ ------------- Total loans ...................................... 975,011 952,282 22,729 (30,831) 53,560 Securities: Held-to-maturity: U.S. Government and agency ....................... 8,745 2,489 6,256 (42) 6,298 Mortgage-backed securities ....................... 11,965 18,815 (6,850) 238 (7,088) State and municipal securities ................... 4,024 5,557 (1,533) (513) (1,020) Other ............................................ 1,197 1,937 (740) 13 (753) ------------ ------------ ------------- Total securities held-to-maturity ................ 25,931 28,798 (2,867) (2,514) (353) Available-for-sale:** U.S. Government and agency ....................... 50,214 75,264 (25,050) (4,386) (20,664) Mortgage-backed securities ....................... 65,104 68,414 (3,310) (4,356) 1,046 Other ............................................ 10,630 13,179 (2,549) 337 (2,886) ------------ ------------ ------------- Total securities available-for-sale .............. 125,948 156,857 (30,909) (8,287) (22,622) ------------ ------------ ------------- Total securities ................................. 151,879 185,655 (33,776) (10,240) (23,536) Interest-bearing bank balances ................... 2,193 3,228 (1,035) (45) (990) Federal funds sold and securities purchased under resale agreements .......................... 5,802 5,285 517 (877) 1,394 Trading account assets ........................... 5,653 13,130 (7,477) (3,735) (3,742) ------------ ------------ ------------- Total interest-earning assets .................... 1,140,538 1,159,580 (19,042) (35,294) 16,252 Interest Expense Interest-bearing demand .......................... 12,725 16,751 (4,026) (416) (3,610) Savings and money market savings ................. 113,547 111,133 2,414 (22,190) 24,604 Savings certificates ............................. 113,449 146,030 (32,581) (4,282) (28,299) Large denomination certificates .................. 43,726 34,117 9,609 (2,554) 12,163 ------------ ------------ ------------- Total interest-bearing deposits in domestic offices ................................. 283,447 308,031 (24,584) (24,229) (355) Interest-bearing deposits in foreign offices ..... 23,920 36,210 (12,290) (5,125) (7,165) ------------ ------------ ------------- Total interest-bearing deposits .................. 307,367 344,241 (36,874) (30,505) (6,369) Federal funds purchased and securities sold under repurchase agreements ...................... 64,464 99,963 (35,499) (16,965) (18,534) Commercial paper ................................. 15,681 13,274 2,407 (1,878) 4,285 Other short-term borrowed funds .................. 23,025 25,655 (2,630) (645) (1,985) ------------ ------------ ------------- Total short-term borrowed funds .................. 103,170 138,892 (35,722) (19,383) (16,339) Bank notes ....................................... 38,587 47,142 (8,555) (5,134) (3,421) Other long-term debt ............................. 73,186 48,411 24,775 (1,470) 26,245 ------------ ------------ ------------- Total long-term debt ............................. 111,773 95,553 16,220 (6,371) 22,591 ------------ ------------ ------------- Total interest-bearing liabilities ............... 522,310 578,686 (56,376) (51,331) (5,045) ------------ ------------ ------------- Interest rate spread Net yield on interest-earning assets and net interest income .............................. $ 618,228 $ 580,894 $ 37,334 29,023 8,311 ============ ============ =============
* 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 $119 million in 1999 and $114 million in 1998. 12 Market Risk Market risk is the risk of loss due to adverse changes in instrument values or earnings fluctuation resulting from changes and Asset/ in market factors. This includes, but may not be limited to, changes in interest rates, foreign exchange rates, commodity Liability prices and other market variables including equity price risk. Wachovia has potential exposure to interest rates, no risk in Management commodity prices (since the corporation does not directly hold commodities or trade in commodity contracts) and immaterial risk in foreign exchange and changing equity prices. Market risks reside in both the trading and nontrading portfolios. Trading portfolios represent assets, liabilities and off-balance sheet instruments that are held for short periods of time and are marked-to-market through the income statement. Nontrading portfolios represent assets, liabilities and off-balance sheet instruments that are not marked-to-market through the income statement but are accounted for on an accrual basis or are marked-to-market through equity. The primary risk in both the trading and nontrading portfolios is to changes in interest rates. Exposures to movements in foreign exchange rates are predominantly in the trading portfolio. All locations use the U.S. dollar as their functional currency and, as a result, exposures to foreign exchange translation risk are immaterial to consolidated net income. Exposure to equity price movement is through holdings at the parent company and private equity investments in the capital markets line of business. The volatility of values in the equity portfolios is immaterial to net income. Estimating the amount of risk in either the trading or nontrading portfolios requires assumptions about the future. The nature of the assumptions causes all representations of risk to be estimates. These estimates will be different from actual results for many reasons, including but not limited to, changes in the growth of the overall economy which will impact volume growth in the company, changing credit spreads, market interest rates moving in patterns other than the patterns chosen for analysis, changes in customer preferences, changes in tactical and strategic plans and initiatives, and changes in Federal Reserve policy. Stress testing is performed on all market risk measurement analyses to help understand the relative sensitivity of key assumptions and thereby better understand the risk profile of the corporation. Trading Trading market risk is the risk to net income from changes in the fair value of assets and liabilities and off-balance sheet Market Risk instruments that are marked-to-market through the income statement. Trading portfolios are maintained to create value by servicing customer needs for investment and risk management products at competitive prices. The key trading portfolios by purpose are U. S. Treasury and government agencies, municipal bonds, residential mortgage-backed securities and money market instruments. The corporation enters into derivatives contracts and foreign currency exchange forward and option contracts to service customer needs and does not take material trading positions in either. The earnings risk due to changes in fair value in the trading portfolios is limited by the short-term holding periods of some of the portfolios, entering into offsetting trades with market counterparties, establishing and monitoring market risk limits by portfolio, and utilizing various hedging techniques. Risk appetite, policies, practices and procedures are established in the business units and approved by the relevant risk committees and Board of Directors to ensure that business objectives are met within a framework of prudent and sound risk management. A value-at-risk (VAR) methodology is used to gauge potential losses in various trading portfolios due to changes in interest rates. The VAR model is a statistical variance/covariance model that calculates an estimate of exposure to interest rate movements within a predetermined confidence level over a defined forward-looking time period. The VAR estimate represents the maximum expected loss in fair value of a trading portfolio over a one day time horizon, given a 99 percent confidence level. In other words, there is about a 1 percent chance, given historical volatility of interest rates, that a loss greater 13 than the VAR estimate will occur by the end of the next day. The VAR estimate takes into account several variables that affect the value of the trading portfolio, including interest rates, security prices and their volatilities, and statistical correlations. The potential expected volatility of interest rates is calculated using a one-year history of market movements. These historical volatilities are exponentially weighted to give more weight to recent market movements. At March 31, 1999, the combined VAR exposure, given the above calculation parameters, was $177 thousand which represented .04 percent of the combined trading portfolio value of $485.147 million. The combined average VAR exposure for the first quarter of 1999 was $159 thousand which represented .04 percent of the combined average trading portfolio value of $433.872 million. These VAR numbers are for the combined U. S. Treasury and government agency, municipal bond, residential mortgage-backed securities and money market instrument portfolios. Nontrading Nontrading market risk is the risk to net income from changes in interest rates on asset, liability and off-balance sheet Market Risk portfolios other than trading portfolios. The risk is driven by potential mismatches resulting from timing differences in the repricing of assets, liabilities and off-balance sheet instruments, and potential exercise of explicit and embedded options. There also is net income risk from changes in market rate relationships known as basis risk. Funds Management is charged with the responsibility of managing the nontrading market risk. Funds Management includes asset/liability management and the management of discretionary securities and funding portfolios. The goal of Funds Management is to maintain high quality and consistent growth in net income, while maintaining acceptable levels of risk to changes in interest rates, and acceptable levels of capital and liquidity. This goal is achieved by influencing the maturity and repricing characteristics of the various lending and deposit taking lines of business, by managing discretionary portfolios, and by utilizing off-balance sheet financial instruments. Funds Management operates under the policies established by the Finance Committee of the Board of Directors and the guidance of the Management Finance Committee. Nontrading interest rate risk, liquidity, capital positions and discretionary on- and off-balance sheet activity are reviewed quarterly by the Finance Committee of the Board of Directors. Interim oversight of the function is provided through regular meetings of Funds Management managers, the Treasurer 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 nontrading interest rate risk, including simulating net income, monitoring the sensitivity of the net present value of the balance sheet, and monitoring the difference or gap between maturing or rate-sensitive assets and liabilities over various time periods. Management believes that nontrading interest rate risk is best measured by simulation modeling which calculates expected net income based on projected interest-earning assets, interest-bearing liabilities, off-balance sheet financial instruments, other income and other expense. The model projections are based upon historical trends and management's expectations of balance sheet growth patterns, spreads to market rates, historical market rate relationships, prepayment behavior, current and expected product offerings, sales activity, and expected exercise of explicit and embedded options. The Management Finance Committee regularly reviews the assumptions used in the model. The corporation monitors interest rate risk by measuring the potential change in 12 months of net income under eight standard interest rate scenarios. The scenarios are rolled forward by quarter up to four quarters in the future to view income sensitivity over any given 12-month period within the next 24 months. All of the scenarios are compared with a scenario where current market rates are held 14 constant for the forecast period (i.e., the flat rate scenario). The scenarios are immediate shocks of the yield curve up and down 100 and 200 basis points and ramp scenarios for up and down 100 and 200 basis points occurring evenly across the next 12 months. Policy guidelines are approved by the Management Finance Committee and the Finance Committee of the Board of Directors. For simulation, which is a dynamic forward-looking analysis, the guidelines are focused on the 200 basis point ramp scenarios across 12 months. The policy guideline limit for net income simulation is a negative impact to net income of 7.5 percent for the up or down 200 basis point ramp scenarios when compared with the flat rate scenario. Management has generally maintained a risk position well within the policy guideline level. The model indicated the impact of a 200 basis point gradual rise in rates over the next 12 months would cause approximately a .90 percent decrease in net income at March 31, 1999 versus a 1.58 percent decrease one year earlier. A gradual decrease in rates over the next 12 months would cause approximately a .54 percent increase in net income as of March 31, 1999 compared with a .88 percent increase at March 31, 1998. The corporation runs additional scenarios beyond the standard shock and ramp scenarios including yield curve steepening, flattening and inversion scenarios. Various sensitivity analyses are performed on a regular basis to segregate interest rate risk into separate components and understand the risk attributable to prepayments, caps and floors, and other options. Extensive assumptions testing is performed to understand the degree of impact from changing key assumptions such as the speed of prepayments, the interest rate elasticity of core deposit rates and faster- or slower-growing balance sheets. The corporation also utilizes a present value methodology to discern risk levels present in the balance sheet beyond the 24-month time horizon used in simulation analysis. The net present value methodology is a point in time analysis of the balance sheet not including new business volumes or management initiatives. All cash flows from earning assets, interest-bearing liabilities, noninterest-bearing deposits and off-balance sheet instruments are discounted to a present value. Assumptions are made to estimate the expected lives of indeterminate maturity assets and liabilities such as line of credit products and savings and checking accounts. Discount rates used in the analysis are based upon forward rates implied by the current yield curve with credit spreads added to discount current new business back to par value. As in simulation analysis, extensive assumptions testing is performed to understand the degree of impact from changing key assumptions. The policy guideline limit for present value of the balance sheet is a negative change in value of 10 percent for up or down shocks of 100 basis points to the beginning yield curve. As of March 31, 1999, Wachovia's change in net present value of the balance sheet for a 100 basis point upward shock to the yield curve was a decrease of 3.99 percent. For a decline in rates of 100 basis points, the change was an increase of 2.84 percent. Liquidity To ensure the corporation is positioned to meet immediate and future cash demands, management relies on liquidity analysis, Management 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. 15 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 Nonperforming assets were $170.456 million or .37 percent of loans and foreclosed property at March 31, 1999. The total was Assets higher by $22.733 million or 15.4 percent from the end of the first quarter of 1998, reflecting an increase in cash-basis assets, but down $10.847 million or 6 percent from December 31, 1998. The rise in cash-basis assets from a year earlier primarily was attributable to 2 large credits. Real estate nonperforming assets, the largest category of total nonperforming assets, were $102.330 million or .62 percent of real estate loans and foreclosed real estate compared with $102.530 million or .61 percent and $105.990 million or .64 percent at the end of the first and fourth quarters of 1998, respectively. Included in these totals were real estate nonperforming loans of $81.635 million at March 31, 1999 versus $81.766 million one year earlier and $85.225 million at December 31, 1998. Commercial real estate nonperforming assets were $47.377 million or .52 percent of related loans and foreclosed real estate compared with $47.125 million or .54 percent at March 31, 1998 and $47.571 million or .53 percent at year-end 1998. Commercial real estate nonperforming loans totaled $35.709 million versus $40.981 million at the end of the first quarter of 1998 and $34.911 million at December 31, 1998. Nonperforming Assets and Contractually Past Due Loans Table 10 - -------------------------------------------------------------------------------- (thousands) Mar. 31 Dec. 31 Sep. 30 Jun. 30 Mar. 31 1999 1998 1998 1998 1998 ---------- ---------- ---------- ---------- -------- Nonperforming assets: Cash-basis assets ....................................... $144,763 $157,118 $144,654 $127,376 $121,734 Restructured loans ...................................... ---- ---- ---- ---- ---- ---------- ---------- ---------- ---------- -------- Total nonperforming loans ............................ 144,763 157,118 144,654 127,376 121,734 Foreclosed property: Foreclosed real estate ................................. 30,285 33,443 34,935 33,604 35,518 Less valuation allowance ............................... 9,590 12,678 12,867 13,457 14,754 Other foreclosed assets ................................ 4,998 3,420 4,957 4,705 5,225 ---------- ---------- ---------- ---------- -------- Total foreclosed property ............................ 25,693 24,185 27,025 24,852 25,989 ---------- ---------- ---------- ---------- -------- Total nonperforming assets ........................... $170,456 $181,303 $171,679 $152,228 $147,723 ========== ========== ========== ========== ======== Nonperforming loans to period-end loans ................. .31% .34% .32% .29% .27% Nonperforming assets to period-end loans and foreclosed property .................................... .37 .40 .38 .34 .33 Period-end allowance for loan losses times nonperforming loans .................................... 3.79x 3.49x 3.79x 4.30x 4.47x Period-end allowance for loan losses times nonperforming assets ................................... 3.22 3.02 3.19 3.60 3.69 Contractually past due loans -- accruing loans past due 90 days or more ......................................... $137,116 $136,807 $119,034 $112,720 $87,569 ========== ========== ========== ========== ========
Provision and The provision for loan losses for the quarter was $80.636 million, higher by $6.510 million or 8.8 percent from $74.126 Allowance for million in the same period a year earlier, but lower by $3.468 million or 4.1 percent from the fourth quarter of 1998. Loan Losses The provision reflects management's assessment of the adequacy of the allowance for loan losses to absorb losses inherent in the loan portfolio due to credit deterioration or changes in risk profile. The 16 assessment primarily considers allowance for loan loss levels relative to risk weightings assigned by management to loan types. The risk weightings are based on several factors, as appropriate, including historical credit loss experience, current economic conditions, the composition of the total loan portfolio -- including industry concentrations -- and assessments of individual credits within specific loan types. Because these factors are dynamic in nature, risk weightings for individual loans and loan types are subject to change and the provision for loan losses can fluctuate. Credit reviews are based primarily on analysis of borrowers' cash flows, with asset values considered only as a secondary source of repayment. Management's overall credit review process also assesses Year 2000 compliance by borrowers. Net loan losses for the period totaled $80.326 million or .69 percent of average loans, an increase of $6.218 million or 8.4 percent from $74.108 million or .68 percent of loans a year earlier. The rise reflected higher charge-offs, primarily in commercial loans and credit cards, and lower recoveries, principally of real estate loans. Compared with the fourth quarter of 1998, net loan losses decreased $3.472 million or 4.1 percent mostly due to a decline in commercial and credit card charge-offs. Excluding credit cards, net loan losses were $13.277 million or .13 percent of average loans versus $8.986 million or .09 percent a year earlier and $15.470 million or .15 percent in the fourth quarter of 1998. Net loan losses in credit cards were $67.049 million or 4.58 percent of average credit card loans compared with $65.122 million or 4.54 percent in the first quarter of 1998, a rise of $1.927 million or 3 percent. Commercial net loan losses increased $3.144 million to $3.906 million or .10 percent of average related receivables. Recoveries in real estate loans declined, resulting in net losses of $639 thousand versus net recoveries of $1.328 million in the same three months of 1998. Selected data on the corporation's managed credit card portfolio, which includes securitized loans, appears in the following table. Managed Credit Card Data Table 11 - -------------------------------------------------------------------------------- (thousands) 1999 1998 ----------- ----------- First Fourth Quarter Quarter ----------- ----------- Average credit card outstandings ................... $ 6,430,397 $ 6,328,905 Net loan losses .................................... 69,632 72,997 Annualized net loan losses to average loans ........ 4.33% 4.61% Delinquencies (30 days or more) to period-end loans 3.02 3.30 (thousands) Third Second First Quarter Quarter Quarter ----------- ----------- ----------- Average credit card outstandings ................... $ 6,092,515 $ 6,056,770 $ 6,246,315 Net loan losses .................................... 66,324 67,978 69,409 Annualized net loan losses to average loans ........ 4.35% 4.49% 4.44% Delinquencies (30 days or more) to period-end loans 3.11 2.69 2.68
The allowance for loan losses was $548.302 million at March 31, 1999, representing 1.18 percent of period-end loans and 379 percent of nonperforming loans. This compared with $544.741 million, representing 1.22 percent of loans and 447 percent of nonperforming loans one year earlier, and $547.992 million, representing 1.20 percent of loans and 349 percent of nonperforming loans at December 31, 1998. 17 Allowance for Loan Losses Table 12 - -------------------------------------------------------------------------------- (thousands) 1999 1998 -------- ------------------------------------------------ First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter -------- ------------------------------------------------ Summary of Transactions Balance at beginning of period ............... $ 547,992 $ 547,686 $547,572 $544,741 $544,723 Additions from acquisitions .................. ---- ---- ---- 2,613 ---- Provision for loan losses .................... 80,636 84,104 72,809 68,441 74,126 Deduct net loan losses: Loans charged off: Commercial ................................. 5,862 7,365 4,601 3,252 2,662 Credit card ................................ 74,094 75,401 69,043 70,015 72,061 Other revolving credit ..................... 2,889 3,050 2,736 2,927 2,089 Other retail ............................... 8,910 9,851 8,515 6,624 10,388 Real estate ................................ 1,488 2,407 264 634 1,209 Lease financing ............................ 592 701 782 726 886 Foreign .................................... ---- ---- ---- ---- ---- --------- ----------- -------- -------- -------- Total .................................... 93,835 98,775 85,941 84,178 89,295 Recoveries: Commercial ................................. 1,956 1,979 1,517 1,271 1,900 Credit card ................................ 7,045 7,073 7,522 7,270 6,939 Other revolving credit ..................... 707 641 610 630 690 Other retail ............................... 2,813 3,167 2,242 3,070 3,015 Real estate ................................ 849 2,001 1,223 3,578 2,537 Lease financing ............................ 139 116 132 136 106 Foreign .................................... ---- ---- ---- ---- ---- --------- ----------- -------- -------- -------- Total .................................... 13,509 14,977 13,246 15,955 15,187 --------- ----------- -------- -------- -------- Net loan losses ............................. 80,326 83,798 72,695 68,223 74,108 --------- ----------- -------- -------- -------- Balance at end of period ..................... $ 548,302 $ 547,992 $547,686 $547,572 $544,741 ========= =========== ======== ======== ======== Net Loan Losses (Recoveries) by Category Commercial ................................... $ 3,906 $ 5,386 $ 3,084 $ 1,981 $ 762 Credit card .................................. 67,049 68,328 61,521 62,745 65,122 Other revolving credit ....................... 2,182 2,409 2,126 2,297 1,399 Other retail ................................. 6,097 6,684 6,273 3,554 7,373 Real estate .................................. 639 406 (959) (2,944) (1,328) Lease financing .............................. 453 585 650 590 780 Foreign ...................................... ---- ---- ---- ---- ---- --------- ----------- -------- -------- -------- Total .................................... $ 80,326 $ 83,798 $ 72,695 $ 68,223 $ 74,108 ========= =========== ======== ======== ======== Net loan losses -- excluding credit cards .... $ 13,277 $ 15,470 $ 11,174 $ 5,478 $ 8,986 Annualized Net Loan Losses (Recoveries) to Average Loans by Category Commercial ................................... .10% .13% .08% .05% .02% Credit card .................................. 4.58 4.69 4.40 4.52 4.54 Other revolving credit ....................... 1.60 1.84 1.67 1.86 1.20 Other retail ................................. .56 .62 .60 .34 .70 Real estate .................................. .02 .01 (.02) (.07) (.03) Lease financing .............................. .09 .13 .16 .19 .29 Foreign ...................................... ---- ---- ---- ---- ---- Total loans .................................. .69 .73 .66 .62 .68 Total loans -- excluding credit cards ........ .13 .15 .12 .06 .09 Period-end allowance to outstanding loans .... 1.18 1.20 1.20 1.23 1.22
Noninterest Total other operating revenue, which excludes securities transactions, grew $49.546 million or 17.5 percent year over year Income to $333.269 million. All categories advanced except other income, with growth led by credit card income, capital markets income, deposit account service charges, mortgage fees and fees for trust services. Total other operating revenue included gains in the first three months of 1999 of $17.025 million from the sale of credit card receivables in a securitization transaction and $17.155 million in the year-earlier period from branch divestitures. Adjusted for these gains, total other operating revenue was up $49.676 million or 18.6 percent from the first quarter of 1998 but was modestly lower from the fourth quarter, reflecting seasonal decline in business activity. Total other operating revenue for the full year of 1999 is expected to be up 10 percent to 12 percent, 18 excluding the benefit from the corporation's acquisition of Interstate/Johnson Lane. Growth is expected to be driven largely by capital markets, technology-based banking and financial advisory areas. Credit card income rose $22.757 million or 59 percent from the first quarter of 1998. Gains on receivables sales of $17.025 million and higher interchange fees primarily accounted for the increase. Adjusted for the securitization, credit card income for the quarter was up $5.732 million or 14.9 percent from the same period in 1998. Capital markets income expanded $22.002 million or 136.6 percent, driven largely by growth in consulting services and loan syndications. On April 1, the broker-dealer subsidiary of Interstate/Johnson Lane Inc. was merged into Wachovia's Section 20 capital markets subsidiary to form Wachovia Securities Inc. The expanded Section 20 subsidiary consists of a retail brokerage division -- IJL Wachovia -- and an institutional business division -- Wachovia Capital Markets -- with full Tier I and Tier II powers to underwrite and deal in all types of corporate debt and equities. Revenues from deposit account service charges increased $6.081 million or 7.5 percent. Gains occurred primarily in overdraft fees and in commercial analysis fees. Mortgage fees rose $3.262 million or 42.3 percent, largely fueled by higher mortgage originations and gains on sales of servicing rights. Fees for trust services grew $3.083 million or 6.7 percent. Strong gains in trust and investment management largely drove the increase, with management fees collected for the Wachovia Funds -- the corporation's proprietary mutual funds -- also up for the period. Higher debit card interchange income and ATM usage pushed electronic banking revenue up $2.060 million or 12.6 percent. Investment fee income expanded $1.467 million or 13.1 percent. Growth occurred primarily in brokerage commission income and in fees from customer mutual fund investments, including the Wachovia Funds. At March 31, 1999, assets for the Wachovia Funds totaled $6.852 billion compared with $6.013 billion one year earlier. Noninterest Income Table 13 - -------------------------------------------------------------------------------- (thousands) 1999 1998 --------- --------------------------------------------- First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter --------- --------- -------- -------- -------- Service charges on deposit accounts ................... $ 86,955 $ 86,967 $ 84,674 $ 82,465 $ 80,874 Fees for trust services ............................... 49,136 53,909 51,185 48,802 46,053 Credit card income -- net of interchange payments ..... 61,301 46,194 43,312 43,077 38,544 Capital markets income ................................ 38,112 36,044 37,625 40,304 16,110 Electronic banking .................................... 18,455 19,746 19,449 18,667 16,395 Investment fees ....................................... 12,658 11,051 10,712 11,665 11,191 Mortgage fees ......................................... 10,966 13,472 12,251 11,502 7,704 Insurance premiums and commissions .................... 8,977 7,981 8,213 8,135 7,568 Bankers' acceptance and letter of credit fees ......... 10,342 9,909 9,745 9,802 9,569 Other service charges and fees ........................ 11,253 9,611 9,680 10,125 10,350 Other income .......................................... 25,114 23,928 23,695 30,499 39,365 --------- --------- -------- -------- -------- Total other operating revenue ..................... 333,269 318,812 310,541 315,043 283,723 Securities gains ...................................... 234 7,407 6,886 2,992 3,157 --------- --------- -------- -------- -------- Total ............................................. $333,503 $326,219 $317,427 $318,035 $286,880 ========= ========= ======== ======== ========
Remaining combined categories of total other operating revenue, excluding branch divestiture sales in the first quarter of 1998, increased $5.989 million or 12.1 percent. Insurance premiums and commissions rose $1.409 million or 18.6 percent and bankers' acceptance and letter of credit fees were up 19 $773 thousand or 8.1 percent. Other service charges and fees were higher by $903 thousand or 8.7 percent and other income, excluding branch divestiture gains, grew $2.904 million or 13.1 percent. Including securities sales, total noninterest income rose $46.623 million or 16.3 percent. Securities sales resulted in net gains for the first three months of 1999 of $234 thousand versus $3.157 million in the same period a year earlier. Noninterest Total noninterest expense decreased modestly from the first quarter of 1998, which included $35.568 million in merger-related Expense charges. Excluding all merger integration expenses in 1998, total noninterest expense for the first three months of 1999 increased $33.517 million or 7.3 percent year over year and was up $6.473 million or 5.3 percent annualized from the fourth quarter. Merger-related charges of between $15 million and $20 million are expected to be taken primarily in the second and third quarters of 1999 for integration activities associated with the corporation's acquisition of Interstate/Johnson Lane Inc. on April 1. For the full year of 1999, noninterest expense is expected to rise 4 percent to 5 percent over 1998, excluding merger-related charges in both years. The projected, slower rise in noninterest expense from the previous year is based on moderation expected largely in salary growth. Noninterest Expense Table 14 - -------------------------------------------------------------------------------- (thousands) 1999 1998 -------- ---------------------------------------------------- First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter -------- ----------- -------- --------- --------- Salaries .............................................. $218,115 $ 221,019 $221,242 $ 219,731 $ 212,758 Employee benefits ..................................... 53,071 48,922 42,040 42,675 46,966 -------- ----------- -------- --------- --------- Total personnel expense ........................... 271,186 269,941 263,282 262,406 259,724 Net occupancy expense ................................. 34,933 35,838 34,896 34,119 33,783 Equipment expense ..................................... 47,404 41,683 38,545 41,288 34,687 Postage and delivery .................................. 14,128 12,962 13,373 13,368 13,278 Outside data processing, programming and software ..... 25,110 21,203 18,496 16,244 12,737 Stationery and supplies ............................... 8,809 9,339 10,689 7,233 7,506 Advertising and sales promotion ....................... 11,837 12,782 17,147 22,555 17,738 Professional services ................................. 14,024 15,311 14,929 14,522 11,304 Travel and business promotion ......................... 5,951 7,521 7,656 7,638 6,439 Amortization of intangible assets ..................... 10,953 10,908 9,840 9,226 9,117 Foreclosed property expense -- net of income .......... (82) 517 (164) 88 130 Merger-related charges ................................ ---- 6,961 11,934 30,849 35,568 Other expense ......................................... 47,945 47,720 51,780 57,458 52,238 -------- ----------- -------- --------- --------- Total ............................................. $492,198 $ 492,686 $492,403 $ 516,994 $ 494,249 ======== =========== ======== ========= ========= Overhead ratio* ....................................... 51.7% 52.4% 54.0% 56.8% 57.2% Overhead ratio without merger-related charges ......... 51.7 51.7 52.7 53.4 53.1
* Noninterest expense as a percentage of taxable equivalent net interest income and total other operating revenue. Total personnel expense for the period rose $11.462 million or 4.4 percent from a year earlier. Salaries expense grew $5.357 million or a moderate 2.5 percent, principally reflecting higher incentive pay for revenue generating businesses. Employee benefits expense was up $6.105 million or 13 percent, primarily due to increases in medical and retirement plan benefits and in employee taxes. Combined net occupancy and equipment expense grew $13.867 million or 20.3 percent, principally driven by increased depreciation and amortization of new equipment and technology investments. Equipment expense rose $12.717 million or 36.7 percent, while net occupancy expense was up $1.150 million or 3.4 percent. Remaining combined categories of noninterest expense increased $8.188 million or 6.3 percent excluding merger-related expenses in 1998. Outside data processing, programming and software expense rose $12.373 million or 97.1 percent, reflecting, in large part, higher software and technology expense. Professional services expense was up $2.720 million or 24.1 percent, due to consulting 20 fees for ongoing corporate strategies. Amortization of intangible assets expense was higher by $1.836 million or 20.1 percent, reflecting increased intangible asset levels from purchase acquisitions. Year 2000 The change in date to the year 2000 from 1999 will cause data recognition problems in computers, software and facility operations dependent on computer chip devices due to programming standards that historically limited data date fields to two digits. In late 1995, the corporation initiated a formal evaluation of Year 2000 issues, establishing in the early months of 1996 a full-time project team to assess and address both internal and external risks associated with the change in date event. The project team is in the latter stages of completing a Year 2000 readiness plan consisting of five phases: problem awareness; identification of affected systems, functions and facilities; conversion or replacement of identified areas to Year 2000 compliant standards; testing; and implementation. The corporation's readiness plan encompasses both information technology systems and computer chip embedded functions, such as those operating facilities including elevators, security systems and building heating and cooling. In 1996, the corporation completed its awareness and identification phases, extending and completing the processes in 1997 and 1998 for recent merger partners. As of March 31, 1999, virtually all of the corporation's information technology systems, including all of those designated as mission critical, had been converted, tested and implemented. While regulatory guidelines require conversion only of mission critical systems, the corporation's approach has been to address all of its information technology systems. For computer chip embedded functions, the corporation has replaced and tested noncompliant functions essential to business operations. In-house testing of internal and external mission critical systems was 100 percent complete as of March 31, 1999. Testing of Wachovia's entire application portfolio was 96 percent complete as of the same date. Management expects to finish testing of its remaining systems by April 30, 1999. Testing is done in both a 21st century and 20th century date environment before systems are returned to production to ensure data accuracy and consistency. All exceptions to testing results are resolved before further testing is permitted. Management has chosen to implement converted systems back into production as systems are tested to permit greater flexibility in the event of future system flaws or failures. The percentage of systems implemented, therefore, closely approximates the percentage tested. The corporation also is working to address Year 2000 readiness on the part of external entities, particularly critical vendors and significant credit customers. Identification and monitoring of external entities began in 1996 and includes surveys with follow-up reviews and contacts. Substantially all of the corporation's vendors have responded to management's surveys regarding Year 2000 readiness, with approximately 81 percent indicating that they are compliant as of March 31, 1999. The project team is continuing to monitor the progress of remaining noncompliant vendors as well as the status of large corporate borrowers identified as potentially at risk. The corporation began external entity testing in 1998 and has continued this testing in 1999. All external entity testing is on schedule to be completed by June 30, 1999. Management estimates that total Year 2000 project costs will be approximately $80 million, with $72 million having been spent through March 31, 1999 including $6 million in the first quarter of 1999. The corporation's remaining Year 2000 project costs are not expected to have a material impact on Wachovia's results of operations, liquidity or capital resources. The corporation faces a number of risks related to the year 2000 date change event, including project management risks, legal risks and financial risks. Project management risks refer primarily to the failure to adequately assess Year 2000 planning and resource needs, resulting in under- or over-allotment 21 of resources assigned to complete the project work, missed deadlines and estimation errors. Legal risks include the failure to meet contractual service agreements, leading to possible punitive actions including those of a regulatory nature. Financial risks concern the possibility of lost revenues, asset quality deterioration or even business failure. The corporation conducted a project management risk assessment in early 1997 and is in the process of addressing its legal and financial risks. Management of the date change event entails additional risks separate from those of project management. Major risks associated with the date change event include a shutdown of voice and data communication systems due to failure by switching systems, satellites, or telephone companies; excessive cash withdrawal activity; cash couriers delayed or not available; ATM failures; problems with international accounts or offices, including inaccurate or delayed information or inaccessibility to account data; and government offices or facilities not opening or operating. The corporation has identified 60 risks associated with the date change event and has completed development of formal contingency plans for each major risk. Management views contingency planning as part of an overall strategy for managing the date change event and post-event risks and considers preimplementation mitigating actions as critical components to successful contingency planning. In the event of a voice and data communication system shutdown, contingency plans include deploying cellular and field phones to communicate between established command posts. To reduce expected cash withdrawal demands while simultaneously preparing for higher fund withdrawal activity, the corporation is sponsoring public awareness programs on appropriate cash reserve levels, applying for increased borrowing limits from the Federal Reserve, and broadening its regular liquidity management reviews. Standing agreements with cash courier services are being reviewed to identify and resolve potential courier service problems prior to the date change event. To minimize ATM failures, the corporation has upgraded its entire network of ATMs, including their primary and backup computer processors. Alternate cash access plans include using existing communication channels to direct customers to working ATMs in the event of localized ATM failures and extending branch office hours where needed. To reduce potential problems in international offices, the corporation has converted and tested the information systems of its Sao Paulo, Brazil office and will complete testing for its London, England office by April 30. Separate contingency plans have been developed by each foreign office to assist independent operations. In addition to its contingency planning, management has mapped all information systems to its core business processes as part of its preimplementation mitigating action plan. This will enable the corporation to identify affected business processes should data information problems occur during the changeover to calendar year 2000 and in the time period immediately following. The corporation believes the actions it is taking should reduce the risks posed by Year 2000 challenges to its own systems. Management recognizes, however, that unforeseen circumstances could arise both within its own systems and with the systems of external entities and can give no assurances that, if such circumstances arose, they would not adversely affect the corporation's Year 2000 compliance efforts. Further, management cannot determine the impact that any adverse effect might have on the corporation's operations, financial position or cash flows. 22 Euro Conversion On January 1, 1999, eleven member countries of the European Union established the Euro as their common legal currency and established a fixed conversion rate between their current sovereign currencies and the Euro. From January 1, 1999 through the end of 2001, corporations and individuals may transact business in either the Euro or the functional currency of each member nation. Management has a risk assessment committee that has been examining the risks associated with the Euro conversion such as the adequacy of information technology systems, currency risk and the competitive impact of cross-border price transparency. During this interim period, the corporation is operating parallel accounts in both the Euro and the respective national currency in order to more effectively process transactions. Management does not expect the impact of the Euro conversion to have a material adverse impact on the corporation's financial condition or results of operations. Income Taxes Applicable income taxes for the first quarter of 1999 increased $33.182 million or 35.9 percent from a year earlier. 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 15 - -------------------------------------------------------------------------------- (thousands) Three Months Ended March 31 ------------------------ 1999 1998 ---------- ---------- Income before income taxes .................................... $ 368,745 $ 287,648 ========== ========== Federal income taxes at statutory rate ........................ $ 129,061 $ 100,677 State and local income taxes -- net of federal benefit ........ 8,052 (1,021) Effect of tax-exempt securities interest and other income ..... (11,194) (12,382) Other items ................................................... (410) 5,053 ---------- ---------- Total tax expense ......................................... $ 125,509 $ 92,327 ========== ========== Current: Federal ...................................................... $ 21,523 $ 68,763 Foreign ...................................................... 302 115 State and local .............................................. 6,614 3,729 ---------- ---------- Total ..................................................... 28,439 72,607 Deferred: Federal ...................................................... 91,297 25,021 State and local .............................................. 5,773 (5,301) ---------- ---------- Total ..................................................... 97,070 19,720 ---------- ---------- Total tax expense ......................................... $ 125,509 $ 92,327 ========== ==========
New Accounting Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" (FASB Standards 131), issued in June 1997, established new standards for reporting information about operating segments in annual and interim financial statements. The standard 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. FASB 131 was adopted for presentation for the year ended December 31, 1998. Interim reporting for 1999 includes restated information for comparable periods in 1998. 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). 23 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 plans to adopt the standard effective January 1, 2000. Adoption is not expected to result in a material financial impact. Financial Condition and Capital Ratios Assets at March 31, 1999 totaled $65.319 billion, with $57.660 billion of interest-earning assets and $46.393 billion of loans. Comparable amounts one year earlier were $65.125 billion of assets, $57.464 billion of interest-earning assets and $44.498 billion of loans. At December 31, 1998, total assets were $64.123 billion, interest-earning assets were $56.537 billion and loans were $45.719 billion. Deposits at the end of the first quarter of 1999 were $40.288 billion, including $32.052 billion of interest-bearing deposits, representing 79.6 percent of the total. Deposits one year earlier were $39.857 billion with interest-bearing deposits of $31.331 billion or 78.6 percent of the total, and at December 31, 1998, deposits were $40.995 billion, including $32.226 billion of interest-bearing deposits or 78.6 percent of the total. Shareholders' equity at March 31, 1999 was $5.432 billion, up $195.239 million or 3.7 percent from $5.237 billion one year earlier. Included in shareholders' equity at March 31, 1999 was $60.642 million, net of tax, of unrealized gains on securities available-for-sale compared with $63.849 million, net of tax, one year earlier. During the first quarter of 1999, the corporation repurchased a total of 626,600 shares of its common stock at an average price of $86.302 per share for a total cost of $54.077 million. The shares were repurchased as part of the corporation's June 23, 1998 share repurchase authorization by the Board of Directors to repurchase up to 12 million shares of the corporation's common stock. The authorization is effective through January 28, 2000. As of March 31, 1999, a total of 5,268,800 shares had been repurchased under the June 23, 1998 authorization. Management expects to complete the share repurchase authorization in 1999 consistent with market conditions and other opportunities to deploy capital. The corporation also is authorized to repurchase shares to offset those issued in connection with Wachovia's purchase acquisition of Interstate/Johnson Lane. At its April 23, 1999 meeting, the corporation's Board of Directors declared a second quarter dividend of $.49 per share, payable June 1 to shareholders of record as of May 6. The dividend is higher by 11.4 percent from $.44 per share paid in the same quarter of 1998. For the year to date, the dividend will total $.98 per share, up 11.4 percent from $.88 per share in 1998. Intangible assets at March 31, 1999 totaled $676.528 million, consisting of $537.198 million of goodwill, $90.464 million of deposit base intangibles, $9.798 million of mortgage servicing rights, $38.789 million of purchased credit card premiums and $279 thousand of other intangibles. Intangible assets at the end of the first quarter of 1998 were $619.334 million, with $508.010 million of goodwill, $96.315 million of deposit base intangibles, $13.530 million of mortgage servicing rights, $1.174 million of purchased credit card premiums and $305 thousand of other intangibles. 24 The Interstate/Johnson Lane acquisition was accounted for as a purchase transaction and resulted in goodwill of approximately $140 million. The corporation issued approximately 2.6 million shares of stock in connection with this transaction. Regulatory agencies divide capital into Tier I (consisting of shareholders' equity and certain cumulative preferred stock instruments less ineligible intangible assets) and Tier II (consisting of the allowable portion of the allowance for loan losses and certain long-term debt) and measure capital adequacy by applying both capital levels to a banking company's risk-adjusted assets and off-balance sheet items. Regulatory requirements presently specify that Tier I capital should exclude the unrealized gain or loss, net of tax, on securities available-for-sale. In addition to these capital ratios, regulatory agencies have established a Tier I leverage ratio which measures Tier I capital to average assets less ineligible intangible assets. 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 March 31, 1999, the corporation's Tier I to risk-adjusted assets ratio was 7.73 percent and total capital to risk-adjusted assets was 11.44 percent. The Tier I leverage ratio was 8.97 percent. Capital securities included in the capital ratios were $996.462 million and $996.087 million at March 31, 1999 and 1998, respectively. Capital Components and Ratios Table 16 - -------------------------------------------------------------------------------- (thousands) 1999 1998 ---- ------------------------------------------------------------- First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter --------- ------------ -------- -------- -------- Tier I capital: Common shareholders' equity ............. $ 5,431,939 $ 5,338,232 $ 5,229,191 $ 5,375,793 $ 5,236,700 Trust capital securities ................ 996,462 996,368 996,274 996,180 996,087 Less ineligible intangible assets ....... 657,717 666,672 665,408 669,448 604,325 Unrealized gains on securities available-for-sale -- net of tax ....... (60,642) (82,440) (131,325) (74,990) (63,849) ----------- ------------- ----------- ----------- ----------- Total Tier I capital ................. 5,710,042 5,585,488 5,428,732 5,627,535 5,564,613 Tier II capital: Allowable allowance for loan losses ..... 548,302 547,992 547,686 547,572 544,741 Allowable long-term debt ................ 2,191,701 1,794,148 1,486,537 1,138,711 1,193,533 ----------- ------------- ----------- ----------- ----------- Tier II capital additions ............ 2,740,003 2,342,140 2,034,223 1,686,283 1,738,274 ----------- ------------- ----------- ----------- ----------- Total capital ........................ $ 8,450,045 $ 7,927,628 $ 7,462,955 $ 7,313,818 $ 7,302,887 =========== ============= =========== =========== =========== Risk-adjusted assets ..................... $73,871,880 $69,928,737 $72,924,472 $69,633,722 $67,897,994 Quarterly average assets* ................ $63,631,476 $64,454,538 $62,630,533 $63,184,419 $62,457,463 Risk-based capital ratios: Tier I capital .......................... 7.73% 7.99% 7.44% 8.08% 8.20% Total capital ........................... 11.44 11.34 10.23 10.50 10.76 Tier I leverage ratio .................... 8.97 8.67 8.67 8.91 8.91
* Excludes ineligible intangible assets and average unrealized gains (losses) on securities available-for-sale, net of tax. 25 Consolidated Statements of Condition - -------------------------------------------------------------------------------- $ in thousands Wachovia Corporation and Subsidiaries March 31 December 31 March 31 1999 1998 1998 ----------- ----------- ----------- Assets Cash and due from banks ........................................................ $3,110,130 $ 3,800,265 $3,661,602 Interest-bearing bank balances ................................................. 160,529 109,983 154,415 Federal funds sold and securities purchased under resale agreements ............ 524,100 675,470 365,987 Trading account assets ......................................................... 809,416 664,812 1,198,056 Securities available-for-sale .................................................. 8,399,296 7,983,648 9,871,249 Securities held-to-maturity (fair value of $1,422,225, $1,442,126 and $1,440,438, respectively)...................................................... 1,373,453 1,383,607 1,375,959 Loans, net of unearned income .................................................. 46,393,132 45,719,222 44,498,281 Less allowance for loan losses ................................................. 548,302 547,992 544,741 ------------ ----------- ------------ Net loans .................................................................... 45,844,830 45,171,230 43,953,540 Premises and equipment ......................................................... 962,609 901,681 840,350 Due from customers on acceptances .............................................. 310,818 348,955 692,444 Other assets ................................................................... 3,824,307 3,083,191 3,011,113 ------------ ----------- ------------ Total assets ................................................................. $65,319,488 $64,122,842 $65,124,715 ============ =========== ============ Liabilities Deposits in domestic offices: Demand ........................................................................ $ 8,235,680 $ 8,768,271 $ 8,526,248 Interest-bearing demand ....................................................... 4,758,860 4,980,715 4,831,044 Savings and money market savings .............................................. 13,161,018 12,641,766 11,687,725 Savings certificates .......................................................... 8,764,668 8,982,396 10,093,897 Large denomination certificates ............................................... 3,602,130 3,344,553 2,854,234 ------------ ----------- ------------ Total deposits in domestic offices ........................................... 38,522,356 38,717,701 37,993,148 Interest-bearing deposits in foreign offices ................................... 1,765,789 2,277,028 1,863,739 ------------ ----------- ------------ Total deposits ............................................................... 40,288,145 40,994,729 39,856,887 Federal funds purchased and securities sold under repurchase agreements ........ 6,268,563 5,463,418 8,796,505 Commercial paper ............................................................... 1,433,130 1,359,382 1,217,459 Other short-term borrowed funds ................................................ 2,046,994 1,912,262 1,935,326 Long-term debt ................................................................. 7,970,451 7,596,727 6,456,366 Acceptances outstanding ........................................................ 310,818 348,955 692,444 Other liabilities .............................................................. 1,569,448 1,109,137 933,028 ------------ ----------- ------------ Total liabilities ............................................................ 59,887,549 58,784,610 59,888,015 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, 1,000,000,000 and 500,000,000 shares; issued and outstanding 202,898,450, 202,986,100 and 206,131,388 shares, respectively .... 1,014,492 1,014,931 1,030,657 Capital surplus ................................................................ 675,686 669,244 941,071 Retained earnings .............................................................. 3,681,119 3,571,617 3,201,123 Accumulated other comprehensive income ......................................... 60,642 82,440 63,849 ------------ ----------- ------------ Total shareholders' equity ................................................... 5,431,939 5,338,232 5,236,700 ------------ ----------- ------------ Total liabilities and shareholders' equity ................................... $65,319,488 $64,122,842 $65,124,715 ============ =========== ============
26 Consolidated Statements of Income - -------------------------------------------------------------------------------- thousands, except per share Wachovia Corporation and Subsidiaries Three Months Ended March 31 ------------------------------ 1999 1998 ------------ ---- Interest Income Loans, including fees ................................................... $ 969,294 $ 945,437 Securities available-for-sale ........................................... 123,113 153,938 Securities held-to-maturity: State and municipal .................................................... 2,683 3,936 Other investments ...................................................... 21,635 23,241 Interest-bearing bank balances .......................................... 2,193 3,228 Federal funds sold and securities purchased under resale agreements ..... 5,802 5,285 Trading account assets .................................................. 5,666 12,764 ------------ ----------- Total interest income ................................................. 1,130,386 1,147,829 Interest Expense Deposits: Domestic offices ....................................................... 283,447 308,030 Foreign offices ........................................................ 23,920 36,210 ------------ ----------- Total interest on deposits ............................................ 307,367 344,240 Short-term borrowed funds ............................................... 103,170 138,893 Long-term debt .......................................................... 111,773 95,553 ------------ ----------- Total interest expense ................................................ 522,310 578,686 Net Interest Income ..................................................... 608,076 569,143 Provision for loan losses ............................................... 80,636 74,126 ------------ ----------- Net interest income after provision for loan losses ..................... 527,440 495,017 Other Income Service charges on deposit accounts ..................................... 86,955 80,874 Fees for trust services ................................................. 49,136 46,053 Credit card income ...................................................... 61,301 38,544 Capital markets income .................................................. 38,112 16,110 Electronic banking ...................................................... 18,455 16,395 Investment fees ......................................................... 12,658 11,191 Mortgage fees ........................................................... 10,966 7,704 Other operating income .................................................. 55,686 66,852 ------------ ----------- Total other operating revenue ......................................... 333,269 283,723 Securities gains ........................................................ 234 3,157 ------------ ----------- Total other income .................................................... 333,503 286,880 Other Expense Salaries ................................................................ 218,115 212,758 Employee benefits ....................................................... 53,071 46,966 ------------ ----------- Total personnel expense ............................................... 271,186 259,724 Net occupancy expense ................................................... 34,933 33,783 Equipment expense ....................................................... 47,404 34,687 Merger-related charges .................................................. ---- 35,568 Other operating expense ................................................. 138,675 130,487 ------------ ----------- Total other expense ................................................... 492,198 494,249 Income before income taxes .............................................. 368,745 287,648 Income tax expense ...................................................... 125,509 92,327 ------------ ----------- Net Income .............................................................. $ 243,236 $ 195,321 ============ =========== Net income per common share: Basic .................................................................. $ 1.20 $ .95 Diluted ................................................................ $ 1.18 $ .93 Average shares outstanding: Basic .................................................................. 203,119 205,894 Diluted ................................................................ 206,959 210,158
27 Consolidated Statements of Shareholders' Equity - -------------------------------------------------------------------------------- $ in thousands, except shares Wachovia Corporation and Subsidiaries Common Stock ------------------------- Capital Shares Amount Surplus ------------ ------- ------- Period Ended March 31, 1998 Balance at beginning of year ................. 205,926,632 $1,029,633 $ 974,803 Net income ................................... Unrealized holding losses on securities available-for-sale, net of tax and reclassification adjustment ................. Comprehensive income ..................... Cash dividends declared on common stock -- $.44 a share........................ Common stock issued pursuant to: Stock option and employee benefit plans ..... 1,084,512 5,423 31,249 Dividend reinvestment plan .................. 77,565 388 5,741 Common stock acquired ........................ (957,321) (4,787) (70,220) Miscellaneous ................................ (502) --------- Balance at end of period ..................... 206,131,388 $1,030,657 $ 941,071 ============= ========== ========= Period Ended March 31, 1999 Balance at beginning of year ................. 202,986,100 $1,014,931 $ 669,244 Net income ................................... Unrealized holding losses on securities available-for-sale, net of tax and reclassification adjustment ................. Comprehensive income ..................... Cash dividends declared on common stock -- $.49 a share........................ Common stock issued pursuant to: Stock option and employee benefit plans ..... 513,245 2,566 55,418 Dividend reinvestment plan .................. 67,042 335 5,384 Common stock acquired ........................ (667,937) (3,340) (54,360) Miscellaneous ................................ Balance at end of period ..................... 202,898,450 $1,014,492 $ 675,686 ============= ========== ========= Accumulated Other Total Retained Comprehensive Shareholders' Earnings Income Equity -------- ------------- ------------- Period Ended March 31, 1998 Balance at beginning of year ................. $3,098,767 $ 71,098 $ 5,174,301 Net income ................................... 195,321 195,321 Unrealized holding losses on securities available-for-sale, net of tax and reclassification adjustment ................. (7,249) (7,249) ------------- Comprehensive income ..................... 188,072 Cash dividends declared on common stock -- $.44 a share........................ (90,589) (90,589) Common stock issued pursuant to: Stock option and employee benefit plans ..... 36,672 Dividend reinvestment plan .................. 6,129 Common stock acquired ........................ (75,007) Miscellaneous ................................ (2,376) (2,878) ---------- ------------- Balance at end of period ..................... $3,201,123 $ 63,849 $ 5,236,700 ========== ============= ============= Period Ended March 31, 1999 Balance at beginning of year ................. $3,571,617 $ 82,440 $ 5,338,232 Net income ................................... 243,236 243,236 Unrealized holding losses on securities available-for-sale, net of tax and reclassification adjustment ................. (21,798) (21,798) ------------- Comprehensive income ..................... 221,438 Cash dividends declared on common stock -- $.49 a share........................ (99,662) (99,662) Common stock issued pursuant to: Stock option and employee benefit plans ..... 57,984 Dividend reinvestment plan .................. 5,719 Common stock acquired ........................ (57,700) Miscellaneous ................................ (34,072) (34,072) ---------- ------------- ------------- Balance at end of period ..................... $3,681,119 $ 60,642 $ 5,431,939 ========== ============= =============
28 Consolidated Statements of Cash Flows - -------------------------------------------------------------------------------- $ in thousands Wachovia Corporation and Subsidiaries Three Months Ended March 31 -------------------------------- 1999 1998 ---------- ---------- Operating Activities Net income ............................................................................... $ 243,236 $ 195,321 Adjustments to reconcile net income to net cash provided by operations: Provision for loan losses ............................................................... 80,636 74,126 Depreciation and amortization ........................................................... 57,210 34,125 Deferred income taxes ................................................................... 97,070 19,720 Securities gains ........................................................................ (234) (3,157) Gain on sale of noninterest-earning assets .............................................. (8,698) (508) Increase in accrued income taxes ........................................................ 125,435 59,442 Increase in accrued interest receivable ................................................. (13,285) (14,746) Increase in accrued interest payable .................................................... 14,625 45,300 Net change in other accrued and deferred income and expense ............................. (74,733) (22,789) Net trading account activities .......................................................... (493,725) (198,934) Net loans held for resale ............................................................... 151,859 (158,512) ------------- ------------- Net cash provided by operating activities .............................................. 179,396 29,388 Investing Activities Net increase in interest-bearing bank balances ........................................... (50,546) (21,224) Net decrease in federal funds sold and securities purchased under resale agreements ...... 151,370 1,223,247 Purchases of securities available-for-sale ............................................... (1,306,003) (1,677,570) Purchases of securities held-to-maturity ................................................. (35) ---- Sales of securities available-for-sale ................................................... 123,267 166 Calls, maturities and prepayments of securities available-for-sale ....................... 732,631 711,186 Calls, maturities and prepayments of securities held-to-maturity ......................... 8,716 134,927 Net increase in loans made to customers .................................................. (1,805,641) (222,157) Credit card receivables securitized ...................................................... 895,954 ---- Capital expenditures ..................................................................... (110,317) (72,658) Proceeds from sales of premises and equipment ............................................ 30,590 16,535 Net increase in other assets ............................................................. (90,061) (96,137) ------------- ------------- Net cash used by investing activities .................................................. (1,420,075) (3,685) Financing Activities Net (decrease) increase in demand, savings and money market accounts ..................... (235,194) 113,358 Net decrease in certificates of deposit .................................................. (471,390) (2,910,314) Net increase in federal funds purchased and securities sold under repurchase agreements .. 805,145 473,789 Net increase in commercial paper ......................................................... 73,748 183,435 Net increase in other short-term borrowings .............................................. 134,732 1,182,452 Proceeds from issuance of bank notes ..................................................... 167,828 100,000 Maturities of bank notes ................................................................. (371,264) (29,867) Proceeds from issuance of other long-term debt ........................................... 572,619 455,764 Payments on other long-term debt ......................................................... (490) (4,288) Common stock issued ...................................................................... 19,919 29,733 Dividend payments ........................................................................ (99,662) (90,589) Common stock repurchased ................................................................. (54,157) (69,066) Net increase (decrease) in other liabilities ............................................. 8,710 (20,326) ------------- ------------- Net cash provided (used) by financing activities ....................................... 550,544 (585,919) Decrease in Cash and Cash Equivalents .................................................... (690,135) (560,216) Cash and cash equivalents at beginning of year ........................................... 3,800,265 4,221,818 ------------- ------------- Cash and cash equivalents at end of period ............................................... $ 3,110,130 $ 3,661,602 ============= =============
29 1999 Form 10-Q - -------------------------------------------------------------------------------- United States Securities and Exchange Commission Washington, DC 20549 Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended March 31, 1999 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 March 31, 1999, Wachovia Corporation had 202,898,450 shares of common stock outstanding. Wachovia Corporation (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Documents Incorporated by Reference - -------------------------------------------------------------------------------- Portions of the financial supplement for the quarter ended March 31, 1999 are incorporated by reference into Parts I and II as indicated in the table below. Except for parts of the Wachovia Corporation Financial Supplement expressly incorporated herein by reference, this Financial Supplement is not to be deemed filed with the Securities and Exchange Commission. Part I Financial Information Item 1 Financial Statements (unaudited) Page Selected Period-End Data ............................... 1 Common Stock Data -- Per Share ......................... 1 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 .......... 2-25 Item 3 Quantitative and Qualitative Disclosures About Market Risk .......................... 13-15
30 Part II Other Information Item 6 Exhibits and Reports on Form 8-K Exhibits -- The complete index to exhibits has been filed as separate pages of the first quarter 1999 Form 10-Q. Copies of the complete exhibit list or of exhibits are available in the Edgar database at the SEC Internet address at www.sec.gov or are available upon request to: Corporate Reporting, Wachovia Corporation, P.O. Box 3099, Winston-Salem, North Carolina, 27150. A copying fee will be charged for the exhibits. A list of those exhibits filed herewith is included below. 10.7 Employment Agreement between Wachovia Corporation and Mickey W. Dry, dated as of January 24, 1997. 10.28 Executive Retirement Agreement between Wachovia Corporation and Mickey W. Dry, dated as of October 25, 1996. 11 "Computation of Earnings per Common Share" is presented as Table 4 on page 3 of the first quarter 1999 financial supplement. 12 Statement setting forth computation of ratio of earnings to fixed charges. 19 "Unaudited Consolidated Financial Statements," listed in Part I, Item 1, do not include all information and footnotes required under generally accepted accounting principles. However, in the opinion of management, the profit and loss information presented in the interim financial statements reflects all adjustments necessary to present fairly the results of operations for the periods presented. Adjustments reflected in the first quarter of 1999 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). Reports on Form 8-K -- A Current Report on Form 8-K dated January 14, 1999 was filed with the Securities and Exchange Commission to announce earnings for the quarter ended December 31, 1998.
Signatures - -------------------------------------------------------------------------------- WACHOVIA CORPORATION May 13, 1999 ROBERT S. McCOY, JR. May 13, 1999 DONALD K. TRUSLOW --------------------------------- --------------------------------- Robert S. McCoy, Jr. Donald K. Truslow Vice Chairman Senior Executive Vice President, Senior Executive Vice President Treasurer/Comptroller and Chief Financial Officer
31 Directors and Officers Directors of Wachovia Corporation and Wachovia Bank, N.A. - -------------------------------------------------------------------------------- L.M. Baker, Jr. Chairman and Chief Executive Officer James S. Balloun Chairman, President and Chief Executive Officer National Service Industries, Inc. 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 Thomas K. Hearn, Jr. President Wake Forest University George W. Henderson, III Chairman and Chief Executive Officer Burlington Industries, Inc. W. Hayne Hipp Chairman, President and Chief Executive Officer The Liberty Corporation Robert A. Ingram Chief Executive Officer Glaxo Wellcome plc Chairman of the Board Glaxo Wellcome Inc. George R. Lewis President and Chief Executive Officer Philip Morris Capital Corporation Elizabeth Valk Long Executive Vice President Time Inc. 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 and Chief Executive Officer G. Joseph Prendergast President and Chief Operating Officer Jean E. Davis Senior Executive Vice President Human Resources Mickey W. Dry Senior Executive Vice President Chief Credit Officer Stanhope A. Kelly Senior Executive Vice President General Banking Walter E. Leonard, Jr. Vice Chairman Senior Executive Vice President Operations/Technology Kenneth W. McAllister Senior Executive Vice President General Counsel/Administrative Services Robert S. McCoy, Jr. Vice Chairman Senior Executive Vice President Chief Financial Officer John C. McLean, Jr. Senior Executive Vice President Corporate Financial Services Donald K. Truslow Senior Executive Vice President Treasurer/Comptroller 32 EX-27 6 FDS -- WACHOVIA CORPORATION
9 1000 U.S. Dollars 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 1.00 3,110,130 160,529 524,100 809,416 8,399,296 1,373,453 1,422,225 46,393,132 548,302 65,319,488 38,522,356 9,748,687 1,880,266 7,970,451 0 0 1,014,492 4,417,447 65,319,488 969,294 147,431 13,661 1,130,386 307,367 522,310 608,076 80,636 234 492,198 368,745 243,236 0 0 243,236 1.20 1.18 4.41 144,763 137,116 0 0 547,992 93,835 13,509 548,302 0 0 0 EPS-BASIC Available at Year-end only
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