-----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, Dd2kZ3vewoYgzUQyAgW0HSnQm2IvxmRiMN8mqgTw9I4lUgEyynIfO2I6lfFWHJwK dgJ1M+lEqOL8S/fOnKeLYQ== 0000950168-99-002215.txt : 19990816 0000950168-99-002215.hdr.sgml : 19990816 ACCESSION NUMBER: 0000950168-99-002215 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990813 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: 99688455 BUSINESS ADDRESS: STREET 1: 100 N MAIN ST STREET 2: P O BOX 3099 CITY: WINSTON SALEM STATE: NC ZIP: 27150 BUSINESS PHONE: 3367705000 MAIL ADDRESS: STREET 1: 100 NORTH MAIN ST STREET 2: P O BOX 3099 CITY: WINSTON SALEM STATE: NC ZIP: 27150 FORMER COMPANY: FORMER CONFORMED NAME: FIRST WACHOVIA CORP DATE OF NAME CHANGE: 19910603 10-Q 1 WACHOVIA CORPORATION FORM 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 June 30, 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 June 30, 1999, Wachovia Corporation had 202,230,680 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 June 30, 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 30 through 33 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 second 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 29 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 16 through 19 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 The information required by this item is incorporated by reference to the information appearing under the heading "Part II Other Information" on pages 34 through 35 of the Financial Supplement. Item 5. Other Information None 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 May 13, 1999 was filed with the Securities and Exchange Commission announcing an Agreement and Plan of Merger by and between Wachovia Corporation and OFFITBANK Holdings, Inc. 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. August 12, 1999 WACHOVIA CORPORATION By: Robert S. McCoy, Jr. Vice Chairman Senior Executive Vice President 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*). 2.2 Agreement and plan of merger, dated as of May 13, 1999 by and between Wachovia Corporation and Offitbank Holdings, Inc. (Exhibit 2.1 to Form S-4 Registration Statement of Wachovia Corporation, dated June 24, 1999, File No. 333-81627*) 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. 333-79183*). 1 4.8 Indenture dated as of August 15, 1996 between Wachovia Corporation and The Chase Manhattan Bank, as Trustee, relating to senior securities (Exhibit 4(a) of Post-Effective Amendment No. 1 to Form S-3 (Shelf) Registration Statement of Wachovia Corporation, File No. 33-6280*). 4.9 Indenture between Wachovia Corporation, Wachovia Capital Trust II and First National Bank of Chicago, as Trustee, relating to Floating Rate Junior Subordinated Deferrable Interest Debentures (Junior Subordinated Debentures). (Exhibit 4(c) of Amendment No. 1 to Form S-3 Registration Statement of Wachovia Corporation and Wachovia Capital Trust II dated January 22, 1997, File No. 333-19365.) 4.10 Amended and Restated Declaration of Trust of Wachovia Capital Trust II, relating to Preferred Securities (Exhibit 4(b)(iv) of Amendment No. 1 to Form S-3 Registration Statement of Wachovia Corporation and Wachovia Capital Trust II dated January 22, 1997, File No. 333-19365). 4.11 Preferred Securities Guarantee Agreement of Wachovia Corporation (Exhibit 4 (g) of Amendment No. 1 to Form S-3 Registration Statement of Wachovia Corporation and Wachovia Capital Trust II dated January 22, 1997, File No. 333-19365). 4.12 Indenture between Central Fidelity Banks, Inc. and Chemical Bank, as Trustee, relating to $150,000,000 principal amount of subordinated debt securities (Exhibit 4.1 to Form 8-K of Central Fidelity Banks, Inc., dated November 18, 1992, File No. 0-8829). 4.13 Indenture between Central Fidelity Banks, Inc., Central Fidelity Capital Trust I and The Bank of New York, as Trustee, relating to $100,000,000 Floating Rate Junior Subordinated Debentures (Exhibit 4.1 to Form S-3 Registration Statement of Central Fidelity Banks, Inc., dated April 23, 1997, File No. 333-28917). 4.14 Amended and Restated Declaration of Trust of Central Fidelity Capital Trust I (Exhibit 4.4 to Form S-3 Registration Statement of Central Fidelity Banks, Inc., dated April 23, 1997, File No. 333-28917). 4.15 Form of New Guarantee Agreement for the benefit of the holders of the Trust Securities (Exhibit 4.6 to Form S-3 Registration Statement of Central Fidelity Banks, Inc., dated as of April 23, 1997, File No. 333-28917). 10.1 Deferred Compensation Plan of Wachovia Bank of North Carolina, N.A. (Exhibit 10.1 to Report on Form 10-K of Wachovia Corporation for the fiscal year ended December 31,1992, File No. 1-9021*). 10.2 1983 Amendment to Deferred Compensation Plan described in Exhibit 10.1 hereto (Exhibit 10.2 to Report on Form 10-K Wachovia Corporation for the fiscal year ended December 31, 1992, File No. 1-9021*). 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 January 1, 1999. 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., 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 Robert S. McCoy, Jr., dated July 24, 1998. 10.8 Form of Amendment dated April 23, 1999 to Employment Agreements between Wachovia Corporation and L. M. Baker, Jr., Walter E. Leonard, Jr., Robert S. McCoy, Jr., and G. Joseph Prendergast described in exhibit 10.6 and 10.7 hereto. 10.9 Employment Agreement between Wachovia Corporation and Mickey W. Dry, dated as of April 23, 1999. 10.10 Form of Employment Agreement between Wachovia Corporation and Executive Officers (other than Messrs. Baker, Dry, Leonard, McCoy and Prendergast). 10.11 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*) 10.12 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*). 10.13 Amendment to Executive Retirement Agreement described in Exhibit 10.12 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*). 10.14 Amendment to Executive Retirement Agreement described in Exhibit 10.12 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*). 10.15 Amendment to Executive Retirement Agreement described in Exhibit 10.12 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*). 10.16 Form of Executive Retirement Agreement between Wachovia Corporation and L.M. Baker, 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*). 10.17 Form of Executive Retirement Agreement between Wachovia Corporation and G. Joseph Prendergast and Walter E. Leonard, Jr., dated October 25, 1996. 10.18 Senior Executive Retirement Agreement between Wachovia Corporation and Mr. Robert S. McCoy, Jr., dated July 24, 1998. 10.19 Form of Amendment dated April 23, 1999 to Senior Executive Retirement Agreements between Wachovia Corporation and L. M. Baker, Jr., Walter E. Leonard, Jr., Robert S. McCoy, Jr., and G. Joseph Prendergast described in exhibits 10.16, 10.17 and 10.18 hereto. 10.20 Senior Executive Retirement Agreement between Wachovia Corporation and Mickey W. Dry, dated as of April 23, 1999. 3 10.21 Form of Senior Executive Retirement Agreement between Wachovia Corporation and Executive Officers (other than Messrs. Baker, Dry, Leonard, McCoy and Prendergast). 10.22 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*). 10.23 1990 Declaration of Amendment to Senior Management and Director Stock Plan as described in Exhibit 10.22 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*). 10.24 1996 Declaration of Amendment to Senior Management and Director Stock Plan as described in Exhibit 10.22 hereto (Exhibit 10.24 to Report on Form 10-K of Wachovia Corporation for fiscal year ended December 31, 1996, File No. 1-9021*). 10.25 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*). 10.26 Amendment to Deferred Compensation Plan described in Exhibit 10.25 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*). 10.27 Amendment to Deferred Compensation Plan described in Exhibit 10.25 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*). 10.28 Amendment to Deferred Compensation Plan described in Exhibit 10.25 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*). 10.29 Amended and Restated Wachovia Corporation Stock Plan (Exhibit 4.1 to S-8 Registration Statement File No. 033-53325*). 10.30 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*). 10.31 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*). 10.32 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*). 10.33 Executive Long Term Disability Income Plan. 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PURPOSE. The purposes of the Wachovia Corporation Senior Management Incentive Plan (the "Plan") are to motivate and reward a greater degree of excellence and teamwork among the senior officers of Wachovia Corporation (the "Corporation") and related corporations by providing incentive compensation award opportunities; to provide attractive and competitive total cash compensation opportunities for exceptional corporate, organizational unit and personal performance; to reinforce the communication and achievement of the mission, objectives and goals of the Corporation; and to enhance the Corporation's ability to attract, retain and motivate the highest caliber senior officers. The purposes of the Plan shall be carried out by payment to eligible participants of annual incentive cash awards (individually, an "Award" and collectively, "Awards"), subject to the terms and conditions of the Plan and the discretion of the Committee. 2. EFFECTIVE DATE AND PLAN YEAR. The Wachovia Corporation Senior Management Incentive Plan was originally adopted by the Board of Directors of the Corporation (the "Board") effective January 1, 1987. The Plan was amended and became effective as of April 22, 1994 and was further amended effective as of January 1, 1999. The plan year shall be the calendar year (the "Plan Year"). 3. ADMINISTRATION OF THE PLAN. Subject to Section 11 herein, the Plan shall be administered by the Management Resources and Compensation Committee of the Board of Directors, or such other committee as the Board of Directors may from time to time designate (the "Committee"). The Committee has full authority and responsibility for the establishment and administration of the Plan, including, without limitation, the authority (i) to determine all matters relating to Awards, including selection of individuals to be granted Awards and the terms, conditions, restrictions and limitations of Awards; (ii) to establish, amend and rescind rules and regulations for the administration of the Plan; and (iii) to construe and interpret the Plan and any agreements related to Awards, to establish and interpret rules and regulations for administering the Plan and to make all other determinations deemed necessary or advisable for administering the Plan. All determinations and decisions of the Committee must be made by a majority of the members present and shall be final and binding on all persons, except that no member of the Committee may at any time participate in any decision affecting the bonus of such member. Should the Committee be unable to render any decision by reason of a deadlock, the majority vote of the entire Board of Directors shall govern and be final and binding upon all parties. 4. ELIGIBILITY. An individual shall be eligible to become a participant in the Plan (a "Participant") who satisfies the following requirements: (a) The individual is an employee of the Corporation or a related corporation. For this purpose, an individual shall be considered to be an "employee" if there exists between the individual and the Corporation or a related corporation the legal and bona fide relationship of employer and employee. (b) The individual is a senior officer of the Corporation or a related corporation. For the purposes herein, a "senior officer" of the Corporation or a related corporation shall mean an officer who is deemed to have sufficient responsibility, ability and potential to make significant contributions to the success of the Corporation or a related corporation. (c) The individual is recommended each year by the Chief Executive Officer of the Corporation (the "Chief Executive Officer") and considered and approved by the Committee as a Participant in the Plan. 5. PARTICIPATION. Prior to the beginning of each Plan Year, the Chief Executive Officer shall recommend to the Committee each senior officer of the Corporation or a related corporation who is eligible to become a Participant in the Plan with respect to such Plan Year. Participants shall be approved by the Committee in its sole and absolute discretion. In the event of the promotion of an employee or the hiring of a new employee during the Plan Year, the Committee, upon the recommendation of the Chief Executive Officer, may approve the entry of a Participant into the Plan during the Plan Year. In such case, the Award determined pursuant to the terms of the Plan with respect to such Participant shall be multiplied by a fraction, the numerator of which is the number of full calendar months during the Plan Year in which he is a Participant and the denominator of which is twelve. Participation in the Plan shall be subject to the provisions of the Plan and such other terms and conditions as the Committee shall provide. Notwithstanding any provision in Section 5 to the contrary, the Committee shall have authority to modify the participation provisions contained herein in a manner consistent with Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), or the regulations thereunder. 6. PERFORMANCE CRITERIA AND EVALUATION. (a) PERFORMANCE GOALS. The performance goals upon which Awards shall be made shall be based upon business criteria applicable to the Corporation, the business unit to which the Participant is assigned and the Participant individually. The corporate business criteria upon which such Awards shall be based shall include the following earnings factors, weighted as indicated: net income per diluted share (50%); return on assets (net income) (25%); and return on equity (net income) (25%). The three earnings measures will be combined to produce a composite corporate performance evaluation percentage factor (the "Composite Percentage Factor") to be used along with the individual performance evaluation percentage factor (the "Individual Percentage Factor") in calculating individual awards. 2 (b) INDIVIDUAL PERFORMANCE CRITERIA AND EVALUATION. A Participant's Individual Percentage Factor will be based on a composite rating of (i) relevant performance of the organizational unit to which the Participant is assigned (the "Unit") as compared to goals for the Plan Year and (ii) quantitative and qualitative elements of personal performance of the Participant in relation to goals and expectations established for the Plan Year. Each of these two components will have a 50% weighing in determining a Participant's Individual Percentage Factor. (i) The evaluation of the performance of the Unit will be based primarily on the degree of success in achieving the Unit's annual profit and business plan. The assessment will include, as applicable to the Unit, such factors as business development, expense management, earnings growth, credit quality, investment results, audit findings, affirmative action goals, staff development, operational efficiency and strategic planning. For purposes of this evaluation, the Unit will be the assigned responsibility area of the Participant. In the case of Participants in administrative and support functions, the evaluation will include the performance of line business units whose results can be influenced significantly by such persons. (ii) The evaluation of a Participant's personal performance will be based on the Participant's success in meeting expectations of subjective, qualitative and quantitative goals for the Plan Year. A Participant's personal performance evaluation will include an assessment of performance relative to the Corporation's standards in such areas as leadership, initiative, professional skills, teamwork, problem solving, personal behavior and advancement and achievement of the Corporation's mission and objectives. The following criteria shall apply in measuring a Participant's personal performance: (A) Performance Level IV -- Superior: Participants performing at this level would be rated in the range of 90% to 100%. With little guidance, a Participant at this level consistently performs in the superior manner that always exceeds normal requirements and expectations. The Participant's performance clearly is a model of excellence. (B) Performance Level III -- Exceptional: Participants performing at this level would be rated in the range of 75% to 89%. A Participant at this level consistently performs in an exceptional manner in which requirements and expectations are always accomplished. The Participant frequently accomplishes more than is expected. (C) Performance Level II -- Satisfactory: Participants performing at this level would be rated in the range of 50% to 74%. The Participant performs in an overall satisfactory manner, generally accomplishing requirements and expectations. The Participant does not always perform in an exceptional manner and needs guidance with certain tasks. (D) Performance Level I -- Meets Minimum Level: No Award will be paid to Participants at this performance level. The Participant generally meets minimum levels of performance but sometimes has difficulty in achieving requirements and 3 expectations. The Participant is capable of satisfactory performance with additional effort, guidance, training and experience. 7. RECOMMENDATION AND DETERMINATION OF AWARDS. In December of each Plan Year, the responsible managers and executives will evaluate each Participant's performance in meeting Unit and personal goals and objectives for the Plan Year. A recommended composite individual performance evaluation factor for each Participant with appropriate supporting documentation will be submitted by Division Executives of the Corporation to the Personnel Director of the Corporation for a review of completeness and compliance with the Plan. The recommended composite individual performance evaluation percentage factor to be used in calculating Awards for Participants shall be subject to review and approval by the Chief Executive Officer and the Committee. The composite corporate performance evaluation percentage factor will be calculated using net income per diluted share, return on assets and return on equity as plotted in the benchmark table. The resulting percentage representing the composite corporate performance evaluation factor will be multiplied by the composite individual performance evaluation percentage factor and the Participant's base salary paid during the Plan Year to determine the amount of each Participant's Award. Amounts that would otherwise have been payable to a Participant if the composite corporate performance evaluation factor had been higher or if the Participant had received a higher performance on the individual performance evaluation percentage factor shall not be reallocated to other Participants, except as may otherwise be permitted under Section 162(m) of the Code and the regulations thereunder. 8. PAYMENT OF AWARDS. Unless otherwise determined by the Committee, the Committee will determine the Participants entitled to receive Awards and, subject to the terms of Section 11(b) herein, the amount of such Awards. The Committee will make such determinations in January following the end of the Plan Year, and the Awards for a Plan Year shall be paid by the Corporation to the Participant (or his beneficiary) on or about February 1 following the end of the Plan Year. Payment of Awards shall be made by a deposit to the Corporation's payroll system, with a written statement of the amount of each Award provided to each Participant. The amount of each Award shall be rounded to the nearest $100. 9. TERMINATION OF EMPLOYMENT. (a) TERMINATION DUE TO DEATH, DISABILITY OR RETIREMENT. If termination of employment occurs during a Plan Year as the result of death, disability or approved retirement, a proportional award shall be paid to the Participant (or his estate in the event of death) for the period of active employment during the Plan Year. In such event, the Award determined pursuant to the terms of the Plan with respect to such Participant shall be multiplied by a fraction, the numerator of which is the number of full calendar months during the Plan Year in which the employee is a Participant and the denominator of which is twelve, and such Award shall be paid in accordance with Section 8 herein. In the event of a Participant's death, any Award payable under the Plan shall be paid to the Participant's estate. 4 (b) OTHER TERMINATION. Except to the extent otherwise provided in Section 10, if termination occurs during the Plan Year for any reason other than death, disability or approved retirement, no Award shall be paid. (c) TERMINATION AFTER END OF PLAN YEAR. If termination occurs between the end of the Plan Year and the date of payment of an Award, the full amount of the Award shall be paid in accordance with Section 8 herein unless the termination was the direct result of dishonesty or misconduct. (d) CERTAIN DEFINITIONS. For the purposes herein: (i) "Disability" shall mean the inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death, or which has lasted or can be expected to last for a continuous period of not less than twelve months. (ii) "Approved retirement" shall mean early or normal retirement as provided under the Retirement Incentive Plan of Wachovia Corporation or any successor plan thereto applicable to a Participant or the retirement date under a contract, if any, between a Participant and the Corporation or a related corporation providing for the Participant's retirement from the employment of the Corporation or a related corporation prior to the normal retirement date. 10. CHANGE OF CONTROL. (a) In the event of a Change of Control (as defined in Section 10(b) herein), all Awards made pursuant to the Plan shall be deemed earned and shall become immediately due and payable for the full Plan Year (notwithstanding the date of the Change of Control event during the Plan Year), subject to the following: (i) the corporate Composite Percentage Factor shall be based on corporate performance on an annualized basis as of the date of the Change of Control, and (ii) each Participant shall receive the highest Award that may be granted based on the individual Participant's job classification. Awards that become due and payable upon a Change of Control shall be deemed earned, due and payable regardless of whether the Participant continues service in the same position following the Change of Control, has a change in position or responsibility, or is terminated from employment with the Corporation or a related corporation. (b) 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, 30% or more of the outstanding Common Stock of the Corporation; (ii) The date the shareholders of the Corporation approve a definitive agreement (A) to merge or consolidate the Corporation with or into another corporation, in which the 5 Corporation is not the continuing or surviving corporation or pursuant to which any shares of Common Stock of the Corporation would be converted into cash, securities or other property of another corporation, other than a merger of the Corporation in which holders of Common Stock immediately prior to the merger have the same proportionate ownership of Common Stock of the surviving corporation immediately after the merger as immediately before, or (B) to sell or otherwise dispose of substantially all the assets of the Corporation; or (iii) The date there shall have been a change in a majority of the Board of Directors of the Corporation within a twelve-month period unless the nomination for election by the Corporation's shareholders of each new director was approved by the vote of two-thirds of the directors then still in office who were in office at the beginning of the twelve-month period. (For the purposes herein, the term "person" shall mean any individual, corporation, partnership, group, association or other person, as such term is defined in Section 13(d)(3) or Section 14(d)(2) of the Securities Exchange Act of 1934, as amended (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) Notwithstanding the foregoing, in the event of a merger, share exchange, reorganization or other business combination affecting the Corporation or a related corporation, the Committee may, in its sole and absolute discretion, determine that any or all Awards shall not be paid, if the Board of Directors or the surviving or acquiring corporation, as the case may be, shall have taken such action, including but not limited to the making of substitute Awards, as in the opinion of the Committee is equitable or appropriate to protect the rights and interests of participants in the Plan. 11. PERFORMANCE-BASED COMPENSATION. To the extent to which it is necessary to comply with Section 162(m) of the Code and the regulations thereunder, the following provisions shall apply: (a) COMPLIANCE WITH CODE SECTION 162(M). It is the intent of the Corporation that Awards conferred under the Plan to Covered Employees, as such term is defined in Section 19(e) herein, shall comply with the qualified performance-based compensation exception to employer compensation deductions set forth in Section 162(m) of the Code and related regulations, and the Plan shall be construed in favor of meeting the requirements of Section 162(m) of the Code and the regulations thereunder to the extent practicable. (b) MAXIMUM AWARD. The maximum amount of an Award that may be payable to any participant for any Plan Year may not exceed the lesser of (i) 250% of the participant's base salary for the Plan Year or (ii) $2,500,000. (c) COMMITTEE AUTHORITY AND COMPOSITION. The Committee shall be authorized to establish performance goals, certify satisfaction of performance goals and other material terms and to take such other action as may be necessary in order to qualify for the performance-based compensation 6 exception. The Committee shall be comprised of two or more outside directors (as such term is defined in Section 162(m) of the Code and the regulations thereunder), or as may otherwise be permitted or required under Section 162(m) and the related regulations. Without limiting the foregoing, the committee authorized to take such actions may be comprised of a subcommittee of the Committee or other directors who qualify as outside directors (as such term is defined in Section 162(m) of the Code and the regulations thereunder), and the actions taken by such subcommittee or other group of outside directors shall be effective as the action of the Committee to the extent permitted under the Plan and Section 162(m) of the Code and the regulations thereunder. (d) COMMITTEE DISCRETION. The Committee shall not have discretion to increase the amount of an Award payable to an employee under the Plan over the amount that is determined in accordance with Sections 6, 7 and 11(b) herein. The Committee shall, in any event, have the discretion to reduce or eliminate the amount of an Award that would otherwise be payable to any Participant. (e) SHAREHOLDER APPROVAL. The material terms of the performance goal or goals pursuant to which Awards are to be made shall be disclosed to, and subject to the approval of, the shareholders of the Corporation. Material terms of a performance goal or goals, the targets of which may be changed by the Committee, shall be disclosed to, and subject to the reapproval of, the shareholders of the Corporation upon a change of the material terms of a performance goal or goals by the Committee or as may be otherwise required by Section 162(m) of the Code or the regulations thereunder. 12. NONASSIGNABILITY OF INCENTIVE AWARDS. The right to receive payment of an Award shall not be assignable or transferable (including by pledge or hypothecation) other than by will or the laws of intestate succession. 13. NO TRUST FUND; UNSECURED INTEREST. A Participant shall have no interest in any fund or specified asset of the Corporation. No trust fund shall be created in connection with the Plan or any Award, and there shall be no required funding of amounts which may become payable under the Plan. Any amounts which are or may be set aside under the provisions of this Plan shall continue for all purposes to be a part of the general assets of the Corporation, and no person or entity other than the Corporation shall, by virtue of the provisions of this Plan, have any interest in or right to such assets. No right to receive payments from the Corporation pursuant to this Plan shall be greater than the right of any unsecured creditor of the Corporation. 14. NO RIGHT OR OBLIGATION OF CONTINUED EMPLOYMENT. Nothing contained in the Plan shall require the Corporation or a related corporation to continue to employ a Participant, nor shall the Participant be required to remain in the employment 7 of the Corporation or a related corporation. 15. WITHHOLDING. The Corporation shall withhold all required local, state and federal taxes from any amount of an Award. 16. RETIREMENT PLANS. In no event shall any amounts accrued or payable under this Plan be treated as compensation for the purpose of determining the amount of contributions or benefits to which a Participant shall be entitled under any retirement plan to which the Corporation or a related corporation may be a party. 17. DILUTION OR OTHER ADJUSTMENTS. If there is any change in the Corporation because of a merger, share exchange, reorganization or other business combinations affecting the Corporation or a related corporation, or if extraordinary items of income or expense of the Corporation or a related corporation occur, the Committee may make such adjustments to any provisions of this Plan, including but not limited to adjustments to determinations of performance and Awards, as the Committee deems desirable to prevent the dilution or enlargement of rights granted hereunder. 18. AMENDMENT AND TERMINATION OF THE PLAN. The Plan may be amended or terminated at any time by the Board or by the Committee as delegated by the Board, provided that such termination or amendment shall not, without the consent of the Participant, affect such Participant's rights with respect to Awards previously awarded to him. With the consent of the Participant affected, the Board, or by delegation of authority by the Board, the Committee, may amend outstanding Awards in a manner not inconsistent with the Plan. 19. CERTAIN DEFINITIONS. For purposes of the Plan, the following terms shall have the meaning indicated: (a) "Related corporation" means any parent, subsidiary or predecessor of the Corporation. (b) "Parent" or "parent corporation" shall mean any corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation if each corporation other than the Corporation owns stock possessing 50% or more of the total combined voting power of all classes of stock in another corporation in the chain. (c) "Subsidiary" or "subsidiary corporation" means any corporation (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation if each corporation other than the last corporation in the unbroken chain owns stock possessing 50% or 8 more of the total combined voting power of all classes of stock in another corporation in the chain. (d) "Predecessor" or "predecessor corporation" means a corporation which was a party to a transaction described in Section 429(a) of the Code (or which would be so described if a substitution or assumption under that Section had occurred) with the Corporation, or a corporation which is a parent or subsidiary of the Corporation, or a predecessor of any such corporation. (e) "Covered Employee" shall mean any individual who, on the last day of the taxable year, is (i) the Chief Executive Officer or is acting in such capacity or (ii) among the four highest compensated officers (other than the Chief Executive Officer), as determined in accordance with the executive compensation disclosure rules under the Exchange Act; provided, however, that if such term is defined otherwise in Section 162(m) of the Code or the regulations thereunder, then it shall have the meaning set forth in Section 162(m) or the related regulations. 20. BINDING ON SUCCESSORS. The obligations of the Corporation under the Plan shall be binding upon any organization which shall succeed to all or substantially all of the assets of the Corporation, and the term "Corporation," whenever used in the Plan, shall mean and include any such organization after the succession. 21. APPLICABLE LAW. The Plan shall be governed by and construed in accordance with the laws of the State of North Carolina. IN WITNESS WHEREOF, the Wachovia Corporation Senior Management Incentive Plan, as amended, is, by the authority of the Board of Directors of the Corporation, executed effective as of January 1, 1999. WACHOVIA CORPORATION By:___________________________ L.M. Baker, Jr. Attest: Chief Executive Officer - ----------------------------- William M. Watson, Jr. Secretary [Corporate Seal] EX-10 4 EXHIBIT 10.7 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT, made as of the 24th day of July, 1998, by and between WACHOVIA CORPORATION (the "Corporation") and ROBERT S. McCOY, JR. (the "Executive"); RECITALS: 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. 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 prcvided by any subsidiary of the Corporation. 2. Term of Agreement. The term ofthis Agreement shall commence on the date hereof and shall continue in effect until December 31, 2000; 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 ofthis Agreement extend beyond the Executive's sixty-second birthday. References herein to the "term" of this Agreement shall mean the original term plus any continuation as provided in this Section 2. The "term" shall not be deemed to refer to the Compensation Period described in Section 4. 3. Termination of Employment by the Corporation. The Corporation may terminate the employment of the Executive at any time for any reason; provided, that except as set forth in Sections 6 and 7, the Corporation will provide the Executive with Compensation Continuance to the extent described in Section 4 if the Executive's employment is involuntarily terminated. The Executive's employment shall be deemed to be involuntarily terminated if he is terminated by the Corporation for any reason other than for "cause" as defined in Section 6, or if he voluntarily terminates employment within six months after: (a) his base salary is reduced below its level in effect on the date hereof without the Executive's consent, or (b) the Corporation amends the Senior Executive Retirement Agreement between the Corporation and the Executive dated July 24, 1998 (the "Retirement Agreement"), without the Executive's consent, and such amendment reduces benefits to which the Executive would have been entitled had such amendment not been made, or (c) the duties assigned to the Executive are not of the status and type described in Section l 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 ofthe date of such termination, or (ii) the Normal Retirement Date of the Executive as defined in the Retirement Agreement (such period is referred to herein as the "Compensation Period"). The duration of the Compensation Period shall not be affected by the fact that the term of this Agreement otherwise would end before such Period expires. The cash compensation and benefits are as follows: (a) Cash Compensation. The amount of cash compensation to be received monthly during the Compensation Period shall equal one-twelfth of the sum of (i) the Executive's highest annual rate of salary from the Corporation in effect during the 12-month period prior to his involuntary termination, plus (ii) an amount equal to the average of the annual amounts, if any, awarded to the Executive under the Corporation's Senior Management Incentive Plan for the three consecutive calendar years next preceding the year of such termination, plus (iii) the average of any annual contributions by the Corporation (excluding participant contributions) in behalf of the Executive under the Retirement Savings and Profit-Sharing Plan of Wachovia Corporation and the Wachovia Corporation Retirement Savings and Profit-Sharing Benefit Equalization Plan for the three consecutive calendar years preceding the year of such termination. Each monthly payment of such cash compensation shall have deducted therefrom all payroll taxes and withholdings required by law. -2- (b) Employee Benefits. During the Compensation Period the Executive shall be carried on the payroll of the Corporation, and shall be deemed to be continuing in the employment of the Corporation for the purpose of applying and administering employee benefit plans of the Corporation (other than any tax-qualified retirement plans) and individual contracts between the Corporation and the Executive providing supplemental or equalization payments or benefits with respect to the Executive. The Executive shall participate in any changes during the Compensation Period in benefit plans or programs applicable generally to employees of the Corporation, or to a class of employees which includes senior executives of the Corporation, but shall not have any right or option to participate in any such plan or program in which he was not a participant immediately prior to his involuntary termination of employment. Any individual contract between the Corporation and the Executive in effect at the time of his involuntary termination of employment may be terminated or amended by the Corporation to the extent permitted by the terms of such contract; provided, that during the Compensation Period the Corporation shall not, without the written consent of the Executive or except to the extent required by law, make any amendment to or terminate any one or more of the following individual contracts or plans as applied to the Executive: (i) the Retirement Agreement; and (ii) the Wachovia Corporation Retirement Savings and Profit-Sharing Benefit Equalization 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 -3- 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 sooner terminated as provided in Section 3, 6 or 8. The Executive shall not be entitled to any form of Compensation Continuance as a result of such voluntary termination. 6. Termination for Cause. This Agreement shall immediately be terminated and neither party shall have any obligation hereunder (including but not limited to any obligation on the part of the Corporation to provide Compensation Continuance) if the Executive's employment is terminated for "cause." Termination for cause shall occur when termination results from the Executive's (a) criminal dishonesty, (b) refusal to perform his duties hereunder on substantially a full-time basis, (c) refusal to act in accordance with any specific substantive instructions ofthe Chief Executive Of ficer or the Board of Directors ofthe 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 ali 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 -4- 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. (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 -5- 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 ofthe outstanding Common Stock ofthe Corporation; (ii) The date the shareholders of the Corporation approve a definitive agreement (A) to merge or consolidate the Corporation with or into another corporation, in which the Corporation is not the continuing or surviving corporation or pursuant to which any shares of Common Stock of the Corporation would be converted into cash, securities or other property of another corporation, other than a merger of the Corporation in which holders of Common Stock immediately prior to the merger have the same proportionate ownership of Common Stock of the surviving corporation immediately after the merger as immediately before, or (B) to sell or otherwise dispose of substantially all the assets of the Corporation; or (iii) The date there shall have been a change in a majority of the Board of Directors of the Corporation within a twelve month period unless the nomination for election by the Corporation's shareholders of each new director was approved by the vote of twothirds of the directors then still in office who were in office at the beginning of the twelve month period. For the purposes herein, the term "person" shall mean any individual, corporation, partnership, group, association or other person, as such term is defined in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, other than the Corporation, a subsidiary ofthe Corporation or any employee benefit -6- 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 whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by a nationally recognized certified public accounting firm designated by the Executive (the "Accounting Firm") which shall provide detailed supporting calculations both to the Corporation and the Executive within fifteen business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Corporation. In the event that the Accounting Firm is serving as accountant or auditor for an individual, entity or group effecting the change in ownership or effective control (within the meaning of Section 280G of the Code), the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Corporation. Any Gross-Up Payment, as determined pursuant to this -7- Section 10, shall be paid by the Corporation to the Executive within five days after the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall so indicate to the Executive in writing. Any determination by the Accounting Firm shall be binding upon the Corporation and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Corporation should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Corporation exhausts its remedies pursuant to Section 10(c)(iii) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Corporation to or for the benefit of the Executive. (iii) The Executive shall notify the Corporation in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Corporation of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten 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 wth respect to such claim is due). If the Corporation notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (A) give the Corporation any information reasonably requested by the Corporation relating to such claim; (B) take such action in connection with contesting such claim as the Corporation shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Corporation; -8- (C) cooperate with the Corporation in good faith in order to effectively contest such claim; and (D) permit the Corporation to participate in any proceedings relating to such claim; provided, however, that the Corporation shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 10(c)(iii), the Corporation shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Corporation shall determine; provided, however, that if the Corporation directs the Executive to pay such claim and sue for a refund, THE CORPORATION shall advance the amount of such payment to the Executive, on an interest-free basis, and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest cr 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 ofthe 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 l0(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 l0(c)(iii)) promptly pay to the -9- Corporation the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by Company pursuant to Section l0(c)(iii), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Corporation does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 11. Waiver of Claims. In consideration of the obligations of the Corporation hereunder, the Executive unconditionally releases the Corporation, its directors, officers, employees and shareholders, from any and all claims, liabilities and obligations of any nature pertaining to termination of the Executive's employment by the Corporation, including but not limited to (a) any claims under federal, state or local laws prohibiting discrimination, including without limitation the Age Discrimination in Employment Act of 1967, as amended, or (b) any claims growing out of any alleged legal restrictions on the Corporation's right to terminate the Executive's employment, such as any alleged implied contract of employment or termination contrary to public policy. The Executive acknowledges that he has been advised to consult with an attorney prior to signing this Agreement, that he has had no less than twenty-one days to consider this Agreement prior to the execution hereof, and that he may revoke this Agreement at any time within seven days following the execution hereof. 12. Notices. All notices hereunder shall be in writing and deemed properly given if delivered by hand and receipted or if mailed by registered mail, return receipt requested. Notices to the Corporation shall be directed to the Secretary of the Corporation with a copy directed to the Chief Executive Of ficer. Notices to the Executive shall be directed to his fast 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 offin respect of any claim, debt or obligation, or similar process. -10- (c) This Agreement may not be amended, modified or canceled except by written agreement of the parties. (d) In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions of this Agreement shall remain in full force and effect to the fullest extent permitted by law. (e) This Agreement shall be binding upon and inure to the benefit of the Executive and the Corporation, and their respective heirs, successors and assigns. (f) No benefit or promise hereunder shall be secured by any specific assets of the Corporation. The Executive shall have only the rights of an unsecured general creditor of the Corporation in seeking satisfaction of such benefits or promises. (g) This Agreement shall be governed by the construed in accordance with the laws of the State of North Carolina. (h) This Agreement sets forth the entire agreement and understanding of the parties hereto with respect to the matters covered hereby, and amends and supersedes any predecessor Employment Agreement between the parties hereto. 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:[SIGNATURE APPEARS HERE] -------------------------- Chief Executive Officer Attest: [SIGNATURE APPEARS HERE] - --------------------------- Secretary [Corporate Seal] [SIGNATURE APPEARS HERE] (Seal) ----------------------------------- Robert S. McCoy Jr. EX-10 5 EXHIBIT 10.8 AMENDMENT TO EMPLOYMENT AGREEMENT THIS AMENDMENT, made and entered into as of the 23rd day of April, 1999, by and between Wachovia Corporation (the "Corporation"), a North Carolina corporation, and <> (the "Executive"), a management employee of the Corporation. R E C I T A L S: The Corporation and the Executive have previously entered into an Employment Agreement (the "Agreement"). It is deemed advisable to amend the Agreement to include in the determination of Compensation Continuance payable to the Executive any incentive compensation approved by the Management Resources and Compensation Committee. NOW, THEREFORE, the Corporation and the Executive hereby agree that the Employment Agreement shall be and hereby is amended, effective as of the date hereof, by deleting Section 4(a)(ii) and substituting therefor the following: "(ii) an amount equal to the average of the incentive compensation paid to the Executive by the Corporation, if any, for the three consecutive calendar years next preceding the year of such termination; provided, that the incentive compensation to be recognized for this purpose shall be approved by the Management Resources and Compensation Committee, plus" In all other respects, the Employment Agreement, as amended, is hereby ratified, confirmed and approved. IN WITNESS WHEREOF, this Amendment has been executed on behalf of the Corporation by its duly authorized officers and by the Executive as of the day and year first above written. WACHOVIA CORPORATION By: ---------------------------------- Chief Executive Officer ATTEST: - --------------------------------- Secretary ---------------------------(SEAL) Executive EX-10 6 EXHIBIT 10.9 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT, made as of the 23th day of April, 1999, 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 January 31, 2001. References herein to the "term" of this Agreement shall mean the term described in the preceding sentence. The "term" shall not be deemed to refer to the Compensation Period described in Section 4. 3. Termination of Employment by the Corporation. The Corporation may terminate the employment of the Executive at any time for any reason; provided, that except as set forth in Sections 6 and 7, the Corporation will provide the Executive with Compensation Continuance to the extent described in Section 4 if the Executive's employment is involuntarily terminated. The Executive's employment shall be deemed to be involuntarily terminated if he is terminated by the Corporation for any reason other than for "cause" as defined in Section 6, or if he voluntarily terminates employment within six months after: (a) his base salary is reduced below its level in effect on the date hereof without the Executive's consent, or (b) the Corporation amends the Senior Executive Retirement Agreement between the Corporation and the Executive dated April 23, 1999 (the "Retirement Agreement"), without the Executive's consent, and such amendment reduces benefits to which the Executive would have been entitled had such amendment not been made, or (c) the duties assigned to the Executive are not of the status and type described in Section 1 and the Executive has not consented thereto. The Executive shall be deemed to have consented to any reduction described in (a) or (b), or assignment described in (c), unless he shall object thereto in writing within thirty days after he receives notice thereof. 4. Compensation Continuance. If the Executive's employment hereunder is involuntarily terminated as described in Section 3, he will be entitled to receive the cash compensation and benefits described in (a), (b) and (c) below (herein, "Compensation Continuance") for the period beginning with the date of such involuntary termination and ending with the earlier of (i) the third anniversary of the date of such termination, or (ii) the Normal Retirement Date of the Executive as defined in the Retirement Agreement (such period is referred to herein as the "Compensation Period"). The duration of the Compensation Period shall not be affected by the fact that the term of this Agreement otherwise would end before such Period expires. The cash compensation and benefits are as follows: (a) Cash Compensation. The amount of cash compensation to be received monthly during the Compensation Period shall equal one-twelfth of the sum of (i) the Executive's highest annual rate of salary from the Corporation in effect during the 12-month period prior to his involuntary termination, plus (ii) an amount equal to the average of the incentive compensation paid to the Executive by the Corporation, if any, for the three consecutive calendar years next preceding the year of such termination; provided, that the incentive compensation to be recognized for this purpose shall be approved by the Management Resources and Compensation Committee of the Board of Directors of the Corporation (the "Committee"), 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-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 -2- 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 sooner terminated as provided in Section 3, 6 or 8. The Executive shall not be entitled to any form of Compensation Continuance as a result of such voluntary termination. 6. Termination for Cause. This Agreement shall immediately be terminated and neither party shall have any obligation hereunder (including but -3- 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 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. (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 -4- 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 10(b) herein) and ending on the third anniversary of such date. (b) For the purposes herein, a "Change of Control" shall be deemed to have occurred on the earliest of the following dates: (i) The date any entity or person shall have become the beneficial owner of, or shall have obtained voting control over, twenty-five percent or more of the outstanding Common Stock of the Corporation; (ii) The date the shareholders of the Corporation approve a definitive agreement (A) to merge or consolidate the Corporation with or into another corporation, in which the Corporation is not the continuing or surviving corporation or pursuant to which any shares of Common Stock of the Corporation would be converted into cash, -5- securities or other property of another corporation, other than a merger of the Corporation in which holders of Common Stock immediately prior to the merger have the same proportionate ownership of Common Stock of the surviving corporation immediately after the merger as immediately before, or (B) to sell or otherwise dispose of substantially all the assets of the Corporation; or (iii) The date there shall have been a change in a majority of the Board of Directors of the Corporation within a twelve month period unless the nomination for election by the Corporation's shareholders of each new director was approved by the vote of two-thirds of the directors then still in office who were in office at the beginning of the twelve month period. For the purposes herein, the term "person" shall mean any individual, corporation, partnership, group, association or other person, as such term is defined in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, other than the Corporation, a subsidiary of the Corporation or any employee benefit plan(s) sponsored or maintained by the Corporation or any subsidiary thereof, and the term "beneficial owner" shall have the meaning given the term in Rule 13d-3 under the Exchange Act. (c) (i) In the event it shall be determined that any payment, benefit or distribution (or combination thereof) by the Corporation or one or more trusts established by the Corporation for the benefit of its employees, to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement, or otherwise) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1996, as amended (the "Code"), or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, hereinafter collectively referred to as the "Excise Tax"), the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and the Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (ii) Subject to the provisions of Section 10(c)(iii), all determinations required to be made under this Section 10, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by a nationally recognized certified public accounting firm designated by the Executive (the "Accounting Firm") which shall provide detailed supporting calculations both to the Corporation and the Executive within fifteen business days of the receipt -6- of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Corporation. In the event that the Accounting Firm is serving as accountant or auditor for an individual, entity or group effecting the change in ownership or effective control (within the meaning of Section 280G of the Code), the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Corporation. Any Gross-Up Payment, as determined pursuant to this Section 10, shall be paid by the Corporation to the Executive within five days after the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall so indicate to the Executive in writing. Any determination by the Accounting Firm shall be binding upon the Corporation and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Corporation should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Corporation exhausts its remedies pursuant to Section 10(c)(iii) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Corporation to or for the benefit of the Executive. (iii) The Executive shall notify the Corporation in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Corporation of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Corporation of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Corporation (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Corporation notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (A) give the Corporation any information reasonably requested by the Corporation relating to such claim; (B) take such action in connection with contesting such claim as the Corporation shall reasonably request in writing from time to time, including, without limitation, -7- accepting legal representation with respect to such claim by an attorney reasonably selected by the Corporation; (C) cooperate with the Corporation in good faith in order to effectively contest such claim; and (D) permit the Corporation to participate in any proceedings relating to such claim; provided, however, that the Corporation shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 10(c)(iii), the Corporation shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Corporation shall determine; provided, however, that if the Corporation directs the Executive to pay such claim and sue for a refund, the Corporation shall advance the amount of such payment to the Executive, on an interest-free basis, and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and provided, further, that if the Executive is required to extend the statute of limitations to enable the Corporation to contest such claim, the Executive may limit this extension solely to such contested amount. The Corporation's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (iv) If, after the receipt by the Executive of an amount advanced by the Corporation pursuant to Section 10(c)(iii), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Corporation's complying with the requirements of Section 10(c)(iii)) promptly -8- pay to the Corporation the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by Company pursuant to Section 10(c)(iii), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Corporation does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 11. Waiver of Claims. In consideration of the obligations of the Corporation hereunder, the Executive unconditionally releases the Corporation, its directors, officers, employees and shareholders, from any and all claims, liabilities and obligations of any nature pertaining to termination of the Executive's employment by the Corporation, including but not limited to (a) any claims under federal, state or local laws prohibiting discrimination, including without limitation the Age Discrimination in Employment Act of 1967, as amended, or (b) any claims growing out of any alleged legal restrictions on the Corporation's right to terminate the Executive's employment, such as any alleged implied contract of employment or termination contrary to public policy. The Executive acknowledges that he has been advised to consult with an attorney prior to signing this Agreement, that he has had no less than twenty-one days to consider this Agreement prior to the execution hereof, and that he may revoke this Agreement at any time within seven days following the execution hereof. 12. Notices. All notices hereunder shall be in writing and deemed properly given if delivered by hand and receipted or if mailed by registered mail, return receipt requested. Notices to the Corporation shall be directed to the Secretary of the Corporation with a copy directed to the 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: ---------------------------------------- Chief Executive Officer Attest: - -------------------------------- Secretary [Corporate Seal] --------------------------------------(Seal) Mickey W. Dry -10- EX-10 7 EXHIBIT 10.10 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT, made as of the 23rd day of April, 1999, by and between WACHOVIA CORPORATION (the "Corporation") and <> (the "Executive"); R E C I T A L S : ----------------- The Corporation desires to secure the services of the Executive in its behalf or in behalf of one or more of its subsidiaries for which the Executive may render services hereunder from time to time, in accordance with the terms and conditions set forth herein. In addition, the Corporation desires to provide the Executive with an incentive to remain in the service of the Corporation or one or more of its subsidiaries by granting to the Executive compensation security as set forth herein should her 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 her working time exclusively to the performance of such services for the Corporation or one or more of its subsidiaries as may be assigned to her by the Corporation from time to time, and shall perform such services faithfully and to the best of her 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. 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, 2001; 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 she is terminated by the Corporation for any reason other than for "cause" as defined in Section 6, or if she voluntarily terminates employment within six months after: (a) her base salary is reduced below its level in effect on the date hereof without the Executive's consent, or (b) the Corporation amends the Senior Executive Retirement Agreement between the Corporation and the Executive dated April 24, 1998 (the "Retirement Agreement") without the Executive's consent, and such amendment reduces benefits to which the Executive would have been entitled had such amendment not been made, or (c) the duties assigned to the Executive are not of the status and type described in Section 1 and the Executive has not consented thereto. The Executive shall be deemed to have consented to any reduction described in (a) or (b), or assignment described in (c), unless she shall object thereto in writing within thirty days after she receives notice thereof. 4. Compensation Continuance. If the Executive's employment hereunder is involuntarily terminated as described in Section 3, she 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 her involuntary termination, plus (ii) an amount equal to the average of the incentive compensation paid to the Executive by the Corporation, if any, for the three consecutive calendar years next preceding the year of such termination; provided, that the incentive compensation to be recognized for this purpose shall be approved by the Management Resources and Compensation Committee, 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 Executive Deferred Compensation Plan for the three consecutive calendar years preceding the year of such termination. Each monthly payment of such cash compensation -2- 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-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 she was not a participant immediately prior to her involuntary termination of employment. Any individual contract between the Corporation and the Executive in effect at the time of her 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; and (ii) the Wachovia Corporation Executive Deferred Compensation 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. -3- 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, her employment with the Corporation shall be deemed to have terminated for purposes of Section 4(b) as of the date she 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 her employment voluntarily at any time for any reason following at least six months' notice to the Corporation. If such notice shall be given, this Agreement shall terminate as of the effective date of termination as set forth in such notice (or the date six months from the date of receipt by the Corporation of such notice, if no effective date shall be set forth therein), unless sooner terminated as provided in Section 3, 6 or 8. The Executive shall not be entitled to any form of Compensation Continuance as a result of such voluntary termination. 6. Termination for Cause. This Agreement shall immediately be terminated and neither party shall have any obligation hereunder (including but not limited to any obligation on the part of the Corporation to provide Compensation Continuance) if the Executive's employment is terminated for "cause." Termination for cause shall occur when termination results from the Executive's (a) criminal dishonesty, (b) refusal to perform her 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, her obligation to -4- 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 she shall render services as an employee, officer, director, consultant or otherwise, for any employer which conducts a principal business or enterprise that competes directly with the Corporation or affiliate of the Corporation. (d) In the event that the Executive shall refuse to provide consulting services in accordance with paragraph (a), or shall materially violate the terms and conditions of paragraph (b) or (c), the Corporation may, at its election, terminate the Compensation Period and Compensation Continuance to the Executive. The Corporation may also initiate any form of legal action it may deem appropriate seeking damages or injunctive relief with respect to any material violations of paragraph (a), (b) or (c). (e) The Committee shall be responsible for determining whether the Executive shall have violated this Section 7, and all such determinations shall be final and conclusive. Upon the request of the Executive, the Committee will provide an advance opinion as to whether a proposed activity would violate the provisions of paragraph (c). 8. Death and Disability. In the event that, during the term of this Agreement or during the Compensation Period, the Executive shall die or shall become entitled to benefits under the Corporation's Long-Term Disability Plan, this Agreement shall thereupon terminate and neither the Executive nor any other person shall have any further rights or benefits hereunder (including any rights to Compensation Continuance). -5- 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 her 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 she might otherwise have or claim by operation of law, by implied contract or otherwise, except for rights which she 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 10(b) herein) and ending on the third anniversary of such date. (b) For the purposes herein, a "Change of Control" shall be deemed to have occurred on the earliest of the following dates: (i) The date any entity or person shall have become the beneficial owner of, or shall have obtained voting control over, twenty-five percent or more of the outstanding Common Stock of the Corporation; (ii) The date the shareholders of the Corporation approve a definitive agreement (A) to merge or consolidate the Corporation with or into another corporation, in which the Corporation is not the continuing or surviving corporation or pursuant to which any shares of Common Stock of the Corporation would be converted into cash, securities or other property of another corporation, other than a merger of the Corporation in which holders of Common Stock immediately prior to the merger have the same proportionate ownership of Common Stock of the surviving corporation immediately after the merger as immediately before, or (B) to sell or otherwise dispose of substantially all the assets of the Corporation; or (iii) The date there shall have been a change in a majority of the Board of Directors of the Corporation within a twelve month period unless the nomination for election by the Corporation's shareholders of each new director was approved by the vote of two-thirds of the directors then still in office who were in office at the beginning of the twelve month period. -6- 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 10(c)(iii), all determinations required to be made under this Section 10, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by a nationally recognized certified public accounting firm designated by the Executive (the "Accounting Firm") which shall provide detailed supporting calculations both to the Corporation and the Executive within fifteen business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Corporation. In the event that the Accounting Firm is serving as accountant or auditor for an individual, entity or group effecting the change in ownership or effective control (within the meaning of Section 280G of the Code), the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Corporation. Any Gross-Up Payment, as determined pursuant to this Section 10, shall be paid by the Corporation to the Executive within five days after the receipt of the Accounting Firm's -7- determination. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall so indicate to the Executive in writing. Any determination by the Accounting Firm shall be binding upon the Corporation and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Corporation should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Corporation exhausts its remedies pursuant to Section 10(c)(iii) and the executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Corporation to or for the benefit of the Executive. (iii) The Executive shall notify the Corporation in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Corporation of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Corporation of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Corporation (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Corporation notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (A) give the Corporation any information reasonably requested by the Corporation relating to such claim; (B) take such action in connection with contesting such claim as the Corporation shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Corporation; (C) cooperate with the Corporation in good faith in order to effectively contest such claim; and (D) permit the Corporation to participate in any proceedings relating to such claim; -8- provided, however, that the Corporation shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 10(c)(iii), the Corporation shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Corporation shall determine; provided, however, that if the Corporation directs the Executive to pay such claim and sue for a refund, the Corporation shall advance the amount of such payment to the Executive, on an interest-free basis, and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and provided, further, that if the Executive is required to extend the statute of limitations to enable the Corporation to contest such claim, the Executive may limit this extension solely to such contested amount. The Corporation's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (iv) If, after the receipt by the Executive of an amount advanced by the Corporation pursuant to Section 10(c)(iii), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Corporation's complying with the requirements of Section 10(c)(iii)) promptly pay to the Corporation the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by Company pursuant to Section 10(c)(iii), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Corporation does not notify the Executive in writing of its intent to contest such denial of refund prior to the -9- expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 11. Waiver of Claims. In consideration of the obligations of the Corporation hereunder, the Executive unconditionally releases the Corporation, its directors, officers, employees and shareholders, from any and all claims, liabilities and obligations of any nature pertaining to termination of the Executive's employment by the Corporation, including but not limited to (a) any claims under federal, state or local laws prohibiting discrimination, including without limitation the Age Discrimination in Employment Act of 1967, as amended, or (b) any claims growing out of any alleged legal restrictions on the Corporation's right to terminate the Executive's employment, such as any alleged contract of employment or termination contrary to public policy. The Executive acknowledges that she has been advised to consult with an attorney prior to signing this Agreement, that she has had no less than twenty-one days to consider this Agreement prior to the execution hereof, and that she 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 her 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 provisions of this Agreement shall remain in full force and effect to the fullest extent permitted by law. -10- (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: ------------------------------------- Chief Executive Officer Attest: - --------------------------------- Secretary [Corporate Seal] (Seal) ---------------------------------- <> -11- EX-10 8 EXHIBIT 10.17 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 <> (the "Executive"), a senior management employee of the Corporation; RECITALS 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 Agreement 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 will 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 last 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 material 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, offcers, 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 named 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. (l) 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:[SIGNATURE APPEARS HERE] ----------------------------- Chief Executive Officer Attest: [SIGNATURE APPEARS HERE] - ---------------------------- Secretary [Corporate Seal] [SIGNATURE APPEARS HERE] (SEAL) ------------------------------ <> -6- EX-10 9 EXHIBIT 10.18 SENIOR EXECUTIVE RETIREMENT AGREEMENT THIS SENIOR EXECUTIVE RETIREMENT AGREEMENT, made and entered into as of the 24th day of July, 1998, by and between WACHOVIA CORPORATION (the "Corporation"), a North Carolina corporation, and ROBERT S. McCOY, JR. (the "Executive"), a senior management employee of the Corporation; RECITALS 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 July 24, 1998. 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 equalization 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-two. 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 Agreement 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 will 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 fifty-five percent (55%), increased by one percentage point for each year of creditable service (as determined under the Retirement Plan) in excess of ten years, provided that the maximum percentage as increased does not exceed sixty percent (60%), multiplied by the Executive's Final Average Compensation, 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 -2- 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. 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 last 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 of the Executive -3- 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 material 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 Commitee 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 no event shall the Supplemental Benefit or Spouse's Supplemental Benefit payable under this Agreement be less than the benefit determined pursuant to the South Carolina National Corporation Supplemental Executive Retirement Plan (referred to herein as the "Predecessor SERP") had such Predecessor SERP remained in effect until the Retirement Date of the Executive. The execution of this Agreement by the Executive constitutes a release by the Executive of all rights and benefits under the Predecessor SERP. (1) This Agreement amends, replaces and supersedes the prior Executive Retirement Agreement between the Executive and the Corporation dated February 1, 1992, as amended July 23, 1993, January 27, 1995 and October 25, 1996. -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:[SIGNATURE APPEARS HERE] -------------------------- Chief Executive Officer Attest: [SIGNATURE APPEARS HERE] - ------------------------- Secretary [Corporate Seal] [SIGNATURE APPEARS HERE] (SEAL) ------------------------- Robert S. McCoy, Jr. -6- EX-10 10 EXHIBIT 10.19 Exhibit 10.19 AMENDMENT TO SENIOR EXECUTIVE RETIREMENT AGREEMENT THIS AMENDMENT, made and entered into as of the 23rd day of April, 1999, by and between Wachovia Corporation (the "Corporation"), a North Carolina corporation, and <> (the "Executive"), a senior management employee of the Corporation. R E C I T A L S: ---------------- The Corporation and the Executive have previously entered into a Senior Executive Retirement Agreement (the "Agreement"). It is deemed advisable to amend the Agreement to change the definition of compensation to include any incentive compensation approved by the Management Resources and Compensation Committee. NOW, THEREFORE, the Corporation and the Executive hereby agree that the Senior Executive Retirement Agreement shall be and hereby is amended, effective as of the date hereof, by deleting the second sentence of Section 1.4 and substituting therefor the following: "For this purpose, the compensation of the Executive means the sum of the base salary paid to the Executive by the Corporation, plus any incentive compensation paid to the Executive which is approved by the Committee as compensation to be recognized for purposes of this Agreement. The compensation of the Executive shall also include: (a) any salary reduction amounts which the Executive elects to have contributed 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 with the Corporation." In all other respects, the Senior Executive Retirement Agreement, as amended, is hereby ratified, confirmed and approved. IN WITNESS WHEREOF, this Amendment has been executed on behalf of the Corporation by its duly authorized officers and by the Executive as of the day and year first above written. WACHOVIA CORPORATION By: _________________________________ Chief Executive Officer ATTEST: _________________________________ Secretary __________________________ (SEAL) Executive EX-10 11 EXHIBIT 10.20 SENIOR EXECUTIVE RETIREMENT AGREEMENT THIS SENIOR EXECUTIVE RETIREMENT AGREEMENT, made and entered into as of the 23rd day of April, 1999, 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 April 23, 1999. 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 means the sum of the base salary paid to the Executive by the Corporation, plus any incentive compensation paid to the Executive which is approved by the Committee as compensation to be recognized for purposes of this Agreement. The compensation of the Executive shall also include: (a) any salary reduction amounts which the Executive elects to have contributed 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 with the Corporation. 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 February 1, 2001. 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 Agreement 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 will 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 (2.5%) 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. 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 -2- 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 last 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 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 -3- material 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. (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 -4- 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. (l) 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, January 27, 1995 and October 25, 1996. -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: _______________________________________ Chief Executive Officer Attest: _________________________________ Secretary [Corporate Seal] _______________________________ (SEAL) Mickey W. Dry -6- EX-10 12 EXHIBIT 10.21 SENIOR EXECUTIVE RETIREMENT AGREEMENT THIS SENIOR EXECUTIVE RETIREMENT AGREEMENT, made and entered into as of the 23rd day of April, 1999, by and between WACHOVIA CORPORATION (the "Corporation"), a North Carolina corporation, and <> (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 April 23, 1999. 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 means the sum of the base salary paid to the Executive by the Corporation, plus any incentive compensation paid to the Executive which is approved by the Committee as compensation to be recognized for purposes of this Agreement. The compensation of the Executive shall also include: (a) any salary reduction amounts which the Executive elects to have contributed 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 with the Corporation. 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 February 1, 2001. 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 Agreement 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 will 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 (2.5%) 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. 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 -2- 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 last 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 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 -3- material 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. (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 -4- 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. (l) 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, January 27, 1995 and October 25, 1996. -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: _______________________________________ Chief Executive Officer Attest: _________________________________ Secretary [Corporate Seal] _______________________________ (SEAL) <> -6- EX-12 13 EXHIBIT 12 Exhibit 12 WACHOVIA CORPORATION RATIO OF EARNINGS TO FIXED CHARGES
Six Months Year Ended Ended June 30, December 31, 1999 1998 ------------ ------------ (A) EXCLUDING INTEREST ON DEPOSITS Earnings: Income before income taxes $745,602 $1,303,781 Less capitalized interest (101) (593) Fixed charges 448,056 976,201 ------------ ------------ Earnings as adjusted $1,193,557 $2,279,389 ============ ============ Fixed charges: Interest on purchased and other short term borrowed funds $215,471 $563,846 Interest on long-term debt 220,650 390,662 Portion of rents representative of the interest factor (1/3) of rental expense 11,935 21,693 ------------ ------------ Fixed charges $448,056 $976,201 ============ ============ Ratio of earnings to fixed charges 2.66 X 2.33 X (B) INCLUDING INTEREST ON DEPOSITS: Adjusted earnings from (A) above $1,193,557 $2,279,389 Add interest on deposits 615,792 1,359,705 ------------ ------------ Earnings as adjusted $1,809,349 $3,639,094 ============ ============ Fixed charges: Fixed charges from (A) above $448,056 $976,201 Interest on deposits 615,792 1,359,705 ------------ ------------ Adjusted fixed charges $1,063,848 $2,335,906 ============ ============ Adjusted earnings to adjusted fixed 1.70 X 1.56 X charges
EX-19 14 EXHIBIT 19 WACHOVIA - ------------------------------------------------------------------------------ Financial Supplement And Form 10-Q Second Quarter 1999 Selected Period-End Data Table 1 - --------------------------------------------------------------------------------
June 30 June 30 1999 1998 ------- ------- Banking offices: North Carolina ............................... 190 199 Virginia ..................................... 253 264 Georgia ...................................... 132 132 South Carolina ............................... 119 122 Florida ...................................... 40 39 -------- -------- Total ..................................... 734 756 ======== ======== Automated banking machines: North Carolina ............................... 444 445 Virginia ..................................... 307 308 Georgia ...................................... 303 299 South Carolina ............................... 292 282 Florida ...................................... 37 30 -------- -------- Total ..................................... 1,383 1,364 ======== ======== Employees (full-time equivalent) .............. 21,716 21,146 Common stock shareholders of record ........... 52,956 54,825 Common shares outstanding (thousands) ......... 202,231 206,623
Common Stock Data -- Per Share Table 2 - --------------------------------------------------------------------------------
1999 1998 ------------------ ------------------------------ Second First Fourth Third Second Quarter Quarter Quarter Quarter Quarter ------ ------- ------ ------ ------- Market value: Period-end ............................................. $ 85.56 $ 81.19 $ 87.44 $ 85.25 $ 84.50 High ................................................... 92.31 91.00 96.81 90.94 90.19 Low .................................................... 80.56 79.00 80.88 72.88 77.38 Book value at period-end ................................ 26.83 26.77 26.30 25.79 26.02 Dividend ................................................ .49 .49 .49 .49 .44 Price/earnings ratio (1) ................................ 18.5x 18.3x 20.9x 28.0x 28.6x Price/earnings ratio without nonrecurring items (1), (2) 18.1 17.7 19.6 19.9 20.4
(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 Months 1999 Ended ------------------------------ June 30 Second First 1999 Quarter Quarter ---------- ------------- ------------ Summary of Operations (thousands, except per share data) Interest income .................................. $4,624,649 $ 1,146,605 $ 1,130,386 Interest expense ................................. 2,200,386 529,603 522,310 ----------- ------------- ----------- Net interest income .............................. 2,424,263 617,002 608,076 Provision for loan losses ........................ 312,074 74,525 80,636 ----------- ------------- ----------- Net interest income after provision for loan losses .......................................... 2,112,189 542,477 527,440 Other operating revenue .......................... 1,367,166 404,544 333,269 Securities gains ................................. 24,980 10,453 234 ----------- ------------- ----------- Total other income ............................... 1,392,146 414,997 333,503 Personnel expense ................................ 1,112,161 307,752 271,186 Nonrecurring merger-related charges .............. 27,242 8,347 ---- Other expense .................................... 918,501 264,518 221,012 ----------- ------------- ----------- Total other expense .............................. 2,057,904 580,617 492,198 Income before income taxes ....................... 1,446,431 376,857 368,745 Applicable income taxes .......................... 486,712 129,307 125,509 ----------- ------------- ----------- Net income ....................................... $ 959,719 $ 247,550 $ 243,236 =========== ============= =========== Net income per common share: Basic ........................................... $ 4.71 $ 1.21 $ 1.20 Diluted ......................................... $ 4.63 $ 1.19 $ 1.18 Cash dividends paid per common share ............. $ 1.96 $ .49 $ .49 Cash dividends paid on common stock .............. $ 400,190 $ 100,292 $ 99,662 Cash dividend payout ratio ....................... 41.70% 40.51% 40.97% Average basic shares outstanding ................. 203,633 203,746 203,119 Average diluted shares outstanding ............... 207,550 207,400 206,959 Selected Average Balances (millions) Total assets ..................................... $ 64,646 $ 65,454 $ 64,408 Loans -- net of unearned income .................. 45,777 47,012 46,261 Securities ....................................... 9,879 9,664 9,221 Other interest-earning assets .................... 1,509 1,588 1,313 Total interest-earning assets .................... 57,165 58,264 56,795 Interest-bearing deposits ........................ 31,901 32,343 31,846 Short-term borrowed funds ........................ 10,235 9,629 9,292 Long-term debt ................................... 7,129 7,998 7,627 Total interest-bearing liabilities ............... 49,265 49,970 48,765 Noninterest-bearing deposits ..................... 8,086 8,261 8,062 Total deposits ................................... 39,987 40,604 39,908 Shareholders' equity ............................. 5,280 5,459 5,314 Ratios (averages) Annualized net loan losses to loans .............. .68% .63% .69% Annualized net yield on interest-earning assets .......................................... 4.32 4.31 4.41 Shareholders' equity to: Total assets .................................... 8.17 8.34 8.25 Net loans ....................................... 11.67 11.75 11.62 Annualized return on assets ...................... 1.48 1.51 1.51 Annualized return on shareholders' equity ........ 18.18 18.14 18.31 Operating Performance Excluding Nonrecurring Items (thousands, except per share data) Net income ....................................... $ 977,699 $ 253,060 $ 243,236 Net income per diluted share ..................... $ 4.72 $ 1.22 $ 1.18 Annualized return on assets ...................... 1.51% 1.55% 1.51% Annualized return on shareholders' equity ........ 18.52 18.54 18.31 Cash dividend payout ratio ....................... 40.93 39.63 40.97 Six Months Ended 1998 June 30 --------------------------------------------- ----------------------------- Fourth Third Second Quarter Quarter Quarter 1999 1998 ------------- ------------ ----------- ------------- ------------ Summary of Operations (thousands, except per share data) Interest income .................................. $ 1,176,192 $ 1,171,466 $ 1,169,758 $ 2,276,991 $ 2,317,587 Interest expense ................................. 566,443 582,030 587,054 1,051,913 1,165,740 ------------- ----------- ----------- ------------- ----------- Net interest income .............................. 609,749 589,436 582,704 1,225,078 1,151,847 Provision for loan losses ........................ 84,104 72,809 68,441 155,161 142,567 ------------- ----------- ----------- ------------- ----------- Net interest income after provision for loan losses .......................................... 525,645 516,627 514,263 1,069,917 1,009,280 Other operating revenue .......................... 318,812 310,541 315,043 737,813 598,766 Securities gains ................................. 7,407 6,886 2,992 10,687 6,149 ------------- ----------- ----------- ------------- ----------- Total other income ............................... 326,219 317,427 318,035 748,500 604,915 Personnel expense ................................ 269,941 263,282 262,406 578,938 522,130 Nonrecurring merger-related charges .............. 6,961 11,934 30,849 8,347 66,417 Other expense .................................... 215,784 217,187 223,739 485,530 422,696 ------------- ----------- ----------- ------------- ----------- Total other expense .............................. 492,686 492,403 516,994 1,072,815 1,011,243 Income before income taxes ....................... 359,178 341,651 315,304 745,602 602,952 Applicable income taxes .......................... 117,612 114,284 105,388 254,816 197,715 ------------- ----------- ----------- ------------- ----------- Net income ....................................... $ 241,566 $ 227,367 $ 209,916 $ 490,786 $ 405,237 ============= =========== =========== ============= =========== Net income per common share: Basic ........................................... $ 1.19 $ 1.11 $ 1.02 $ 2.41 $ 1.96 Diluted ......................................... $ 1.17 $ 1.09 $ 1.00 $ 2.37 $ 1.93 Cash dividends paid per common share ............. $ .49 $ .49 $ .44 $ .98 $ .88 Cash dividends paid on common stock .............. $ 99,452 $ 100,784 $ 90,973 $ 199,954 $ 181,562 Cash dividend payout ratio ....................... 41.17% 44.33% 43.34% 40.74% 44.80% Average basic shares outstanding ................. 202,824 204,832 206,718 203,434 206,308 Average diluted shares outstanding ............... 206,991 208,837 210,662 207,181 210,412 Selected Average Balances (millions) Total assets ..................................... $ 65,298 $ 63,429 $ 63,916 $ 64,934 $ 63,527 Loans -- net of unearned income .................. 45,966 43,894 43,974 46,638 43,862 Securities ....................................... 9,952 10,664 11,102 9,444 10,864 Other interest-earning assets .................... 1,622 1,508 1,558 1,451 1,594 Total interest-earning assets .................... 57,540 56,066 56,634 57,533 56,320 Interest-bearing deposits ........................ 31,766 31,654 32,182 32,095 32,318 Short-term borrowed funds ........................ 11,135 10,858 10,947 9,461 10,795 Long-term debt ................................... 6,830 6,080 6,092 7,814 6,100 Total interest-bearing liabilities ............... 49,731 48,592 49,221 49,370 49,213 Noninterest-bearing deposits ..................... 8,148 7,874 7,939 8,162 7,591 Total deposits ................................... 39,914 39,528 40,121 40,257 39,909 Shareholders' equity ............................. 5,178 5,173 5,211 5,387 5,160 Ratios (averages) Annualized net loan losses to loans .............. .73% .66% .62% .66% .65% Annualized net yield on interest-earning assets .......................................... 4.28 4.26 4.21 4.36 4.21 Shareholders' equity to: Total assets .................................... 7.93 8.16 8.15 8.30 8.12 Net loans ....................................... 11.40 11.93 12.00 11.68 11.91 Annualized return on assets ...................... 1.48 1.43 1.31 1.51 1.28 Annualized return on shareholders' equity ........ 18.66 17.58 16.11 18.22 15.71 Operating Performance Excluding Nonrecurring Items (thousands, except per share data) Net income ....................................... $ 246,160 $ 235,243 $ 230,276 $ 496,296 $ 448,444 Net income per diluted share ..................... $ 1.19 $ 1.13 $ 1.09 $ 2.40 $ 2.13 Annualized return on assets ...................... 1.51% 1.48% 1.44% 1.53% 1.41% Annualized return on shareholders' equity ........ 19.02 18.19 17.68 18.43 17.38 Cash dividend payout ratio ....................... 40.40 42.84 39.51 40.29 40.49
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. Its 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. Economic growth in the U.S. slowed in the second quarter of 1999, largely due to deceleration in consumer spending and a downturn in government spending. Gross domestic product for the period, based on advance estimates, expanded at an annualized rate of 2.3 percent from the first three months of 1999 compared with 4.3 percent annualized growth for the previous quarter. Despite the slower economic growth, concerns persisted over tight labor markets, leading the Federal Reserve to raise short-term interest rates a quarter of a percentage point at the end of June. The corporation continues to enjoy generally favorable economic conditions within its primary operating states but saw slowdowns in some of its businesses as well as deterioration in credit quality among a few corporate borrowers. Management is monitoring these situations and is taking appropriate actions to address these business issues. Wachovia seeks to broaden its competitive position by gaining access to new customers and by enhancing products and services through internal development and selective acquisitions and partnerships. On April 1, 1999, Wachovia completed acquisition of Interstate/Johnson Lane Inc., a major regional investment advisor and brokerage firm, accounting for the transaction as a purchase. In May, Wachovia and OFFITBANK Holdings Inc., a leading wealth management company, announced an agreement in which OFFITBANK will merge with Wachovia. In July, Barry, Evans, Josephs & Snipes, Inc., a leading national life insurance broker specializing in wealth transfer and benefit plan strategies, agreed to merge with the corporation. Both of the pending transactions are subject to regulatory approval and are expected to close in the third quarter of 1999. They will be accounted for using the purchase method of accounting for business combinations. Under purchase accounting, the excess of purchase price over the fair market value of net assets acquired is recorded as goodwill, and operating results are included since the effective date of the acquisition. Computation of Earnings Per Common Share Table 4 - -------------------------------------------------------------------------------- (thousands, except per share) Three Months Ended Six Months Ended June 30 June 30 -------------------------- ------------------------- 1999 1998 1999 1998 ----------- ----------- ----------- ----------- Basic Average common shares outstanding .......................... 203,746 206,718 203,434 206,308 =========== ======= =========== ======= Net income ................................................. $ 247,550 $ 209,916 $ 490,786 $ 405,237 =========== ========= =========== ========= Per share amount ........................................... $ 1.21 $ 1.02 $ 2.41 $ 1.96 Diluted Average common shares outstanding .......................... 203,746 206,718 203,434 206,308 Dilutive common stock options at average market price ...... 3,215 3,684 3,316 3,835 Dilutive common stock awards at average market price ....... 415 248 406 260 Convertible long-term debt assumed converted ............... 24 12 25 9 ----------- --------- ----------- --------- Average diluted shares outstanding ......................... 207,400 210,662 207,181 210,412 =========== ========= =========== ========= Net income ................................................. $ 247,550 $ 209,916 $ 490,786 $ 405,237 Add interest on convertible long-term debt -- net of tax ... 16 7 36 8 ----------- --------- ----------- --------- Adjusted net income ........................................ $ 247,566 $ 209,923 $ 490,822 $ 405,245 =========== ========= =========== ========= Per share amount ........................................... $ 1.19 $ 1.00 $ 2.37 $ 1.93
3 Because Wachovia's growth strategy includes the use of acquisitions, it 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 book value and net income per share may occur in connection with any future transactions. Wachovia's net income for the second quarter of 1999 was $247.550 million or $1.19 per diluted share versus $209.916 million or $1.00 per diluted share a year earlier. For the first six months of 1999, net income totaled $490.786 million or $2.37 per diluted share compared with $405.237 million or $1.93 per diluted share in the same period of 1998. Comparisons between the 1999 and 1998 periods are impacted by merger-related expenses in both years as well as by the addition of Interstate/ Johnson Lane, which is included in reported results since the April 1, 1999 acquisition date. Merger-related expenses on a pretax basis were $8.347 million for both the second quarter and first half of 1999 versus $30.849 million and $66.417 million, respectively, in 1998. Excluding merger-related expenses, operating net income was $253.060 million or $1.22 per diluted share for the second quarter of 1999 compared with $230.276 million or $1.09 per diluted share a year earlier. Year to date, operating net income totaled $496.296 million or $2.40 per diluted share versus $448.444 million or $2.13 per diluted share in the same period of 1998. Expanded discussion of results of operations and financial condition follows. Interest income is stated on a taxable equivalent basis, which is adjusted for the tax-favored status of earnings from certain loans and securities. References to changes in assets and liabilities represent daily average levels unless otherwise noted. Business Segments The corporation has four reportable business segments: Consumer, 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 proprietary Wachovia Funds, to insurance, private banking and other financial advisory services. Customers are served in the 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 online banking and online investing, Wachovia On-Call telephone banking and automated Phone Access. Major initiatives for the division include PRO (Profitable Relationship Optimization), which is its strategy for profitable customer selling and retention for the highest potential retail customers; 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 access to debt and equity capital, investment banking, risk management, asset management, and both institutional trust and treasury consulting and processing. Customers range from mid-sized companies to multinational corporations, institutions and investors. The group provides a broad range of capital markets capabilities including investment banking, private and public debt and equity capital, risk management products as well as fixed income and equity securities. The division is a leading provider of treasury services and has deep expertise in charitable funds management, executive services and retirement services. Corporate serves clients in the southeast with multiple offices in Wachovia's home states but also extends its reach nationally with offices in New York and 4 Chicago. Service to global customers is enhanced through a full-service branch in London, representative offices in Tokyo and Hong Kong, and Banco Wachovia in Brazil. The Card division represents the 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 quality 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 risk; management of the securities portfolio; internal compensation for deposits and other funding sources, and charges for funds used; 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, these 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 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 rose $4.413 million or 5.1 percent for the second quarter of 1999 from a year earlier but was modestly lower for the first half. Net interest income edged up slightly for both the three and six months, while noninterest income increased $64.483 million or 43.9 percent for the second period and $73.673 million or 25.2 percent year to date. Gains in noninterest income from year-earlier periods reflected the addition of Interstate/Johnson Lane in April 1999 as well as core business growth largely in deposit account service charges and electronic banking revenue. Included in noninterest income for the first half of 1998 was a gain of $17.155 million from branch divestitures. The provision for loan losses increased $3.344 million or 47.9 percent for the quarter and $4.138 million or 24.6 percent for the first half. Noninterest expense rose $53.832 million or 18 percent for the three months and $69.810 million or 12.1 percent for the first six months due to the inclusion of Interstate/Johnson Lane and to increases in incentive pay, equipment expense for new computer systems, and net occupancy costs for new facilities. 5 CORPORATE. Net income for Corporate expanded $23.836 million or 29.6 percent for the quarter and $56.932 million or 36.6 percent year to date. Strong increases were registered in net interest income, up $43.600 million or 25.3 percent for the three months and $89.996 million or 26.9 percent for the first six months, and in noninterest income, which rose $18.980 million or 18.2 percent for the quarter and $45.867 million or 24.1 percent year to date. Noninterest income benefited from gains largely in investment fees, deposit account service charges and trust fees, influenced partially by the addition of Interstate/Johnson Lane. The provision for loan losses increased $3.478 million for the second period and $5.000 million year to date, reflecting loan growth and increased loan losses. Noninterest expense was up $21.251 million or 14.1 percent for the three months and $39.721 million or 14 percent for the first six months, largely due to higher staff costs for capital markets activity and an expanded employee base and to increases in net occupancy and equipment expenses. CARD. Net income for the Card division grew $7.296 million or 31.9 percent for the second period and $14.018 million or 30.3 percent for the first six months of 1999. Net interest income rose $11.976 million or 10.1 percent for the quarter and $23.496 million or 9.8 percent year to date. Noninterest income was up $2.799 million or 7.2 percent for the three months and $6.122 million or 8.5 percent for the first six months, largely due to higher cardholder income. The provision for loan losses increased $2.480 million or 3.6 percent for the quarter and $2.484 million or 1.8 percent year to date, with the low increase in provision reflecting continued improvements in loss control methodologies. Noninterest expense was up $744 thousand or 1.4 percent for the three months and $4.572 million or 4.4 percent for the first six months driven, in part, by higher amortization expense for purchased receivables. TREASURY & ADMINISTRATION. Treasury & Administration's net income for the second quarter grew to $21.668 million from $19.580 million a year earlier. Net interest income declined $25.970 million to $837 thousand. Interest-earning assets were lower by $2.130 billion, primarily reflecting a $1.438 billion reduction in the securities portfolio and the $896 million securitization of credit card receivables in March of 1999. Total interest-bearing liabilities declined $1.392 billion. Noninterest income grew $10.811 million or 38.5 percent, reflecting securities gains and increased fee income from the securitization. Noninterest expense decreased $14.512 million or 46.5 percent due to lower spending on both business integration activities and Year 2000 compliance costs. For the first six months of 1999, net income rose $15.340 million or 63.8 percent. 6 Business Segments Table 5 - -------------------------------------------------------------------------------- (three months ended june 30)
Consumer Corporate Card -------------------- ------------------- ------------------- 1999 1998 1999 1998 1999 1998 -------- --------- -------- ------- ------- -------- Operations Summary (millions) External net interest margin ......... $ 81 $ 77 $ 430 $ 390 $ 206 $ 202 Internal funding (charge) credit .............................. 214 218 (214) (217) (75) (83) --------- --------- -------- -------- -------- -------- Net interest income* ................. 295 295 216 173 131 119 Total other income ................... 211 147 123 104 42 39 --------- --------- -------- -------- -------- -------- Total revenues ....................... 506 442 339 277 173 158 Provision for loan losses ............ 10 7 4 1 71 68 Total other expense .................. 353 300 172 151 55 54 --------- --------- -------- -------- -------- -------- Pretax profit ........................ 143 135 163 125 47 36 Income taxes (benefit) ............... 51 48 59 45 17 13 --------- --------- -------- -------- -------- -------- Net income (loss) .................... $ 92 $ 87 $ 104 $ 80 $ 30 $ 23 ========= ========= ======== ======== ======== ======== Percentage contribution to total revenues** .......................... 47.83% 47.42% 32.04% 29.72% 16.35% 16.95% Percentage contribution to net income .............................. 37.10 41.43 41.94 38.10 12.10 10.95 Average Balances (billions) Total assets ......................... $ 17 $ 17 $ 29 $ 26 $ 9 $ 7 Treasury & Administration Eliminations Total Corporation ------------------ ------------------- ----------------- 1999 1998 1999 1998 1999 1998 ------- -------- -------- -------- -------- ------- Operations Summary (millions) External net interest margin ......... $ (90) $ (74) $ (10) $ (12) $ 617 $ 583 Internal funding (charge) credit .............................. 91 101 (16) (19) ---- ---- ------- ------ ------- ------- -------- ------ Net interest income* ................. 1 27 (26) (31) 617 583 Total other income ................... 39 28 ---- ---- 415 318 ------- ------ ------- ------- -------- ------ Total revenues ....................... 40 55 (26) (31) 1,032 901 Provision for loan losses ............ (11) (7) ---- ---- 74 69 Total other expense .................. 17 31 (16) (19) 581 517 ------- ------- ------- ------- -------- ------ Pretax profit ........................ 34 31 (10) (12) 377 315 Income taxes (benefit) ............... 12 11 (10) (12) 129 105 ------- ------- ------- ------- -------- ------ Net income (loss) .................... $ 22 $ 20 $---- $---- $ 248 $ 210 ======= ======= ======= ======= ======== ====== Percentage contribution to total revenues** .......................... 3.78% 5.90% Percentage contribution to net income .............................. 8.87 9.52 Average Balances (billions) Total assets ......................... $ 10 $ 14 $ 65 $ 64
* 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. Business Segments Table 6 - -------------------------------------------------------------------------------- (six months ended June 30) Consumer Corporate Card --------------------- ------------------- -------------------- 1999 1998 1999 1998 1999 1998 --------- --------- -------- -------- -------- -------- Operations Summary (millions) External net interest margin ......... $ 156 $ 150 $ 839 $ 758 $ 415 $ 409 Internal funding (charge) credit .............................. 427 431 (414) (423) (151) (169) --------- --------- -------- -------- -------- -------- Net interest income* ................. 583 581 425 335 264 240 Total other income ................... 366 292 236 190 78 72 --------- --------- -------- -------- -------- -------- Total revenues ....................... 949 873 661 525 342 312 Provision for loan losses ............ 21 17 6 1 140 137 Total other expense .................. 649 579 323 283 108 104 --------- --------- -------- -------- -------- -------- Pretax profit ........................ 279 277 332 241 94 71 Income taxes (benefit) ............... 100 98 119 85 34 25 --------- --------- -------- -------- -------- -------- Net income (loss) .................... $ 179 $ 179 $ 213 $ 156 $ 60 $ 46 ========= ========= ======== ======== ======== ======== Percentage contribution to total revenues** .......................... 46.86% 48.15% 32.64% 28.96% 16.89% 17.21% Percentage contribution to net income .............................. 36.46 44.20 43.38 38.52 12.22 11.36 Average Balances (billions) Total assets ......................... $ 17 $ 16 $ 29 $ 27 $ 8 $ 7
Treasury & Administration Eliminations Total Corporation ------------------- ----------------- ------------------- 1999 1998 1999 1998 1999 1998 -------- ------- ------- ------- -------- -------- Operations Summary (millions) External net interest margin ......... $ (165) $ (141) $ (20) $ (24) $1,225 $1,152 Internal funding (charge) credit .............................. 169 193 (31) (33) ---- (1) -------- ------ ------- ------- ------- -------- Net interest income* ................. 4 52 (51) (57) 1,225 1,151 Total other income ................... 69 51 ---- ---- 749 605 -------- ------ ------- ------- ------- -------- Total revenues ....................... 73 103 (51) (57) 1,974 1,756 Provision for loan losses ............ (12) (13) ---- ---- 155 142 Total other expense .................. 24 78 (31) (33) 1,073 1,011 -------- ------ ------- ------- ------- -------- Pretax profit ........................ 61 38 (20) (24) 746 603 Income taxes (benefit) ............... 22 14 (20) (24) 255 198 -------- ------ ------- ------- ------- -------- Net income (loss) .................... $ 39 $ 24 $---- $---- $ 491 $ 405 ======== ====== ======= ======= ======= ======== Percentage contribution to total revenues** .......................... 3.60% 5.68% Percentage contribution to net income .............................. 7.94 5.93 Average Balances (billions) Total assets ......................... $ 11 $ 14 $ 65 $ 64
* 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. 7 Consolidated Financial Results Net Interest Income Taxable equivalent net interest income rose $32.163 million or 5.4 percent for the second quarter of 1999 from a year earlier and was up $69.497 million or 5.9 percent for the first six months. Higher loan volume and a wider interest rate spread accounted for the increases in both periods, with a decline in the average yield on interest-earning assets offset by loan growth and lower funding rates. Compared with the first three months of 1999, taxable equivalent net interest income increased $8.467 million or 5.5 percent annualized, driven by continued growth in interest-earning assets. The net yield on interest-earning assets (defined as taxable equivalent net interest income as a percentage of average interest-earning assets) expanded 10 basis points for the second quarter and 15 basis points year to date but moderated 10 basis points from the first quarter following the securitization of $896 million in credit card receivables in late March 1999. Taxable equivalent net interest income is projected to grow approximately 5 percent for the full year of 1999, excluding the impact from the credit card securitization. The estimate is based on expectations for continued moderate loan growth and a favorable interest rate spread. Taxable equivalent interest income was lower by $25.289 million or 2.1 percent for the quarter and $44.331 million or 1.9 percent for the first half, reflecting declines of 41 basis points and 33 basis points, respectively, in the average rate earned on interest-earning assets. Higher loan levels moderated decreases in taxable equivalent interest income in both periods, with loans advancing $3.038 billion or 6.9 percent for the three months from a year earlier and $2.776 billion or 6.3 percent for the first six months. Compared with the first quarter of 1999, taxable equivalent interest income was higher by $15.759 million or 5.5 percent annualized as expansion of interest-earning assets offset an18 basis point decline in the average earning asset yield. Commercial loans, including related real estate categories, accounted for substantially all of the loan growth in both periods, rising $3.964 billion or 15.4 percent for the quarter from a year earlier and $3.396 billion or 13.3 percent year to date. Gains were broad based, with all categories of commercial loans increasing except tax-exempt loans. Taxable commercial loans, lease financing and foreign loans led the growth for both the quarter and first half, with gains in foreign loans reflecting higher business volume originated primarily from the corporation's London branch. The lease financing portfolio primarily consists of leveraged leases and other structured corporate transactions, primarily in Western European countries. Commercial real estate lending also was up, with gains in both construction loans and in commercial mortgages, while tax-exempt loans continued to run off due to the reduced availability of tax-exempt financing under current tax laws. 8 Net Interest Income and Average Balances Table 7 - --------------------------------------------------------------------------------
Twelve Months 1999 Ended --------------------------- June 30 Second First 1999 Quarter Quarter ----------- ------------- ------------ Net Interest Income -- Taxable Equivalent (thousands) Interest income: Loans -- including fees .................. $3,936,161 $ 979,851 $ 975,011 Securities ............................... 659,931 158,519 151,879 Interest-bearing bank balances ........... 9,932 1,391 2,193 Federal funds sold and securities purchased under resale agreements .............................. 29,014 8,429 5,802 Trading account assets ................... 32,750 8,107 5,653 ----------- ------------- ------------ Total .................................. 4,667,788 1,156,297 1,140,538 Interest expense: Interest-bearing demand .................. 57,448 13,991 12,725 Savings and money market savings ................................. 460,467 116,476 113,547 Savings certificates ..................... 484,040 110,926 113,449 Large denomination certificates .......... 172,559 42,992 43,726 Interest-bearing deposits in foreign offices ................................. 110,076 24,039 23,920 Short-term borrowed funds ................ 494,598 112,301 103,170 Long-term debt ........................... 421,197 108,877 111,773 ----------- ------------- ------------ Total .................................. 2,200,385 529,602 522,310 ----------- ------------- ------------ Net interest income ....................... $2,467,403 $ 626,695 $ 618,228 =========== ============= ============ Annualized net yield on interest- earning assets ........................... 4.32% 4.31% 4.41% Average Balances (millions) Assets: Loans -- net of unearned income........... $ 45,777 $ 47,012 $ 46,261 Securities ............................... 9,879 9,664 9,221 Interest-bearing bank balances ........... 129 83 130 Federal funds sold and securities purchased under resale agreements .............................. 568 707 483 Trading account assets ................... 812 798 700 ----------- ------------- ------------ Total interest-earning assets .......... 57,165 58,264 56,795 Cash and due from banks .................. 3,097 2,975 3,071 Premises and equipment ................... 911 970 911 Other assets ............................. 3,885 3,713 4,047 Unrealized gains on securities available-for-sale ...................... 124 68 119 Allowance for loan losses ................ (536) (536) (535) ----------- ------------- ------------ Total assets ........................... $ 64,646 $ 65,454 $ 64,408 =========== ============= ============ Liabilities and shareholders' equity: Interest-bearing demand .................. $ 4,660 $ 4,691 $ 4,665 Savings and money market savings ................................. 12,663 13,424 12,889 Savings certificates ..................... 9,093 8,746 8,846 Large denomination certificates .......... 3,326 3,394 3,377 Interest-bearing deposits in foreign offices ................................. 2,159 2,088 2,069 Short-term borrowed funds ................ 10,235 9,629 9,292 Long-term debt ........................... 7,129 7,998 7,627 ----------- ------------- ------------ Total interest-bearing liabilities ........................... 49,265 49,970 48,765 Demand deposits .......................... 8,086 8,261 8,062 Other liabilities ........................ 2,015 1,764 2,267 Shareholders' equity ..................... 5,280 5,459 5,314 ----------- ------------- ------------ Total liabilities and shareholders' equity .................. $ 64,646 $ 65,454 $ 64,408 =========== ============= ============ Total deposits ............................ $ 39,987 $ 40,604 $ 39,908 Six Months Ended 1998 June 30 ------------------------------------------- ---------------------------- Fourth Third Second Quarter Quarter Quarter 1999 1998 ----------- ------------ ------------ ----------- ----------- Net Interest Income -- Taxable Equivalent (thousands) Interest income: Loans -- including fees .................. $ 1,000,663 $ 980,636 $ 967,461 $ 1,954,862 $ 1,919,743 Securities ............................... 167,680 181,853 191,666 310,398 377,321 Interest-bearing bank balances ........... 3,166 3,182 3,411 3,584 6,639 Federal funds sold and securities purchased under resale agreements .............................. 8,615 6,168 5,735 14,231 11,020 Trading account assets ................... 7,173 11,817 13,313 13,760 26,443 ------------- ------------ ------------ ------------- ----------- Total .................................. 1,187,297 1,183,656 1,181,586 2,296,835 2,341,166 Interest expense: Interest-bearing demand .................. 15,206 15,526 17,047 26,716 33,798 Savings and money market savings ................................. 115,367 115,077 110,078 230,023 221,211 Savings certificates ..................... 123,203 136,462 136,782 224,375 282,812 Large denomination certificates .......... 45,359 40,482 45,426 86,718 79,543 Interest-bearing deposits in foreign offices ................................. 28,112 34,005 37,332 47,959 73,542 Short-term borrowed funds ................ 134,246 144,881 145,827 215,471 284,719 Long-term debt ........................... 104,950 95,597 94,562 220,650 190,115 ------------- ------------ ------------ ------------- ----------- Total .................................. 566,443 582,030 587,054 1,051,912 1,165,740 ------------- ------------ ------------ ------------- ----------- Net interest income ....................... $ 620,854 $ 601,626 $ 594,532 $ 1,244,923 $ 1,175,426 ============= ============ ============ ============= =========== Annualized net yield on interest- earning assets ........................... 4.28% 4.26% 4.21% 4.36% 4.21% Average Balances (millions) Assets: Loans -- net of unearned income........... $ 45,966 $ 43,894 $ 43,974 $ 46,638 $ 43,862 Securities ............................... 9,952 10,664 11,102 9,444 10,864 Interest-bearing bank balances ........... 163 138 139 107 164 Federal funds sold and securities purchased under resale agreements .............................. 641 440 411 595 392 Trading account assets ................... 818 930 1,008 749 1,038 ------------- ------------ ------------ ------------- ----------- Total interest-earning assets .......... 57,540 56,066 56,634 57,533 56,320 Cash and due from banks .................. 3,271 3,068 3,166 3,023 3,253 Premises and equipment ................... 888 874 845 941 832 Other assets ............................. 3,959 3,822 3,709 3,880 3,553 Unrealized gains on securities available-for-sale ...................... 177 133 96 93 105 Allowance for loan losses ................ (537) (534) (534) (536) (536) ------------- ------------ ------------ ------------- ----------- Total assets ........................... $ 65,298 $ 63,429 $ 63,916 $ 64,934 $ 63,527 ============= ============ ============ ============= =========== Liabilities and shareholders' equity: Interest-bearing demand .................. $ 4,639 $ 4,646 $ 4,687 $ 4,678 $ 5,332 Savings and money market savings ................................. 12,481 11,873 11,700 13,158 11,021 Savings certificates ..................... 9,128 9,642 9,984 8,796 10,511 Large denomination certificates .......... 3,387 3,146 3,212 3,385 2,832 Interest-bearing deposits in foreign offices ................................. 2,131 2,347 2,599 2,078 2,622 Short-term borrowed funds ................ 11,135 10,858 10,947 9,461 10,795 Long-term debt ........................... 6,830 6,080 6,092 7,814 6,100 ------------- ------------ ------------ ------------- ----------- Total interest-bearing liabilities ........................... 49,731 48,592 49,221 49,370 49,213 Demand deposits .......................... 8,148 7,874 7,939 8,162 7,591 Other liabilities ........................ 2,241 1,790 1,545 2,015 1,563 Shareholders' equity ..................... 5,178 5,173 5,211 5,387 5,160 ------------- ------------ ------------ ------------- ----------- Total liabilities and shareholders' equity .................. $ 65,298 $ 63,429 $ 63,916 $ 64,934 $ 63,527 ============= ============ ============ ============= =========== Total deposits ............................ $ 39,914 $ 39,528 $ 40,121 $ 40,257 $ 39,909
9 At June 30, 1999, foreign loans were $1.451 billion or 3 percent of total loans compared with $843 million or 1.9 percent one year earlier and $1.347 billion or 2.9 percent at March 31, 1999. There were no extensions of credit to Russia, and credit extensions in Asia were not significant. 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 Wachovia's country risk exposure. At June 30, 1999, Wachovia's country of risk profile has not materially changed from December 31, 1998. Foreign lease financing was $1.156 billion at the end of the second quarter of 1999, all in Western European countries. Commercial real estate loans, based on regulatory definitions, were $9.522 billion or 19.7 percent of total loans at June 30, 1999 versus $8.632 billion or 19.4 percent one year earlier and $9.164 billion or 19.8 percent at March 31, 1999. 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 June 30, 1999, one year earlier or at the end of the first quarter of 1999. Consumer loans, including residential mortgages, decreased $926 million or 5.1 percent for the quarter and $620 million or 3.4 percent for the first half, reflecting lower levels of residential mortgages, credit cards and direct retail loans. The residential mortgage portfolio, which principally consists of adjustable rate mortgages, declined $656 million or 8.2 percent for the three months and $648 million or 8.1 percent for the first six months, reflecting run off in seasoned loans. Direct retail loans decreased moderately, while credit card loans were lower by $625 million or 11.2 percent for the second period and $260 million or 4.6 percent year to date, impacted by the securitization of $896 million of receivables in March 1999. Partially offsetting these decreases were higher levels of indirect retail loans, which primarily consists of automobile sales financing, and other revolving credit. In March, the corporation securitized and sold $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. Wachovia 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 interest income and the credit exposure 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 June 30, 1999, the managed credit card portfolio, which includes securitized loans, was $6.340 billion or 12.7 percent of total managed loans versus $6.033 billion or 13.4 percent one year earlier and $6.351 billion or 13.3 percent at March 31, 1999. Securitized credit card loans were $1.396 billion at June 30, 1999 compared with $500 million one year earlier and $1.396 billion at March 31, 1999. Additional information on securitized loans appears on page 20. 10 Period-end loans by category at June 30, 1999 and the preceding four quarters are presented in the following table. Period-End Loans by Category Table 8 - -------------------------------------------------------------------------------- (thousands)
June 30 March 31 Dec. 31 Sept. 30 June 30 1999 1999 1998 1998 1998 ----------- ----------- ----------- ----------- ----------- Commercial ..................... $16,852,028 $15,639,116 $14,328,152 $15,040,796 $14,162,763 Tax-exempt ..................... 796,523 871,271 972,603 1,024,855 1,285,639 ----------- ----------- ----------- ----------- ----------- Total commercial ........... 17,648,551 16,510,387 15,300,755 16,065,651 15,448,402 Direct retail .................. 1,082,526 1,066,011 1,097,574 1,111,654 1,125,885 Indirect retail ................ 3,458,466 3,324,238 3,239,532 3,143,670 3,056,582 Credit card .................... 4,944,519 4,954,671 6,049,350 5,773,009 5,533,435 Other revolving credit ......... 588,880 552,908 536,887 517,047 503,758 ----------- ----------- ----------- ----------- ----------- Total retail ............... 10,074,391 9,897,828 10,923,343 10,545,380 10,219,660 Construction ................... 2,233,128 2,087,886 2,044,437 1,865,675 1,835,906 Commercial mortgages ........... 7,289,241 7,076,217 6,988,050 6,826,459 6,796,424 Residential mortgages .......... 7,385,728 7,301,984 7,490,086 7,652,614 7,893,928 ----------- ----------- ----------- ----------- ----------- Total real estate .......... 16,908,097 16,466,087 16,522,573 16,344,748 16,526,258 Lease financing ................ 2,346,467 2,172,158 1,879,123 1,688,053 1,420,875 Foreign ........................ 1,450,580 1,346,672 1,093,428 984,884 843,353 ----------- ----------- ----------- ----------- ----------- Total loans ................ $48,428,086 $46,393,132 $45,719,222 $45,628,716 $44,458,548 =========== =========== =========== =========== ===========
Securities, the second largest category of interest-earning assets, decreased $1.438 billion or 13 percent and $1.420 billion or 13.1 percent for the quarter and first half, respectively, reflecting planned runoff in the portfolio. The securities portfolio was higher by $443 million or 4.8 percent from the first quarter of 1999, but is expected to run off in the last half of the year from current levels. At June 30, 1999, securities available-for-sale were $8.300 billion and securities held-to-maturity were $1.325 billion. Securities Table 9 - -------------------------------------------------------------------------------- June 30, 1999 (thousands) Securities available-for-sale at fair value: U.S. Government and agency ..................... $3,701,923 Mortgage-backed ................................ 4,052,533 Other .......................................... 545,263 ---------- Total securities available-for-sale ......... 8,299,719 Securities held-to-maturity: U.S. Government and agency ..................... 634,211 Mortgage-backed ................................ 478,030 State and municipal ............................ 155,989 Other .......................................... 56,358 ---------- Total securities held-to-maturity ........... 1,324,588 ---------- Total securities ............................ $9,624,307 ==========
Interest expense for the quarter declined $57.452 million or 9.8 percent from a year earlier and was lower by $113.828 million or 9.8 percent for the first half of 1999. Decreases in both periods were driven by reduced borrowing rates, with the average rate paid on interest-bearing liabilities down 53 basis points and 48 basis points for the three-and six-month periods, respectively. Total interest-bearing liabilities rose modestly for both the quarter and first half, with management issuing long-term debt to reduce dependence on short-term borrowed funds. Interest expense was up $7.292 million or 5.6 percent annualized from the first quarter of 1999, reflecting growth in interest-bearing liabilities of $1.205 billion or 9.9 percent annualized. 11 Wachovia utilizes a diverse funding base and believes flexibility and ongoing innovation are required 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 Premiere and Business Premiere accounts, both of which are high-yield money market deposit products; the addition of PC Banking; and enhancements to basic checking products, including the addition of Access Nowsm checking. Wholesale funding sources include senior and subordinated debt, a global bank note program, capital securities and asset-backed securitization. Total interest-bearing deposits remained largely unchanged for both the quarter and first half from year-earlier periods. Gains occurred in large denomination certificates and in savings and money market savings, which expanded $1.724 billion or 14.7 percent for the three months and $2.137 billion or 19.4 percent for the first six months, driven by continued growth in the corporation's Premiere and Business Premiere accounts. Savings certificates declined $1.238 billion or 12.4 percent for the three months and $1.715 billion or 16.3 percent year to date, while demand deposits were unchanged for the quarter but were lower by $654 million or 12.3 percent for the first half. Foreign interest-bearing deposits decreased for both the three- and six-month periods as management utilized alternative wholesale funding sources. Interest-bearing deposits were higher by $497 million or 6.2 percent annualized from the first three months of 1999, with all categories up except savings certificates. Gross deposits averaged $40.604 billion for the second quarter and $40.257 billion for the first half of 1999, higher by $483 million or 1.2 percent and $348 million or 1 percent, respectively, from year-earlier periods. Collected deposits, net of float, averaged $38.454 billion for the second period and $38.081 billion year to date, an increase of $621 million or 1.6 percent and $462 million or 1.2 percent from the same periods in 1998. Short-term borrowed funds declined $1.318 billion or 12 percent for the second period and $1.334 billion or 12.4 percent year to date, with reductions occurring principally in federal funds purchased and securities sold under repurchase agreements. Commercial paper borrowings expanded $243 million or 20.1 percent for the three months and $308 million or 27.3 percent for the first six months, while other short-term borrowed funds, primarily consisting of short-term bank notes, remained largely unchanged. Compared with the first three months of 1999, short-term borrowed funds rose $337 million or 14.5 percent annualized, with all categories increasing. Long-term debt rose $1.906 billion or 31.3 percent and $1.714 billion or 28.1 percent for the quarter and first half, respectively. Bank notes decreased moderately for both the three and six months, while other long-term debt expanded $2.008 billion or 58.3 percent for the second period and $1.878 billion or 57.1 percent year to date. Other long-term debt consists of senior and subordinated debt and 12 capital securities. In June 1999, Wachovia issued $600 million of 5-year senior fixed-rate notes as part of a $2.500 billion debt authorization by the Board of Directors in April 1999. The 1999 authorization included $800 million in unused debt remaining under a 1998 authorization, as well as $1.7 billion of new borrowing availability. Both authorizations consist of senior and subordinated unsecured notes, 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. As of June 30, 1999, $1.900 billion remained available under the April 1999 authorization. There were no new issuances of capital securities, which totaled $996 million at June 30, 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 expanded $371 million or 19.5 percent annualized from the first quarter of 1999, reflecting higher levels of 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 June 30, 1999 were $1.304 billion with an average cost of 4.93 percent and an average maturity of 2.2 months. Medium-term bank notes were $2.469 billion on the same date, with an average cost of 5.35 percent and an average maturity of 4.1 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. 13 Taxable Equivalent Rate/Volume Variance Analysis -- Second Quarter Table 10 - --------------------------------------------------------------------------------
Average Volume Average Rate - ------------------ ------------------ 1999 1998 1999 1998 - ------- ------- ------- ------- (millions) Interest Income Loans: $15,976 $13,859 6.91 7.41 Commercial ................................. 832 1,310 9.07 9.29 Tax-exempt ................................. - -------- -------- 16,808 15,169 7.02 7.57 Total commercial ........................... 1,072 1,140 8.60 9.44 Direct retail .............................. 3,371 3,027 7.92 8.36 Indirect retail ............................ 4,932 5,557 13.37 13.39 Credit card ................................ 572 493 10.79 11.63 Other revolving credit ..................... - -------- -------- 9,947 10,217 10.86 11.37 Total retail ............................... 2,149 1,873 8.16 9.06 Construction ............................... 7,200 6,809 7.95 8.54 Commercial mortgages ....................... 7,311 7,967 7.81 7.97 Residential mortgages ...................... - -------- -------- 16,660 16,649 7.91 8.32 Total real estate .......................... 2,265 1,261 11.79 11.17 Lease financing ............................ 1,332 678 6.32 6.40 Foreign .................................... - -------- -------- 47,012 43,974 8.36 8.82 Total loans ................................ Securities: Held-to-maturity: 614 287 6.21 6.10 U.S. Government and agency ................. 510 858 8.12 8.32 Mortgage-backed ............................ 159 199 9.99 10.73 State and municipal ........................ 62 108 6.99 6.85 Other ...................................... - -------- -------- 1,345 1,452 7.41 8.10 Total securities held-to-maturity .......... Available-for-sale:** 3,573 4,210 6.57 6.78 U.S. Government and agency ................. 4,181 4,731 6.32 6.71 Mortgage-backed ............................ 565 709 6.60 6.81 Other ...................................... - -------- -------- 8,319 9,650 6.44 6.75 Total securities available-for-sale ........ - -------- -------- 9,664 11,102 6.58 6.92 Total securities ........................... 83 139 6.70 9.83 Interest-bearing bank balances ............. Federal funds sold and securities 707 411 4.78 5.60 purchased under resale agreements .......... 798 1,008 4.07 5.30 Trading account assets ..................... - -------- -------- $58,264 $56,634 7.96 8.37 Total interest-earning assets .............. ======== ======== Interest Expense $ 4,691 $ 4,687 1.20 1.46 Interest-bearing demand .................... 13,424 11,700 3.48 3.77 Savings and money market savings ........... 8,746 9,984 5.09 5.50 Savings certificates ....................... 3,394 3,212 5.08 5.67 Large denomination certificates ............ - -------- -------- 30,255 29,583 3.77 4.19 Total interest-bearing deposits in domestic offices ........................... 2,088 2,599 4.62 5.76 Interest-bearing deposits in foreign offices..................................... - -------- -------- 32,343 32,182 3.82 4.32 Total interest-bearing deposits ............ Federal funds purchased and securities 6,155 7,746 4.47 5.36 sold under repurchase agreements ........... 1,452 1,209 4.48 5.18 Commercial paper ........................... 2,022 1,992 5.46 5.38 Other short-term borrowed funds ............ - -------- -------- 9,629 10,947 4.68 5.34 Total short-term borrowed funds............. 2,544 2,646 5.43 5.86 Bank notes ................................. 5,454 3,446 5.47 6.50 Other long-term debt ....................... - -------- -------- 7,998 6,092 5.46 6.23 Total long-term debt ....................... - -------- -------- $49,970 $49,221 4.25 4.78 Total interest-bearing liabilities ......... ======== ======== -------- ----- 3.71 3.59 Interest rate spread ======== ===== Net yield on interest-earning assets and 4.31 4.21 net interest income ........................ ======== ===== Variance Interest Attributable to -------------------------- ----------------------- 1999 1998 Variance Rate Volume ------------ ------------ -------------- --------- ---------- Interest Income (thousands) Loans: Commercial ................................. $ 275,364 $ 255,996 $ 19,368 $ (17,908) $ 37,276 Tax-exempt ................................. 18,813 30,346 (11,533) (715) (10,818) ------------ ------------ ------------- Total commercial ........................... 294,177 286,342 7,835 (21,750) 29,585 Direct retail .............................. 22,970 26,820 (3,850) (2,299) (1,551) Indirect retail ............................ 66,579 63,082 3,497 (3,407) 6,904 Credit card ................................ 164,369 185,542 (21,173) (347) (20,826) Other revolving credit ..................... 15,387 14,297 1,090 (1,080) 2,170 ------------ ------------ ------------- Total retail ............................... 269,305 289,741 (20,436) (12,881) (7,555) Construction ............................... 43,702 42,289 1,413 (4,467) 5,880 Commercial mortgages ....................... 142,724 144,936 (2,212) (10,274) 8,062 Residential mortgages ...................... 142,330 158,217 (15,887) (3,061) (12,826) ------------ ------------ ------------- Total real estate .......................... 328,756 345,442 (16,686) (16,925) 239 Lease financing ............................ 66,606 35,114 31,492 2,067 29,425 Foreign .................................... 21,007 10,822 10,185 (133) 10,318 ------------ ------------ ------------- Total loans ................................ 979,851 967,461 12,390 (52,443) 64,833 Securities: Held-to-maturity: U.S. Government and agency ................. 9,493 4,359 5,134 78 5,056 Mortgage-backed ............................ 10,320 17,795 (7,475) (426) (7,049) State and municipal ........................ 3,962 5,318 (1,356) (346) (1,010) Other ...................................... 1,073 1,843 (770) 36 (806) ------------ ------------ ------------- Total securities held-to-maturity .......... 24,848 29,315 (4,467) (2,389) (2,078) Available-for-sale:** U.S. Government and agency ................. 58,525 71,134 (12,609) (2,127) (10,482) Mortgage-backed ............................ 65,861 79,171 (13,310) (4,474) (8,836) Other ...................................... 9,285 12,046 (2,761) (375) (2,386) ------------ ------------ ------------- Total securities available-for-sale ........ 133,671 162,351 (28,680) (7,055) (21,625) ------------ ------------ ------------- Total securities ........................... 158,519 191,666 (33,147) (9,220) (23,927) Interest-bearing bank balances ............. 1,391 3,411 (2,020) (891) (1,129) Federal funds sold and securities purchased under resale agreements .......... 8,429 5,735 2,694 (935) 3,629 Trading account assets ..................... 8,107 13,313 (5,206) (2,736) (2,471) ------------ ------------ ------------- Total interest-earning assets .............. 1,156,297 1,181,586 (25,289) (58,672) 33,383 Interest Expense Interest-bearing demand .................... 13,991 17,047 (3,056) (3,071) 15 Savings and money market savings ........... 116,476 110,078 6,398 (8,993) 15,391 Savings certificates ....................... 110,926 136,782 (25,856) (9,683) (16,173) Large denomination certificates ............ 42,992 45,426 (2,434) (4,912) 2,478 ------------ ------------ ------------- Total interest-bearing deposits in domestic offices ........................... 284,385 309,333 (24,948) (31,844) 6,896 Interest-bearing deposits in foreign offices .................................... 24,039 37,332 (13,293) (6,674) (6,619) ------------ ------------ ------------- Total interest-bearing deposits ............ 308,424 346,665 (38,241) (39,962) 1,721 Federal funds purchased and securities sold under repurchase agreements ........... 68,530 103,464 (34,934) (15,644) (19,290) Commercial paper ........................... 16,234 15,620 614 (2,270) 2,884 Other short-term borrowed funds ............ 27,537 26,743 794 404 390 ------------ ------------ ------------- Total short-term borrowed funds............. 112,301 145,827 (33,526) (17,036) (16,490) Bank notes ................................. 34,467 38,691 (4,224) (2,782) (1,442) Other long-term debt ....................... 74,410 55,871 18,539 (9,958) 28,497 ------------ ------------ ------------- Total long-term debt ....................... 108,877 94,562 14,315 (12,665) 26,980 ------------ ------------ ------------- Total interest-bearing liabilities ......... 529,602 587,054 (57,452) (66,261) 8,809 ------------ ------------ ------------- Interest rate spread Net yield on interest-earning assets and net interest income ........................ $ 626,695 $ 594,532 $ 32,163 14,828 17,335 ============ ============ =============
* 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 $68 million in 1999 and $96 million in 1998. 14 Taxable Equivalent Rate/Volume Variance Analysis -- Six Months* Table 11 - --------------------------------------------------------------------------------
Average Volume Average Rate - ------------------- -------------------- 1999 1998 1999 1998 - ------- ------- ------- -------- (millions) Interest Income Loans: $15,418 $13,732 6.94 7.32 Commercial ................................. 881 1,382 9.18 8.92 Tax-exempt ................................. - -------- -------- 16,299 15,114 7.06 7.46 Total commercial ........................... 1,072 1,174 8.75 9.31 Direct retail .............................. 3,340 3,030 7.94 8.47 Indirect retail ............................ 5,389 5,649 13.31 13.41 Credit card ................................ 559 479 10.87 10.87 Other revolving credit ..................... - -------- -------- 10,360 10,332 10.98 11.38 Total retail ............................... 2,121 1,862 8.36 9.11 Construction ............................... 7,127 6,790 8.01 8.68 Commercial mortgages ....................... 7,324 7,972 7.82 8.06 Residential mortgages ...................... - -------- -------- 16,572 16,624 7.97 8.43 Total real estate .......................... 2,104 1,178 11.95 10.52 Lease financing ............................ 1,303 614 6.32 6.85 Foreign .................................... - -------- -------- 46,638 43,862 8.45 8.83 Total loans ................................ Securities: Held-to-maturity: 592 224 6.21 6.18 U.S. Government and agency ................. 543 887 8.28 8.32 Mortgage-backed ............................ 163 204 9.86 10.77 State and municipal ........................ 67 113 6.85 6.76 Other ...................................... - -------- -------- 1,365 1,428 7.50 8.21 Total securities held-to-maturity .......... Available-for-sale:** 3,374 4,336 6.50 6.81 U.S. Government and agency ................. 4,134 4,379 6.39 6.80 Mortgage-backed ............................ 571 721 7.04 7.05 Other ...................................... - -------- -------- 8,079 9,436 6.48 6.82 Total securities available-for-sale ........ - -------- -------- 9,444 10,864 6.63 7.00 Total securities ........................... 107 164 6.78 8.16 Interest-bearing bank balances ............. Federal funds sold and securities 595 392 4.82 5.66 purchased under resale agreements .......... 749 1,038 3.70 5.14 Trading account assets ..................... - -------- -------- $57,533 $56,320 8.05 8.38 Total interest-earning assets .............. ======== ======== Interest Expense $ 4,678 $ 5,332 1.15 1.28 Interest-bearing demand .................... 13,158 11,021 3.53 4.05 Savings and money market savings ........... 8,796 10,511 5.14 5.43 Savings certificates ....................... 3,385 2,832 5.17 5.66 Large denomination certificates ............ - -------- -------- Total interest-bearing deposits 30,017 29,696 3.81 4.19 in domestic offices ........................ Interest-bearing deposits in foreign 2,078 2,622 4.65 5.66 offices .................................... - -------- -------- 32,095 32,318 3.87 4.31 Total interest-bearing deposits ............ Federal funds purchased and securities 6,087 7,661 4.41 5.36 sold under repurchase agreements ........... 1,436 1,128 4.48 5.16 Commercial paper ........................... 1,938 2,006 5.26 5.27 Other short-term borrowed funds ............ - -------- -------- 9,461 10,795 4.59 5.32 Total short-term borrowed funds ............ 2,646 2,810 5.57 6.16 Bank notes ................................. 5,168 3,290 5.76 6.39 Other long-term debt ....................... - -------- -------- 7,814 6,100 5.69 6.29 Total long-term debt ....................... - -------- -------- $49,370 $49,213 4.30 4.78 Total interest-bearing liabilities ......... ======== ======== -------- ----- 3.75 3.60 Interest rate spread ======== ===== Net yield on interest-earning assets and 4.36 4.21 net interest income ........................ ======== ===== Variance Interest Attributable to ------------------------ -------------------------- 1999 1998 Variance Rate Volume ---------- ---------- ------------ ---------- ----------- Interest Income (thousands) Loans: Commercial ................................. $ 530,319 $ 498,304 $ 32,015 $ (26,945) $ 58,960 Tax-exempt ................................. 40,141 61,110 (20,969) 1,783 (22,752) ----------- ----------- ------------- Total commercial ........................... 570,460 559,414 11,046 (31,431) 42,477 Direct retail .............................. 46,523 54,181 (7,658) (3,125) (4,533) Indirect retail ............................ 131,561 127,272 4,289 (8,231) 12,520 Credit card ................................ 355,703 375,770 (20,067) (2,863) (17,204) Other revolving credit ..................... 30,134 25,824 4,310 (2) 4,312 ----------- ----------- ------------- Total retail ............................... 563,921 583,047 (19,126) (20,698) 1,572 Construction ............................... 87,891 84,098 3,793 (7,321) 11,114 Commercial mortgages ....................... 283,046 292,338 (9,292) (23,355) 14,063 Residential mortgages ...................... 284,007 318,492 (34,485) (9,148) (25,337) ----------- ----------- ------------- Total real estate .......................... 654,944 694,928 (39,984) (37,825) (2,159) Lease financing ............................ 124,679 61,484 63,195 9,306 53,889 Foreign .................................... 40,858 20,870 19,988 (1,728) 21,716 ----------- ----------- ------------- Total loans ................................ 1,954,862 1,919,743 35,119 (83,308) 118,427 Securities: Held-to-maturity: U.S. Government and agency ................. 18,238 6,848 11,390 38 11,352 Mortgage-backed ............................ 22,285 36,610 (14,325) (175) (14,150) State and municipal ........................ 7,986 10,875 (2,889) (860) (2,029) Other ...................................... 2,270 3,780 (1,510) 47 (1,557) ----------- ----------- ------------- Total securities held-to-maturity .......... 50,779 58,113 (7,334) (4,864) (2,470) Available-for-sale:** U.S. Government and agency ................. 108,739 146,398 (37,659) (6,407) (31,252) Mortgage-backed ............................ 130,965 147,585 (16,620) (8,593) (8,027) Other ...................................... 19,915 25,225 (5,310) (50) (5,260) ----------- ----------- ------------- Total securities available-for-sale ........ 259,619 319,208 (59,589) (15,358) (44,231) ----------- ----------- ------------- Total securities ........................... 310,398 377,321 (66,923) (19,466) (47,457) Interest-bearing bank balances ............. 3,584 6,639 (3,055) (997) (2,058) Federal funds sold and securities purchased under resale agreements .......... 14,231 11,020 3,211 (1,834) 5,045 Trading account assets ..................... 13,760 26,443 (12,683) (6,360) (6,323) ----------- ----------- ------------- Total interest-earning assets .............. 2,296,835 2,341,166 (44,331) (94,066) 49,735 Interest Expense Interest-bearing demand .................... 26,716 33,798 (7,082) (3,162) (3,920) Savings and money market savings ........... 230,023 221,211 8,812 (30,756) 39,568 Savings certificates ....................... 224,375 282,812 (58,437) (14,106) (44,331) Large denomination certificates ............ 86,718 79,543 7,175 (7,414) 14,589 ----------- ----------- ------------- Total interest-bearing deposits in domestic offices ........................ 567,832 617,364 (49,532) (56,135) 6,603 Interest-bearing deposits in foreign offices 47,959 73,542 (25,583) (11,801) (13,782) ----------- ----------- ------------- Total interest-bearing deposits ............ 615,791 690,906 (75,115) (70,388) (4,727) Federal funds purchased and securities sold under repurchase agreements ........... 132,994 203,427 (70,433) (32,612) (37,821) Commercial paper ........................... 31,915 28,894 3,021 (4,156) 7,177 Other short-term borrowed funds ............ 50,562 52,398 (1,836) (59) (1,777) ----------- ----------- ------------- Total short-term borrowed funds ............ 215,471 284,719 (69,248) (36,337) (32,911) Bank notes ................................. 73,054 85,833 (12,779) (7,970) (4,809) Other long-term debt ....................... 147,596 104,282 43,314 (11,195) 54,509 ----------- ----------- ------------- Total long-term debt ....................... 220,650 190,115 30,535 (19,144) 49,679 ----------- ----------- ------------- Total interest-bearing liabilities ......... 1,051,912 1,165,740 (113,828) (117,553) 3,725 ----------- ----------- ------------- Interest rate spread Net yield on interest-earning assets and net interest income ........................ $1,244,923 $1,175,426 $ 69,497 43,828 25,669 =========== =========== =============
* 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 $93 million in 1999 and $105 million in 1998. 15 Market Risk and Asset/Liability Management Market risk is the risk of loss due to adverse changes in instrument values or earnings fluctuation resulting from changes in market factors. This includes, but may not be limited to, changes in interest rates, foreign exchange rates, commodity prices and other market variables including equity price risk. Wachovia has potential exposure to interest rates, no risk in commodity prices (since it 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 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. Trading Market Risk Trading market risk is the risk to net income from changes in the fair value of assets and liabilities and off-balance sheet 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. Wachovia 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 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 16 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 June 30, 1999, the combined VAR exposure, given the above calculation parameters, was $603 thousand which represented .10 percent of the combined trading portfolio value of $586.442 million. The combined average VAR exposure for the second quarter of 1999 was $645 thousand which represented .10 percent of the combined average trading portfolio value of $676.348 million. These VAR numbers are for the combined U. S. Treasury and government agency, municipal bond, residential mortgage-backed securities and money market instrument trading portfolios. Nontrading Market Risk Nontrading market risk is the risk to net income from changes in interest rates on asset, liability and off-balance sheet 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. Treasury is charged with the responsibility of managing the nontrading market risk. Treasury includes asset/liability management and the management of discretionary securities and funding portfolios. The goal of Treasury 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. Treasury 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 Treasury managers, the Treasurer and the Chief Financial Officer. Treasury 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. Interest rate risk is monitored 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 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 17 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 .96 percent decrease in net income at June 30, 1999 versus a 1.10 percent decrease one year earlier. A gradual decrease in rates over the next 12 months would cause approximately a .64 percent increase in net income as of June 30, 1999 compared with a .08 percent decrease at June 30, 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 June 30, 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 4.81 percent. For a decline in rates of 100 basis points, the change was an increase of 4.12 percent. Liquidity Management To ensure Wachovia is positioned to meet immediate and future cash demands, management relies on liquidity analysis, knowledge of business trends over past economic cycles and forecasts of future conditions. Liquidity is maintained through a strong balance sheet and operating performance that assures market acceptance as well as through policy guidelines which limit the level, maturity and concentration of noncore funding sources. Through its balance sheet, the corporation generates liquidity on the asset side by maintaining significant amounts of securities available-for-sale, which may be sold at any time, and by loans which may be securitized or sold. Additionally, the corporation generates cash through deposit growth, the issuance of bank notes, the availability of unused lines of credit and through other forms of debt and equity instruments. Through policy guidelines, net purchased funds are limited 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 18 within 90 days. Guidelines also require the monitoring of significant concentrations of funds by single sources and by type of borrowing category. Nonperforming Assets At June 30, 1999, nonperforming assets totaled $234.787 million or .48 percent of loans and foreclosed property, an increase of $82.559 million or 54.2 percent from one year earlier and higher by $64.331 million or 37.7 percent from the end of the first quarter of 1999. Management monitors business conditions among its commercial borrowers on an ongoing basis and has noted a deterioration in certain credits and transferred them to nonaccrual status during the second quarter. The largest category of total nonperforming assets are real estate related. At June 30, 1999, real estate nonperforming assets were $105.167 million or .62 percent of real estate loans and foreclosed real estate compared with $109.680 million or .66 percent one year earlier and $102.330 million or .62 percent at the end of the first quarter of 1999. Included in these totals were real estate nonperforming loans of $84.975 million at June 30, 1999 versus $89.533 million one year earlier and $81.635 million at March 31, 1999. Commercial real estate nonperforming assets were $53.767 million or .56 percent of related loans and foreclosed real estate versus $53.168 million or .62 percent at June 30, 1998 and $47.377 million or .52 percent at the end of the first quarter of 1999. Commercial real estate nonperforming loans totaled $41.277 million compared with $42.544 million at the close of the second quarter of 1998 and $35.709 million at March 31, 1999. Nonperforming Assets and Contractually Past Due Loans Table 12 - -------------------------------------------------------------------------------- (thousands)
June 30 Mar. 31 Dec. 31 Sept. 30 June 30 1999 1999 1998 1998 1998 -------- --------- ---------- --------- ---------- Nonperforming assets: Cash-basis assets ........................................... $209,550 $144,763 $157,118 $144,654 $127,376 Restructured loans .......................................... ---- ---- ---- ---- ---- -------- ---------- ---------- --------- ---------- Total nonperforming loans ................................ 209,550 144,763 157,118 144,654 127,376 Foreclosed property: Foreclosed real estate ..................................... 28,354 30,285 33,443 34,935 33,604 Less valuation allowance ................................... 8,162 9,590 12,678 12,867 13,457 Other foreclosed assets .................................... 5,045 4,998 3,420 4,957 4,705 -------- ---------- ---------- --------- ---------- Total foreclosed property ................................ 25,237 25,693 24,185 27,025 24,852 -------- ---------- ---------- --------- ---------- Total nonperforming assets ............................... $234,787 $170,456 $181,303 $171,679 $152,228 ======== ========== ========== ========= ========== Nonperforming loans to period-end loans ..................... .43% .31% .34% .32% .29% Nonperforming assets to period-end loans and foreclosed property ........................................ .48 .37 .40 .38 .34 Period-end allowance for loan losses times nonperforming loans ........................................ 2.62x 3.79x 3.49x 3.79x 4.30x Period-end allowance for loan losses times nonperforming assets ....................................... 2.34 3.22 3.02 3.19 3.60 Contractually past due loans -- accruing loans past due 90 days or more .................................... $99,486 $137,116 $136,807 $119,034 $112,720 ======== ========== ========== ========= ==========
Provision and Allowance for Loan Losses The provision for loan losses was $74.525 million for the second quarter and $155.161 million for the first half of 1999, higher by $6.084 million or 8.9 percent and $12.594 million or 8.8 percent, respectively, from year-earlier periods. The provision decreased $6.111 million or 7.6 percent from the first three months of 1999. 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 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 19 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 second quarter were $74.326 million or .63 percent of average loans, up $6.103 million or 8.9 percent from $68.223 million or .62 percent of average loans a year earlier. For the first six months of 1999, net charge-offs totaled $154.652 million or .66 percent of average loans, an increase of $12.321 million or 8.7 percent from $142.331 million or .65 percent of loans in the same period in 1998. Increases for both the quarter and first half of the year reflected higher net losses in commercial loans and lower recoveries of real estate loans previously charged off. Compared with the first quarter of 1999, net loan losses declined $6.000 million or 29.9 percent annualized, due to a reduction in credit card loans and corresponding losses from a securitization transaction. Credit cards represent the largest segment of total net loan losses. Excluding credit cards, net charge-offs for the quarter were $13.325 million or .13 percent of average loans versus $5.478 million or .06 percent a year earlier and $13.277 million or .13 percent of loans in the first three months of 1999. Net credit card losses for the second quarter of 1999 were $61.001 million or 4.95 percent of average credit card loans, a decrease of $1.744 million or 2.8 percent from a year earlier, reflecting the impact of the March 1999 credit card securitization. For the first half of 1999, net credit card losses totaled $128.050 million or 4.75 percent of average credit card loans, up slightly from $127.867 million or 4.53 percent of loans in the same period of 1998. Commercial net loan losses rose $3.944 million for the quarter and $7.088 million for the first six months, while recoveries in real estate loans decreased $1.742 million for the three months and $3.430 million for the first six months of 1999. Selected data on the managed credit card portfolio, which includes securitized loans, appears in the following table. Managed Credit Card Data Table 13 - -------------------------------------------------------------------------------- (thousands)
1999 1998 Six Months Ended ------------------------ --------------=------------------------ June 30 Second First Fourth Third Second -------------------------- Quarter Quarter Quarter Quarter Quarter 1999 1998 ---------- ---------- ---------- ----------- ----------- ----------- ----------- Average credit card outstandings ................... $ 6,327,848 $ 6,430,397 $ 6,328,905 $ 6,092,515 $ 6,056,770 $ 6,378,839 $ 6,151,018 Net loan losses ................. 70,563 69,632 72,997 66,324 67,978 140,195 137,387 Annualized net loan losses to average loans .................. 4.46% 4.33% 4.61% 4.35% 4.49% 4.40% 4.47% Delinquencies (30 days or more) to period-end loans ...... 2.79 3.02 3.30 3.11 2.69 2.79 2.69
At June 30, 1999, the allowance for loan losses was $548.540 million, representing 1.13 percent of period-end loans and 262 percent of nonperforming loans. Comparable amounts were $547.572 million, 1.23 percent and 430 percent, respectively, one year earlier and $548.302 million, 1.18 percent and 379 percent, respectively, at March 31, 1999. 20 Allowance for Loan Losses Table 14 - -------------------------------------------------------------------------------- (thousands)
1999 1998 Six Months Ended --------------------- ------------------------------- June 30 Second First Fourth Third Second --------------------- Quarter Quarter Quarter Quarter Quarter 1999 1998 --------- --------- --------- --------- -------- --------- -------- Summary of Transactions Balance at beginning of period ............. $548,302 $ 547,992 $ 547,686 $547,572 $544,741 $ 547,992 $544,723 Additions from acquisitions ................ 39 ---- ---- ---- 2,613 39 2,613 Provision for loan losses .................. 74,525 80,636 84,104 72,809 68,441 155,161 142,567 Deduct net loan losses: Loans charged off: Commercial ............................... 7,592 5,862 7,365 4,601 3,252 13,454 5,914 Credit card .............................. 69,619 74,094 75,401 69,043 70,015 143,713 142,076 Other revolving credit ................... 3,126 2,889 3,050 2,736 2,927 6,015 5,016 Other retail ............................. 7,888 8,910 9,851 8,515 6,624 16,798 17,012 Real estate .............................. 1,397 1,488 2,407 264 634 2,885 1,843 Lease financing .......................... 585 592 701 782 726 1,177 1,612 Foreign .................................. ---- ---- ---- ---- ---- ---- ---- --------- --------- ---------- -------- -------- ---------- -------- Total .................................. 90,207 93,835 98,775 85,941 84,178 184,042 173,473 Recoveries: Commercial ............................... 1,667 1,956 1,979 1,517 1,271 3,623 3,171 Credit card .............................. 8,618 7,045 7,073 7,522 7,270 15,663 14,209 Other revolving credit ................... 828 707 641 610 630 1,535 1,320 Other retail ............................. 2,718 2,813 3,167 2,242 3,070 5,531 6,085 Real estate .............................. 1,836 849 2,001 1,223 3,578 2,685 6,115 Lease financing .......................... 214 139 116 132 136 353 242 Foreign .................................. ---- ---- ---- ---- ---- ---- ---- --------- --------- ---------- -------- -------- ---------- -------- Total .................................. 15,881 13,509 14,977 13,246 15,955 29,390 31,142 --------- --------- ---------- -------- -------- ---------- -------- Net loan losses ........................... 74,326 80,326 83,798 72,695 68,223 154,652 142,331 --------- --------- ---------- -------- -------- ---------- -------- Balance at end of period ................... $548,540 $ 548,302 $ 547,992 $547,686 $547,572 $ 548,540 $547,572 ========= ========= ========== ======== ======== ========== ======== Net Loan Losses (Recoveries) by Category Commercial ................................. $ 5,925 $ 3,906 $ 5,386 $ 3,084 $ 1,981 $ 9,831 $ 2,743 Credit card ................................ 61,001 67,049 68,328 61,521 62,745 128,050 127,867 Other revolving credit ..................... 2,298 2,182 2,409 2,126 2,297 4,480 3,696 Other retail ............................... 5,170 6,097 6,684 6,273 3,554 11,267 10,927 Real estate ................................ (439) 639 406 (959) (2,944) 200 (4,272) Lease financing ............................ 371 453 585 650 590 824 1,370 Foreign .................................... ---- ---- ---- ---- ---- ---- ---- --------- --------- ---------- -------- -------- ---------- -------- Total .................................. $ 74,326 $ 80,326 $ 83,798 $ 72,695 $ 68,223 $ 154,652 $142,331 ========= ========= ========== ======== ======== ========== ======== Net loan losses -- excluding credit cards .. $ 13,325 $ 13,277 $ 15,470 $ 11,174 $ 5,478 $ 26,602 $ 14,464 Annualized Net Loan Losses (Recoveries) to Average Loans by Category Commercial ................................. .14% .10% .13% .08% .05% .12% .04% Credit card ................................ 4.95 4.58 4.69 4.40 4.52 4.75 4.53 Other revolving credit ..................... 1.61 1.60 1.84 1.67 1.86 1.60 1.54 Other retail ............................... .47 .56 .62 .60 .34 .51 .52 Real estate ................................ (.01) .02 .01 (.02) (.07) ---- (.05) Lease financing ............................ .07 .09 .13 .16 .19 .08 .23 Foreign .................................... ---- ---- ---- ---- ---- ---- ---- Total loans ................................ .63 .69 .73 .66 .62 .66 .65 Total loans -- excluding credit cards ...... .13 .13 .15 .12 .06 .13 .08 Period-end allowance to outstanding loans .. 1.13 1.18 1.20 1.20 1.23 1.13 1.23
Noninterest Income Total other operating revenue, which excludes securities sales, rose $89.501 million or 28.4 percent for the second quarter from a year earlier and was higher by $139.047 million or 23.2 percent for the first six months. Growth in both periods reflected core business expansion in addition to the purchase acquisition of Interstate/Johnson Lane, which added to reported results effective from the April 1, 1999 transaction close. Increases largely occurred in investment fees, credit card income, deposit account service charges, trust fees and capital markets income. Results for the first half of 1999 include $17.025 million in gains from the sale of credit card receivables in a March 1999 securitization transaction versus gains of $17.155 million a year earlier from branch divestitures. 21 Excluding these gains and the addition of Interstate/Johnson Lane in the second period of 1999, total other operating revenue grew approximately 9 percent and 13 percent for the quarter and first half of the year, respectively, and was higher by approximately 8 percent from the first three months of 1999. Total other operating revenue for the full year of 1999 is projected to be up 10 to 12 percent, excluding additions from purchase acquisitions, based on growth expected largely in financial advisory services, technology-based banking, credit cards and capital markets income. Investment fees for the second quarter were higher by $53.488 million year over year, principally reflecting the addition of Interstate/Johnson Lane. Year to date, investment fees rose $55.850 million due, in part, to growth in fees for the corporation's investment management account and in fees from customer mutual fund investments. Credit card income expanded $15.033 million or 34.9 percent for the three months and $37.790 million or 46.3 percent for the first six months. Increases in both periods primarily reflected servicing fees and other income recognized on securitized loans and higher interchange income. The first six months of 1999 included the gain on the sale of receivables from securitization. Deposit account service charges grew $8.989 million or 10.9 percent for the quarter and $15.070 million or 9.2 percent year to date. Increases occurred largely in overdraft fees, commercial analysis fees and demand account charges. Fees for trust services expanded $6.105 million or 12.5 percent and $9.188 million or 9.7 percent for the three- and six-month periods, respectively. Gains in trust and investment management largely accounted for the growth, with increases also occurring in fees collected for the Wachovia Funds, the corporation's proprietary mutual funds. Capital markets income was up modestly for the second period, rising $1.476 million or 3.7 percent, but increased $23.478 million or 41.6 percent year to date. Higher revenues from fixed income sales and trading, corporate financing and derivatives income helped offset slowdowns in consulting services. 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. Increased debit card interchange income as well as modest gains from ATM fees pushed electronic banking revenues up $3.891 million or 20.8 percent for the quarter and $5.951 million or 17 percent for the first half of the year. Mortgage fees decreased $1.639 million or 14.2 percent for the three months but were higher by $1.623 million or 8.5 percent for the first six months of 1999. The decline from the year-earlier quarter primarily reflected lower levels of servicing release premiums. Rising interest rates resulted in a slowing of refinancing activity and a shift toward adjustable rate mortgages which are not sold, but retained, on the balance sheet. The increase in year-to-date results was driven by strong first quarter performance. 22 Noninterest Income Table 15 - -------------------------------------------------------------------------------- (thousands)
1999 1998 Six Months Ended --------------------- --------------------------------- June 30 Second First Fourth Third Second --------------------- Quarter Quarter Quarter Quarter Quarter 1999 1998 -------- ------ -------- ------ ------ -------- -------- Service charges on deposit accounts .............. $ 91,454 $ 86,955 $ 86,967 $ 84,674 $ 82,465 $178,409 $163,339 Fees for trust services .......................... 54,907 49,136 53,909 51,185 48,802 104,043 94,855 Credit card income -- net of interchange payments ........................................ 58,110 61,301 46,194 43,312 43,077 119,411 81,621 Capital markets income ........................... 41,780 38,112 36,044 37,625 40,304 79,892 56,414 Electronic banking ............................... 22,558 18,455 19,746 19,449 18,667 41,013 35,062 Investment fees .................................. 69,877 17,362 15,170 14,997 16,389 87,239 31,389 Mortgage fees .................................... 9,863 10,966 13,472 12,251 11,502 20,829 19,206 Bankers' acceptance and letter of credit fees..... 11,563 10,342 9,909 9,745 9,802 21,905 19,371 Other service charges and fees ................... 18,153 15,526 13,473 13,608 13,536 33,679 27,645 Other income ..................................... 26,279 25,114 23,928 23,695 30,499 51,393 69,864 --------- -------- --------- -------- -------- --------- --------- Total other operating revenue ................ 404,544 333,269 318,812 310,541 315,043 737,813 598,766 Securities gains ................................. 10,453 234 7,407 6,886 2,992 10,687 6,149 --------- -------- --------- -------- -------- --------- --------- Total ........................................ $414,997 $333,503 $326,219 $317,427 $318,035 $748,500 $604,915 ========= ======== ========= ======== ======== ========= =========
Remaining combined categories of total other operating revenue rose $2.158 million or 4 percent for the quarter and $7.252 million or 7.3 percent for the first half of the year, excluding branch divestiture sales in 1998. Bankers' acceptance and letter of credit fees were up $1.761 million or 18 percent for the three months and $2.534 million or 13.1 percent for the first six months. Other service charges and fees increased $4.617 million or 34.1 percent and $6.034 million or 21.8 percent for the second period and first half, respectively, while other income was lower by $4.220 million or 13.8 percent for the quarter and $1.316 million or 2.5 percent year to date. Including securities sales, total noninterest income rose $96.962 million or 30.5 percent for the three months and $143.585 million or 23.7 percent for the first six months of 1999. Securities sales, primarily equities, resulted in net gains of $10.453 million for the second quarter and $10.687 million year to date compared with $2.992 million and $6.149 million, respectively, in 1998. Noninterest Expense Total noninterest expense was higher by $63.623 million or 12.3 percent for the second quarter of 1999 from a year earlier and increased $61.572 million or 6.1 percent for the first half. Comparisons between 1999 and 1998 periods are impacted by the addition of Interstate/Johnson Lane effective from April 1, 1999 and by merger-related expenses in both years. For both the quarter and first six months of 1999, merger-related expenses totaled $8.347 million versus $30.849 million and $66.417 million, respectively, in 1998. Excluding the addition of Interstate/Johnson Lane and merger-related expenses, noninterest expense was up approximately 4 percent and 6 percent for the second quarter and first half, respectively, and was higher by approximately 3 percent from the first three months of 1999. Remaining merger-related expenses are expected to total approximately $13 million. For the full year of 1999, total noninterest expense is expected to rise approximately 4 to 5 percent, excluding the impact of purchase acquisitions and merger-related expenses in both 1999 and 1998. The projected rate of increase for the full year is based on expected moderation primarily in salaries expense growth. 23 Noninterest Expense Table 16 - -------------------------------------------------------------------------------- (thousands)
1999 1998 Six Months Ended --------------------- ------------------------------ June 30 Second First Fourth Third Second ------------------------ Quarter Quarter Quarter Quarter Quarter 1999 1998 ----------- -------- --------- --------- --------- ----------- ----------- Salaries ................................ $ 259,733 $218,115 $ 221,019 $221,242 $ 219,731 $ 477,848 $ 432,489 Employee benefits ....................... 48,019 53,071 48,922 42,040 42,675 101,090 89,641 ----------- -------- --------- -------- --------- ----------- ----------- Total personnel expense ............. 307,752 271,186 269,941 263,282 262,406 578,938 522,130 Net occupancy expense ................... 38,908 34,933 35,838 34,896 34,119 73,841 67,902 Equipment expense ....................... 50,415 47,404 41,683 38,545 41,288 97,819 75,975 Postage and delivery .................... 13,670 14,128 12,962 13,373 13,368 27,798 26,646 Outside data processing, programming and software ........................... 27,178 25,110 21,203 18,496 16,244 52,288 28,981 Stationery and supplies ................. 8,598 8,809 9,339 10,689 7,233 17,407 14,739 Advertising and sales promotion ......... 16,682 11,837 12,782 17,147 22,555 28,519 40,293 Professional services ................... 19,351 14,024 15,311 14,929 14,522 33,375 25,826 Travel and business promotion ........... 8,749 5,951 7,521 7,656 7,638 14,700 14,077 Amortization of intangible assets ....... 12,230 10,953 10,908 9,840 9,226 23,183 18,343 Foreclosed property expense -- net of income ................................. 301 (82) 517 (164) 88 219 218 Merger-related charges .................. 8,347 ---- 6,961 11,934 30,849 8,347 66,417 Other expense ........................... 68,436 47,945 47,720 51,780 57,458 116,381 109,696 ----------- -------- --------- -------- --------- ----------- ----------- Total ............................... $ 580,617 $492,198 $ 492,686 $492,403 $ 516,994 $ 1,072,815 $ 1,011,243 =========== ======== ========= ======== ========= =========== =========== Overhead ratio* ......................... 56.3% 51.7% 52.4% 54.0% 56.8% 54.1% 57.0% Overhead ratio without merger-related charges ................................ 55.5 51.7 51.7 52.7 53.4 53.7 53.3
* Noninterest expense as a percentage of taxable equivalent net interest income and total other operating revenue. Total personnel expense was up $45.346 million or 17.3 percent for the quarter and $56.808 million or 10.9 percent for the first half of the year. Salaries expense increased $40.002 million or 18.2 percent for the three months and $45.359 million or 10.5 percent for the first six months, reflecting a higher employee base with the addition of Interstate/Johnson Lane and expanded incentive pay for revenue generating businesses. Employee benefits expense rose $5.344 million or 12.5 percent for the second period and $11.449 million or 12.8 percent year to date, largely driven by higher costs for medical and retirement plans and by increased payroll taxes for employee growth. At June 30, 1999, full-time equivalent employees totaled 21,716 versus 21,146 one year earlier. Combined net occupancy and equipment expense rose $13.916 million or 18.5 percent and $27.783 million or 19.3 percent for the three and six months, respectively. Increased depreciation and amortization of equipment and technology investments accounted for the majority of the rise in both periods. Remaining combined categories of noninterest expense excluding merger-related expenses in both 1999 and 1998 rose $26.863 million or 18.1 percent for the quarter and $35.051 million or 12.6 percent for the first half. Outside data processing, programming and software expense increased $10.934 million or 67.3 percent for the three months and $23.307 million or 80.4 percent for the first six months, largely due to higher technology investments. Professional services expense rose $4.829 million or 33.3 percent for the second period and $7.549 million or 29.2 percent year to date for ongoing work associated with the corporation's business strategies. Amortization expense for intangible assets was up $3.004 million or 32.6 percent for the quarter and $4.840 million or 26.4 percent for the first half, reflecting higher levels of intangible assets 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 24 project team established 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. As of June 30, 1999, all five phases had been completed. Wachovia'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, Wachovia completed the awareness and identification phases for its own systems and functions and has extended and completed the processes for businesses acquired subsequent to 1996. For business entities that are in the process of being merged with the corporation, identification and remediation of noncompliant Year 2000 systems and functions is being addressed. Management does not anticipate any material impact to its own systems' readiness as a result of pending merger completions. Conversion, testing and implementation of information technology systems began in 1997 and were finished by the end of the second quarter of 1999. To ensure the widest degree of systems preparedness, management elected to convert all information technology systems to Year 2000 compliant standards, not limiting the process to mission critical systems required under regulatory guidelines. Testing was done in both a 21st and 20th century date environment, and systems were implemented back into production as they were tested to permit greater flexibility in the event of future system flaws or failures. For computer chip embedded functions, Wachovia replaced and tested noncompliant functions essential to business operations. The corporation also has worked to assess and 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 included surveys with follow-up reviews and contacts. Substantially all vendors responded to management's surveys regarding Year 2000 readiness and indicated that they are compliant as of June 30, 1999. The project team is continuing to monitor the status of its vendors as well as of large corporate borrowers identified as potentially at risk. Wachovia began external entity testing in 1998 and substantially completed testing by June 30, 1999. Management estimates that total Year 2000 project costs will be approximately $84 million, with $77 million having been spent through June 30, 1999 including $5 million in the second quarter of 1999 and $11 million through the first half of the year. The projected total cost is up slightly from $80 million estimated at year-end 1998, reflecting additional expenses expected primarily for customer communication and preparation refinements. The remaining Year 2000 project costs are not expected to have a material impact on Wachovia's results of operations, liquidity or capital resources. Wachovia 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 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 continues to review and monitor 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 25 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 converted and tested the information systems of its S-o Paulo, Brazil, and London, England, offices. 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 Year 2000 compliance efforts. Further, management cannot determine the impact that any adverse effect might have on operations, financial position or cash flows. 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 financial condition or results of operations. 26 Income Taxes Applicable income taxes rose $23.919 million or 22.7 percent for the second quarter of 1999 from a year earlier and were higher by $57.101 million or 28.9 percent year to date. The corporation's effective tax rate has risen as a result of a decrease in tax-exempt income as well as an increase in nondeductible amortization associated with purchase business combinations. 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 17 - -------------------------------------------------------------------------------- (thousands)
Three Months Ended Six Months Ended June 30 June 30 --------------------- --------------------- 1999 1998 1999 1998 --------- --------- --------- --------- Income before income taxes .................................... $ 376,857 $ 315,304 $ 745,602 $ 602,952 ========== ========== ========== ========== Federal income taxes at statutory rate ........................ $ 131,900 $ 110,356 $ 260,961 $ 211,033 State and local income taxes -- net of federal benefit ........ 7,570 6,688 15,622 5,667 Effect of tax-exempt securities interest and other income ..... (10,884) (13,144) (22,078) (25,526) Other items ................................................... 721 1,488 311 6,541 ---------- ---------- ---------- ---------- Total tax expense ......................................... $ 129,307 $ 105,388 $ 254,816 $ 197,715 ========== ========== ========== ========== Current: Federal ...................................................... $ 21,127 $ 27,652 $ 42,650 $ 96,416 Foreign ...................................................... 195 246 497 361 State and local .............................................. 6,458 2,069 13,072 5,798 ---------- ---------- ---------- ---------- Total ..................................................... 27,780 29,967 56,219 102,575 Deferred: Federal ...................................................... 96,339 67,200 187,636 92,220 State and local .............................................. 5,188 8,221 10,961 2,920 ---------- ---------- ---------- ---------- Total ..................................................... 101,527 75,421 198,597 95,140 ---------- ---------- ---------- ---------- Total tax expense ......................................... $ 129,307 $ 105,388 $ 254,816 $ 197,715 ========== ========== ========== ==========
New Accounting Standards In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (FASB 133). FASB 133 establishes new accounting and reporting requirements for derivative instruments 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, 2001 financial statements with early adoption allowed as of the beginning of any quarter after June 30, 1998. Management is in the process of assessing the impact and plans to adopt the standard effective January 1, 2001. Adoption is not expected to result in a material financial impact. 27 Financial Condition and Capital Ratios Assets at June 30, 1999 totaled $67.013 billion, with $59.739 billion of interest-earning assets including $48.428 billion of loans. Comparable amounts one year earlier were $64.727 billion of assets and $57.303 billion of interest-earning assets including $44.459 billion of loans. At March 31, 1999, total assets were $65.319 billion, interest-earning assets were $57.660 billion and loans were $46.393 billion. Deposits at the end of the second quarter of 1999 were $40.816 billion, including $32.245 billion of interest-bearing deposits, representing 79 percent of the total. Deposits one year earlier were $39.915 billion with interest-bearing deposits of $31.841 billion or 79.8 percent of the total, and at March 31, 1999, deposits were $40.288 billion, including $32.052 billion of interest-bearing deposits or 79.6 percent of the total. Shareholders' equity at June 30, 1999 was $5.427 billion, an increase of $50.923 million or slightly under 1 percent from $5.376 billion one year earlier. Included in shareholders' equity at June 30, 1999 was $10.593 million, net of tax, of unrealized losses on securities available-for-sale compared with unrealized gains of $74.990 million, net of tax, one year earlier. On April 1, 1999, the corporation issued 2,578,837 shares to consummate the Interstate/Johnson Lane transaction; as a result of the transaction, shareholders' equity increased $214.485 million. During the second quarter of 1999, the corporation repurchased a total of 3,582,400 shares of its common stock at an average price of $88.717 per share for a total cost of $317.820 million. Approximately 72 percent of the repurchased shares were bought to offset shares issued for the purchase acquisition of Interstate/Johnson Lane, with the remaining percent repurchased to help offset shares issued for Wachovia's planned acquisition of OFFITBANK Holdings. In addition to buying back shares for purchase acquisitions, the corporation also is authorized by the Board of Directors to repurchase up to 12 million shares of its common stock under a June 23, 1998 authorization effective through January 28, 2000. As of June 30, 1999, a total of 5,268,800 shares had been repurchased under the June 23, 1998 authorization. Management will continue to work within the guidelines of its share repurchase authorizations while assessing the best deployment of capital. At its July 23, 1999 meeting, the corporation's Board of Directors declared a third quarter dividend of $.54 per share, payable September 1 to shareholders of record as of August 5. The dividend is higher by 10.2 percent from $.49 per share paid in the same quarter of 1998. For the year to date, the dividend will total $1.52 per share, up 10.9 percent from $1.37 per share in 1998. Intangible assets at June 30, 1999 totaled $789.844 million, consisting of $655.971 million of goodwill, $87.037 million of deposit base intangibles, $37.197 million of purchased credit card premiums, $9.386 million of mortgage servicing rights and $253 thousand of other intangibles. The acquisition of Interstate/Johnson Lane on April 1, 1999 resulted in the addition of approximately $126 million of goodwill. Intangible assets at the end of the second quarter of 1998 were $657.891 million, with $543.057 million of goodwill, $100.729 million of deposit base intangibles, $12.683 million of mortgage servicing rights, $1.067 million of purchased credit card premiums and $355 thousand of other intangibles. Regulatory agencies divide capital into Tier I (consisting of shareholders' equity and certain cumulative preferred stock instruments less ineligible intangible assets) and Tier II (consisting of the allowable portion of the reserve for loan losses and certain long-term debt) and measure capital adequacy by applying both capital levels to a banking company's risk-adjusted assets and off-balance sheet 28 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 June 30, 1999, the corporation's Tier I to risk-adjusted assets ratio was 7.56 percent and total capital to risk-adjusted assets was 11.14 percent. The Tier I leverage ratio was 8.76 percent. Capital securities included in the capital ratios were $996.556 million and $996.180 million at June 30, 1999 and 1998, respectively. Capital Components and Ratios Table 18 - -------------------------------------------------------------------------------- (thousands)
1999 1998 --------------------------- -------------------------------------------- Second First Fourth Third Second Quarter Quarter Quarter Quarter Quarter ----------- ------------ ------------ ----------- ----------- Tier I capital: Common shareholders' equity ............... $ 5,426,717 $ 5,431,939 $ 5,338,232 $ 5,229,191 $ 5,375,793 Trust capital securities .................. 996,556 996,462 996,368 996,274 996,180 Less ineligible intangible assets ......... 772,696 657,717 666,672 665,408 669,448 Unrealized losses (gains) on securities available-for-sale -- net of tax* ........ 9,618 (60,642) (82,440) (131,325) (74,990) -------------- ----------- ------------- ----------- ----------- Total Tier I capital ................... 5,660,195 5,710,042 5,585,488 5,428,732 5,627,535 Tier II capital: Allowable allowance for loan losses ....... 548,540 548,302 547,992 547,686 547,572 Allowable long-term debt .................. 2,136,952 2,191,701 1,794,148 1,486,537 1,138,711 -------------- ----------- ------------- ----------- ----------- Tier II capital additions .............. 2,685,492 2,740,003 2,342,140 2,034,223 1,686,283 -------------- ----------- ------------- ----------- ----------- Total capital .......................... $ 8,345,687 $ 8,450,045 $ 7,927,628 $ 7,462,955 $ 7,313,818 ============== =========== ============= =========== =========== Risk-adjusted assets ....................... $ 74,897,805 $73,871,880 $69,928,737 $72,924,472 $69,633,722 Quarterly average assets** ................. $ 64,611,973 $63,631,476 $64,454,538 $62,630,533 $63,184,419 Risk-based capital ratios: Tier I capital ............................ 7.56% 7.73% 7.99% 7.44% 8.08% Total capital ............................. 11.14 11.44 11.34 10.23 10.50 Tier I leverage ratio ...................... 8.76 8.97 8.67 8.67 8.91
* Excludes unrealized loss on equity securities available-for-sale, net of tax. ** Excludes ineligible intangible assets and average unrealized gains (losses) on securities available-for-sale, net of tax. 29 Consolidated Statements of Condition - -------------------------------------------------------------------------------- $ in thousands Wachovia Corporation and Subsidiaries
June 30 December 31 June 30 1999 1998 1998 ----------- ----------- ----------- ASSETS Cash and due from banks ............................................................ $ 3,110,827 $ 3,800,265 $3,425,987 Interest-bearing bank balances ..................................................... 92,156 109,983 204,751 Federal funds sold and securities purchased under resale agreements ................ 803,065 675,470 326,075 Trading account assets ............................................................. 791,419 664,812 1,133,339 Securities available-for-sale ...................................................... 8,299,719 7,983,648 9,524,358 Securities held-to-maturity (fair value of $1,354,480, $1,442,126 and $1,716,374, respectively) ..................................................................... 1,324,588 1,383,607 1,655,517 Loans, net of unearned income ...................................................... 48,428,086 45,719,222 44,458,548 Less allowance for loan losses ..................................................... 548,540 547,992 547,572 ------------- ----------- ------------ Net loans ........................................................................ 47,879,546 45,171,230 43,910,976 Premises and equipment ............................................................. 972,092 901,681 865,864 Due from customers on acceptances .................................................. 179,847 348,955 613,154 Other assets ....................................................................... 3,560,210 3,083,191 3,066,621 ------------- ----------- ------------ Total assets ..................................................................... $67,013,469 $64,122,842 $64,726,642 ============= =========== ============ LIABILITIES Deposits in domestic offices: Demand ............................................................................ $ 8,570,418 $ 8,768,271 $ 8,074,904 Interest-bearing demand ........................................................... 4,857,922 4,980,715 4,684,288 Savings and money market savings .................................................. 13,160,810 12,641,766 11,639,530 Savings certificates .............................................................. 8,724,157 8,982,396 9,628,631 Large denomination certificates ................................................... 3,001,260 3,344,553 2,989,187 ------------- ----------- ------------ Total deposits in domestic offices ............................................... 38,314,567 38,717,701 37,016,540 Interest-bearing deposits in foreign offices ....................................... 2,500,952 2,277,028 2,898,888 ------------- ----------- ------------ Total deposits ................................................................... 40,815,519 40,994,729 39,915,428 Federal funds purchased and securities sold under repurchase agreements ............ 6,185,220 5,463,418 8,354,912 Commercial paper ................................................................... 1,538,089 1,359,382 1,355,117 Other short-term borrowed funds .................................................... 2,632,238 1,912,262 2,472,728 Long-term debt ..................................................................... 8,515,499 7,596,727 5,906,803 Acceptances outstanding ............................................................ 179,847 348,955 613,154 Other liabilities .................................................................. 1,720,340 1,109,137 732,706 ------------- ----------- ------------ Total liabilities ................................................................ 61,586,752 58,784,610 59,350,848 SHAREHOLDERS' EQUITY Preferred stock, par value $5 per share: Authorized 50,000,000 shares; none outstanding .................................... ---- ---- ---- Common stock, par value $5 per share: Authorized 1,000,000,000 shares; issued and outstanding 202,230,680, 202,986,100 and 206,622,903 shares, respectively ................................. 1,011,153 1,014,931 1,033,115 Capital surplus .................................................................... 615,900 669,244 970,584 Retained earnings .................................................................. 3,810,257 3,571,617 3,297,105 Accumulated other comprehensive income ............................................. (10,593) 82,440 74,990 ------------- ----------- ------------ Total shareholders' equity ....................................................... 5,426,717 5,338,232 5,375,794 ------------- ----------- ------------ Total liabilities and shareholders' equity ....................................... $67,013,469 $64,122,842 $64,726,642 ============= =========== ============
30 Consolidated Statements of Income - -------------------------------------------------------------------------------- thousands, except per share Wachovia Corporation and Subsidiaries
Three Months Ended Six Months Ended June 30 June 30 ----------------------------- ----------------------------- 1999 1998 1999 1998 ------------- ------------- ------------- ----------- Interest Income Loans, including fees ................................................ $ 974,734 $ 960,769 $ 1,944,028 $ 1,906,206 Securities available-for-sale ........................................ 130,692 159,283 253,805 313,221 Securities held-to-maturity: State and municipal ................................................. 2,715 3,739 5,398 7,675 Other investments ................................................... 20,593 23,925 42,228 47,166 Interest-bearing bank balances ....................................... 1,391 3,411 3,584 6,639 Federal funds sold and securities purchased under resale agreements .. 8,429 5,735 14,231 11,020 Trading account assets ............................................... 8,051 12,896 13,717 25,660 ------------- ------------ ------------- ----------- Total interest income .............................................. 1,146,605 1,169,758 2,276,991 2,317,587 Interest Expense Deposits: Domestic offices .................................................... 284,386 309,333 567,833 617,364 Foreign offices ..................................................... 24,039 37,332 47,959 73,542 ------------- ------------ ------------- ----------- Total interest on deposits ......................................... 308,425 346,665 615,792 690,906 Short-term borrowed funds ............................................ 112,301 145,827 215,471 284,719 Long-term debt ....................................................... 108,877 94,562 220,650 190,115 ------------- ------------ ------------- ----------- Total interest expense ............................................. 529,603 587,054 1,051,913 1,165,740 Net Interest Income .................................................. 617,002 582,704 1,225,078 1,151,847 Provision for loan losses ............................................ 74,525 68,441 155,161 142,567 ------------- ------------ ------------- ----------- Net interest income after provision for loan losses .................. 542,477 514,263 1,069,917 1,009,280 Other Income Service charges on deposit accounts .................................. 91,454 82,465 178,409 163,339 Fees for trust services .............................................. 54,907 48,802 104,043 94,855 Credit card income ................................................... 58,110 43,077 119,411 81,621 Capital markets income ............................................... 41,780 40,304 79,892 56,414 Electronic banking ................................................... 22,558 18,667 41,013 35,062 Investment fees ...................................................... 69,877 16,389 87,239 31,389 Mortgage fees ........................................................ 9,863 11,502 20,829 19,206 Other operating income ............................................... 55,995 53,837 106,977 116,880 ------------- ------------ ------------- ----------- Total other operating revenue ...................................... 404,544 315,043 737,813 598,766 Securities gains ..................................................... 10,453 2,992 10,687 6,149 ------------- ------------ ------------- ----------- Total other income ................................................. 414,997 318,035 748,500 604,915 Other Expense Salaries ............................................................. 259,733 219,731 477,848 432,489 Employee benefits .................................................... 48,019 42,675 101,090 89,641 ------------- ------------ ------------- ----------- Total personnel expense ............................................ 307,752 262,406 578,938 522,130 Net occupancy expense ................................................ 38,908 34,119 73,841 67,902 Equipment expense .................................................... 50,415 41,288 97,819 75,975 Merger-related charges ............................................... 8,347 30,849 8,347 66,417 Other operating expense .............................................. 175,195 148,332 313,870 278,819 ------------- ------------ ------------- ----------- Total other expense ................................................ 580,617 516,994 1,072,815 1,011,243 Income before income taxes ........................................... 376,857 315,304 745,602 602,952 Income tax expense ................................................... 129,307 105,388 254,816 197,715 ------------- ------------ ------------- ----------- Net Income ........................................................... $ 247,550 $ 209,916 $ 490,786 $ 405,237 ============= ============ ============= =========== Net income per common share: Basic ............................................................... $ 1.21 $ 1.02 $ 2.41 $ 1.96 Diluted ............................................................. $ 1.19 $ 1.00 $ 2.37 $ 1.93 Average shares outstanding: Basic ............................................................... 203,746 206,718 203,434 206,308 Diluted ............................................................. 207,400 210,662 207,181 210,412
31 Consolidated Statements of Shareholders' Equity - -------------------------------------------------------------------------------- thousands, except shares Wachovia Corporation and Subsidiaries
Accumulated Common Stock Other Total ------------------------ Capital Retained Comprehensive Shareholders' Shares Amount Surplus Earnings Income Equity ----------- ---------- ----------- ---------- ------------ ------------ Period ended June 30, 1998 Balance at beginning of year ............. 205,926,632 $1,029,633 $ 974,803 $3,098,767 $ 71,098 $ 5,174,301 Net income ............................... 405,237 405,237 Unrealized holding gains on securities available-for-sale, net of tax and reclassification adjustment ............. 3,892 3,892 ------------- Comprehensive income* .................. 409,129 Cash dividends declared on common stock -- $.88 a share.................... (181,562) (181,562) Common stock issued pursuant to: Stock option and employee benefit plans.. 1,672,232 8,361 77,314 85,675 Dividend reinvestment plan .............. 153,501 768 11,528 12,296 Common stock acquired .................... (2,228,912) (11,145) (170,285) (181,430) Acquisitions ............................. 1,099,450 5,498 77,815 83,313 Miscellaneous ............................ (591) (25,337) (25,928) ------------- ---------- ----------- ---------- ---------- ------------- Balance at end of period ................. 206,622,903 $1,033,115 $ 970,584 $3,297,105 $ 74,990 $ 5,375,794 ============= ========== =========== ========== ========= ============= Period ended June 30, 1999 Balance at beginning of year ............. 202,986,100 $1,014,931 $ 669,244 $3,571,617 $ 82,440 $ 5,338,232 Net income ............................... 490,786 490,786 Unrealized holding losses on securities available-for-sale, net of tax and reclassification adjustment ............. (93,033) (93,033) ------------- Comprehensive income* .................. 397,753 Cash dividends declared on common stock -- $.98 a share.................... (199,954) (199,954) Common stock issued pursuant to: Stock option and employee benefit plans.. 819,351 4,097 91,612 95,709 Dividend reinvestment plan .............. 133,584 668 10,794 11,462 Conversion of debentures ................ 2,304 11 177 188 Acquisitions ............................. 2,578,837 12,894 201,591 214,485 Common stock acquired .................... (4,289,496) (21,448) (357,518) (378,966) Miscellaneous ............................ (52,192) (52,192) ------------- ---------- ----------- ---------- ---------- ------------- Balance at end of period ................. 202,230,680 $1,011,153 $ 615,900 $3,810,257 $ (10,593) $ 5,426,717 ============= ========== =========== ========== ========== =============
* Comprehensive income for the second quarters of 1999 and 1998 was $176,315 and $221,057, respectively. 32 Consolidated Statements of Cash Flows - -------------------------------------------------------------------------------- $ in thousands Wachovia Corporation and Subsidiaries
Six Months Ended June 30 --------------------------- 1999 1998 ---------- ---------- Operating Activities Net income ............................................................................... $ 490,786 $ 405,237 Adjustments to reconcile net income to net cash provided by operations: Provision for loan losses ............................................................... 155,161 142,567 Depreciation and amortization ........................................................... 115,426 71,395 Deferred income taxes ................................................................... 198,597 95,140 Securities gains ........................................................................ (10,687) (6,149) Gain on sale of noninterest-earning assets .............................................. (7,829) (2,677) Increase (decrease) in accrued income taxes ............................................. 9,373 (40,864) (Increase) decrease in accrued interest receivable ...................................... (15,042) 2,558 Increase (decrease) in accrued interest payable ......................................... 28,099 (8,594) Net change in other accrued and deferred income and expense ............................. (55,583) (177,677) Net trading account activities .......................................................... (63,524) (134,217) Net loans held for resale ............................................................... 176,461 (140,786) ------------- ------------- Net cash provided by operating activities .............................................. 1,021,238 205,933 Investing Activities Net decrease (increase) in interest-bearing bank balances ................................ 17,827 (71,560) Net (increase) decrease in federal funds sold and securities purchased under resale agreements.............................................................................. (81,464) 1,296,459 Purchases of securities available-for-sale ............................................... (1,874,974) (2,697,525) Purchases of securities held-to-maturity ................................................. (646) (393,114) Sales of securities available-for-sale ................................................... 144,802 101,258 Calls, maturities and prepayments of securities available-for-sale ....................... 1,276,976 2,073,536 Calls, maturities and prepayments of securities held-to-maturity ......................... 57,928 255,017 Net increase in loans made to customers .................................................. (3,554,985) (134,021) Credit card receivables securitized ...................................................... 895,954 ---- Capital expenditures ..................................................................... (145,595) (146,289) Proceeds from sales of premises and equipment ............................................ 17,798 29,124 Net increase in other assets ............................................................. (212,829) (167,993) Business combinations .................................................................... (11,556) 16,108 ------------- ------------- Net cash (used) provided by investing activities ....................................... (3,470,764) 161,000 Financing Activities Net increase (decrease) in demand, savings and money market accounts ..................... 198,398 (690,913) Net decrease in certificates of deposit .................................................. (377,608) (2,279,420) Net increase in federal funds purchased and securities sold under repurchase agreements .. 661,658 21,445 Net increase in commercial paper ......................................................... 178,707 321,093 Net increase in other short-term borrowings .............................................. 686,303 1,719,854 Proceeds from issuance of bank notes ..................................................... 186,796 100,000 Maturities of bank notes ................................................................. (569,415) (579,568) Proceeds from issuance of other long-term debt ........................................... 1,296,780 455,764 Payments on other long-term debt ......................................................... (33,951) (4,580) Common stock issued ...................................................................... 29,855 52,291 Dividend payments ........................................................................ (199,954) (181,562) Common stock repurchased ................................................................. (370,381) (174,196) Net increase in other liabilities ........................................................ 72,900 77,028 ------------- ------------- Net cash provided (used) by financing activities ....................................... 1,760,088 (1,162,764) Decrease in Cash and Cash Equivalents .................................................... (689,438) (795,831) Cash and cash equivalents at beginning of year ........................................... 3,800,265 4,221,818 ------------- ------------- Cash and cash equivalents at end of period ............................................... $ 3,110,827 $ 3,425,987 ============= =============
33 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 June 30, 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 June 30, 1999, Wachovia Corporation had 202,230,680 shares of common stock outstanding. Wachovia Corporation (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Documents Incorporated by Reference - -------------------------------------------------------------------------------- Portions of the financial supplement for the quarter ended June 30, 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 ................... 30 Consolidated Statements of Income ...................... 31 Consolidated Statements of Shareholders' Equity ........ 32 Consolidated Statements of Cash Flows .................. 33 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations .......... 2-29 Item 3 Quantitative and Qualitative Disclosures About Market Risk .......................... 16-19 Part II Other Information Item 4 Submission of Matters To A Vote of Security Holders Wachovia held its annual meeting of shareholders on April 23, 1999 At the annual meeting, the shareholders elected Leslie M. Baker, Jr., Thomas K. Hearn, Jr., Elizabeth Valk Long and John C. Whitaker, Jr., as directors for three-year terms. The elections were approved by the votes set forth in the following table. John T. Casteen III, John L. Clendenin, George W. Henderson, III, Robert A. Ingram, George A. Lewis and John G. Medlin, Jr., continued as directors until the 2000 annual meeting, and James S. Balloun, Peter C. Browning, W. Hayne Hipp, Lloyd U. Noland, III, and Sherwood H. Smith, Jr., continued as directors until the 2001 annual meeting. Shares Voted Withheld Election of Directors In Favor Shares Leslie M. Baker, Jr. 163,199,464 1,358,996 Thomas K. Hearn, Jr. 163,130,230 1,428,230 Elizabeth Valk Long 162,995,749 1,562,711 John C. Whitaker, Jr. 163,141,884 1,416,576 34 At the annual meeting, the shareholders approved the performance criteria under the Wachovia Corporation Senior Management Incentive Plan. The proposal was approved by the following votes: Shares Voted in Favor 158,686,913 Shares Voted Against 4,245,531 Abstentions 1,626,016 Broker Nonvotes 0 At the annual meeting, the shareholders ratified the appointment of Ernst & Young LLP as independent auditors for 1999. The proposal was approved by the following votes: Shares Voted in Favor 163,892,607 Shares Voted Against 372,178 Abstentions 293,675 Broker Nonvotes 0 Item 6 Exhibits and Reports on Form 8-K Exhibits -- The complete index to exhibits has been filed as separate pages of the second 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. 10.4 Senior Management Incentive Plan of Wachovia Corporation as amended through January 1, 1999. 10.7 Employment Agreement between Wachovia Corporation and Mickey W. Dry, dated as of April 23, 1999. 10.28 Senior Executive Retirement Agreement between Wachovia Corporation and Mickey W. Dry, dated as of April 23, 1999. 10.29 Form of Amendment to Employment Agreements between Messrs. L. M. Baker, Jr., Walter E. Leonard, Jr., Robert S. McCoy, Jr., and G. Joseph Prendergast. 10.30 Form of Amendment to Senior Executive Retirement Agreements between Messrs. L. M. Baker, Jr., Walter E. Leonard, Jr., Robert S. McCoy, Jr., and G. Joseph Prendergast. 11 "Computation of Earnings per Common Share" is presented as Table 4 on page 3 of the second 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 second 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 May 13, 1999 was filed with the Securities and Exchange Commission announcing an Agreement and Plan of Merger by and between Wachovia Corporation and OFFITBANK Holdings Inc. Signatures - -------------------------------------------------------------------------------- Pursuant to the requirements to Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WACHOVIA CORPORATION August 12, 1999 ROBERT S. McCOY, JR. Robert S. McCoy, Jr. Vice Chairman Senior Executive Vice President Chief Financial Officer August 12, 1999 DONALD K. TRUSLOW Donald K. Truslow Senior Executive Vice President Treasurer/Comptroller 35 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 G. JOSEPH PRENDERGAST President and Chief Operating Officer SHERWOOD H. SMITH, JR. Chairman Emeritus 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 36
EX-27 15 EXHIBIT 27
9 0000774203 WACHOVIA CORPORATION 1000 US 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 1 3,110,827 92,156 803,065 791,419 8,299,719 1,324,588 1,354,480 48,428,086 548,540 67,013,469 40,815,519 10,355,547 1,900,187 8,515,499 0 0 1,011,153 4,415,564 67,013,469 1,944,028 301,431 31,532 2,276,991 615,792 1,051,913 1,225,078 155,161 10,687 1,072,815 745,602 490,786 0 0 490,786 2.41 2.37 4.36 209,550 99,486 0 0 548,302 90,207 15,881 548,540 0 0 0 *** Available at Year-end only
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