-----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, PkgdN1suiITHkQkmprhv3/cRfhPdBNVpdZMN3vNIdPWg5FEep/ZgIsOXQEWyivIW HBpmoXBJ6C+7fYraA+iUeQ== 0000950168-99-002883.txt : 19991115 0000950168-99-002883.hdr.sgml : 19991115 ACCESSION NUMBER: 0000950168-99-002883 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 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: 99748372 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 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 September 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 September 30, 1999, Wachovia Corporation had 202,742,870 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 September 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 third 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 18 of the Financial Supplement. PART II Item 1. Legal Proceedings None Item 2. Changes in Securities and Use of Proceeds None Item 3. Defaults Upon Senior Securities None Item 4. Submissions of Matters to a Vote of Security Holders None Item 5. Other Information 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: None. 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. November 10, 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 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 as of July 15, 1998 between Wachovia Corporation and The Chase Manhattan Bank, as trustee, relating to subordinated debt securities (Exhibit 4 (b) to Form S-3 Registration Statement of Wachovia Corporation, File No. 333-59165*). 4.8 Indenture dated as of August 15, 1996 between Wachovia Corporation and The Chase Manhattan Bank, as Trustee, relating to senior debt securities (Exhibit 4(a) of Post-Effective Amendment No. 1 to Form S-3 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*). 1 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 of 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 (Exhibit 10.4 to Report on Form 10-Q of Wachovia Corporation for the quarter ended June 30, 1999, File No. 1-9021*). 10.5 Retirement Savings and Profit-Sharing Benefit Equalization Plan of Wachovia Corporation (Exhibit 10.3 to Quarterly Report on Form 10-Q of Wachovia Corporation for the quarter ended June 30, 1995, File No. 1-9021*). 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 (Exhibit 10.7 to Report on Form 10-Q of Wachovia Corporation for the quarter ended June 30, 1999, File No. 1-9021*) . 10.8 Form of Amendment dated April 23, 1999 to Employment Agreements between Wachovia Corporation and Messrs. L. M. Baker, Jr., Walter E. Leonard, Jr., Robert S. McCoy, Jr., and G. 2 Joseph Prendergast described in exhibit 10.6 and 10.7 hereto (Exhibit 10.8 to Report on Form 10-Q of Wachovia Corporation for the quarter ended June 30, 1999, File No. 1-9021*) . 10.9 Employment Agreement between Wachovia Corporation and Mickey W. Dry, dated as of April 23, 1999 (Exhibit 10.9 to Report on Form 10-Q of Wachovia Corporation for the quarter ended June 30, 1999, File No. 1-9021*). 10.10 Form of Employment Agreement between Wachovia Corporation and Executive Officers (other than Messrs. Baker, Dry, Leonard, McCoy and Prendergast) (Exhibit 10.10 to Report on Form 10-Q of Wachovia Corporation for the quarter ended June 30, 1999, File No. 1-9021*) . 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 Messrs. G. Joseph Prendergast and Walter E. Leonard, Jr., dated October 25, 1996 (Exhibit 10.17 to Report on Form 10-Q of Wachovia Corporation for the quarter ended June 30, 1999, File No. 1-9021*). 10.18 Senior Executive Retirement Agreement dated July 24, 1998 between Wachovia Corporation and Mr. Robert S. McCoy, Jr. (Exhibit 10.18 to Report on Form 10-Q of Wachovia Corporation for the quarter ended June 30, 1999, File No. 1-9021*). 10.19 Form of Amendment dated April 23, 1999 to Senior Executive Retirement Agreements between Wachovia Corporation and Messrs. 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 (Exhibit 10.19 to Report on Form 10-Q of Wachovia Corporation for the quarter ended June 30, 1999, File No. 1-9021*). 10.20 Senior Executive Retirement Agreement between Wachovia Corporation and Mickey W. Dry, dated as of April 23, 1999 (Exhibit 10.20 to Report on Form 10-Q of Wachovia Corporation for the quarter ended June 30, 1999, File No. 1-9021*). 10.21 Form of Senior Executive Retirement Agreement between Wachovia Corporation and Executive Officers (other than Messrs. Baker, Dry, Leonard, McCoy and Prendergast) (Exhibit 10.21 to Report on Form 10-Q of Wachovia Corporation for the quarter ended June 30, 1999, File No. 1-9021*). 3 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. (Exhibit 10.34 to Report on Form 10-K of Wachovia Corporation for the fiscal year ended December 31, 1997, File No. 1-9021*) 11 "Computation of Earnings Per Common Share" (Table 4 on page 3 of the third quarter 1999 financial supplement*). 12 Statement setting forth computation of ratio of earnings to fixed charges. 19 Financial Supplement for the Third Quarter 1999. 27 Financial Data Schedule (for SEC purposes only). 4 * Incorporated by reference. EX-12 2 EXHIBIT 12 WACHOVIA CORPORATION RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12 Nine Months Year Ended Ended September 30, December 31, (A) Excluding interest on deposits 1999 1998 ------------- -------------- Earnings: Income before income taxes $1,141,733 $1,303,781 Less capitalized interest (160) (593) Fixed charges 690,708 976,201 ------------- -------------- Earnings as adjusted $1,832,281 $2,279,389 ============= ============== Fixed charges: Interest on purchased and other short term borrowed funds $327,807 $563,846 Interest on long-term debt 344,915 390,662 Portion of rents representative of the interest factor (1/3) of rental expense 17,986 21,693 ------------- -------------- Fixed charges $690,708 $976,201 ============= ============== Ratio of earnings to fixed charges 2.65 X 2.33 X (B) Including interest on deposits: Adjusted earnings from (A) above $1,832,281 $2,279,389 Add interest on deposits 927,429 1,359,705 ------------- -------------- Earnings as adjusted $2,759,710 $3,639,094 ============= ============== Fixed charges: Fixed charges from (A) above $690,708 $976,201 Interest on deposits 927,429 1,359,705 ------------- -------------- Adjusted fixed charges $1,618,137 $2,335,906 ============= ============== Adjusted earnings to adjusted fixed 1.71 X 1.56 X charges EX-19 3 EXHIBIT 19 [LOGO] WACHOVIA - -------------------------------------------------------------------------------- Financial Supplement And Form 10-Q Third Quarter 1999 Selected Period-End Data Table 1 - -------------------------------------------------------------------------------- September 30 --------------------- 1999 1998 -------- -------- Banking offices: North Carolina ............................... 190 200 Virginia ..................................... 237 263 Georgia ...................................... 131 132 South Carolina ............................... 119 120 Florida ...................................... 38 40 -------- -------- Total ..................................... 715 755 ======== ======== Automated banking machines: North Carolina ............................... 445 448 Virginia ..................................... 288 311 Georgia ...................................... 302 300 South Carolina ............................... 289 288 Florida ...................................... 37 32 -------- -------- Total ..................................... 1,361 1,379 ======== ======== Employees (full-time equivalent) .............. 21,722 21,248 Common stock shareholders of record ........... 52,500 54,318 Common shares outstanding (thousands) ......... 202,743 202,751
Common Stock Data -- Per Share Table 2 - -------------------------------------------------------------------------------- 1999 1998 -------------------------------- -------------------- Third Second First Fourth Third Quarter Quarter Quarter Quarter Quarter -------- -------- -------- -------- -------- Market value: Period-end ............................................. $ 78.63 $ 85.56 $ 81.19 $ 87.44 $ 85.25 High ................................................... 85.25 92.31 91.00 96.81 90.94 Low .................................................... 75.31 80.56 79.00 80.88 72.88 Book value at period-end ................................ 27.76 26.83 26.77 26.30 25.79 Dividend ................................................ .54 .49 .49 .49 .49 Price/earnings ratio (1) ................................ 16.4x 18.5x 18.3x 20.9x 28.0x Price/earnings ratio without nonrecurring items (1), (2) 16.2 18.1 17.7 19.6 19.9
(1) Based on the most recent four quarters of net income per diluted share and end of period stock price. (2) Excludes the after-tax impact of nonrecurring merger-related charges. Forward-Looking Statements - -------------------------------------------------------------------------------- The Financial Supplement and Form 10-Q of Wachovia Corporation ("the corporation") contains forward-looking statements as encouraged by the Private Securities Litigation Reform Act of 1995. All forward-looking statements involve risks and uncertainty and any number of factors could cause actual results to differ materially from the anticipated results or other expectations expressed in the corporation's forward-looking statements. Risks and uncertainties that may affect future results include, but are not limited to, changes in the economy, interest rate movements, timely development by Wachovia of technology enhancements for its products and operating systems, the ability of Wachovia and its customers and vendors to address effectively Year 2000 issues, the impact of competitive products, services and pricing, Congressional legislation and similar matters. Management cautions readers not to place undue reliance on forward-looking statements, which are subject to influence by the named risk factors and unanticipated future events. 1 Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Summary Table 3 - -------------------------------------------------------------------------------- Twelve 1999 Months ----------------------------- Ended September 30 Third Second 1999 Quarter Quarter ------------ ---------- ---------- Summary of Operations (thousands, except per share data) Interest income ........................ $4,618,526 $1,165,343 $1,146,605 Interest expense ....................... 2,166,594 548,238 529,603 ---------- ---------- ---------- Net interest income .................... 2,451,932 617,105 617,002 Provision for loan losses .............. 316,035 76,770 74,525 ---------- ---------- ---------- Net interest income after provision for loan losses ........................... 2,135,897 540,335 542,477 Other operating revenue ................ 1,489,466 432,841 404,544 Securities gains ....................... 18,241 147 10,453 ---------- ---------- ---------- Total other income ..................... 1,507,707 432,988 414,997 Personnel expense ...................... 1,165,939 317,060 307,752 Nonrecurring merger-related charges .... 20,601 5,293 8,347 Other expense .......................... 956,153 254,839 264,518 ---------- ---------- ---------- Total other expense .................... 2,142,693 577,192 580,617 Income before income taxes ............. 1,500,911 396,131 376,857 Applicable income taxes ................ 511,060 138,632 129,307 ---------- ---------- ---------- Net income ............................. $ 989,851 $ 257,499 $ 247,550 ========== ========== ========== Net income per common share: Basic ................................. $ 4.87 $ 1.27 $ 1.21 Diluted ............................... $ 4.79 $ 1.25 $ 1.19 Cash dividends paid per common share ... $ 2.01 $ .54 $ .49 Cash dividends paid on common stock .... $ 408,626 $ 109,220 $ 100,292 Cash dividend payout ratio ............. 41.28% 42.42% 40.51% Average basic shares outstanding ....... 202,961 202,167 203,746 Average diluted shares outstanding ..... 206,670 205,345 207,400 Selected Average Balances (millions) Total assets ........................... $ 64,996 $ 64,815 $ 65,454 Loans -- net of unearned income ........ 46,561 47,003 47,012 Securities ............................. 9,576 9,461 9,664 Other interest-earning assets .......... 1,498 1,464 1,588 Total interest-earning assets .......... 57,635 57,928 58,264 Interest-bearing deposits .............. 31,987 31,996 32,343 Short-term borrowed funds .............. 9,729 8,848 9,629 Long-term debt ......................... 7,757 8,571 7,998 Total interest-bearing liabilities ..... 49,473 49,415 49,970 Noninterest-bearing deposits ........... 8,210 8,368 8,261 Total deposits ......................... 40,197 40,364 40,604 Shareholders' equity ................... 5,335 5,391 5,459 Ratios (averages) Annualized net loan losses to loans .... .67% .61% .63% Annualized net yield on interest-earning assets ................................ 4.32 4.29 4.31 Shareholders' equity to: Total assets .......................... 8.21 8.32 8.34 Net loans ............................. 11.59 11.60 11.75 Annualized return on assets ............ 1.52 1.59 1.51 Annualized return on shareholders' equity ................................ 18.55 19.11 18.14 Operating Performance Excluding Nonrecurring Items (thousands, except per share data) Net income ............................. $1,003,395 $ 260,939 $ 253,060 Net income per diluted share ........... $ 4.86 $ 1.27 $ 1.22 Annualized return on assets ............ 1.54% 1.61% 1.55% Annualized return on shareholders' equity ................................ 18.81 19.36 18.54 Cash dividend payout ratio ............. 40.72 41.86 39.63 1999 1998 Nine Months Ended ---------- ------------------------ September 30 First Fourth Third ------------------------ Quarter Quarter Quarter 1999 1998 ---------- ---------- ---------- ---------- ---------- Summary of Operations (thousands, except per share data) Interest income ........................ $1,130,386 $1,176,192 $1,171,466 $3,442,334 $3,489,053 Interest expense ....................... 522,310 566,443 582,030 1,600,151 1,747,770 ---------- ---------- ---------- ---------- ---------- Net interest income .................... 608,076 609,749 589,436 1,842,183 1,741,283 Provision for loan losses .............. 80,636 84,104 72,809 231,931 215,376 ---------- ---------- ---------- ---------- ---------- Net interest income after provision for loan losses ........................... 527,440 525,645 516,627 1,610,252 1,525,907 Other operating revenue ................ 333,269 318,812 310,541 1,170,654 909,307 Securities gains ....................... 234 7,407 6,886 10,834 13,035 ---------- ---------- ---------- ---------- ---------- Total other income ..................... 333,503 326,219 317,427 1,181,488 922,342 Personnel expense ...................... 271,186 269,941 263,282 895,998 785,412 Nonrecurring merger-related charges .... -- 6,961 11,934 13,640 78,351 Other expense .......................... 221,012 215,784 217,187 740,369 639,883 ---------- ---------- ---------- ---------- ---------- Total other expense .................... 492,198 492,686 492,403 1,650,007 1,503,646 Income before income taxes ............. 368,745 359,178 341,651 1,141,733 944,603 Applicable income taxes ................ 125,509 117,612 114,284 393,448 311,999 ---------- ---------- ---------- ---------- ---------- Net income ............................. $ 243,236 $ 241,566 $ 227,367 $ 748,285 $ 632,604 ========== ========== ========== ========== ========== Net income per common share: Basic ................................. $ 1.20 $ 1.19 $ 1.11 $ 3.69 $ 3.07 Diluted ............................... $ 1.18 $ 1.17 $ 1.09 $ 3.62 $ 3.01 Cash dividends paid per common share ... $ .49 $ .49 $ .49 $ 1.52 $ 1.37 Cash dividends paid on common stock .... $ 99,662 $ 99,452 $ 100,784 $ 309,174 $ 282,346 Cash dividend payout ratio ............. 40.97% 41.17% 44.33% 41.32% 44.63% Average basic shares outstanding ....... 203,119 202,824 204,832 203,007 205,811 Average diluted shares outstanding ..... 206,959 206,991 208,837 206,562 209,881 Selected Average Balances (millions) Total assets ........................... $ 64,408 $ 65,298 $ 63,429 $ 64,894 $ 63,494 Loans -- net of unearned income ........ 46,261 45,966 43,894 46,761 43,873 Securities ............................. 9,221 9,952 10,664 9,449 10,794 Other interest-earning assets .......... 1,313 1,622 1,508 1,455 1,565 Total interest-earning assets .......... 56,795 57,540 56,066 57,665 56,232 Interest-bearing deposits .............. 31,846 31,766 31,654 32,062 32,094 Short-term borrowed funds .............. 9,292 11,135 10,858 9,254 10,814 Long-term debt ......................... 7,627 6,830 6,080 8,069 6,093 Total interest-bearing liabilities ..... 48,765 49,731 48,592 49,385 49,001 Noninterest-bearing deposits ........... 8,062 8,148 7,874 8,232 7,687 Total deposits ......................... 39,908 39,914 39,528 40,294 39,781 Shareholders' equity ................... 5,314 5,178 5,173 5,388 5,165 Ratios (averages) Annualized net loan losses to loans .... .69% .73% .66% .64% .65% Annualized net yield on interest-earning assets ................................ 4.41 4.28 4.26 4.34 4.23 Shareholders' equity to: Total assets .......................... 8.25 7.93 8.16 8.30 8.13 Net loans ............................. 11.62 11.40 11.93 11.66 11.92 Annualized return on assets ............ 1.51 1.48 1.43 1.54 1.33 Annualized return on shareholders' equity ................................ 18.31 18.66 17.58 18.52 16.33 Operating Performance Excluding Nonrecurring Items (thousands, except per share data) Net income ............................. $ 243,236 $ 246,160 $ 235,243 $ 757,234 $ 683,698 Net income per diluted share ........... $ 1.18 $ 1.19 $ 1.13 $ 3.67 $ 3.26 Annualized return on assets ............ 1.51% 1.51% 1.48% 1.56% 1.44% Annualized return on shareholders' equity ................................ 18.31 19.02 18.19 18.74 17.65 Cash dividend payout ratio ............. 40.97 40.40 42.84 40.83 41.30
2 Results of Operations Overview Wachovia Corporation ("the corporation") is a major financial services company with dual headquarters in Winston-Salem, North Carolina, and Atlanta, Georgia. The corporation's principal subsidiaries are Wachovia Bank, N.A., which operates in Georgia, North Carolina, South Carolina, Virginia and Florida; Wachovia Securities, Inc; OFFITBANK; and The First National Bank of Atlanta, which provides credit card services. The U.S. economy accelerated in the third quarter of 1999 from the second quarter, fueled, in part, by increases in consumer spending and exports. Based on advance estimates, gross domestic product for the three months ended September 30 grew at an annualized rate of 4.8 percent from the second three months of 1999 compared with a revised rate of 1.9 percent annualized growth for the previous quarter. Concerns over the pace of growth and the persistence of tight labor markets prompted the Federal Reserve to raise short-term interest rates for the second time in 1999 by a quarter of a percentage point in August. While economic growth within the corporation's primary operating states remained generally favorable for the period, slowdowns noted in the second quarter in some businesses continued. The corporation 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. Wachovia completed its acquisition of OFFITBANK Holdings Inc., a leading wealth management company, on September 1, 1999 and of Barry, Evans, Josephs & Snipes, Inc., a leading national life insurance broker specializing in wealth transfer and benefit plan strategies, on September 2. The transactions followed the acquisition on April 1, 1999 of Interstate/Johnson Lane Inc., a major regional investment advisor and brokerage firm. All three acquisitions strengthen Wachovia's wealth advisory capabilities and were accounted for as purchases. 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. The corporation announced on October 7, 1999 an agreement to acquire B C Bankshares Inc., parent company of the Bank of Canton, a community bank with $383 million in assets based in Cherokee County, Georgia. Cherokee County is one of the fastest growing counties in the metropolitan Atlanta area. The transaction will be accounted for as a purchase and is expected to close in the first quarter of 2000, subject to regulatory and shareholder approval. Computation of Earnings Per Common Share Table 4 - -------------------------------------------------------------------------------- (thousands, except per share) Three Months Ended Nine Months Ended September 30 September 30 ---------------------------- ---------------------------- 1999 1998 1999 1998 ----------- ---- ----------- ---- Basic Average common shares outstanding .......................... 202,167 204,832 203,007 205,811 =========== ======= =========== ======= Net income ................................................. $ 257,499 $ 227,367 $ 748,285 $ 632,604 =========== ========= =========== ========= Per share amount ........................................... $ 1.27 $ 1.11 $ 3.69 $ 3.07 Diluted Average common shares outstanding .......................... 202,167 204,832 203,007 205,811 Dilutive common stock options at average market price ...... 2,715 3,666 3,113 3,778 Dilutive common stock awards at average market price ....... 440 313 417 278 Convertible long-term debt assumed converted ............... 23 26 25 14 ----------- --------- ----------- --------- Average diluted shares outstanding ......................... 205,345 208,837 206,562 209,881 =========== ========= =========== ========= Net income ................................................. $ 257,499 $ 227,367 $ 748,285 $ 632,604 Add interest on convertible long-term debt -- net of tax ... 18 20 54 28 ----------- --------- ----------- --------- Adjusted net income ........................................ $ 257,517 $ 227,387 $ 748,339 $ 632,632 =========== ========= =========== ========= Per share amount ........................................... $ 1.25 $ 1.09 $ 3.62 $ 3.01
3 Because Wachovia's growth strategy includes the use of acquisitions, the corporation regularly evaluates opportunities and conducts due diligence activities in connection with possible acquisitions. As a result, discussions and, in some cases, negotiations may take place and future acquisitions involving cash, debt or equity securities may occur. Acquisitions typically involve the payment of a premium over book values, and, therefore, some dilution of book value and net income per share may occur in connection with any future transactions. Wachovia's net income for the third quarter of 1999 was $257.499 million or $1.25 per diluted share versus $227.367 million or $1.09 per diluted share a year earlier. For the first nine months of 1999, net income totaled $748.285 million or $3.62 per diluted share compared with $632.604 million or $3.01 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 additions of Interstate/Johnson Lane, OFFITBANK Holdings, and Barry, Evans, Josephs & Snipes, which are included in reported results from their respective acquisition dates. Merger-related expenses on a pretax basis were $5.293 million for the third quarter and $13.640 million for the first nine months of 1999 versus $11.934 million and $78.351 million, respectively, in 1998. Excluding merger-related expenses, operating net income was $260.939 million or $1.27 per diluted share for the third quarter of 1999 compared with $235.243 million or $1.13 per diluted share a year earlier. Year to date, operating net income totaled $757.234 million or $3.67 per diluted share versus $683.698 million or $3.26 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 the corporation's 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 the corporation's 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 4 offices in Wachovia's home states but also extends its reach nationally with offices in New York and 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, the corporation's business segment results are not necessarily comparable with those of other financial institutions with similar segments or with those of other companies which compete directly in one or more of the corporation's lines of business. In addition, business segment results may be restated in the future as management's 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 grew $13.490 million or 17.2 percent for the third quarter of 1999 from a year earlier and was up $11.820 million or 4.8 percent year to date. Net interest income rose $6.361 million or 2.4 percent for the three months and $3.399 million or less than 1 percent for the nine months, reflecting gains principally in Personal Financial Services offset, in part, by narrowing interest spreads. Noninterest income expanded $70.640 million or 47.9 percent for the quarter and $143.549 million or 32.8 percent year to date, with growth due to additions from purchase acquisitions as well as core business expansion. Gains were strongest in investment fees, deposit account charges and electronic banking revenue. Noninterest income included gains from branch sales totaling $7.554 million in 1999, all in the third quarter, versus $17.155 million in 1998, all of which occurred in the first quarter. The provision for loan losses decreased $679 thousand or 14.2 percent for the quarter but was higher by $1.577 million or 12.6 percent year to date. 5 Noninterest expense was up $54.984 million or 19.3 percent for the three months and $122.973 million or 14.7 percent for the first nine months due to additions from purchase acquisitions and to increases in equipment expense for new computer systems and net occupancy costs for new facilities. CORPORATE. Net income for Corporate increased $11.111 million or 11.1 percent for the quarter and $69.026 million or 25.6 percent year to date. Net interest income rose $34.669 million or 16.1 percent for the three months and $132.373 million or 21.8 percent for the first nine months, with growth principally in the Corporate Services and Capital Markets areas. Noninterest income was higher by $21.579 million or 20.2 percent for the quarter and $68.239 million or 22.9 percent year to date. Gains reflected additions from purchase acquisitions and business growth. Investment fees and deposit account charges largely led the gains in both periods, with capital markets income contributing strongly for the nine months. The provision for loan losses rose $11.065 million for the third period and $17.948 million year to date, due to loan growth and higher loan losses. Noninterest expense was up $25.526 million or 15.7 percent for the three months and $70.356 million or 14.9 percent for the first nine months, largely due to purchase acquisitions. Increases occurred mainly in staff costs for capital markets activities and in net occupancy and equipment expenses. CARD. Net income for the Card division rose $19.604 million or 78.3 percent for the third period and $33.586 million or 47.1 percent for the first nine months of 1999. Net interest income was higher by $13.223 million or 11 percent for the quarter and $41.419 million or 11.5 percent year to date. Noninterest income increased $6.908 million or 19.1 percent for the three months and $13.030 million or 12 percent for the first nine months, largely due to higher cardholder income. The provision for loan losses decreased $11.890 million or 17.9 percent for the quarter and $4.706 million or 2.3 percent year to date due to improved performance of the credit quality of the portfolio as a result of improvements in loss control methodologies and lower bankruptcy experience. Noninterest expense was up $776 thousand or 1.5 percent for the three months and $5.466 million or 3.5 percent for the first nine months, driven partially by higher amortization expense for purchased receivables. TREASURY & ADMINISTRATION. Treasury & Administration's net income declined $14.073 million to $9.666 million in the third quarter of 1999 from the comparable period a year earlier. The net interest margin was lower by $33.154 million, reflecting a $1.247 billion reduction in interest-earning assets, primarily securities, and a $175 million increase in interest-bearing liabilities, entirely in long-term debt. Noninterest income for the quarter grew $16.434 million, and included a gain of $9.934 million from a securitization and sale of $500 million of credit card receivables in late September. For the nine months, net income was up $1.249 million or 2.6 percent. The net interest margin declined $88.755 million or 120.3 percent, reflecting in large part a managed runoff of $1.345 billion in securities. This was offset by a decline of $64.711 million in merger-related charges attributable to this segment and by higher levels of noninterest income, primarily the result of securitization transactions. 6 Business Segments Table 5 - -------------------------------------------------------------------------------- (three months ended September 30) Consumer Corporate Card ------------------- ------------------- --------------------- 1999 1998 1999 1998 1999 1998 -------- -------- -------- -------- -------- -------- Operations Summary (millions) External net interest margin ....... $ (8) $ (19) $ 537 $ 493 $ 214 $ 205 Internal funding (charge) credit ............................ 278 283 (287) (278) (80) (84) -------- -------- -------- -------- -------- -------- Net interest income* ............... 270 264 250 215 134 121 Total other income ................. 218 147 128 107 43 36 -------- -------- -------- -------- -------- -------- Total revenues ..................... 488 411 378 322 177 157 Provision for loan losses .......... 4 5 15 4 55 66 Total other expense ................ 339 285 188 162 52 51 -------- -------- -------- -------- -------- -------- Pretax profit ...................... 145 121 175 156 70 40 Income taxes (benefit) ............. 53 43 64 56 26 15 -------- -------- -------- -------- -------- -------- Net income (loss) .................. $ 92 $ 78 $ 111 $ 100 $ 44 $ 25 ======== ======== ======== ======== ======== ======== Percentage contribution to total revenues** .................. 45.35% 43.81% 35.13% 34.33% 16.45% 16.74% Percentage contribution to net income ............................ 35.80 34.36 43.19 44.06 17.12 11.01 Average Balances (billions) Total assets ....................... $ 13 $ 12 $ 34 $ 31 $ 6 $ 6 (three months ended September 30) Treasury & Administration Eliminations Total Corporation ------------------- ----------------- ----------------- 1999 1998 1999 1998 1999 1998 -------- ------ ------- ------- -------- ------ Operations Summary (millions) External net interest margin ....... $ (116) $ (78) $ (10) $ (12) $ 617 $ 589 Internal funding (charge) credit ............................ 105 99 (16) (20) ---- ---- -------- ------ ------- ------- -------- ------ Net interest income* ............... (11) 21 (26) (32) 617 589 Total other income ................. 44 27 ---- ---- 433 317 -------- ------ ------- ------- -------- ------ Total revenues ..................... 33 48 (26) (32) 1,050 906 Provision for loan losses .......... 3 (2) ---- ---- 77 73 Total other expense ................ 14 13 (16) (19) 577 492 -------- ------- ------- ------- -------- ------ Pretax profit ...................... 16 37 (10) (13) 396 341 Income taxes (benefit) ............. 6 13 (10) (13) 139 114 -------- ------- ------- ------- -------- ------ Net income (loss) .................. $ 10 $ 24 $---- $---- $ 257 $ 227 ======== ======= ======= ======= ======== ====== Percentage contribution to total revenues** .................. 3.07% 5.12% Percentage contribution to net income ............................ 3.89 10.57 Average Balances (billions) Total assets ....................... $ 12 $ 14 $ 65 $ 63
* Net interest income is reported on a taxable equivalent basis by segment and on a nontaxable equivalent basis for the corporation, reflecting segment eliminations. ** Percentage contribution to total revenues is based on the proportion of each segment's revenues to the combined revenues of all segments. Revenues for the total corporation are presented based on nontaxable equivalent net interest income and total other income, including securities transactions. Business Segments Table 6 - -------------------------------------------------------------------------------- (nine months ended September 30) Consumer Corporate Card ------------------- ----------------- ------------------- 1999 1998 1999 1998 1999 1998 -------- -------- ------- ------- -------- -------- Operations Summary (millions) External net interest margin ....... $ (32) $ (44) $ 1,558 $ 1,427 $ 634 $ 613 Internal funding (charge) credit ............................ 825 833 (820) (821) (232) (252) -------- -------- ------- ------- -------- -------- Net interest income* ............... 793 789 738 606 402 361 Total other income ................. 581 438 366 299 122 108 -------- -------- ------- ------- -------- -------- Total revenues ..................... 1,374 1,227 1,104 905 524 469 Provision for loan losses .......... 14 13 32 14 199 204 Total other expense ................ 959 836 543 473 161 155 -------- -------- ------- ------- -------- -------- Pretax profit ...................... 401 378 529 418 164 110 Income taxes (benefit) ............. 145 134 191 148 59 39 -------- -------- ------- ------- -------- -------- Net income (loss) .................. $ 256 $ 244 $ 338 $ 270 $ 105 $ 71 ======== ======== ======= ======= ======== ======== Percentage contribution to total revenues** .................. 44.34% 44.59% 35.62% 32.88% 16.91% 17.04% Percentage contribution to net income ............................ 34.22 38.55 45.19 42.65 14.04 11.22 Average Balances (billions) Total assets ....................... $ 13 $ 12 $ 34 $ 31 $ 6 $ 6 (nine months ended September 30) Treasury & Administration Eliminations Total Corporation ------------------- ----------------- ----------------- 1999 1998 1999 1998 1999 1998 -------- ------ ------- ------- ------- ------- Operations Summary (millions) External net interest margin ....... $ (289) $ (219) $ (29) $ (36) $1,842 $1,741 Internal funding (charge) credit ............................ 274 293 (47) (53) ---- ---- -------- ------ ------- ------- ------- ------- Net interest income* ............... (15) 74 (76) (89) 1,842 1,741 Total other income ................. 112 77 ---- ---- 1,181 922 -------- ------ ------- ------- ------- ------- Total revenues ..................... 97 151 (76) (89) 3,023 2,663 Provision for loan losses .......... (13) (16) ---- ---- 232 215 Total other expense ................ 34 92 (47) (53) 1,650 1,503 -------- ------ ------- ------- ------- ------- Pretax profit ...................... 76 75 (29) (36) 1,141 945 Income taxes (benefit) ............. 27 27 (29) (36) 393 312 -------- ------ ------- ------- ------- ------- Net income (loss) .................. $ 49 $ 48 $---- $---- $ 748 $ 633 ======== ====== ======= ======= ======= ======= Percentage contribution to total revenues** .................. 3.13% 5.49% Percentage contribution to net income ............................ 6.55 7.58 Average Balances (billions) Total assets ....................... $ 12 $ 14 $ 65 $ 63
* Net interest income is reported on a taxable equivalent basis by segment and on a nontaxable equivalent basis for the corporation, reflecting segment eliminations. ** Percentage contribution to total revenues is based on the proportion of each segment's revenues to the combined revenues of all segments. Revenues for the total corporation are presented based on nontaxable equivalent net interest income and total other income, including securities transactions. 7 Consolidated Financial Results Net Interest Income Taxable equivalent net interest income for the third quarter of 1999 grew $24.997 million or 4.2 percent from a year earlier and was higher by $94.494 million or 5.3 percent year to date. Gains in both periods were driven by increased loan volume, a more favorable interest-earning asset mix and a lower average rate paid on interest-bearing liabilities. Taxable equivalent net interest income was substantially unchanged from the second quarter of 1999 as flat loan volume and a rise in the average rate paid on funding sources offset the impact of a higher average yield on loans. Average loans were unchanged from the second quarter as management reduced outstandings in lower spread discretionary loans and securitized a portion of its credit card portfolio. The net yield on interest-earning assets (defined as taxable equivalent net interest income as a percentage of average interest-earning assets) increased 3 basis points for the third quarter from a year earlier and 11 basis points year to date but was down slightly from the second quarter, reflecting narrowing in the interest rate spread. For the full year of 1999, taxable equivalent net interest income is expected to rise approximately 5 percent, based on management's projections for moderate loan growth and a favorable interest rate spread. Growth estimates for the year exclude the impact of loan securitizations and purchase acquisitions. Taxable equivalent interest income decreased modestly both for the quarter and year to date, dropping $8.794 million or less than 1 percent for the three months and $53.125 million or 1.5 percent for the nine months. Declines in the average rate earned on interest-earning assets, primarily loans, and the impact of credit card securitizations accounted for the decrease in both periods but were offset largely by higher loan volume. Loans grew $3.109 billion or 7.1 percent for the quarter and $2.888 billion or 6.6 percent year to date, while the average yield on loans fell 38 basis points in both periods. Taxable equivalent interest income expanded $18.565 million or 6.4 percent annualized from the second quarter, primarily due to a higher average rate earned on interest-earning assets, including a 12 basis point rise in the average loan yield. Commercial loans, including related real estate categories, increased $3.629 billion or 14 percent for the third quarter from a year earlier and were up $3.475 billion or 13.5 percent year to date, accounting for substantially all of the loan growth in both periods. Taxable commercial loans, lease financing and commercial mortgages largely led the gains, with strong growth also occurring in foreign loans and construction lending. The lease-financing portfolio primarily consists of leveraged leases and other structured corporate transactions. Growth in foreign loans remained driven in large part by originations in the corporation's London, England, office to borrowers headquartered in Western Europe. Tax-exempt loans were lower both for the quarter and nine months, reflecting continued runoff 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 ------------------------------------------- September 30 Third Second First 1999 Quarter Quarter Quarter ------------ ----------- ----------- ----------- Net Interest Income -- Taxable Equivalent (thousands) Interest income: Loans -- including fees ........ $ 3,960,063 $ 1,004,538 $ 979,851 $ 975,011 Securities ..................... 632,374 154,296 158,519 151,879 Interest-bearing bank balances . 8,381 1,631 1,391 2,193 Federal funds sold and securities purchased under resale agreements ............. 29,908 7,062 8,429 5,802 Trading account assets ......... 28,268 7,335 8,107 5,653 ----------- ----------- ----------- ----------- Total ........................ 4,658,994 1,174,862 1,156,297 1,140,538 Interest expense: Interest-bearing demand ........ 57,201 15,279 13,991 12,725 Savings and money market savings ....................... 466,496 121,106 116,476 113,547 Savings certificates ........... 458,147 110,569 110,926 113,449 Large denomination certificates 172,031 39,954 42,992 43,726 Interest-bearing deposits in foreign offices ............... 100,801 24,730 24,039 23,920 Short-term borrowed funds ...... 462,053 112,336 112,301 103,170 Long-term debt ................. 449,865 124,265 108,877 111,773 ----------- ----------- ----------- ----------- Total ........................ 2,166,594 548,239 529,602 522,310 ----------- ----------- ----------- ----------- Net interest income ............. $ 2,492,400 $ 626,623 $ 626,695 $ 618,228 =========== =========== =========== =========== Annualized net yield on interest- earning assets ................. 4.32% 4.29% 4.31% 4.41% Average Balances (millions) Assets: Loans -- net of unearned income ........................ $ 46,561 $ 47,003 $ 47,012 $ 46,261 Securities ..................... 9,576 9,461 9,664 9,221 Interest-bearing bank balances . 125 124 83 130 Federal funds sold and securities purchased under resale agreements ............. 596 550 707 483 Trading account assets ......... 777 790 798 700 ----------- ----------- ----------- ----------- Total interest-earning assets ...................... 57,635 57,928 58,264 56,795 Cash and due from banks ........ 3,051 2,888 2,975 3,071 Premises and equipment ......... 933 962 970 911 Other assets ................... 3,837 3,632 3,713 4,047 Unrealized gains (losses) on securities available-for-sale . 79 (47) 68 119 Allowance for loan losses ...... (539) (548) (536) (535) ----------- ----------- ----------- ----------- Total assets ................. $ 64,996 $ 64,815 $ 65,454 $ 64,408 =========== =========== =========== =========== Liabilities and shareholders' equity: Interest-bearing demand ........ $ 4,653 $ 4,617 $ 4,691 $ 4,665 Savings and money market savings ....................... 13,090 13,566 13,424 12,889 Savings certificates ........... 8,854 8,696 8,746 8,846 Large denomination certificates 3,308 3,076 3,394 3,377 Interest-bearing deposits in foreign offices ............... 2,082 2,041 2,088 2,069 Short-term borrowed funds ...... 9,729 8,848 9,629 9,292 Long-term debt ................. 7,757 8,571 7,998 7,627 ----------- ----------- ----------- ----------- Total interest-bearing liabilities ................. 49,473 49,415 49,970 48,765 Demand deposits ................ 8,210 8,368 8,261 8,062 Other liabilities .............. 1,978 1,641 1,764 2,267 Shareholders' equity ........... 5,335 5,391 5,459 5,314 ----------- ----------- ----------- ----------- Total liabilities and shareholders' equity ........ $ 64,996 $ 64,815 $ 65,454 $ 64,408 =========== =========== =========== =========== Total deposits .................. $ 40,197 $ 40,364 $ 40,604 $ 39,908 1998 Nine Months Ended ----------------------------- September 30 Fourth Third ----------------------------- Quarter Quarter 1999 1998 ------------- ------------ ------------- ----------- Net Interest Income -- Taxable Equivalent (thousands) Interest income: Loans -- including fees .............. $ 1,000,663 $ 980,636 $ 2,959,400 $ 2,900,379 Securities ........................... 167,680 181,853 464,694 559,174 Interest-bearing bank balances........ 3,166 3,182 5,215 9,821 Federal funds sold and securities purchased under resale agreements ................... 8,615 6,168 21,293 17,188 Trading account assets ............... 7,173 11,817 21,095 38,260 ------------- ------------ ------------- ----------- Total .............................. 1,187,297 1,183,656 3,471,697 3,524,822 Interest expense: Interest-bearing demand .............. 15,206 15,526 41,995 49,324 Savings and money market savings ............................. 115,367 115,077 351,129 336,288 Savings certificates ................. 123,203 136,462 334,944 419,274 Large denomination certificates....... 45,359 40,482 126,672 120,025 Interest-bearing deposits in foreign offices ..................... 28,112 34,005 72,689 107,547 Short-term borrowed funds ............ 134,246 144,881 327,807 429,600 Long-term debt ....................... 104,950 95,597 344,915 285,712 ------------- ------------ ------------- ----------- Total .............................. 566,443 582,030 1,600,151 1,747,770 ------------- ------------ ------------- ----------- Net interest income ................... $ 620,854 $ 601,626 $ 1,871,546 $ 1,777,052 ============= ============ ============= =========== Annualized net yield on interest- earning assets ....................... 4.28% 4.26% 4.34% 4.23% Average Balances (millions) Assets: Loans -- net of unearned income .............................. $ 45,966 $ 43,894 $ 46,761 $ 43,873 Securities ........................... 9,952 10,664 9,449 10,794 Interest-bearing bank balances........ 163 138 112 156 Federal funds sold and securities purchased under resale agreements ................... 641 440 580 408 Trading account assets ............... 818 930 763 1,001 ------------- ------------ ------------- ----------- Total interest-earning assets ............................ 57,540 56,066 57,665 56,232 Cash and due from banks .............. 3,271 3,068 2,978 3,190 Premises and equipment ............... 888 874 948 846 Other assets ......................... 3,959 3,822 3,797 3,644 Unrealized gains (losses) on securities available-for-sale ....... 177 133 46 117 Allowance for loan losses ............ (537) (534) (540) (535) ------------- ------------ ------------- ----------- Total assets ....................... $ 65,298 $ 63,429 $ 64,894 $ 63,494 ============= ============ ============= =========== Liabilities and shareholders' equity: Interest-bearing demand .............. $ 4,639 $ 4,646 $ 4,658 $ 5,101 Savings and money market savings ............................. 12,481 11,873 13,295 11,308 Savings certificates ................. 9,128 9,642 8,762 10,218 Large denomination certificates....... 3,387 3,146 3,281 2,938 Interest-bearing deposits in foreign offices ..................... 2,131 2,347 2,066 2,529 Short-term borrowed funds ............ 11,135 10,858 9,254 10,814 Long-term debt ....................... 6,830 6,080 8,069 6,093 ------------- ------------ ------------- ----------- Total interest-bearing liabilities ....................... 49,731 48,592 49,385 49,001 Demand deposits ...................... 8,148 7,874 8,232 7,687 Other liabilities .................... 2,241 1,790 1,889 1,641 Shareholders' equity ................. 5,178 5,173 5,388 5,165 ------------- ------------ ------------- ----------- Total liabilities and shareholders' equity .............. $ 65,298 $ 63,429 $ 64,894 $ 63,494 ============= ============ ============= =========== Total deposits ........................ $ 39,914 $ 39,528 $ 40,294 $ 39,781
9 Foreign loans at September 30, 1999 were $1.196 billion, representing 2.5 percent of total loans compared with $985 million or 2.2 percent of total loans one year earlier and $1.451 billion or 3 percent at June 30, 1999. There were no extensions of credit to Russia, and loans extended in Asia remained immaterial. Foreign lease financing was $1.199 billion at the end of the third quarter of 1999, with exposure limited entirely to Western European countries. Commercial real estate loans, based on regulatory definitions, were $9.786 billion or 20.5 percent of total loans at September 30, 1999 versus $8.692 billion or 19 percent one year earlier and $9.522 billion or 19.7 percent at June 30, 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 September 30, 1999, one year earlier or at the end of the second quarter of 1999. Consumer loans, including residential mortgages, decreased $520 million or 2.9 percent for the quarter and $587 million or 3.2 percent year to date, primarily due to runoff in maturing residential mortgages and securitization of credit cards. Residential mortgages declined $321 million or 4.1 percent for the three months and $538 million or 6.8 percent for the first nine months, while credit cards were lower by $699 million or 12.5 percent for the quarter and $408 million or 7.2 percent year to date. Declines in both periods were offset partially by growth in indirect retail loans, which primarily consist of automobile sales financing, and in other revolving credit. In the third quarter of 1999, the corporation expanded its online consumer capabilities with the introduction on its Internet site of insurance products and applications for home equity lines of credit, personal lines of credit, home equity loans and personal installment loans. The new electronic credit applications build on existing online capabilities for mortgage loans, automobile loans and credit cards. In late September, the corporation securitized and sold $500 million of credit card receivables from its portfolio. The transaction followed an $896 million credit card securitization in March. Both transactions were undertaken principally to further broaden funding sources and to remain active in the securitization market. 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 September 30, 1999, the corporation's managed credit card portfolio, which includes securitized loans, was $6.372 billion or 12.9 percent of total managed loans versus $6.273 billion or 13.6 percent one year earlier and $6.340 billion or 12.7 percent at June 30, 1999. Securitized credit card loans were $1.896 billion at September 30, 1999 compared with $500 million one year earlier and $1.396 billion at June 30, 1999. Additional information on the corporation's securitized loans appears on page 20. 10 Period-End Loans by Category Table 8 - -------------------------------------------------------------------------------- (thousands) Sept. 30 June 30 March 31 Dec. 31 Sept. 30 1999 1999 1999 1998 1998 ----------- ----------- ----------- ----------- ----------- Commercial ..................... $16,166,045 $16,852,028 $15,639,116 $14,328,152 $15,040,796 Tax-exempt ..................... 757,601 796,523 871,271 972,603 1,024,855 ----------- ----------- ----------- ----------- ----------- Total commercial ........... 16,923,646 17,648,551 16,510,387 15,300,755 16,065,651 Direct retail .................. 1,053,909 1,082,526 1,066,011 1,097,574 1,111,654 Indirect retail ................ 3,616,862 3,458,466 3,324,238 3,239,532 3,143,670 Credit card .................... 4,475,973 4,944,519 4,954,671 6,049,350 5,773,009 Other revolving credit ......... 620,342 588,880 552,908 536,887 517,047 ----------- ----------- ----------- ----------- ----------- Total retail ............... 9,767,086 10,074,391 9,897,828 10,923,343 10,545,380 Construction ................... 2,235,387 2,233,128 2,087,886 2,044,437 1,865,675 Commercial mortgages ........... 7,550,770 7,289,241 7,076,217 6,988,050 6,826,459 Residential mortgages .......... 7,498,541 7,385,728 7,301,984 7,490,086 7,652,614 ----------- ----------- ----------- ----------- ----------- Total real estate .......... 17,284,698 16,908,097 16,466,087 16,522,573 16,344,748 Lease financing ................ 2,453,749 2,346,467 2,172,158 1,879,123 1,688,053 Foreign ........................ 1,195,842 1,450,580 1,346,672 1,093,428 984,884 ----------- ----------- ----------- ----------- ----------- Total loans ................ $47,625,021 $48,428,086 $46,393,132 $45,719,222 $45,628,716 =========== =========== =========== =========== ===========
Securities, the second largest category of interest-earning assets, declined $1.203 billion or 11.3 percent for the quarter and $1.345 billion or 12.5 percent year to date and were lower by $203 million or 2.1 percent from the second quarter. Planned runoff in the portfolio accounted for the decreases, with additional runoff expected in the final three months of the year. At September 30, 1999, securities available-for-sale were $8.014 billion and securities held-to-maturity were $1.271 billion. Securities Table 9 - -------------------------------------------------------------------------------- September 30, 1999 (thousands) Securities available-for-sale at fair value: U.S. Government and agency ................ $3,514,300 Mortgage-backed ........................... 3,928,507 Other ..................................... 571,569 ---------- Total available-for-sale ............... 8,014,376 Securities held-to-maturity: U.S. Government and agency ................ 620,934 Mortgage-backed ........................... 430,845 State and municipal ....................... 168,614 Other ..................................... 50,744 ---------- Total held-to-maturity ................. 1,271,137 ---------- Total securities ....................... $9,285,513 ==========
Interest expense was lower both for the quarter and year to date, decreasing $33.791 million or 5.8 percent for the three months and $147.619 million or 8.4 percent for the first nine months. Declines in both periods reflected a lower average rate paid on interest-bearing liabilities, with the average rate paid down 35 basis points for the third period of 1999 and 44 basis points year to date. Declines were offset slightly by higher levels of interest-bearing liabilities, principally long-term debt. Compared with the second quarter of 1999, interest expense rose $18.637 million or 14.1 percent annualized, driven principally by a 15 basis point increase in the average rate paid on interest-bearing liabilities and continued expansion of long-term debt. The corporation 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 11 traditional funding sources include the corporation's Premiere and Business Premiere accounts, both of which are high-yield money market deposit products; PC Banking; and enhancements to basic checking products, including the addition of Access Now(sm) checking. Wholesale funding sources include senior and subordinated debt, a global bank note program, capital securities and asset-backed securitization. Total interest-bearing deposits expanded modestly for the quarter but were essentially flat year to date, impacted, in part, by the divestiture of a total of $119 million in interest-bearing deposits in August through selected branch sales. Strong growth occurred in both periods in savings and money market savings, which rose $1.693 billion or 14.3 percent for the three months and $1.987 billion or 17.6 percent for the nine months, reflecting gains in the corporation's Premiere and Business Premiere accounts. Growth was moderated, however, by declines in both periods largely in savings certificates and foreign interest-bearing deposits and, to a smaller extent, by a decrease in demand deposits. The reduction in foreign interest-bearing deposits reflected management's utilization of alternative wholesale funding sources. Large denomination certificates declined modestly for the quarter but were higher by $343 million or 11.7 percent for the nine months. While savings and money market savings continued to expand in the third quarter from the second quarter, total interest-bearing deposits were lower by $347 million or 4.3 percent annualized, primarily due to management's reduction of funding from large denomination certificates. Gross deposits averaged $40.364 billion for the third quarter and $40.294 billion year to date, up $836 million or 2.1 percent and $513 million or 1.3 percent, respectively, from year-earlier periods. Collected deposits, net of float, averaged $38.308 billion for the third period of 1999 and $38.158 billion for the first nine months, higher by $947 million or 2.5 percent and $626 million or 1.7 percent, respectively, from the same periods in 1998. Short-term borrowed funds decreased $2.010 billion or 18.5 percent for the three months and $1.560 billion or 14.4 percent for the nine months, as management moved to lengthen maturities of wholesale funding sources to reduce risk in market volatility expected at year end. Declines occurred primarily in federal funds purchased and securities sold under repurchase agreements, which were lower by $1.591 billion or 21.9 percent for the quarter and $1.580 billion or 21 percent year to date. Other short-term borrowed funds, primarily consisting of short-term bank notes, also declined while commercial paper borrowings rose $94 million or 6.7 percent for the three months and $235 million or 19.2 percent for the nine months. Short-term borrowed funds were lower by $781 million or 8.1 percent from the second quarter of 1999. Long-term debt increased $2.491 billion or 41 percent for the third quarter and $1.976 billion or 32.4 percent year to date, principally reflecting expansion of senior and subordinated debt notes classified as part of other long-term debt. In late June, the corporation issued $600 million of 5-year 12 senior fixed-rate notes. This followed the issuance of $400 million of 10-year subordinated fixed-rate notes both in March 1999 and December 1998. The senior notes are rated Aa3 by Moody's and AA- by Standard & Poor's, and the subordinated notes are rated A1 by Moody's and A+ by Standard & Poor's. At September 30, 1999, $1.900 billion remained available under the corporation's current $2.500 billion debt authorization approved in April 1999. Capital securities, also classified as part of other long-term debt, totaled $997 million at September 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 was higher by $573 million or 7.2 percent from the second quarter of 1999, reflecting full inclusion in third quarter but not second quarter average balances of the $600 million senior notes issued in late June. Through its global bank note program, Wachovia Bank is authorized to issue up to $21.557 billion of bank notes. 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 September 30, 1999 were $442.694 million with an average cost of 5.16 percent and an average maturity of 2 months. Medium-term bank notes were $2.570 billion on the same date, with an average cost of 5.62 percent and an average maturity of 3.8 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 -- Third Quarter* Table 10 - -------------------------------------------------------------------------------- Average Volume Average Rate --------------------- ------------------- 1999 1998 1999 1998 ------- ------- ------- ---- (millions) Interest Income Loans: Commercial ................................. $15,444 $13,575 7.24 7.28 Tax-exempt ................................. 751 1,083 8.97 9.62 -------- -------- Total commercial ........................... 16,195 14,658 7.32 7.45 Direct retail .............................. 1,063 1,114 8.54 10.10 Indirect retail ............................ 3,551 3,090 7.85 8.23 Credit card ................................ 4,894 5,593 13.47 13.38 Other revolving credit ..................... 598 508 10.82 11.58 -------- -------- Total retail ............................... 10,106 10,305 10.82 11.39 Construction ............................... 2,257 1,876 8.49 9.03 Commercial mortgages ....................... 7,403 6,795 8.12 8.59 Residential mortgages ...................... 7,431 7,752 7.77 7.82 -------- -------- Total real estate .......................... 17,091 16,423 8.02 8.28 Lease financing ............................ 2,359 1,615 10.70 12.63 Foreign .................................... 1,252 893 6.67 6.85 -------- -------- Total loans ................................ 47,003 43,894 8.48 8.86 Securities: Held-to-maturity: U.S. Government and agency ................. 626 547 6.03 6.06 Mortgage-backed ............................ 456 763 8.16 8.29 State and municipal ........................ 161 188 10.27 10.70 Other ...................................... 52 97 6.41 6.59 -------- -------- Total held-to-maturity ..................... 1,295 1,595 7.32 7.71 Available-for-sale:** U.S. Government and agency ................. 3,574 3,900 6.20 6.56 Mortgage-backed ............................ 4,031 4,513 6.31 6.56 Other ...................................... 561 656 7.38 7.13 -------- -------- Total available-for-sale ................... 8,166 9,069 6.33 6.60 -------- -------- Total securities ........................... 9,461 10,664 6.47 6.77 Interest-bearing bank balances ............. 124 138 5.23 9.13 Federal funds sold and securities purchased under resale agreements .......... 550 440 5.09 5.56 Trading account assets ..................... 790 930 3.68 5.04 -------- -------- Total interest-earning assets .............. $57,928 $56,066 8.05 8.38 ======== ======== Interest Expense Interest-bearing demand .................... $ 4,617 $ 4,646 1.31 1.33 Savings and money market savings ........... 13,566 11,873 3.54 3.85 Savings certificates ....................... 8,696 9,642 5.04 5.61 Large denomination certificates ............ 3,076 3,146 5.15 5.10 -------- -------- Total interest-bearing deposits in domestic offices ........................... 29,955 29,307 3.80 4.16 Interest-bearing deposits in foreign offices .................................... 2,041 2,347 4.81 5.75 -------- -------- Total interest-bearing deposits ............ 31,996 31,654 3.86 4.28 Federal funds purchased and securities sold under repurchase agreements ........... 5,682 7,273 4.90 5.33 Commercial paper ........................... 1,499 1,405 4.79 5.21 Other short-term borrowed funds ............ 1,667 2,180 5.74 5.23 -------- -------- Total short-term borrowed funds............. 8,848 10,858 5.04 5.29 Bank notes ................................. 2,551 2,407 5.51 6.01 Other long-term debt ....................... 6,020 3,673 5.85 6.38 -------- -------- Total long-term debt ....................... 8,571 6,080 5.75 6.24 -------- -------- Total interest-bearing liabilities ......... $49,415 $48,592 4.40 4.75 ======== ======== -------- ----- Interest rate spread........................ 3.65 3.63 ======== ===== Net yield on interest-earning assets and net interest income ........................ 4.29 4.26 ======== ===== Variance Interest Attributable to -------------------------- ------------------------ 1999 1998 Variance Rate Volume ------------ ------------ ------------- ---------- ----------- Interest Income (thousands) Loans: Commercial ................................. $ 281,875 $ 248,927 $ 32,948 $ (1,155) $ 34,103 Tax-exempt ................................. 16,983 26,269 (9,286) (1,663) (7,623) ------------ ------------ ------------- Total commercial ........................... 298,858 275,196 23,662 (4,740) 28,402 Direct retail .............................. 22,875 28,373 (5,498) (4,231) (1,267) Indirect retail ............................ 70,243 64,112 6,131 (3,107) 9,238 Credit card ................................ 166,201 188,570 (22,369) 1,362 (23,731) Other revolving credit ..................... 16,326 14,840 1,486 (1,019) 2,505 ------------ ------------ ------------- Total retail ............................... 275,645 295,895 (20,250) (14,620) (5,630) Construction ............................... 48,287 42,688 5,599 (2,669) 8,268 Commercial mortgages ....................... 151,501 147,187 4,314 (8,401) 12,715 Residential mortgages ...................... 145,576 152,832 (7,256) (953) (6,303) ------------ ------------ ------------- Total real estate .......................... 345,364 342,707 2,657 (11,018) 13,675 Lease financing ............................ 63,604 51,423 12,181 (8,782) 20,963 Foreign .................................... 21,067 15,415 5,652 (399) 6,051 ------------ ------------ ------------- Total loans ................................ 1,004,538 980,636 23,902 (43,638) 67,540 Securities: Held-to-maturity: U.S. Government and agency ................. 9,520 8,364 1,156 (46) 1,202 Mortgage-backed ............................ 9,384 15,945 (6,561) (238) (6,323) State and municipal ........................ 4,168 5,067 (899) (197) (702) Other ...................................... 845 1,602 (757) (43) (714) ------------ ------------ ------------- Total held-to-maturity ..................... 23,917 30,978 (7,061) (1,479) (5,582) Available-for-sale:** U.S. Government and agency ................. 55,830 64,445 (8,615) (3,397) (5,218) Mortgage-backed ............................ 64,103 74,637 (10,534) (2,791) (7,743) Other ...................................... 10,446 11,793 (1,347) 412 (1,759) ------------ ------------ ------------- Total available-for-sale ................... 130,379 150,875 (20,496) (5,896) (14,600) ------------ ------------ ------------- Total securities ........................... 154,296 181,853 (27,557) (7,695) (19,862) Interest-bearing bank balances ............. 1,631 3,182 (1,551) (1,246) (305) Federal funds sold and securities purchased under resale agreements .......... 7,062 6,168 894 (554) 1,448 Trading account assets ..................... 7,335 11,817 (4,482) (2,877) (1,606) ------------ ------------ ------------- Total interest-earning assets .............. 1,174,862 1,183,656 (8,794) (47,357) 38,563 Interest Expense Interest-bearing demand .................... 15,279 15,526 (247) (153) (94) Savings and money market savings ........... 121,106 115,077 6,029 (9,552) 15,581 Savings certificates ....................... 110,569 136,462 (25,893) (13,167) (12,726) Large denomination certificates ............ 39,954 40,482 (528) 391 (919) ------------ ------------ ------------- Total interest-bearing deposits in domestic offices ........................... 286,908 307,547 (20,639) (27,315) 6,676 Interest-bearing deposits in foreign offices .................................... 24,730 34,005 (9,275) (5,170) (4,105) ------------ ------------ ------------- Total interest-bearing deposits ............ 311,638 341,552 (29,914) (33,570) 3,656 Federal funds purchased and securities sold under repurchase agreements ........... 70,153 97,672 (27,519) (7,410) (20,109) Commercial paper ........................... 18,082 18,448 (366) (1,547) 1,181 Other short-term borrowed funds ............ 24,101 28,761 (4,660) 2,587 (7,247) ------------ ------------ ------------- Total short-term borrowed funds............. 112,336 144,881 (32,545) (6,729) (25,816) Bank notes ................................. 35,468 36,487 (1,019) (3,143) 2,124 Other long-term debt ....................... 88,797 59,110 29,687 (5,289) 34,976 ------------ ------------ ------------- Total long-term debt ....................... 124,265 95,597 28,668 (7,942) 36,610 ------------ ------------ ------------- Total interest-bearing liabilities ......... 548,239 582,030 (33,791) (43,500) 9,709 ------------ ------------ ------------- Interest rate spread Net yield on interest-earning assets and net interest income ........................ $ 626,623 $ 601,626 $ 24,997 4,908 20,089 ============ ============ =============
* 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 the 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 losses of $47 million in 1999 and unrealized gains of $133 million in 1998. 14 Taxable Equivalent Rate/Volume Variance Analysis -- Nine Months* Table 11 - -------------------------------------------------------------------------------- Average Volume Average Rate ------------------ ------------------- 1999 1998 1999 1998 ------- ------- ------- ---- (millions) Interest Income Loans: Commercial ................................. $15,426 $13,679 7.04 7.30 Tax-exempt ................................. 838 1,282 9.12 9.12 -------- -------- Total commercial ........................... 16,264 14,961 7.15 7.46 Direct retail .............................. 1,069 1,154 8.68 9.57 Indirect retail ............................ 3,411 3,050 7.91 8.39 Credit card ................................ 5,222 5,630 13.36 13.40 Other revolving credit ..................... 572 489 10.85 11.12 -------- -------- Total retail ............................... 10,274 10,323 10.92 11.38 Construction ............................... 2,167 1,866 8.40 9.08 Commercial mortgages ....................... 7,220 6,792 8.05 8.65 Residential mortgages ...................... 7,360 7,898 7.80 7.98 -------- -------- Total real estate .......................... 16,747 16,556 7.99 8.38 Lease financing ............................ 2,190 1,325 11.50 11.39 Foreign .................................... 1,286 708 6.44 6.85 -------- -------- Total loans ................................ 46,761 43,873 8.46 8.84 Securities: Held-to-maturity: U.S. Government and agency ................. 603 333 6.15 6.12 Mortgage-backed ............................ 514 846 8.24 8.31 State and municipal ........................ 163 198 10.00 10.75 Other ...................................... 62 107 6.72 6.71 -------- -------- Total held-to-maturity ..................... 1,342 1,484 7.44 8.03 Available-for-sale:** U.S. Government and agency ................. 3,441 4,189 6.39 6.73 Mortgage-backed ............................ 4,099 4,424 6.36 6.72 Other ...................................... 567 697 7.15 7.10 -------- -------- Total available-for-sale ................... 8,107 9,310 6.43 6.75 -------- -------- Total securities ........................... 9,449 10,794 6.57 6.93 Interest-bearing bank balances ............. 112 156 6.20 8.45 Federal funds sold and securities purchased under resale agreements .......... 580 408 4.91 5.63 Trading account assets ..................... 763 1,001 3.70 5.11 -------- -------- Total interest-earning assets .............. $57,665 $56,232 8.05 8.38 ======== ======== Interest Expense Interest-bearing demand .................... $ 4,658 $ 5,101 1.21 1.29 Savings and money market savings ........... 13,295 11,308 3.53 3.98 Savings certificates ....................... 8,762 10,218 5.11 5.49 Large denomination certificates ............ 3,281 2,938 5.16 5.46 -------- -------- Total interest-bearing deposits in domestic offices ........................... 29,996 29,565 3.81 4.18 Interest-bearing deposits in foreign offices .................................... 2,066 2,529 4.70 5.69 -------- -------- Total interest-bearing deposits ............ 32,062 32,094 3.87 4.30 Federal funds purchased and securities sold under repurchase agreements ........... 5,950 7,530 4.56 5.35 Commercial paper ........................... 1,457 1,222 4.59 5.18 Other short-term borrowed funds ............ 1,847 2,062 5.41 5.26 -------- -------- Total short-term borrowed funds............. 9,254 10,814 4.74 5.31 Bank notes ................................. 2,614 2,674 5.55 6.12 Other long-term debt ....................... 5,455 3,419 5.79 6.39 -------- -------- Total long-term debt ....................... 8,069 6,093 5.71 6.27 -------- -------- Total interest-bearing liabilities..........$ 49,385 $ 49,001 4.33 4.77 ======== ======== -------- ----- Interest rate spread........................ 3.72 3.61 ======== ===== Net yield on interest-earning assets and net interest income ....................... 4.34 4.23 ======== ===== Variance Interest Attributable to ------------------------- ------------------------- 1999 1998 Variance Rate Volume ----------- ----------- ------------- ----------- ----------- Interest Income (thousands) Loans: Commercial ................................. $ 812,194 $ 747,231 $ 64,963 $ (27,815) $ 92,778 Tax-exempt ................................. 57,124 87,379 (30,255) 39 (30,294) ----------- ----------- ------------- Total commercial ........................... 869,318 834,610 34,708 (35,956) 70,664 Direct retail .............................. 69,398 82,554 (13,156) (7,330) (5,826) Indirect retail ............................ 201,804 191,384 10,420 (11,367) 21,787 Credit card ................................ 521,904 564,340 (42,436) (1,637) (40,799) Other revolving credit ..................... 46,460 40,664 5,796 (996) 6,792 ----------- ----------- ------------- Total retail ............................... 839,566 878,942 (39,376) (35,264) (4,112) Construction ............................... 136,178 126,786 9,392 (9,973) 19,365 Commercial mortgages ....................... 434,547 439,525 (4,978) (31,765) 26,787 Residential mortgages ...................... 429,583 471,324 (41,741) (10,163) (31,578) ----------- ----------- ------------- Total real estate .......................... 1,000,308 1,037,635 (37,327) (49,156) 11,829 Lease financing ............................ 188,283 112,907 75,376 1,065 74,311 Foreign .................................... 61,925 36,285 25,640 (2,304) 27,944 ----------- ----------- ------------- Total loans ................................ 2,959,400 2,900,379 59,021 (126,932) 185,953 Securities: Held-to-maturity: U.S. Government and agency ................. 27,758 15,212 12,546 86 12,460 Mortgage-backed ............................ 31,669 52,555 (20,886) (411) (20,475) State and municipal ........................ 12,154 15,942 (3,788) (1,053) (2,735) Other ...................................... 3,115 5,382 (2,267) 10 (2,277) ----------- ----------- ------------- Total held-to-maturity ..................... 74,696 89,091 (14,395) (6,208) (8,187) Available-for-sale:** U.S. Government and agency ................. 164,569 210,843 (46,274) (10,103) (36,171) Mortgage-backed ............................ 195,068 222,222 (27,154) (11,339) (15,815) Other ...................................... 30,361 37,018 (6,657) 298 (6,955) ----------- ----------- ------------- Total available-for-sale ................... 389,998 470,083 (80,085) (21,467) (58,618) ----------- ----------- ------------- Total securities ........................... 464,694 559,174 (94,480) (27,323) (67,157) Interest-bearing bank balances ............. 5,215 9,821 (4,606) (2,260) (2,346) Federal funds sold and securities purchased under resale agreements .......... 21,293 17,188 4,105 (2,418) 6,523 Trading account assets ..................... 21,095 38,260 (17,165) (9,226) (7,939) ----------- ----------- ------------- Total interest-earning assets .............. 3,471,697 3,524,822 (53,125) (141,586) 88,461 Interest Expense Interest-bearing demand .................... 41,995 49,324 (7,329) (3,206) (4,123) Savings and money market savings ........... 351,129 336,288 14,841 (40,223) 55,064 Savings certificates ....................... 334,944 419,274 (84,330) (27,343) (56,987) Large denomination certificates ............ 126,672 120,025 6,647 (6,831) 13,478 ----------- ----------- ------------- Total interest-bearing deposits in domestic offices ........................... 854,740 924,911 (70,171) (83,481) 13,310 Interest-bearing deposits in foreign offices .................................... 72,689 107,547 (34,858) (16,914) (17,944) ----------- ----------- ------------- Total interest-bearing deposits ............ 927,429 1,032,458 (105,029) (103,993) (1,036) Federal funds purchased and securities sold under repurchase agreements ........... 203,147 301,099 (97,952) (40,225) (57,727) Commercial paper ........................... 49,997 47,342 2,655 (5,813) 8,468 Other short-term borrowed funds ............ 74,663 81,159 (6,496) 2,188 (8,684) ----------- ----------- ------------- Total short-term borrowed funds............. 327,807 429,600 (101,793) (43,643) (58,150) Bank notes ................................. 180,522 122,320 (13,798) (11,131) (2,667) Other long-term debt ....................... 236,393 163,392 73,001 (16,454) 89,455 ----------- ----------- ------------- Total long-term debt ....................... 344,915 285,712 59,203 (27,038) 86,241 ----------- ----------- ------------- Total interest-bearing liabilities ......... 1,600,151 1,747,770 (147,619) (161,215) 13,596 ----------- ----------- ------------- Interest rate spread Net yield on interest-earning assets and net interest income ........................ $1,871,546 $1,777,052 $ 94,494 48,600 45,894 =========== =========== =============
* 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 the 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 $46 million in 1999 and $117 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 the corporation does not directly hold commodities or trade in commodity contracts) and immaterial risk in foreign exchange and changing equity prices. Market risks reside in both the trading and nontrading portfolios. Trading portfolios represent assets and off-balance sheet instruments that are held for short periods of time and are marked-to-market through the income statement. Nontrading portfolios represent assets, liabilities and off-balance sheet instruments that are not marked-to-market through the income statement but are accounted for on an accrual basis or are marked-to-market through equity. The primary risk in both the trading and nontrading portfolios is to changes in interest rates. Exposures to movements in foreign exchange rates are predominantly in the trading portfolio. All locations use the U.S. dollar as their functional currency and, as a result, exposures to foreign exchange translation risk are immaterial to consolidated net income. Exposure to equity price movement is through holdings at the parent company and private equity investments in the capital markets line of business. The volatility of values in the equity portfolios is immaterial to net income. Estimating the amount of risk in either the trading or nontrading portfolios requires assumptions about the future. The nature of the assumptions causes all representations of risk to be estimates. These estimates will be different from actual results for many reasons, including but not limited to, changes in the growth of the overall economy which will impact volume growth in the company, changing credit spreads, market interest rates moving in patterns other than the patterns chosen for analysis, changes in customer preferences, changes in tactical and strategic plans and initiatives, and changes in Federal Reserve policy. Stress testing is performed on all market risk measurement analyses to help understand the relative sensitivity of key assumptions and thereby better understand the risk profile of the corporation. Trading 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. The corporation enters into derivatives contracts and foreign currency exchange forward and option contracts to service customer needs and does not take material trading positions in either. The earnings risk due to changes in fair value in the trading portfolios is limited by the short-term holding periods of some of the portfolios, entering into offsetting trades with market counterparties, establishing and monitoring market risk limits by portfolio, and utilizing various hedging techniques. Risk appetite, policies, practices and procedures are established in the business units and approved by the relevant risk committees and Board of Directors to ensure that business objectives are met within a framework of prudent and sound risk management. A value-at-risk (VAR) methodology is used to gauge potential losses in various trading portfolios due to changes in interest rates. The VAR model is a statistical variance/covariance model that calculates an estimate of exposure to interest rate movements within a predetermined confidence level over a defined forward-looking time period. The VAR estimate represents the maximum expected loss in fair value of a trading portfolio over a one day time horizon, given a 99 percent confidence level. In other words, there is about a 1 percent chance, given historical volatility of interest rates, that a loss greater than the VAR estimate will occur by the end of the next day. The VAR estimate takes into account 16 several variables that affect the value of the trading portfolio, including interest rates, security prices and their volatilities, and statistical correlations. The potential expected volatility of interest rates is calculated using a one-year history of market movements. These historical volatilities are exponentially weighted to give more weight to recent market movements. At September 30, 1999, the combined VAR exposure, given the above calculation parameters, was $435 thousand which represented .07 percent of the combined trading portfolio value of $658.625 million. The combined average VAR exposure for the third quarter of 1999 was $623 thousand which represented .13 percent of the combined average trading portfolio value of $475.068 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. The corporation monitors interest rate risk by measuring the potential change in 12 months of net income under eight standard interest rate scenarios. The scenarios are rolled forward by quarter up to four quarters in the future to view income sensitivity over any given 12-month period within the next 24 months. All of the scenarios are compared with a scenario where current market rates are held 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 17 Management Finance Committee and the Finance Committee of the Board of Directors. For simulation, which is a dynamic forward-looking analysis, the guidelines are focused on the 200 basis point ramp scenarios across 12 months. The policy guideline limit for net income simulation is a negative impact to net income of 7.5 percent for the up or down 200 basis point ramp scenarios when compared with the flat rate scenario. Management has generally maintained a risk position well within the policy guideline level. The model indicated a 200 basis point gradual rise in rates over the next 12 months would cause approximately a 2.00 percent increase in net income at September 30, 1999 versus a .23 percent decrease one year earlier. A gradual decrease of 200 basis points in rates over the next 12 months would cause approximately a 2.25 percent decrease in net income as of September 30, 1999 compared with a 1.08 percent decrease at September 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 September 30, 1999, Wachovia was within its policy limit. Liquidity Management To ensure the corporation is positioned to meet immediate and future cash demands, management relies on liquidity analysis, knowledge of business trends over past economic cycles and forecasts of future conditions. Liquidity is maintained through a strong balance sheet and operating performance that assures market acceptance as well as through policy guidelines which limit the level, maturity and concentration of noncore funding sources. Through its balance sheet, the corporation generates liquidity on the asset side by maintaining significant amounts of securities available-for-sale, which may be sold at any time, and by loans which may be securitized or sold. Additionally, the corporation generates cash through deposit growth, the issuance of bank notes, the availability of unused lines of credit and through other forms of debt and equity instruments. Through policy guidelines, the corporation limits net purchased funds to 50 percent of long-term assets, which include net loans and leases, securities with remaining maturities over one year and net foreclosed real estate. Policy guidelines insure against concentrations by maturity of noncore funding sources by limiting the cumulative percentage of purchased funds that mature overnight, within 30 days and within 90 days. Guidelines also require the monitoring of significant concentrations of funds by single sources and by type of borrowing category. 18 Nonperforming Assets Nonperforming assets at September 30, 1999 were $238.280 million or .50 percent of loans and foreclosed property. The total was higher by $66.601 million or 38.8 percent from one year earlier and up $3.493 million or 1.5 percent from June 30, 1999. Increases from both periods reflected a rise in nonaccrual loans. In the second quarter of 1999, management noted a deterioration in certain commercial credits and moved them to nonaccrual status. Historically the most cyclical category of total nonperforming assets have been real estate related. Real estate nonperforming assets at September 30, 1999 were $100.920 million or .58 percent of real estate loans and foreclosed real estate compared with $127.110 million or .78 percent one year earlier and $105.167 million or .62 percent at June 30, 1999. Included in these totals were real estate nonperforming loans of $83.836 million at September 30, 1999 versus $105.042 million one year earlier and $84.975 million at the end of the second quarter. Commercial real estate nonperforming assets were $50.154 million or .51 percent of related loans and foreclosed real estate compared with $69.865 million or .80 percent at September 30, 1998 and $53.767 million or .56 percent at June 30, 1999. Commercial real estate nonperforming loans were $41.334 million versus $57.139 million at the end of the third quarter of 1998 and $41.277 million at June 30, 1999. Nonperforming Assets and Contractually Past Due Loans Table 12 - -------------------------------------------------------------------------------- (thousands) Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30 1999 1999 1999 1998 1998 -------- -------- -------- -------- -------- Nonperforming assets: Cash-basis assets ............................................... $214,594 $209,550 $144,763 $157,118 $144,654 Restructured loans .............................................. -- -- -- -- -- -------- -------- -------- -------- -------- Total nonperforming loans .................................... 214,594 209,550 144,763 157,118 144,654 Foreclosed property: Foreclosed real estate ......................................... 24,540 28,354 30,285 33,443 34,935 Less valuation allowance ....................................... 7,456 8,162 9,590 12,678 12,867 Other foreclosed assets ........................................ 6,602 5,045 4,998 3,420 4,957 -------- -------- -------- -------- -------- Total foreclosed property .................................... 23,686 25,237 25,693 24,185 27,025 -------- -------- -------- -------- -------- Total nonperforming assets ................................... $238,280 $234,787 $170,456 $181,303 $171,679 ======== ======== ======== ======== ======== Nonperforming loans to period-end loans ......................... .45% .43% .31% .34% .32% Nonperforming assets to period-end loans and foreclosed property ....................................................... .50 .48 .37 .40 .38 Period-end allowance for loan losses times nonperforming loans .. 2.58x 2.62x 3.79x 3.49x 3.79x Period-end allowance for loan losses times nonperforming assets . 2.32 2.34 3.22 3.02 3.19 Contractually past due loans -- accruing loans past due 90 days or more ............................................................ $106,755 $ 99,486 $137,116 $136,807 $119,034 ======== ======== ======== ======== ========
Provision and Allowance for Loan Losses The provision for loan losses was $76.770 million for the third quarter and $231.931 million year to date, up $3.961 million or 5.4 percent and $16.555 million or 7.7 percent, respectively, from year-earlier periods. Compared with the second quarter of 1999, the provision was higher by $2.245 million or 3 percent. 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 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. 19 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 quarter were $71.416 million or .61 percent of average loans, lower by $1.279 million or 1.8 percent from $72.695 million or .66 percent of loans a year earlier. Year to date, net loan losses totaled $226.068 million or .64 percent of loans, an increase of $11.042 million or 5.1 percent from $215.026 million or .65 percent of loans in 1998. Net loan losses decreased $2.910 million or 3.9 percent from the second quarter of 1999. Excluding credit cards, net loan losses were $25.458 million or .24 percent of loans for the quarter and $52.060 million or .17 percent year to date, compared with $11.174 million or .12 percent and $25.638 million or .09 percent, respectively, in 1998 and $13.325 million or .13 percent in the second quarter of 1999. Comparisons of net loan losses between 1999 and 1998 periods are impacted by the securitization of $896 million of credit card receivables in March 1999 and $500 million in late September, which removed these receivables from the balance sheet. Losses on securitized receivables are not recognized with losses for loans on the balance sheet but are deducted from net interest payments, with the excess in cash payments recorded as securitization fee income. In September, the corporation modified its charge-off policy on revolving consumer credit loans from 120 days delinquent to 150 days delinquent to conform with industry peer practices. Credit card net charge-offs were $45.958 million or 3.76 percent of average credit card loans for the quarter and $174.008 million or 4.44 percent year to date, lower by $15.563 million or 25.3 percent and $15.380 million or 8.1 percent, respectively, from the same periods in 1998 due principally to card securitizations. Commercial loan net losses were $14.491 million for the three months and $24.322 million for the nine months, up $11.407 million and $18.495 million, respectively, from year-earlier periods. Real estate loans had net charge-offs totaling $2.881 million for the third quarter and $3.081 million year to date compared with net recoveries of $959 thousand and $5.231 million, respectively, in 1998. Selected data on the corporation's managed credit card portfolio, which includes securitized loans, appears in the following table. Managed Credit Card Data Table 13 - -------------------------------------------------------------------------------- (thousands) 1999 -------------------------------------- Third Second First Quarter Quarter Quarter ---------- ---------- ---------- Average credit card loans ... $6,343,811 $6,327,848 $6,430,397 Period-end loans ............ 6,371,927 6,340,473 6,350,625 Net loan losses ............. 59,261 70,563 69,632 Annualized net loan losses to average loans .............. 3.74% 4.46% 4.33% Delinquencies (30 days or more) to period-end loans .. 3.35 2.79 3.02 (thousands) 1998 Nine Months Ended ------------------------ September 30 Fourth Third ------------------------ Quarter Quarter 1999 1998 ---------- ---------- ---------- ---------- Average credit card loans ... $6,328,905 $6,092,515 $6,367,035 $6,131,304 Period-end loans ............ 6,549,350 6,273,009 6,371,927 6,273,009 Net loan losses ............. 72,997 66,324 199,456 203,711 Annualized net loan losses to average loans .............. 4.61% 4.35% 4.18% 4.43% Delinquencies (30 days or more) to period-end loans .. 3.30 3.11 3.35 3.11
At September 30, 1999, the allowance for loan losses was $553.894 million, representing 1.16 percent of period-end loans and 258 percent of nonperforming loans compared with $547.686 million, 1.20 percent and 379 percent, respectively, one year earlier. The allowance for loan losses at June 30, 1999 was $548.540 million or 1.13 percent of loans and 262 percent of nonperforming loans. 20 Allowance for Loan Losses Table 14 - -------------------------------------------------------------------------------- (thousands) 1999 ------------------------------------- Third Second First Quarter Quarter Quarter ----------- -------- --------- Summary of Transactions Balance at beginning of period ................ $ 548,540 $548,302 $ 547,992 Additions from acquisitions ................... ---- 39 ---- Provision for loan losses ..................... 76,770 74,525 80,636 Deduct net loan losses: Loans charged off: Commercial .................................. 15,509 7,592 5,862 Credit card ................................. 54,925 69,619 74,094 Other revolving credit ...................... 2,305 3,126 2,889 Other retail ................................ 8,561 7,888 8,910 Real estate ................................. 4,005 1,397 1,488 Lease financing ............................. 855 585 592 Foreign ..................................... ---- ---- ---- ----------- -------- --------- Total ..................................... 86,160 90,207 93,835 Recoveries: Commercial .................................. 1,018 1,667 1,956 Credit card ................................. 8,967 8,618 7,045 Other revolving credit ...................... 774 828 707 Other retail ................................ 2,674 2,718 2,813 Real estate ................................. 1,124 1,836 849 Lease financing ............................. 187 214 139 Foreign ..................................... ---- ---- ---- ----------- -------- --------- Total ..................................... 14,744 15,881 13,509 ----------- -------- --------- Net loan losses .............................. 71,416 74,326 80,326 ----------- -------- --------- Balance at end of period ...................... $ 553,894 $548,540 $ 548,302 =========== ======== ========= Net Loan Losses (Recoveries) by Category Commercial .................................... $ 14,491 $ 5,925 $ 3,906 Credit card ................................... 45,958 61,001 67,049 Other revolving credit ........................ 1,531 2,298 2,182 Other retail .................................. 5,887 5,170 6,097 Real estate ................................... 2,881 (439) 639 Lease financing ............................... 668 371 453 Foreign ....................................... ---- ---- ---- ----------- -------- --------- Total ..................................... $ 71,416 $ 74,326 $ 80,326 =========== ======== ========= Net loan losses -- excluding credit cards ..... $ 25,458 $ 13,325 $ 13,277 Annualized Net Loan Losses (Recoveries) to Average Loans by Category Commercial .................................... .36% .14% .10% Credit card ................................... 3.76 4.95 4.58 Other revolving credit ........................ 1.02 1.61 1.60 Other retail .................................. .51 .47 .56 Real estate ................................... .07 (.01) .02 Lease financing ............................... .11 .07 .09 Foreign ....................................... ---- ---- ---- Total loans ................................... .61 .63 .69 Total loans -- excluding credit cards ......... .24 .13 .13 Period-end allowance to outstanding loans ..... 1.16 1.13 1.18 1998 Nine Months Ended ----------------------- September 30 Fourth Third ----------------------- Quarter Quarter 1999 1998 ----------- -------- ----------- -------- Summary of Transactions Balance at beginning of period ................ $ 547,686 $547,572 $ 547,992 $544,723 Additions from acquisitions ................... ---- ---- 39 2,613 Provision for loan losses ..................... 84,104 72,809 231,931 215,376 Deduct net loan losses: Loans charged off: Commercial .................................. 7,365 4,601 28,963 10,515 Credit card ................................. 75,401 69,043 198,638 211,119 Other revolving credit ...................... 3,050 2,736 8,320 7,752 Other retail ................................ 9,851 8,515 25,359 25,527 Real estate ................................. 2,407 264 6,890 2,107 Lease financing ............................. 701 782 2,032 2,394 Foreign ..................................... ---- ---- ---- ---- ----------- -------- ----------- -------- Total ..................................... 98,775 85,941 270,202 259,414 Recoveries: Commercial .................................. 1,979 1,517 4,641 4,688 Credit card ................................. 7,073 7,522 24,630 21,731 Other revolving credit ...................... 641 610 2,309 1,930 Other retail ................................ 3,167 2,242 8,205 8,327 Real estate ................................. 2,001 1,223 3,809 7,338 Lease financing ............................. 116 132 540 374 Foreign ..................................... ---- ---- ---- ---- ----------- -------- ----------- -------- Total ..................................... 14,977 13,246 44,134 44,388 ----------- -------- ----------- -------- Net loan losses .............................. 83,798 72,695 226,068 215,026 ----------- -------- ----------- -------- Balance at end of period ...................... $ 547,992 $547,686 $ 553,894 $547,686 =========== ======== =========== ======== Net Loan Losses (Recoveries) by Category Commercial .................................... $ 5,386 $ 3,084 $ 24,322 $ 5,827 Credit card ................................... 68,328 61,521 174,008 189,388 Other revolving credit ........................ 2,409 2,126 6,011 5,822 Other retail .................................. 6,684 6,273 17,154 17,200 Real estate ................................... 406 (959) 3,081 (5,231) Lease financing ............................... 585 650 1,492 2,020 Foreign ....................................... ---- ---- ---- ---- ----------- -------- ----------- -------- Total ..................................... $ 83,798 $ 72,695 $ 226,068 $215,026 =========== ======== =========== ======== Net loan losses -- excluding credit cards ..... $ 15,470 $ 11,174 $ 52,060 $ 25,638 Annualized Net Loan Losses (Recoveries) to Average Loans by Category Commercial .................................... .13% .08% .20% .05% Credit card ................................... 4.69 4.40 4.44 4.49 Other revolving credit ........................ 1.84 1.67 1.40 1.59 Other retail .................................. .62 .60 .51 .55 Real estate ................................... .01 (.02) .02 (.04) Lease financing ............................... .13 .16 .09 .20 Foreign ....................................... ---- ---- ---- ---- Total loans ................................... .73 .66 .64 .65 Total loans -- excluding credit cards ......... .15 .12 .17 .09 Period-end allowance to outstanding loans ..... 1.20 1.20 1.16 1.20
Noninterest Income Total other operating revenue, which excludes securities sales, increased $122.300 million or 39.4 percent for the third quarter of 1999 from a year earlier and was up $261.347 million or 28.7 percent for the nine months. Gains reflected business expansion in addition to the impact of purchase acquisitions completed in the second and third quarters of 1999. Growth in both periods was led by investment fees, credit card income, deposit account services and trust fees. Total other operating revenue included gains in the third quarter of $9.934 million from the sale of loans in the September credit card securitization and $7.554 million from branch sales. Year to date, 21 total other operating revenue included gains of $34.513 million from credit card securitizations and the third quarter sale of branches versus gains of $17.155 million in 1998 from branch sales, all of which occurred in the first quarter. The gains on the sale of loans from credit card securitizations are amortized over the expected average life of the receivables, reducing noninterest income in future periods. Excluding gains from branch sales and credit card securitizations and additions from purchase acquisitions, total other operating revenue rose approximately 11 percent for both the third quarter and nine months, respectively, and was up approximately 3 percent from the second quarter of 1999. For the full year of 1999, management estimates total other operating revenue will increase 10 to 12 percent, excluding additions from purchase acquisitions, based on expected growth trends largely in financial advisory services, technology-based banking, credit cards and capital markets income. Investment fees rose $54.367 million for the third quarter from a year earlier and were higher by $110.217 million for the nine months, principally due to additions from purchase acquisitions. Increases occurred primarily in brokerage commission income, portfolio management fees and fees from customer mutual fund investments. Credit card income was higher by $27.474 million or 63.4 percent for the third period and $65.264 million or 52.2 percent year to date. Servicing fees and income recognized on securitized loans, including gains from the sale of loans, principally accounted for the rise in both periods. Excluding the gains from the sale of loans, credit card income was up approximately 40 percent for the quarter and 31 percent year to date. Deposit account service charges grew $9.921 million or 11.7 percent and $24.991 million or 10.1 percent for the three and nine months, respectively. Higher levels of commercial analysis fees and overdraft charges primarily drove the increases. Trust service fees rose $8.881 million or 17.4 percent for the quarter and $18.069 million or 12.4 percent year to date. Growth occurred primarily in employee benefits services and in fees associated with the Wachovia Funds, the corporation's proprietary mutual funds. In September, the corporation announced an agreement to sell its master trust and institutional custody business. The transaction will enable the corporation to focus more fully on asset management and consulting related services. The sale closed September 30. Capital markets income expanded $4.289 million or 11.4 percent for the three months and $27.767 million or 29.5 percent for the nine months. Higher trading account profits from activities of Interstate/Johnson Lane acquired in the second quarter of 1999 principally drove the gains in both periods. 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. Electronic banking revenue rose $3.861 million or 19.9 percent for the third period of 1999 and $9.812 million or 18 percent year to date, driven by increases in debit card interchange income and ATM usage. 22 Noninterest Income Table 15 - -------------------------------------------------------------------------------- (thousands) 1999 1998 Nine Months Ended --------------------------------- --------------------- September 30 Third Second First Fourth Third ----------------------- Quarter Quarter Quarter Quarter Quarter 1999 1998 --------- -------- -------- --------- -------- ----------- --------- Service charges on deposit accounts ........ $ 94,595 $ 91,454 $ 86,955 $ 86,967 $ 84,674 $ 273,004 $248,013 Fees for trust services .................... 60,066 54,907 49,136 53,909 51,185 164,109 146,040 Credit card income -- net of interchange payments .................................. 70,786 58,110 61,301 46,194 43,312 190,197 124,933 Investment fees ............................ 69,364 69,877 17,362 15,170 14,997 156,603 46,386 Capital markets income ..................... 41,914 41,780 38,112 36,044 37,625 121,806 94,039 Electronic banking ......................... 23,310 22,558 18,455 19,746 19,449 64,323 54,511 Mortgage fees .............................. 7,378 9,863 10,966 13,472 12,251 28,207 31,457 Bankers' acceptance and letter of credit fees ...................................... 11,688 11,563 10,342 9,909 9,745 33,593 29,116 Other service charges and fees ............. 19,494 18,153 15,526 13,473 13,608 53,173 41,253 Other income ............................... 34,246 26,279 25,114 23,928 23,695 85,639 93,559 --------- -------- -------- --------- -------- ----------- --------- Total other operating revenue .......... 432,841 404,544 333,269 318,812 310,541 1,170,654 909,307 Securities gains ........................... 147 10,453 234 7,407 6,886 10,834 13,035 --------- -------- -------- --------- -------- ----------- --------- Total .................................. $432,988 $414,997 $333,503 $326,219 $317,427 $1,181,488 $922,342 ========= ======== ======== ========= ======== =========== =========
Mortgage fees decreased $4.873 million or 39.8 percent for the quarter and $3.250 million or 10.3 percent for the nine months. Declines primarily reflected reduced sales of servicing rights on fixed-rate mortgages due to lower business volumes. Rising interest rates resulted in a shift toward adjustable rate mortgages, which are retained on the balance sheet and not sold. Rising interest rates also slowed refinancing activity, resulting in lower origination fees. Remaining combined categories of total other operating revenue excluding gains from branch sales were higher by $10.826 million or 23 percent for the three months and $18.078 million or 12.3 percent for the nine months. Including gains from securities sales, total noninterest income rose $115.561 million or 36.4 percent for the third quarter and $259.146 million or 28.1 percent for the nine months. Securities sales, primarily equities, resulted in net gains of $147 thousand for the quarter and $10.834 million year to date versus $6.886 million and $13.035 million, respectively, in 1998. Noninterest Expense Total noninterest expense for the quarter was up $84.789 million or 17.2 percent year over year and was higher by $146.361 million or 9.7 percent year to date. Comparisons between 1999 and 1998 periods are impacted by the addition of purchase acquisitions effective from their respective completion dates in 1999 and by merger-related expenses in both years. Merger-related expenses were $5.293 million for the third period and $13.640 million for the first nine months of 1999 versus $11.934 million and $78.351 million, respectively, in 1998. Excluding merger-related expenses and the addition of purchase acquisitions, total noninterest expense rose approximately 5 percent both for the third quarter and nine months and was flat with the second quarter. Merger-related expenses of $4 million to $6 million are expected to be recognized in the fourth quarter of 1999. For the full year of 1999, total noninterest expense is expected to increase approximately 4 to 5 percent, excluding the impact of purchase acquisitions and merger-related expenses. Expense growth for the full year is expected to moderate from 1998's level primarily in the area of salaries. 23 Noninterest Expense Table 16 - -------------------------------------------------------------------------------- (thousands) 1999 1998 NineMonths Ended ------------------------------------- ------------------------ September 30 Third Second First Fourth Third -------------------------- Quarter Quarter Quarter Quarter Quarter 1999 1998 ---------- ---------- ---------- ---------- ---------- ----------- ----------- Salaries ............................ $ 266,488 $ 259,733 $ 218,115 $ 221,019 $ 221,242 $ 744,336 $ 653,731 Employee benefits ................... 50,572 48,019 53,071 48,922 42,040 151,662 131,681 ---------- ---------- ---------- ---------- ---------- ----------- ----------- Total personnel expense ......... 317,060 307,752 271,186 269,941 263,282 895,998 785,412 Net occupancy expense ............... 38,955 38,908 34,933 35,838 34,896 112,796 102,798 Equipment expense ................... 49,081 49,714 46,842 40,790 37,917 145,637 112,217 Postage and delivery ................ 13,700 13,670 14,128 12,962 13,373 41,498 40,019 Outside data processing, programming and software ....................... 26,385 25,561 23,457 18,863 17,777 75,403 45,587 Stationery and supplies ............. 9,262 8,598 8,809 9,339 10,689 26,669 25,428 Advertising and sales promotion ..... 15,745 16,682 11,837 12,782 17,147 44,264 57,440 Professional services ............... 18,619 19,351 14,024 15,311 14,929 51,994 40,755 Travel and business promotion ....... 9,138 8,749 5,951 7,521 7,656 23,838 21,733 Telecommunications .................. 13,915 15,978 13,394 12,644 14,570 43,287 41,823 Amortization of intangible assets ... 13,156 12,230 10,953 10,908 9,840 36,339 28,183 Foreclosed property expense -- net of income ............................. (470) 301 (82) 517 (164) (251) 54 Merger-related charges .............. 5,293 8,347 -- 6,961 11,934 13,640 78,351 Other expense ....................... 47,353 54,776 36,766 38,309 38,557 138,895 123,846 ---------- ---------- ---------- ---------- ---------- ----------- ----------- Total ........................... $ 577,192 $ 580,617 $ 492,198 $ 492,686 $ 492,403 $ 1,650,007 $ 1,503,646 ========== ========== ========== ========== ========== =========== =========== Overhead ratio* ..................... 54.5% 56.3% 51.7% 52.4% 54.0% 54.2% 56.0% Overhead ratio without merger-related charges ............................ 54.0 55.5 51.7 51.7 52.7 53.8 53.1
* Noninterest expense as a percentage of taxable equivalent net interest income and total other operating revenue. Total personnel expense increased $53.778 million or 20.4 percent for the three months and $110.586 million or 14.1 percent for the nine months. Compensation expense was up $45.246 million or 20.5 percent for the quarter and $90.605 million or 13.9 percent year to date, reflecting an expanded employee base from acquisitions and greater incentive pay for revenue-generating businesses. Employee benefits expense rose $8.532 million or 20.3 percent for the three months and $19.981 million or 15.2 percent for the nine months, due to higher costs for medical and retirement profit sharing plans. Full-time equivalent employees totaled 21,722 at September 30, 1999 compared with 21,248 one year earlier. Combined net occupancy and equipment expense was up $15.223 million or 20.9 percent and $43.418 million or 20.2 percent for the quarter and year to date, respectively. Increases occurred primarily in building and equipment depreciation and in amortization for technology investments. Remaining combined categories of noninterest expense excluding merger-related expenses rose $22.429 million or 15.5 percent for the three months and $57.068 million or 13.4 percent for the nine months. Outside data processing, programming and software expense was up $8.608 million or 48.4 percent for the quarter and $29.816 million or 65.4 percent year to date, largely due to increased software maintenance and amortization expenses related to technology investments. Professional services expense was higher by $3.690 million or 24.7 percent and $11.239 million or 27.6 percent for the three and nine months, respectively, driven primarily by ongoing work for business strategies. Amortization expense for intangible assets rose $3.316 million or 33.7 percent for the third period and $8.156 million or 28.9 percent year to date, reflecting higher 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 24 assess and address both internal and external risks associated with the change in date event. The 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. The corporation's readiness plan encompasses both information technology systems and computer chip embedded functions, such as those operating facilities including elevators, security systems and building heating and cooling. In 1996, the corporation completed the awareness and identification phases for its own systems and functions and has extended and completed the processes for businesses acquired subsequent to 1996. Conversion, testing and implementation of information technology systems began in 1997 and were finished by the end of the second quarter of 1999. For business entities that merged with the corporation principally in the third quarter of 1999, conversion, testing and implementation of mission-critical information technology systems were completed in the third quarter of 1999 with all Year 2000 readiness preparations scheduled to be completed by year-end 1999. To ensure the widest degree of systems preparedness, management elected to convert all of the corporation's 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, the corporation 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 of the corporation's vendors responded to management's surveys regarding Year 2000 readiness and indicated that they are compliant as of June 30, 1999. During the third quarter, all remaining vendors identified as mission critical or critical had indicated that they are Year 2000 ready. The project team is continuing to monitor the status of its vendors and large corporate borrowers identified as potentially at risk. The corporation began external entity testing in 1998 and substantially completed testing by June 30, 1999. During the third quarter, testing was completed with the remaining external entity. Management estimates that total Year 2000 project costs will be approximately $88 million, with $82 million having been spent through September 30, 1999 including $5 million in the third quarter of 1999 and $16 million through the first nine months of the year. The projected total cost is up from $80 million estimated at year-end 1998, reflecting additional expenses expected primarily for customer communication and preparation refinements. During the third quarter of 1999, preparation refinements included clean management testing to ensure converted and implemented systems remain ready and a date change event management exercise designed to test responsiveness to simulated Year 2000 issues. The corporation's remaining Year 2000 project costs are not expected to have a material impact on Wachovia's results of operations, liquidity or capital resources. The corporation faces a number of risks related to the year 2000 date change event, including project management risks, legal risks and financial risks. Project management risks refer primarily to the failure to adequately assess Year 2000 planning and resource needs, resulting in under- or over-allotment 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 25 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 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 Sao 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 the corporation's Year 2000 compliance efforts. Further, management cannot determine the impact that any adverse effect might have on the corporation's operations, financial position or cash flows. 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 26 conversion such as the adequacy of information technology systems, currency risk and the competitive impact of cross-border price transparency. During this interim period, the corporation is operating parallel accounts in both the Euro and the respective national currency in order to more effectively process transactions. Management does not expect the impact of the Euro conversion to have a material adverse impact on the corporation's financial condition or results of operations. Income Taxes Applicable income taxes for the third quarter of 1999 increased $24.348 million or 21.3 percent year over year and were higher by $81.449 million or 26.1 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 Nine Months Ended September 30 September 30 ---------------------- ------------------------ 1999 1998 1999 1998 ---------- ---------- ----------- --------- Income before income taxes .................................... $ 396,131 $ 341,651 $1,141,733 $ 944,603 ========== ========== =========== ========== Federal income taxes at statutory rate ........................ $ 138,646 $ 119,578 $ 399,607 $ 330,611 State and local income taxes -- net of federal benefit ........ 7,791 7,269 23,413 12,936 Effect of tax-exempt securities interest and other income ..... (12,944) (13,210) (35,022) (38,736) Other items ................................................... 5,139 647 5,450 7,188 ---------- ---------- ----------- ---------- Total tax expense ......................................... $ 138,632 $ 114,284 $ 393,448 $ 311,999 ========== ========== =========== ========== Current: Federal ...................................................... $ 38,950 $ 23,793 $ 81,600 $ 120,209 Foreign ...................................................... 492 88 989 449 State and local .............................................. 8,153 5,472 21,225 11,270 ---------- ---------- ----------- ---------- Total ..................................................... 47,595 29,353 103,814 131,928 Deferred: Federal ...................................................... 87,201 79,221 274,837 171,441 State and local .............................................. 3,836 5,710 14,797 8,630 ---------- ---------- ----------- ---------- Total ..................................................... 91,037 84,931 289,634 180,071 ---------- ---------- ----------- ---------- Total tax expense ......................................... $ 138,632 $ 114,284 $ 393,448 $ 311,999 ========== ========== =========== ==========
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 Total assets at September 30, 1999 were $65.806 billion, with $58.542 billion of interest-earning assets including $47.625 billion of loans. Comparable amounts one year earlier were $65.574 billion of assets and $58.164 billion of interest-earning assets, including $45.629 billion of loans. At June 30, 1999, total assets were $67.013 billion, interest-earning assets were $59.739 billion and loans were $48.428 billion. The decrease in total assets from June 30, 1999 reflected securitization of credit cards and management's decision to reduce lower yielding discretionary loans. Deposits at the end of the third quarter of 1999 were $39.709 billion, including $31.383 billion of interest-bearing deposits, representing 79 percent of the total. Deposits one year earlier were $38.807 billion with interest-bearing deposits of $31.072 billion or 80.1 percent of the total, and at June 30, 1999, deposits were $40.816 billion, including $32.245 billion of interest-bearing deposits or 79 percent of the total. During the third quarter of 1999, the corporation sold selected bank branch offices in Virginia, reducing deposits by $130 million at September 30, 1999. Shareholders' equity at September 30, 1999 was $5.628 billion, up $398.892 million or 7.6 percent from $5.229 billion one year earlier. Included in shareholders' equity at the end of the third quarter of 1999 was $28.994 million, net of tax, of unrealized losses on securities available-for-sale compared with unrealized gains of $131.325 million, net of tax, one year earlier. The corporation repurchased a total of 1,965,000 shares of its common stock during the third quarter of 1999 at an average price of $79.738 per share for a total cost of $156.684 million. Included in the total were 592,989 shares repurchased in the quarter to offset shares issued for the purchase acquisitions of OFFITBANK Holdings and Barry, Evans, Josephs & Snipes. Additional shares also were repurchased for this purpose in the second quarter. The corporation can repurchase up to 12 million shares of its common stock under a June 23, 1998 authorization effective through January 28, 2000. As of September 30, 1999, a total of 6,014,211 shares had been repurchased under the June 23, 1998 authorization. Management will continue to work within the guidelines of its share repurchase authorization while assessing the best deployment of the corporation's capital. At its October 22, 1999 meeting, the corporation's Board of Directors declared a fourth quarter dividend of $.54 per share, payable December 1 to shareholders of record as of November 4. The dividend is higher by 10.2 percent from $.49 per share paid in the same quarter of 1998. For the full year, the dividend will total $2.06 per share, up 10.8 percent from $1.86 per share in 1998. Intangible assets at September 30, 1999 totaled $960.931 million, consisting of $831.667 million of goodwill, $83.320 million of deposit base intangibles, $35.609 million of purchased credit card premiums, $9.899 million of mortgage servicing rights and $436 thousand of other intangibles. The combined acquisitions of OFFITBANK Holdings and Barry, Evans, Josephs & Snipes in September 1999 added approximately $185 million of goodwill. Intangible assets at the end of the third quarter of 1998 were $688.018 million, with $537.398 million of goodwill, $97.308 million of deposit base intangibles, $42.079 million of purchased credit card premiums, $10.906 million of mortgage servicing rights and $327 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 items. Regulatory requirements presently specify that Tier I capital should exclude the unrealized gain 28 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 September 30, 1999, the corporation's Tier I to risk-adjusted assets ratio was 7.73 percent and total capital to risk-adjusted assets was 11.37 percent. The Tier I leverage ratio was 8.93 percent. Capital securities included in the capital ratios were $996.650 million and $996.274 million at September 30, 1999 and 1998, respectively. Capital Components and Ratios Table 18 - -------------------------------------------------------------------------------- (thousands) 1999 1998 ----------------------------------------------- ----------------------------- Third Second First Fourth Third Quarter Quarter Quarter Quarter Quarter -------------- ------------ ----------- ------------- ----------- Tier I capital: Common shareholders' equity ............... $ 5,628,083 $ 5,426,717 $ 5,431,939 $ 5,338,232 $ 5,229,191 Trust capital securities .................. 996,650 996,556 996,462 996,368 996,274 Less ineligible intangible assets ......... 944,304 772,696 657,717 666,672 665,408 Unrealized losses (gains) on securities available-for-sale -- net of tax ......... 27,600 9,618 (60,642) (82,440) (131,325) -------------- ------------ ----------- ------------- ----------- Total Tier I capital ................... 5,708,029 5,660,195 5,710,042 5,585,488 5,428,732 Tier II capital: Allowable allowance for loan losses ....... 553,894 548,540 548,302 547,992 547,686 Allowable long-term debt .................. 2,137,158 2,136,952 2,191,701 1,794,148 1,486,537 -------------- ------------ ----------- ------------- ----------- Tier II capital additions .............. 2,691,052 2,685,492 2,740,003 2,342,140 2,034,223 -------------- ------------ ----------- ------------- ----------- Total capital .......................... $ 8,399,081 $ 8,345,687 $ 8,450,045 $ 7,927,628 $ 7,462,955 ============== ============ =========== ============= =========== Risk-adjusted assets ....................... $ 73,870,211 $ 74,897,805 $73,871,880 $69,928,737 $72,924,472 Quarterly average assets* .................. $ 63,916,969 $ 64,611,973 $63,631,476 $64,454,538 $62,630,533 Risk-based capital ratios: Tier I capital ............................ 7.73% 7.56% 7.73% 7.99% 7.44% Total capital ............................. 11.37 11.14 11.44 11.34 10.23 Tier I leverage ratio ...................... 8.93 8.76 8.97 8.67 8.67
* 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 September 30 December 31 September 30 1999 1998 1998 ------------ ----------- ------------ Assets Cash and due from banks ..................................................... $ 2,984,574 $ 3,800,265 $ 2,967,037 Interest-bearing bank balances .............................................. 128,605 109,983 156,518 Federal funds sold and securities purchased under resale agreements ......... 532,681 675,470 610,500 Trading account assets ...................................................... 970,027 664,812 1,172,683 Securities available-for-sale ............................................... 8,014,376 7,983,648 9,075,416 Securities held-to-maturity (fair value of $1,295,169, $1,442,126 and $1,593,178, respectively)................................................... 1,271,137 1,383,607 1,520,584 Loans, net of unearned income ............................................... 47,625,021 45,719,222 45,628,716 Less allowance for loan losses .............................................. 553,894 547,992 547,686 ----------- ----------- ----------- Net loans ................................................................. 47,071,127 45,171,230 45,081,030 Premises and equipment ...................................................... 963,599 901,681 886,122 Due from customers on acceptances ........................................... 122,745 348,955 732,829 Other assets ................................................................ 3,746,828 3,083,191 3,371,289 ----------- ----------- ----------- Total assets .............................................................. $65,805,699 $64,122,842 $65,574,008 =========== =========== =========== Liabilities Deposits in domestic offices: Demand ..................................................................... $ 8,325,960 $ 8,768,271 $ 7,734,695 Interest-bearing demand .................................................... 4,780,153 4,980,715 4,767,577 Savings and money market savings ........................................... 13,063,582 12,641,766 11,901,799 Savings certificates ....................................................... 8,841,306 8,982,396 9,491,260 Large denomination certificates ............................................ 3,271,805 3,344,553 2,733,174 ----------- ----------- ----------- Total deposits in domestic offices ........................................ 38,282,806 38,717,701 36,628,505 Interest-bearing deposits in foreign offices ................................ 1,426,044 2,277,028 2,178,639 ----------- ----------- ----------- Total deposits ............................................................ 39,708,850 40,994,729 38,807,144 Federal funds purchased and securities sold under repurchase agreements ..... 6,736,805 5,463,418 8,689,234 Commercial paper ............................................................ 1,540,129 1,359,382 1,408,832 Other short-term borrowed funds ............................................. 1,493,525 1,912,262 2,677,503 Long-term debt .............................................................. 8,575,556 7,596,727 6,479,125 Acceptances outstanding ..................................................... 122,745 348,955 732,829 Other liabilities ........................................................... 2,000,006 1,109,137 1,550,150 ----------- ----------- ----------- Total liabilities ......................................................... 60,177,616 58,784,610 60,344,817 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 202,742,870, 202,986,100 and 202,751,280 shares, respectively .......................... 1,013,714 1,014,931 1,013,756 Capital surplus ............................................................. 679,200 669,244 657,923 Retained earnings ........................................................... 3,964,163 3,571,617 3,426,187 Accumulated other comprehensive income ...................................... (28,994) 82,440 131,325 ----------- ----------- ----------- Total shareholders' equity ................................................ 5,628,083 5,338,232 5,229,191 ----------- ----------- ----------- Total liabilities and shareholders' equity ................................ $65,805,699 $64,122,842 $65,574,008 =========== =========== ===========
30 Consolidated Statements of Income - -------------------------------------------------------------------------------- thousands, except per share Wachovia Corporation and Subsidiaries Three Months Ended September 30 ---------------------------- 1999 1998 ------------- ------------ Interest Income Loans, including fees ................................................... $ 999,849 $ 973,202 Securities available-for-sale ........................................... 127,032 147,940 Securities held-to-maturity: State and municipal .................................................... 2,969 3,571 Other investments ...................................................... 19,452 25,709 Interest-bearing bank balances .......................................... 1,631 3,182 Federal funds sold and securities purchased under resale agreements ..... 7,062 6,168 Trading account assets .................................................. 7,348 11,694 ------------- ------------ Total interest income ................................................. 1,165,343 1,171,466 Interest Expense Deposits: Domestic offices ....................................................... 286,907 307,547 Foreign offices ........................................................ 24,730 34,005 ------------- ------------ Total interest on deposits ............................................ 311,637 341,552 Short-term borrowed funds ............................................... 112,336 144,881 Long-term debt .......................................................... 124,265 95,597 ------------- ------------ Total interest expense ................................................ 548,238 582,030 Net Interest Income ..................................................... 617,105 589,436 Provision for loan losses ............................................... 76,770 72,809 ------------- ------------ Net interest income after provision for loan losses ..................... 540,335 516,627 Other Income Service charges on deposit accounts ..................................... 94,595 84,674 Fees for trust services ................................................. 60,066 51,185 Credit card income ...................................................... 70,786 43,312 Investment fees ......................................................... 69,364 14,997 Capital markets income .................................................. 41,914 37,625 Electronic banking ...................................................... 23,310 19,449 Mortgage fees ........................................................... 7,378 12,251 Other operating income .................................................. 65,428 47,048 ------------- ------------ Total other operating revenue ......................................... 432,841 310,541 Securities gains ........................................................ 147 6,886 ------------- ------------ Total other income .................................................... 432,988 317,427 Other Expense Salaries ................................................................ 266,488 221,242 Employee benefits ....................................................... 50,572 42,040 ------------- ------------ Total personnel expense ............................................... 317,060 263,282 Net occupancy expense ................................................... 38,955 34,896 Equipment expense ....................................................... 49,081 37,917 Merger-related charges .................................................. 5,293 11,934 Other operating expense ................................................. 166,803 144,374 ------------- ------------ Total other expense ................................................... 577,192 492,403 Income before income taxes .............................................. 396,131 341,651 Income tax expense ...................................................... 138,632 114,284 ------------- ------------ Net Income .............................................................. $ 257,499 $ 227,367 ============= ============ Net income per common share: Basic .................................................................. $ 1.27 $ 1.11 Diluted ................................................................ $ 1.25 $ 1.09 Average shares outstanding: Basic .................................................................. 202,167 204,832 Diluted ................................................................ 205,345 208,837 Nine Months Ended September 30 ----------------------------- 1999 1998 ------------- ----------- Interest Income Loans, including fees ................................................... $ 2,943,877 $ 2,879,408 Securities available-for-sale ........................................... 380,837 461,161 Securities held-to-maturity: State and municipal .................................................... 8,367 11,246 Other investments ...................................................... 61,680 72,875 Interest-bearing bank balances .......................................... 5,215 9,821 Federal funds sold and securities purchased under resale agreements ..... 21,293 17,188 Trading account assets .................................................. 21,065 37,354 ------------- ----------- Total interest income ................................................. 3,442,334 3,489,053 Interest Expense Deposits: Domestic offices ....................................................... 854,740 924,911 Foreign offices ........................................................ 72,689 107,547 ------------- ----------- Total interest on deposits ............................................ 927,429 1,032,458 Short-term borrowed funds ............................................... 327,807 429,600 Long-term debt .......................................................... 344,915 285,712 ------------- ----------- Total interest expense ................................................ 1,600,151 1,747,770 Net Interest Income ..................................................... 1,842,183 1,741,283 Provision for loan losses ............................................... 231,931 215,376 ------------- ----------- Net interest income after provision for loan losses ..................... 1,610,252 1,525,907 Other Income Service charges on deposit accounts ..................................... 273,004 248,013 Fees for trust services ................................................. 164,109 146,040 Credit card income ...................................................... 190,197 124,933 Investment fees ......................................................... 156,603 46,386 Capital markets income .................................................. 121,806 94,039 Electronic banking ...................................................... 64,323 54,511 Mortgage fees ........................................................... 28,207 31,457 Other operating income .................................................. 172,405 163,928 ------------- ----------- Total other operating revenue ......................................... 1,170,654 909,307 Securities gains ........................................................ 10,834 13,035 ------------- ----------- Total other income .................................................... 1,181,488 922,342 Other Expense Salaries ................................................................ 744,336 653,731 Employee benefits ....................................................... 151,662 131,681 ------------- ----------- Total personnel expense ............................................... 895,998 785,412 Net occupancy expense ................................................... 112,796 102,798 Equipment expense ....................................................... 145,637 112,217 Merger-related charges .................................................. 13,640 78,351 Other operating expense ................................................. 481,936 424,868 ------------- ----------- Total other expense ................................................... 1,650,007 1,503,646 Income before income taxes .............................................. 1,141,733 944,603 Income tax expense ...................................................... 393,448 311,999 ------------- ----------- Net Income .............................................................. $ 748,285 $ 632,604 ============= =========== Net income per common share: Basic .................................................................. $ 3.69 $ 3.07 Diluted ................................................................ $ 3.62 $ 3.01 Average shares outstanding: Basic .................................................................. 203,007 205,811 Diluted ................................................................ 206,562 209,881
31 Consolidated Statements of Shareholders' Equity - -------------------------------------------------------------------------------- thousands, except shares Wachovia Corporation and Subsidiaries Common Stock -------------------------- Capital Shares Amount Surplus ----------- ---------- ----------- Period ended September 30, 1998 Balance at beginning of year ............. 205,926,632 $1,029,633 $ 974,803 Net income ............................... Unrealized holding gains on securities available-for-sale, net of tax and reclassification adjustment ............. Comprehensive income* .................. Cash dividends declared on common stock -- $1.37 a share................... Common stock issued pursuant to: Stock option and employee benefit plans.. 1,956,037 9,780 87,468 Dividend reinvestment plan .............. 235,799 1,179 17,410 Common stock acquired .................... (6,466,638) (32,333) (499,005) Acquisitions ............................. 1,099,450 5,497 77,815 Miscellaneous ............................ (568) ----------- ---------- ----------- Balance at end of period ................. 202,751,280 $1,013,756 $ 657,923 ============= ========== =========== Period ended September 30, 1999 Balance at beginning of year ............. 202,986,100 $1,014,931 $ 669,244 Net income ............................... Unrealized holding losses on securities available-for-sale, net of tax and reclassification adjustment ............. Comprehensive income* .................. Cash dividends declared on common stock -- $1.52 a share................... Common stock issued pursuant to: Stock option and employee benefit plans.. 1,018,957 5,094 100,342 Dividend reinvestment plan .............. 208,182 1,041 16,300 Conversion of debentures ................ 2,304 11 178 Acquisitions ............................. 4,801,989 24,010 399,059 Common stock acquired .................... (6,274,662) (31,373) (505,891) Miscellaneous ............................ (32) ----------- ---------- ----------- Balance at end of period ................. 202,742,870 $1,013,714 $ 679,200 =========== ========== =========== Accumulated Other Total Retained Comprehensive Shareholders' Earnings Income Equity ---------- ------------- ------------- Period ended September 30, 1998 Balance at beginning of year ............. $3,098,767 $ 71,098 $ 5,174,301 Net income ............................... 632,604 632,604 Unrealized holding gains on securities available-for-sale, net of tax and reclassification adjustment ............. 60,227 60,227 ------------- Comprehensive income* .................. 692,831 Cash dividends declared on common stock -- $1.37 a share................... (282,346) (282,346) Common stock issued pursuant to: Stock option and employee benefit plans.. 97,248 Dividend reinvestment plan .............. 18,589 Common stock acquired .................... (531,338) Acquisitions ............................. 83,312 Miscellaneous ............................ (22,838) (23,406) ---------- ------------- ------------- Balance at end of period ................. $3,426,187 $ 131,325 $ 5,229,191 ========== ============= ============= Period ended September 30, 1999 Balance at beginning of year ............. $3,571,617 $ 82,440 $ 5,338,232 Net income ............................... 748,285 748,285 Unrealized holding losses on securities available-for-sale, net of tax and reclassification adjustment ............. (111,434) (111,434) ------------- Comprehensive income* .................. 636,851 Cash dividends declared on common stock -- $1.52 a share................... (309,174) (309,174) Common stock issued pursuant to: Stock option and employee benefit plans.. 105,436 Dividend reinvestment plan .............. 17,341 Conversion of debentures ................ 189 Acquisitions ............................. 423,069 Common stock acquired .................... (537,264) Miscellaneous ............................ (46,565) (46,597) ---------- ------------- ------------- Balance at end of period ................. $3,964,163 $ (28,994) $ 5,628,083 ========== ============= =============
* Comprehensive income for the third quarter of 1999 and 1998 was $239,098 and $283,702, respectively. 32 Consolidated Statements of Cash Flows - -------------------------------------------------------------------------------- $ in thousands Wachovia Corporation and Subsidiaries Nine Months Ended September 30 ----------------------------- 1999 1998 ------------- ------------- Operating Activities Net income ............................................................................... $ 748,285 $ 632,604 Adjustments to reconcile net income to net cash provided by operations: Provision for loan losses ............................................................... 231,931 215,376 Depreciation and amortization ........................................................... 178,153 110,388 Deferred income taxes ................................................................... 289,634 180,071 Securities gains ........................................................................ (10,834) (13,035) Gain on sale of noninterest-earning assets .............................................. (12,833) (4,404) Increase in accrued income taxes ........................................................ 29,956 79,752 (Increase) decrease in accrued interest receivable ...................................... (26,042) 11,019 Increase in accrued interest payable .................................................... 42,529 14,519 Net change in other accrued and deferred income and expense ............................. 76,003 258,133 Net trading account activities .......................................................... (190,848) (173,561) Net loans held for resale ............................................................... 244,305 (107,458) ------------- ------------- Net cash provided by operating activities .............................................. 1,600,239 1,203,404 Investing Activities Net increase in interest-bearing bank balances ........................................... (17,527) (23,327) Net decrease in federal funds sold and securities purchased under resale agreements ...... 188,920 1,012,034 Purchases of securities available-for-sale ............................................... (2,146,210) (2,945,474) Purchases of securities held-to-maturity ................................................. (57,339) (394,664) Sales of securities available-for-sale ................................................... 227,791 208,686 Calls, maturities and prepayments of securities available-for-sale ....................... 1,743,378 2,763,134 Calls, maturities and prepayments of securities held-to-maturity ......................... 171,444 393,813 Net increase in loans made to customers .................................................. (3,395,011) (1,415,772) Credit card receivables securitized ...................................................... 1,395,954 ---- Capital expenditures ..................................................................... (175,024) (196,690) Proceeds from sales of premises and equipment ............................................ 23,241 31,023 Net increase in other assets ............................................................. (247,009) (484,019) Business combinations .................................................................... (11,016) 16,108 ------------- ------------- Net cash used by investing activities .................................................. (2,298,408) (1,035,148) Financing Activities Net decrease in demand, savings and money market accounts ................................ (221,057) (685,564) Net decrease in certificates of deposit .................................................. (1,064,822) (3,393,053) Net increase in federal funds purchased and securities sold under repurchase agreements .. 1,213,243 355,767 Net increase in commercial paper ......................................................... 180,747 374,808 Net (decrease) increase in other short-term borrowings ................................... (452,410) 1,924,629 Proceeds from issuance of bank notes ..................................................... 286,419 259,450 Maturities of bank notes ................................................................. (569,914) (763,857) Proceeds from issuance of other long-term debt ........................................... 1,296,780 1,050,873 Payments on other long-term debt ......................................................... (73,605) (4,861) Common stock issued ...................................................................... 35,234 67,417 Dividend payments ........................................................................ (309,174) (282,346) Common stock repurchased ................................................................. (520,702) (522,750) Net increase in other liabilities ........................................................ 81,739 196,450 ------------- ------------- Net cash used by financing activities .................................................. (117,522) (1,423,037) Decrease in Cash and Cash Equivalents .................................................... (815,691) (1,254,781) Cash and cash equivalents at beginning of year ........................................... 3,800,265 4,221,818 ------------- ------------- Cash and cash equivalents at end of period ............................................... $ 2,984,574 $ 2,967,037 ============= =============
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 September 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 September 30, 1999, Wachovia Corporation had 202,742,870 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 September 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 .......................... 16-18
34 Part II Other Information Item 6 Exhibits and Reports on Form 8-K Exhibits -- The complete index to exhibits has been filed as separate pages of the third 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. 11 "Computation of Earnings per Common Share" is presented as Table 4 on page 3 of the third 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 third 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 -- None.
Signatures - -------------------------------------------------------------------------------- WACHOVIA CORPORATION November 10, 1999 ROBERT S. McCOY, JR. November 10, 1999 DONALD K. TRUSLOW Robert S. McCoy, Jr. Donald K. Truslow Vice Chairman Senior Executive Vice President, Chief Financial Officer 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 MORRIS W. OFFIT Chief Executive Officer OFFITBANK 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 Operations/Technology 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 Operations/Technology KENNETH W. MCALLISTER Senior Executive Vice President General Counsel/Administrative Services ROBERT S. MCCOY, JR. Vice Chairman Chief Financial Officer JOHN C. MCLEAN, JR. Senior Executive Vice President Corporate Financial Services DONALD K. TRUSLOW Senior Executive Vice President Treasurer/Comptroller 36 (WACHOVIA LOGO) Wachovia Corporation -------------------- P.O. Box 3099 PRSRT STD Winston-Salem, NC 27150 U.S. POSTAGE PAID WINSTON-SALEM, N.C. PERMIT NO. 112 -------------------- #00011-22 EX-27 4 FDS
9 1,000 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 2,984,574 128,605 532,681 970,027 8,014,376 1,271,137 1,295,169 47,625,021 553,894 65,805,699 39,708,850 9,770,459 2,122,751 8,575,556 0 0 1,013,714 4,614,369 65,805,699 2,943,877 450,884 47,573 3,442,334 927,429 1,600,151 1,842,183 231,931 10,834 1,650,007 1,141,733 748,285 0 0 748,285 3.69 3.62 4.34 214,594 106,755 0 0 548,540 86,160 14,744 553,894 0 0 0
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